Is it possible to get around the €2m Lifetime limit on pensions?

Marc

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We have a few clients in this position in their mid 40s

With contributions alone they are going to break the 2m limit.

So effectively they have an asymmetric pay off from investment risk.

A good solution is to split the pension into two funds with the excess being a PRSA. Defer this beyond age 75 and it effectively turns into a whole of life assurance plan for the family.

Leave it to a spouse and there is no income tax on the death benefit.

For personal assets, If we buy equities outside of a pension structure and use Warren Buffet's holding period (forever) there is no Capital gains tax on death.

So my only friction is the income tax drag on dividends.

If I buy US equities, because of the credit for DWT on ROS my effective rate of tax is about 40%.
Assume a 2% yield that's 80bps pa.

Compare the costs, the difference in fund charges is greater than that so it really isn't clear cut.
 
Marc,
Don't quite understand your suggestion re PRSA. If OP is in an occupational pension and even if the AVCs are invested into a PRSA, would that fund not have to be accessed when main scheme is drawn down? I don't think you can separate the drawdown of the main scheme from the AVC PRSA?
Also do PRSA funds not have to be drawn down by age 75 at the latest?
If you meant to transfer the funds into an ARF on retirement, I can understand. But none of these would deal with the issue of overfunding in terms of any fund cap.
 
Marc's right...there is planning that can be undertaken with a view to splitting one's fund into a €2.15m PRSA and a second PRSA for any excess.
 
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Gordon,
Not sure that is correct. The overall limit is still €2m ( effectively €2.16m). Splitting the funds does nothing to reduce the excess of funds tax. And whatever the make up - occupational pension + PRSA - the limit remains.
I still don't understand what the "planning" is?
 
Gordon,
Not sure that is correct. The overall limit is still €2m ( effectively €2.16m). Splitting the funds does nothing to reduce the excess of funds tax. And whatever the make up - occupational pension + PRSA - the limit remains.
I still don't understand what the "planning" is?

Say you have €3m in your fund. If you retire it, you get hit with chargeable excess tax on €1m. If you can get to a situation where you have the excess €1m (or €850k) in a separate PRSA, you can just leave it unretired and not get hit with chargeable excess tax.
 
Thanks very much for the excellent advice. It appears the two main things I missed were:
  1. Pensions are exempt from CGT on investment returns
  2. The limit may be revised upwards
The CGT relief alone makes it worthwhile to build up the pension sooner rather than later.
As someone in my 30s - that benefit over decades could be quite significant.
On the other hand, If I were 64/65, it's possible I wouldn't want to put another penny into a well-funded pension.

Marc's suggestion of multiple PRSAs sounds quite clever too, I'll keep in in mind in future.
Cheers everyone!
 
I have a PRSA (no recent contributions) and a DC scheme through my company should I reach that situation ever ;)

You can transfer a PRSA to a pension vehicle abroad (you don't necessarily have to live there) as far as I recall - won't change your tax situation most likely as long as you are a resident for tax reasons of Ireland.

You can move abroad as well - Portugal is recommenadable for tax reasons.
http://www.telegraph.co.uk/finance/...m-Retire-in-Portugal-and-reduce-your-tax.html

I won't retire most likely in Ireland in any case so I will look for the most tax effiecent option as well then.
 
Gordon,
Based on the original post I don't think Marc' s solution works. If the PRSA is based on AVC's then it must be drawn down at the same time as the main scheme. You cannot leave it "unretired" whilst the main scheme funds are drawn down.
To leave a PRSA "unretired" it would have to be unrelated to the occupational pension. So if the OP had some self employed income then he could effect a separate PRSA and draw that down differently from the occupational pension. But if the only income is from a single employment then all attached pension benefits must be drawn at the same time. So the multiple PRSA approach would not work for the OP.
 
Conan

That's where the "planning" kicks in. The retiree typically goes off to pursue other economic activities with a view to going down the PRSA route.
 
Gordon,
But that does not address the issue of accumulating excess funds in a single occupational pension scheme.
Marc's suggestion of splitting the occupational pension into two funds with any excess going into a PRSA, I don't see as a solution. I assume he meant putting the AVC funds into PRSA (assuming they were not already in a PRSA AVC). But all the funds still have to be accessed at the same time.
So I still don't understand the planning solution.
 
No they don't (have to be accessed at the same time).

Not if they've been moved elsewhere first.
 
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Gordon,
I disagree. AVC funds (whether in a PRSA or not) have to be draw down at the same time as the attached main scheme funds.
 
Gordon,
I disagree. AVC funds (whether in a PRSA or not) have to be draw down at the same time as the attached main scheme funds.

If I have a DC fund - and in addition to that a PRSA - with a complete different provider - how is the PRSA attached to the DC fund? Not at all.

When I will ask to get a payout from my DC scheme - how does this trigger as well an automatic payout from my PRSA???
No one will notify my PRSA provider that I started to draw down from my DC fund. There is no law or rule I am aware of that I have to notify them.
 
Merowig,
Lets assume you are a member of an occupational pension scheme as with the original poster (does not matter whether DC or DB).
If you decide that you want to pay additional personal contributions you can effect a PRSA. But there are two types of PRSA:
- An AVC PRSA
- An Individual PRSA

If you are effecting an AVC PRSA (because you are a member of an occupational pension scheme) you must give details of the main scheme to the AVC PRSA provider (required as part of the PRSA Application Form) who will then link up the two arrangements so that benefits are paid out at the same time. And if you want the contributions to be deducted from salary by the employer and paid to the AVC PRSA provider (and thus get tax relief at source), then the employer will know you are paying AVCs.

If you are effecting an Individual PRSA (not an AVC PRSA) then you must be doing so because you have a separate self employed income (Sch D, Case 1 or 2) or you have another non-pensionable income. In this case there is NO NEED to co-ordinate benefits. But the original question was in relation to an occupational pension and AVCs.

It is a Revenue rule that if you are paying AVCs that any such AVC arrangement is linked to the main scheme. That's why the AVC PRSA provider asks for details of the main scheme. It will be the responsibility of the Trustees of the main scheme and the AVC PRSA provider to liaise when the individual retires, so as to pay out all benefits at the same time. This is all part of the Revenue regulations in relation to the governance of occupational pension arrangements.
 
I have an individual PRSA (where no contributions were made for quite some time) and I am a member of an occupational pension scheme.
I can resume contributions to my PRSA immediately if I would wish to afaik. They are not linked in anyway to my occupational scheme.
I could transfer my PRSA as well at a later point to a pension vehicle abroad. Even much less possible linkage....

If the employer knows or not that I have an additional PRSA - I fail to see how this does matter.

I got the application forms for two individual PRSAs for my fiancee and I can't recall now from my head to see on the application form anything asking about being member in an occupational scheme. Will check later.
People also can have as well several occupational schemes over their lifetime. I was not asked by my employer if I have another occupational scheme either...
 
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Merowig,
You are missing my point.
If you invest AVCs (Additional Voluntary Contributions) whilst at the same time being a member of an occupational pension scheme, then they must be linked under Revenue regulations.
If you are a member of an occupational pension scheme but have a "frozen" PRSA from a previous employment or period of self employment - then that is entirely different. But you could not begin contributing to that frozen PRSA unless you have a separate income (Sch E or Sch D). If you want to pay additional contributions based on your current "pensionable income" then they must be in an AVC PRSA (which must be linked to the main scheme).
As I said earlier, there are two types of PRSA. An Individual PRSA will ask whether the income involved is either from self employment (Sch D) or from a salary (Sch E). But if that Salary is already being pensioned (as in being a member of an occupational pension scheme) then you must complete an AVC PRSA application (which will link up the two arrangements).
Yes, you can have several occupational schemes over your lifetime, but if your current salary is pensionable (i.e. you are included in an occupational pension for that salary) then any voluntary contributions you make from that salary must be linked to the main scheme (for benefit purposes and for tax relief purposes).
 
Guys

Have you reached agreement on this?

Is this it:

If you are and remain an employee, the €2m limit is a problem for you - does everyone agree on that?

If you are an employee, but become self-employed later, you can exceed the €2m limit by setting up a separate PRSA which can bring you over the €2m limit without penalty.

Even if that is the understanding of the current situation, for a 35 year old employee, is it not very likely that this anomaly will be ironed out by the time he retires?
 
Found now on
http://www.citizensinformation.ie/e...l_finance/pensions/occupational_pensions.html
You may be a member of an occupational pension scheme and also arrange a personal pension. However, it may not be possible to avail of the tax benefits in respect of both. You may not contribute to an occupational pension scheme and a personal pension arrangement at the same time in relation to the same employment. However, you may make a personal pension arrangement in respect of earnings from another employment or from self-employment.

So it looks like Conan is right.


My take away for me here is to not necessarily consolidate different occupational schemes / PRSAs you are collecting over the years (unless there would be a very good reason to do so)
 
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Brendan,
Currently the excess fund rules apply to all pension benefits , whether those all mature at the one time or at different times. So whether you have an occupational pension, an AVC PRSA, a Personal Pension , an Individual PRSA or deferred benefits from previous employments, they are all aggregated for determining whether one has exceeded the fund cap.
In reality it would currently take a total fund of €2.16m before any excess fund tax is payable (because any tax on the lump sum over €200,000 can be offset against the excess of funds tax).
So if one draws down say an occupational pension funds of €2.16m (you will pay tax of €60,000 on the lump sum of €500,000 - 20% on excess over €200,000) but no excess of funds tax. However if you subsequently draw down funds from an Individual PRSA or a deferred benefit or a Personal Pension, you will be liable to excess of funds tax on it all (assuming the funds cap has nor been adjusted upwards).

As I stated earlier, for someone currently aged 35 it is pointless worrying about the potential of exceeding the €2.16m. By all means review the numbers within 5 to 7 years of retirement, but hopefully the fund cap will increase over the next 30 years!!!
 
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