State raises €26m from pension withdrawals
THE Government has raised €26m in nine months from changes to the pension rules which allow people to withdraw their pensions early – but be taxed heavily for it.
Finance Minister Michael Noonan told the Dail that the rule, which experts called "mean-spirited" when it was introduced in the 2013 Budget, earned €25.8m for the State in tax revenues between April and December last year.
The rule in question allows members of occupational pension schemes a three-year window to withdraw, on a once-off basis, up to 30pc of any top-ups made to their pension during their working lives (most funds can't be touched until a person turns 65).
The measure was restricted to additional voluntary contributions (AVCs), which are supplementary pensions, so that people did not end up eating into their entire retirement savings.
But such withdrawals are subject to income tax, up to the marginal rate of 41pc, even though they have already been hit with PRSI, the universal social charge and the pensions levy.
Normally pensioners don't take a significant hit from income tax, as they are either tax exempt or on the standard tax rate.
High taxes on this money are concerning because many of those who opted to access their pensions early probably did so because of financial difficulty.
In the run-up to the introduction of the rule, Fine Gael TD Mary Mitchell O'Connor said she had been contacted by hundreds of people who saw early access to their retirement savings as a financial lifeline.
Public servants such as gardai and teachers are the biggest contributors to AVCs.
Critics have also said the rule reduced both the actual size of their pension fund and its earning potential.