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Call for ARF initiative in Finance Bill Back  
Surprise abounds amongst the pensions and investment sector following the Budget announcement, where no provisions for extending ARF/AMRF were included, Des Mcgarry writes.
In the wake of last month’s Budget, the pensions and investment sector can settle down to assessing just what the implications are. And in our case, the exercise is quickly accomplished, for the Minister for Finance all but ignored us in the course of his speech.

To say that this is a surprise understates the reality. In the previous Budget, Mr McCreevy had hinted clearly that his introduction of the new ARF/AMRF regime for the self-employed was only part of a continuing reform of the Irish pensions structure. In the months ahead of the December Budget, speculation in the media and elsewhere focused on a probable (or so it seemed!) extension of the ARF rules to occupational schemes. Some media pundits even put forward the possibility of a ‘pensions bond’ that would augment other savings-incentive schemes designed to suck cash out of an overheating economy.

Apart from some fairly minor concessions to the credit union, however, the initiatives on the savings side never materialised. Even more frustrating for our industry, however, was the lack of progress on reforming the treatment of pension assets; a broadening of the ARF base could only have helped the industry and its customer base by increasing personal freedoms and raising public awareness of the issues involved.

But the Budget is not the be all and end all of the pensions reform story, and the Minister’s failure to act simply signals a delay, rather than a postponement, of the government’s ongoing effort in this sector. Charlie McCreevy attaches a high personal priority to the treatment of pension assets, and his commitment in this regard remains undiminished. If he failed to act on December 6th, the considerations were more than likely pragmatic rather than ideological.

A measure as radical and all encompassing as an extension of the ARF/AMRF rules to occupational schemes was never really suited to the Budget. It is something that requires a great deal of information and education if it is to be understood properly, and there was a real danger that its announcement last month could have detracted from the general thrust of a very successful and popular Budget.

The measure to remove the upper ceiling on PRSI of itself was considered the source of sufficient controversy without giving the general public another major financial story to get their minds around.

Also, while the Department of Finance remains as tight-lipped as ever regarding the progress of the necessary legislation, there are some indications that the final draft of the legal framework is believed to be still not complete, and there will be no announcements made until the last i’s are dotted and the last t’s crossed.

So the question now arises as to when the Minister will eventually get around to declaring his intention. Some of the speculation suggests that the ARF rules might be extended to occupational schemes when the Pensions Bill 2001 comes before the house in a few months time. But why wait? The initial introduction of the ARF rules for the self employed was effected as a budget measure two years ago, and the Pensions Bill will be more concerned with implementing the recommendations of the National Pensions Policy Initiative, particularly as it relates to the PRSA, or ‘portable’ pension.

A far more likely scenario is that the enabling legislation for an extended ARF regime will be included in the 2001 Finance Bill, which would provide an excellent platform for the launch of such a major initiative. The publication of the Bill itself is a media event, and would allow time for the complexity of the ARF rules extension to be taken in by the media and public, without the distraction of income tax cuts or PRSI hikes.

The Bill itself will be published later in spring, and although the preliminary list of its contents become available in late January, it is unlikely there will be any ‘straws on the wind’ for the insurance industry at that stage. Mr. McCreevy past record is one of decisive action and the rolling out of complete measures that are fully functional and ready to run. For instance, there was no hint of the individualisation proposals in the run-up to the 2000 Budget, while the abolition of upper PRSI limits came as a total surprise this year. For better or worse, Mr McCreevy is strong on consistency, and there is no reason to believe he’ll change between now and the Finance Bill’s publication.

That said, the broad thrust of government thinking as it relates to rights of ownership over privately held pension assets is quite well known by now, and the existing ARF regime is as good an indicator as any of how the Minister will move.

Other jurisdictions, particularly the UK, favour fairly strict limitations on the realisation of pension assets at retirement age, particularly in relation to minimum drawdown rates (to avoid excessive depletion of the fund) and maximum (to avoid hoarding for estate purposes). While some guidelines to prevent abuse and exploitation look certain, it may prove that these will be confined to the minimum. Mr McCreevy’s commitment to individual economic freedoms is well established by now, and this will almost certainly reflect in any pensions legislation he brings forward.

So, if it is left to the market to decide the optimum allocation of these scarce pension resources, then it is up to us as providers to the marketplace to respond with the products, services, information, and advice this new market will require. The rules governing the treatment of self-employed pension assets provides a good pointer for us, and we can draw on the experience of other countries - in the final analysis it is not how we serve this particular market, but how well!

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