Retirement: High earners have been manipulating pension rules by dramatically inflating earnings in the years immediately before retirement, according to the review of tax incentive schemes published yesterday.

They have also been treating Approved Retirement Funds (ARF) as a tax-exempt haven for funds rather than as the flexible revenue retirement income stream they were designed to be, according to officials in the Department of Finance and the Revenue Commissioners.

Figures produced show the size of these funds jumped from €19 million to €1.1 billion after the law concerning ARFs was changed in 2000.

Case studies presented in the internal review of pension tax relief show that two individuals amassed pension funds of around €100 million in small self-administered pension schemes (SSASs).

The two unnamed individuals, each of whom drew down €25 million as a lump sum when they retired, saw their remuneration increase by a multiple of five in the three years ahead of retirement.

The rapid acceleration was necessary to ensure the pension paid by their fund stayed within the two-thirds of final salary provision laid down by the Revenue.

The €100 million funds were in each case entirely contributed by the individual's employer.

A separate case study records €14 million in contributions made to two pension funds over a nine-year period - largely by the employer. By 2003, the two SSASs had combined assets of €20 million.

By contrast, investors in Personal Retirement Savings Accounts (PRSAs) or self-employed people hold a personal pension or retirement annuity contract) would only have been able to invest €685,800 over the same nine-year period.

A study of Approved Retirement Funds (ARFs), introduced in 1999 to give people more flexibility in managing income flow from pension funds, shows that only 6 per cent of ARFs are being used to provide a regular income.