The Finance Bill 2013, which is currently wending its way through the parliamentary process, contains a proposal that individuals who hold an Additional Voluntary Contribution [AVC], will be allowed a once-off option to withdraw up to 30% of the value of the AVC.

AVCs are voluntary additional contributions made by employees to supplement their retirement benefits. Withdrawals will be liable for tax at the individual’s marginal tax rate but will not be liable for PRSI or USC. The option to withdraw will be available for three years from the passing of the Finance Act, 2013.

At first glance, this appear to be progressive step that will allow hard pressed people release some of their pension money that would otherwise be tied up for many years. However, only those who have an occupational pension scheme at work and who contribute to an AVC, will be able to avail of it. Those excluded are the self-employed and anyone who is in non-pensionable employment because they can only make a pension provision via a personal pension.

There is another side to the story that might make the proposal very unattractive. Currently all pension funds are held in trust for the member or the owner and they cannot be accessed by creditors. During the property crash, many wealthy developers who were bankrupted were able to keep their previously enlarged pension pots, much to the disgust of their creditors. Several attempts have been made by the banks to get access to a variety of pension contracts, so far without any success.

This proposal, coming out at the same time as new personal insolvency regulations, is quite likely to result in those who have financial difficulties being forced to take money from their AVC before any future debt settlements are agreed with creditors. Once again, the Government’s ‘making it up as you go along’ approach combined with the law of unintended consequences is in danger of inflicting even more hardship on families rather than helping them.