In addition to the measures announced in the Budget, an additional change has been announced reinstating the previous thresholds of €63,500 AMRF, or guaranteed income of €12,700, before an individual can invest in an ARF.
The reduced limits are to apply for a period of 3 years, from the passing of the Finance Act 2013 (expected April) until Finance Act 2016 when the higher limits will be reapplied. This means that for someone retiring today, the higher AMRF and guaranteed income limits still apply, but this could be altered in a matter of months. It may be wise to consider holding off taking retirement benefits until after this change has actually been introduced.
There are also provisions applying to individuals who have taken benefits since the introduction of the higher limits on 6 February 2011:
These changes may lead to administration issues for AMRF plans for a period until life companies can update their administrative systems.
Vested-PRSA taxation treatment on death
The Finance Bill includes an amendment to bring the inheritance tax treatment of a vested-PRSA in line with that of an ARF. This removes any confusion on the issue where a vested-PRSA passes to a child over age 21. In such circumstances the value of the vested-PRSA will be subject to income tax at 30% and will be exempt from inheritance tax.
Pension changes included in the Budget
Pre-retirement access to AVCs
As announced in the Budget, from the passing of the Finance Act (expected April) and applying for a period of 3 years, a member of a company pension scheme who has made AVCs (including additional voluntary PRSA contributions to an AVC PRSA) may exercise an option to access, on a once-off basis, up to 30 per cent of the accumulated value of the AVCs. The option is available in respect of AVCs
made for the purposes of providing benefits in retirement but does not include AVCs made for the purposes of purchasing notional service, for example as can apply in the public sector.
Where an AVC fund is subject to a pension adjustment order, both the scheme member and the spouse or former spouse or civil partner or former civil partner of the member may exercise the option independently in respect of their respective ‘‘share’’ of the AVCs.
The definition of AVCs included refers to the status of the contribution made. This would seem to be a measure ensure there are no transfer opportunities to artificially create an AVC or PRSA AVC fund. However, it may present some administrative issues where a PRSA plan has a mixture of PRSA and PRSA AVC contributions, and this will need to be examined further.
Amounts paid under this option will be subject to income tax under PAYE at your marginal tax rate. Such payments will not be liable to USC and it is intended to exempt them from PRSI in the next Social Welfare and Pensions Bill (date to be confirmed).
Finally, there is a section in the Finance Bill which refers to an extension of the €200,000 lifetime tax-free limit to include ex gratia payments made by an employer on death or disability. The legislation referred to is the redundancy lump sum €200,000 lifetime tax-free limit. This is not a change to the legislation governing the retirement lump sum €200,000 lifetime tax-free limit.
From page 21 and after has the above changes http://finance.gov.ie/documents/publications/financebill2013/financebill2013.pdf
The reduced limits are to apply for a period of 3 years, from the passing of the Finance Act 2013 (expected April) until Finance Act 2016 when the higher limits will be reapplied. This means that for someone retiring today, the higher AMRF and guaranteed income limits still apply, but this could be altered in a matter of months. It may be wise to consider holding off taking retirement benefits until after this change has actually been introduced.
There are also provisions applying to individuals who have taken benefits since the introduction of the higher limits on 6 February 2011:
- Where on or after the date of the passing of Finance Act 2013 such individuals have specified income of at least €12,700, any AMRF they have immediately becomes an ARF, and
- Where on the date of the passing of Finance Act 2013 such individuals have specified income of less than €12,700 then, to the extent that the original capital amount that they placed in the AMRF exceeded €63,500, the excess of that capital amount above €63,500 immediately becomes an ARF.
These changes may lead to administration issues for AMRF plans for a period until life companies can update their administrative systems.
Vested-PRSA taxation treatment on death
The Finance Bill includes an amendment to bring the inheritance tax treatment of a vested-PRSA in line with that of an ARF. This removes any confusion on the issue where a vested-PRSA passes to a child over age 21. In such circumstances the value of the vested-PRSA will be subject to income tax at 30% and will be exempt from inheritance tax.
Pension changes included in the Budget
Pre-retirement access to AVCs
As announced in the Budget, from the passing of the Finance Act (expected April) and applying for a period of 3 years, a member of a company pension scheme who has made AVCs (including additional voluntary PRSA contributions to an AVC PRSA) may exercise an option to access, on a once-off basis, up to 30 per cent of the accumulated value of the AVCs. The option is available in respect of AVCs
made for the purposes of providing benefits in retirement but does not include AVCs made for the purposes of purchasing notional service, for example as can apply in the public sector.
Where an AVC fund is subject to a pension adjustment order, both the scheme member and the spouse or former spouse or civil partner or former civil partner of the member may exercise the option independently in respect of their respective ‘‘share’’ of the AVCs.
The definition of AVCs included refers to the status of the contribution made. This would seem to be a measure ensure there are no transfer opportunities to artificially create an AVC or PRSA AVC fund. However, it may present some administrative issues where a PRSA plan has a mixture of PRSA and PRSA AVC contributions, and this will need to be examined further.
Amounts paid under this option will be subject to income tax under PAYE at your marginal tax rate. Such payments will not be liable to USC and it is intended to exempt them from PRSI in the next Social Welfare and Pensions Bill (date to be confirmed).
Finally, there is a section in the Finance Bill which refers to an extension of the €200,000 lifetime tax-free limit to include ex gratia payments made by an employer on death or disability. The legislation referred to is the redundancy lump sum €200,000 lifetime tax-free limit. This is not a change to the legislation governing the retirement lump sum €200,000 lifetime tax-free limit.
From page 21 and after has the above changes http://finance.gov.ie/documents/publications/financebill2013/financebill2013.pdf
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