what stamp is paid when drawing down from ARF

Bladerunner

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Perhaps someone might know answer to this. Surplus of an AVC is put into an ARF. When I reach 60 I intend drawing down 4% each year. Does anyone know what stamp is paid on this amount, and does those stamps add to previous earned stamp contributions for a contributory pension.
 

jpd

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ARF payments are treated as income and as such are liable to income tax, PRSI (or stamps if you prefer) and USC if these are applicable to you.

All PRSI payments cease at 66.

So if you do pay PRSI contributions, then yes, I believe that they will contribute towards your PRSI record for contributory pension entitlements
 

Early Riser

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So if you do pay PRSI contributions, then yes, I believe that they will contribute towards your PRSI record for contributory pension entitlements

PRSI on an ARF are at Class S (4%). Class S does count towards the PRSI record for State Pension, purposes, etc. However, I suspect there is some catch to this is your ARF drawdown is relatively small and you do not have other income at Class S.

Say your 4% ARF drawdown comes to €1,000. So you will pay €40 PRSI. I doubt this will be sufficient to keep the annual PRSI record up to date.
 

jpd

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If you returning a Form 11 as a self-employed person, there is a min of PRSI contribution of € 500 - and this does count towards a full contributory
 

Early Riser

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If you returning a Form 11 as a self-employed person, there is a min of PRSI contribution of € 500 - and this does count towards a full contributory

Yes, but with an ARF the 4% PRSI is deducted at source along with any tax and USC.

If someone is getting (say) an occupational pension they will be taxed under PAYE. There is no Form 11, unless otherwise self-employed. So they pay no PRSI on the occupational pension and 4% on their ARF drawdown. If they are taking the minimum 4% pa from the ARF then their PRSI contribution will often be well below the €500 min for Class S PRSI. I don't know if such contributions have any value or how they count on the PRSI record.
 

jpd

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Sorry, I do not know the answer to that - but a question was asked in the Dail in 2018 https://www.oireachtas.ie/en/debates/question/2018-11-21/241/#pq-answers-241

Q. Deputy Michael McGrath asked the Minister for Employment Affairs and Social Protection the class of PRSI paid by persons under 66 years of age in respect of income from an approved retirement fund; if such PRSI paid is reckonable for the purposes of the State pension (contributory); and if she will make a statement on the matter. [48608/18]
Written answer:
Approved retirement funds or ARFs are funds managed by a qualifying fund manager into which an individual may invest the proceeds of their pension fund when they retire. The income and gains of such funds are exempt from tax within the fund. Any amounts withdrawn from an ARF are referred to as a distribution. A distribution is treated as income from an employment. It is subject to income tax and the fund manager must operate the PAYE system on it.

Under social welfare legislation any payments received by way of pension are not regarded as reckonable emoluments for the purposes of self-employed pay related social insurance (PRSI). However, unlike annuity products, ARFs are not pensions but are treated as assets. Distributions from ARFs fall within the charge to Class S self-employed PRSI, or if the recipient of the distribution is a modified class contributor, Class K. Class S contributions may be used to qualify for the State pension (contributory). Class K PRSI contributions do not give entitlements to any social insurance benefits.

Does that help?
 

Early Riser

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Thanks. But I am still unclear. As I reckon that the PRSI payable on the majority of ARF drawdowns are below the €500 minimum I do not know how they are counted towards the PRSI record for State Pension purposes. I would be surprised that a payment of €100 pa (let's say) Class S on an ARF would count for 52 weeks PRSI record. I suspect that it may carry no value - but I don't know.
 

fayf

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In order to continue to be credited with an. annual 52 Insurable weeks, while drawing from the ARF, you need to be drawing a minimum of €12,500 per annum, which will result in the minimum annual PRSI amount of €500. Eg 12,500 @4%. This is the minimum requirement, and will count towards the state contributory pension, Class S PRSI.

If the ARF annual drawdown is less than that, you won’t be credited with 52 insurable weeks per year (or stamps).
There are however, ways of “buying” insurable weeks, if your drawdown does not meet this criteria, you can make up the shortfall, between the PRSI you do pay on your ARF, and the €500 annual amount.

check here :

Of course, the aim of all of this is to hit the target, of an average of 48 Insurable weeks(to be eligible for the max contributory pension), since you started working, up until age 66.So getting a statement now, of contributions from DSP will assist, with where you currently stand, and you can plan accordingly.

PRSI Operational Guidelines
 
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Early Riser

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There are however, ways of “buying” insurable weeks, if your drawdown does not meet this criteria, you can make up the shortfall, between the PRSI you do pay on your ARF, and the €500 annual amount.

Thanks. So it is possible to top it up with voluntary contributions. That is good to know. I doubt if many people who are covering the 4% imputed distribution will be drawing down €12,500 (or near it) from their ARF between 60 and 66.

Of course, some will be covering their PRSI record in other ways, eg, employment, self-employment or credited contributions. And, if self-employed or a landlord, I guess the ARF PRSI would go towards the €500 minimum.
 

Coldwarrior

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Of course, the aim of all of this is to hit the target, of an average of 48 Insurable weeks(to be eligible for the max contributory pension), since you started working, up until age 66
Moving slightly away from the topic and I know this system is supposed to change to total contributions in the next couple of years, but is it currently the case that the average of 48 insurable weeks is calculated over every year since a person first started work and paying tax? Even if you work for more than 40 years?
I got my PRSI contribution statement recently and I've lots of years where I worked a summer job as a teenager etc with only 10 - 12 insurable weeks, sounds like anyone who did any similar work in their youth would be massively disadvantaged by this.
 

Protocol

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Correct, the average conts approach hurts people who started paying PRSI early, and then had breaks in their record.

A foreigner could arrive here age 54, pay 12 years PRSI, 12*52 conts, and then get a full pension at age 66/67, as the calculations are based on the average across the PRSI life.

Denominator = 12.


If you pay PRSI age 16, and then finish age 66, the denominator is 50.

It took me a while to realise this.


Most people don't know this.
 

fayf

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Moving slightly away from the topic and I know this system is supposed to change to total contributions in the next couple of years, but is it currently the case that the average of 48 insurable weeks is calculated over every year since a person first started work and paying tax? Even if you work for more than 40 years?
I got my PRSI contribution statement recently and I've lots of years where I worked a summer job as a teenager etc with only 10 - 12 insurable weeks, sounds like anyone who did any similar work in their youth would be massively disadvantaged by this.

Agreed, there are a number of strange and unfair anomolies, which may/may not be addressed in the short term.

In the meantime,its important to plan now, get your statement, get advice, get help understanding the statement from DSP, and make the correct choices for you- now, be it-making voluntary contributions and /or working longer and/or making ARF withdrawals earlier than you might have originally planned, to keep these contributions going. Or, a combination of the above.
 

Early Riser

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now, be it-making voluntary contributions and /or working longer and/or making ARF withdrawals earlier than you might have originally planned, to keep these contributions going. Or, a combination of the above.

Or you may be eligible for credited contributions. This will also maintain your PRSI record. Of course you will still be paying the PRSI on any ARF withdrawals - which will likely be below the €500 threshold, so won't count. But the important thing is maintaining the record.
 

bstop

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In order to continue to be credited with an. annual 52 Insurable weeks, while drawing from the ARF, you need to be drawing a minimum of €12,500 per annum, which will result in the minimum annual PRSI amount of €500. Eg 12,500 @4%. This is the minimum requirement, and will count towards the state contributory pension, Class S PRSI.

Is that statement correct ?

I had ARF withdrawals of 7500 euro in 2019 and have 52 S contributions showing as 52 Paid Reckonable Contributions on my PRSI contribution statement
 
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fayf

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€500 is the minimum per annum, according to the above. It might be worth checking in relation to where there is a shortfall, eg your case, where it appears there is a shortfall of €200 for 2019.

You have an option of paying the difference. Perhaps contact the department for clarification, and find out out to pay any differencr, to avoid any future surprises.
 

asdfg

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Afaik you can go back 5 years after retirement to amend your prsi record so if you retire at 60 you can wait till your 65 or nearly 65 then contact the prsi section and amend your prsi contributions if necessary. Might not be a bad idea in light of the new system for state contributary pensions expected to be introduced in the next few years
 

bstop

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That quote refers to self employed income.

The income from an ARF is PAYE income paid by an employer ( The employer being the company operating the ARF ). The employer deductes PAYE USC and PRSI class S at source. There is one class S PRSI deduction per week deducted at 4 %. At the end of the year, if monthly payments are made there will be 52 S class contributions made. These are reckonable for state pension.
I cannot find any reference from any ARF provider stating that PRSI is not deducted from an ARF smaller than 12500 euro per year.
 

fayf

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For PAYE purposes ARF withdrawals are taxed as normal, the ARF provider is effectively, the employer.

For PRSI purposes, ARF withdrawals are effectively Income from Investments, and therefore subject to class S PRSI.

Contact the department for further clarification on the €500 minimum payment. All ARF withdrawals are subject to 4% Class S PRSI deductions, irrespective of the annual amount.
 

bstop

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ARF withdrawals are treated as earned income for PRSI .
 
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SGWidow

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What happens if your ARF withdrawals are below the PRSI threshold?

Is the threshold an annual amount - i.e. if one takes €10k out in one go, must you pay PRSI on it?
 
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