IRELAND – Ireland's government is to lower the threshold for tax relieved pension pots to €60,000, a measure that has been hailed as removing the "clouds of doubt" hovering over the pension industry.

Announced by minister for finance Michael Noonan as part of the country's 2013 Budget, the lower threshold fulfils a pledge made by the government when it first came to power in early 2011.

Addressing the Dáil, Noonan said the change was necessary, as some workers had previously been allowed to accrue "hugely generous pension arrangements subsidised by the taxpayer".

He added: "While this government wants to encourage those on lower and middle incomes to save for pensions, it will not allow pensions of the scale previously allowed to be accumulated at the expense of taxpayers whose actual earnings are, in many cases, a fraction of those large pensions."

The change, which will come into effect from January 2014, had been widely expected by the industry, with the €60,000 cap previously described by Niall O'Callaghan of the Irish Association of Pension Funds tax group as the "least worst" of options.

The minister further said the marginal rate of tax relief would remain and confirmed that the 0.6% pension levy on private sector pension assets would end in 2014 as planned – assuaging fears the government would seek to extend the measure estimated to be worth €470m per annum to the exchequer.

Discussing the changes, Maurice Whyms, head of group pensions at Willis Ireland, said they removed the "clouds of doubt" that had been hovering over the pension industry in recent years, especially as there had been concerns that the pensions levy would "drift on past" the 2014 end point laid down in law.

However, he said the forthcoming consultation on how the Standard Fund Threshold (SFI) would be reduced from its current €115,000 to €60,000 needed to address a number of key issues.

The current maximum allowable pension fund under tax purposes is €2.3m, a multiple of 20 of the current SFI.

Whyms noted that if the multiple remained in place with the new SFI, many would likely regard it as "inequitable" between defined benefit (DB) and defined contribution (DC), as a €1.2m DC pot would not result in an annuity on par with benefits from a similarly sized DB pot.

"People recognise that the multiplier is key," Whyms told IPE. "Having automatic index-linking of the €60,000 built into the legislation would also be important."

However, despite the unresolved issues, Whyms – also chair of the IAPF – welcomed the certainty created by the Budget.

"There are two things that go right to the core of the pension system," he said. "One is certainty around pension tax relief, and that's been embedded with the statement that pension contributions continue at the marginal rate.

"The second is around the levy and the concern that it might continue on, so it is extremely welcome there is certainty given around both of those."

In a surprise move, Noonan also allowed for early access to additional voluntary contribution (AVC) funds, capping the early drawdown at 30% of value.

The country's business lobby IBEC had previously spoken in favour of such a move, which it said would result in a stimulus of €1.8bn if savers were allowed to draw down 25% of savings.

Noonan said early access would be limited to a three-year period once the relevant legislation had passed.

"Any amounts withdrawn will be subject to tax at the individual's marginal rate since marginal rate relief was provided on the contributions on the way in," he added.

The move is surprising, as the government had previously dismissed calls for early access to pension savings as they "ran counter" to pension policy, although previous considerations did not explicitly look at AVCs.

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