Irish Minister for Finance, Brian Lenihan, announced on Thursday that he is to provide an option for members of Defined Contribution occupational pension schemes to defer the purchase of a retirement annuity with their pension funds for a specified two year period.
Under current arrangements, members of Defined Contribution occupational pension schemes are, in general, obliged to purchase an annuity immediately upon retirement with their pension fund after taking their tax-free lump sum.
The Minister said:
“I am conscious of the difficulties facing many members of Defined Contribution schemes who are retiring at the present time and whose pension funds have been very badly affected by the falls in equity markets and the more general falls in asset values over the recent past. I propose to remove the obligation on those individuals to purchase an annuity immediately on retirement and to give them the breathing space, if they so wish, to make a choice on when to purchase the annuity.
“I should stress that in giving individuals the option to purchase the annuity immediately or within the two-year deferral period, there is no guarantee that they will get better value if they postpone the decision to purchase to a later date. Those individuals who are retiring now or approaching retirement should take this into account. In this regard and as part of this initiative, the Pensions Board will publish appropriate risk guidance in this matter in the near future."
Under the deferral arrangement, which will be operated on an administrative basis by the Revenue Commissioners, members of Defined Contribution occupational pension schemes who retire in the period from December 4, 2008 to December 31, 2010 will have the option of taking their tax-free lump sum and purchasing a retirement annuity immediately on retirement or to take the lump sum and defer the annuity purchase, subject to agreement with their scheme trustee, up to and including December 31, 2010 by which date the concession of an option will end.
The Revenue Commissioners are finalising the detailed arrangements of this initiative with the pensions industry.
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