Q&A Dominic Coyle
Will approved retirement fund make me ineligible for medical card?
I have a query on the impact to the medical card as a result of the Budget. We are a married couple. Our current annual income comprises a private pension of €23,305 and a State pension of €22,469 – a total of €45,774.
We have savings in an ARF fund which is subject to a compulsory 5 per cent annual calculation for tax purposes. My best current estimation would be a gross figure of €8,000. Will this impact our eligibility to a medical card?
Mr J.S., email
At the outset, let me state that you will not have to take the assumed drawdown from your Approved Retirement Fund into account when assessing eligibility for the medical card.
As you know, the Department of Health and Children assesses all income (and allows for certain outgoings) in determining whether a person or a couple qualifies for a medical card. On issues like earnings, or indeed actual pension income, this is quite straightforward. Where it gets more complex is when you start to take savings into account.
Clearly if there is actual deposit interest income, that income counts towards your total income. Where you have a longer term savings account, the Department has an “assumed” interest rate which it applies in order to assess your income.
So what about your ARF? Approved Retirement Funds are, after all, a savings product – a flexible pension vehicle that allows people to keep their pension savings invested in the market rather than locking themselves into a guaranteed annuity income at an inopportune stage of the cycle.
Again, obviously if you draw down actual cash from the ARF, it counts as pension income and this goes towards your medical card eligibility assessment.
But what happens if you do not tap your ARF? This used to be quite popular until the Government not unreasonably decided that some people were using ARFs as a tax efficient device rather than a flexible pension arrangement.
It then introduced the concept of “imputed drawdown”.
Under this concept, it is assumed that ARF holders are drawing down 5 per cent of the income in the fund each year – whether they actually draw the money down or not. This 5 per cent is then taxed as income, regardless of whether it is used or not.
However, the Department of Health assures me that for the purposes of medical card eligibility, imputed drawdown is not taken into account, as you never actually have use of the money in that year.
It is worth your while considering whether you should consider drawing down the 5 per cent each year – given that it is being taxed anyway – and will be again when you actually draw it down – and choose to invest it instead in another vehicle, not that this is strictly relevant to the particular issue you raise.