IRELAND - A new tax will hit those with low pensions, and also holders of Personal Retirement Savings Accounts (PRSA), the Irish Association of Pension Funds (IAPF) has warned.
The complaint relates to a deemed distribution tax on Approved Retirement Funds (ARFs), to take effect under the current Finance Act from 2007.
Under the new tax provision, holders of ARFs will be assumed to have drawn down 1% of their fund rising to 3% and will be liable to income tax at their standard rate even if they have not accessed the fund.
The move is designed to tax high net worth individuals who use their ARFs to enjoy tax free investment returns, but the IAPF argues it discriminates against most PRSA holders and those with relatively low funding in their ARF.
Rachael Ingle, chairman of the IAPF’s Defined Contribution subcommittee added that: “When they do come to draw down their investment they will be taxed again and so face a ‘double whammy’ tax impact.”
After taking their tax free lump sum, defined contribution group scheme members must use the balance of their pensions savings to purchase an annuity from a life office.
But a PRSA holder, 5% director or self employed person can instead invest it in an ARF.
The IAPF said this retirement option should be extended to defined contribution schemes.
Chairman Joe Byrne commented: “It is not fair that defined contribution holders are forced to purchase a high cost low return annuity, while PRSA holders have the flexibility to purchase an ARF.
“The current policy puts hundreds of thousands of workers at a disadvantage for no logical reason.”
By Lisa Haines
PwC, KPMG, EY and Deloitte must break up their consultancy and audit businesses into distinct firms to provide greater focus on the "most challenging and objective audits", the competition watchdog has said.
The Department for Work and Pensions (DWP) has released its first batch of guidance setting out how the guaranteed minimum pension (GMP) conversion legislation may be used to resolve unequal payments.
This week's top stories include the government spending £800,000 on a Gogglebox advert and MPs writing to The Pensions Regulator about its engagement with the Railways Pension Scheme.