Postpone rules on retirement funds, says FG

New rules that oblige holders of approved retirement funds (ARFs) to make withdrawals every year are illogical in the current investment climate and should be postponed, a Fine Gael TD will tell a Dáil committee this week, writes Laura Slattery.

Seán Barrett told the Joint Committee on Finance and the Public Service on Wednesday that rules requiring ARF holders to dispose of 1-3 per cent of their funds to avoid a double tax charge were unfair, as they forced people to crystallise a loss on part of their investments during periods when stock markets were falling.

The rules were introduced last year in order to discourage investors from using ARFs as a tax shelter. But they have kicked in at a time when the slowing global economy and the credit crunch have put downward pressure on equity markets.

"It doesn't make sense to force people to do it now. We're talking about ordinary people who hold these," said Mr Barrett, who declared that he held an ARF.

The issue will be raised again when the Select Committee on Finance and the Public Service meets to discuss this year's Finance Bill over three days this week, starting on Tuesday.

Under the rules, ARF holders aged 60 and over will be deemed to have drawn down 1 per cent of their fund in 2007, whether they have or not, and must this year pay the income tax on this sum. The deemed withdrawal rises to 2 per cent in 2008 and will settle at 3 per cent from 2009 onwards.

The new regime forces people to make withdrawals from their ARFs in order to avoid a "double whammy" tax charge - a charge when they are deemed to have drawn down the money and a charge when they actually do.

Jerry Moriarty, director of policy at the Irish Association of Pension Funds, said there may be instances where people would be unhappy to have to draw down from their funds, but that the tax was a fair one.

"I think the Revenue Commissioners are right to be concerned about people using ARFs for inheritance planning rather than pension purposes," he said.

But the association believes the new tax applies from too young an age, as many retired people in their early 60s will have part-time incomes and won't need to draw on their fund for genuine reasons.

The tax has also created difficulties because many people spread their ARFs across different investment houses, but as financial firms have refused to act as "nominee" fund providers, investors must withdraw 1 per cent from each of the companies rather than make one simple drawdown.