February 14th was Valentine’s Day and also when the Finance Bill was announced.
The government seems to be trying to show some love with their announcements regarding certain pension changes that are due to be enacted.
But has Cupid’s arrow hit you?
Section 16 of The Finance Bill 2013 as published on February 14th includes some interesting developments.
The first draft confirmed the changes announced on Budget Day including the ability to take a taxable withdrawal of up to 30% of AVC (Additional Voluntary Contribution) funds.
However, there were also significant changes included in the Bill to the Approved Minimum Retirement Fund (AMRF) regime not mentioned in the budget.
The provisions as set out in the Bill are liable to change between now and enactment (usually at least 4 weeks) and will not take effect until the Bill becomes an Act.
Revision of AMRF and Specified Income limits
The Finance Bill 2013 has reversed the current €18,000 specified income limit and €119,800 AMRF investment requirement back to the pre 6 February 2011 levels of €12,700 and €63,500 respectively.
The higher limits are due to be reinstated by the Finance Act 2016 (if policy is not reviewed in the interim).
This is very welcome news for ARF / AMRF investors who now have much greater access to unrestricted ARF income and drawdown facilities.
So from the enactment of the Finance Bill 2013 the position is as follows:
- New retirees with ARF options – full access to ARF once specified income of €12,700 pa in place. Otherwise first €63,500 is invested in AMRF
- AMRF holders since 6 Feb 2011 – if specified income of €12,700 now in place – full AMRF balance (up to €120,000+) now becomes ARF
- AMRF holders since 6 Feb 2011 – specified income of €12,700 not in place – balance of amount invested in excess of €63,500 now becomes ARF
- AMRF holders before 6 Feb 2011- specified income of €12,700 now in place – full AMRF balance now becomes ARF. (This window closes 6 Feb 2014)
Implications for business
1. New retirees
All AMRFs (since introduction of €119,800 requirement in 2011) need to be retested in line with new reduced limits.
Great scope here for transfers to ARFs in full or in part.
Process similar to current window for conversion of pre 2011 AMRFs to ARFs up to Feb 2014
2) Access to AVC’s
The Finance Bill introduces a new section permitting a once off taxable drawdown of AVC fund pre retirement subject to a number of conditions.
- Up to 30% of AVC and / or AVC PRSA Funds may be drawn down by way of a once off irrevocable action during a 3 year period commencing from the enactment of the Finance Bill.
- AVC Fund is defined in the strict sense and only relates to AVCs and AVC PRSAs linked to occupational schemes. Any funds so described but arising from sources other than actual member AVC contributions must be excluded.
- Employee ordinary contributions (required as condition of scheme membership) may not be regarded as AVCs.
- AVCs to purchase added years or notional service (mainly public sector) are excluded.
- Drawdown is taxable under PAYE at 41% unless Certificate of tax credits and cut off point is provided allowing for deduction at lower rate.
- Drawdown is exempt from USC and PRSI exemption is promised via next Social Welfare and Pensions Bill.
- Drawdown will not be treated as a Benefit Crystallisation Event (BCE) for SFT purposes.
Implications for business
- Drawdown is taxable but exempt from PRSI and USC so clients close to retirement may wish to consider the option as drawdown after retirement (via ARF) could be liable to PRSI and USC.
- Clients in danger of exceeding SFT (which may be reduced below €2.3M in next budget) may wish to consider pre budget drawdown.
- Trustees may wish to audit their scheme to ensure that AVCs and ordinary member contributions are clearly distinguished.
- The self employed and most company directors are excluded from this facility as drafted even though they contribute on a voluntary basis to RACs,PRSAs and to Directors Pensions via their companies.
There may be pressure to extend the option to this important business sector.
3. Vested PRSAs
Finally the Bill introduces an exemption from CAT for adult children who inherit assets from a vested PRSA in line with the current position where assets are inherited from an ARF.