Overfunded Pension

[JJ de Paor]

Hi All,
Can I ask for some help on an unintentional overfunded directors pension. I set up a company around 2007 with a directors pension fund. After a few good months I lodged a lump sum of 20k into the pension fund, the rep asked for salary expectations etc and I said 50k salary which was what I genuinely anticipated. Everything went pear shaped after the 08 meltdown and although I didn't have to liquidate, the company was mothballed. The only asset is the pension fund money and I now realise it was completely overfunded as I took zero salary during the downturn as I paid off the debts. So my question is as its overfunded can I ask for a refund of pension contributions to the company from Ark less tax due if any? I did not contribute anything to the fund only the lump sum and so did not claim any pension tax relief while the company was trading as I had no salary. I could then take the refund as a salary from the company as I still keep it alive re CRO Revenue returns etc. I don't want to transfer it to another fund if avoidable. Thanks, JJ

 

[Oisin19]

I think at retirement of the scheme this overfunding test is carried out by the trustee. Any overfunding is then refunded back to the employer as a trading receipt. So have you reached the NRA of the scheme? (If you have, you'd probably be better off trying to ARF it and take the balance as small pension if possible rather than taking the money back to the company and paying CT followed by PAYE on the balance.)

There is another rule for cases where the vesting period hasn't been reached. Here the contributions could be refunded. You could look at reckonable service and pensionable service to see have you reached the 2 years? Could you also maybe argue you were never a member of the scheme as you didn't meet the salary requirement?

Either way I don't understand how you got the contribution into the scheme. I thought pensions were funded as you accrued service at a salary level in the scheme. Ie you can't "overfund" a scheme from the outset and let it sort itself out with time. Did you have an income in 2007 before things went pear shaped?

It really is a question for the trustees so no harm in just asking them for your options.

 

[Zenith63]

Either way I don't understand how you got the contribution into the scheme. I thought pensions were funded as you accrued service at a salary level in the scheme. Ie you can't "overfund" a scheme from the outset and let it sort itself out with time.

With an executive pension the company can put money into your scheme without it to go through payroll. I don’t recall being asked for proof of salary when I set mine up. This has changed in the last couple of months as I was asked for a copy of a payslip while making a contribution change. I’d guess this is how it happened, but it looks like it is less likely to happen today.

 

[JJ de Paor]

Thanks for the reply guys, like Zenith I wasn't asked back then for a salary slip etc. just what anticipated salary was and the lump sum was put in outside payroll into the executive pension. I think as you suggested this might not happen today. Forgot to say I'm 54 so under normal circumstances I could take 25% and put the rest to an AMRF but the fund is saying the whole thing is overfunded and are a bit flummoxed as to what to do because I think they realise they should have been doing a yearly chat about it with me. I'm the trustee for what it's worth but was too busy firefighting to understand any of this at the time.