Early access to pension cash will lead to extra tax liability

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Early access to pension cash will lead to extra tax liability

THE decision to give people early access to pensions has been criticised, as they will have to pay full tax on this money. This despite the fact that contributions will already have had PRSI and the pensions levy paid on them, pensions expert Aidan McLoughlin said. The Government yielded to pressure on the issue from backbench TDs and lobby groups in last week’s Budget. Finance Minister Michael Noonan is to allow individuals who have added to their pension fund through additional voluntary contributions (AVCs) to have early access to it before they retire. Most funds cannot be touched before 65. This limited measure may be of value to those who have accumulated significant AVCs and need extra money now to pay off debts, pensions experts said.

The option to withdraw up to 30pc of the AVC fund will be available for three years from the passing of the Finance Bill 2013, probably in April. But the head of the Independent Trustee Company, Mr McLoughlin, has described the measure as “mean spirited”. Mr McLoughlin, whose company manages pension funds, said taxing the money taken out of an AVC before retirement age was the same as putting a levy on lifeboats. “This is tax the Government would not otherwise have got as most pensioners are tax exempt or on the standard tax rate.” He added that anyone who has put money into a pension has already paid PRSI at 4pc, plus the universal social charge at up to 10pc for the self- employed and high income pensioners. And then there’s the recently introduced private pensions levy. Contributions get relief from the basic tax rate of either 20pc or 41pc.

Mr McLoughlin said that anyone thinking of taking money out of an AVC should think hard about it because more than half the money would be swallowed up by income taxes. A spokesman for the Department of Finance said it was examining moves to ensure that banks do not end up laying claim to money released from a pensions fund. Source: Irish Independent – Charlie Weston Personal Finance Editor

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