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



## Marc (3 Jul 2016)

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.


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## Conan (3 Jul 2016)

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.


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## Gordon Gekko (3 Jul 2016)

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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## Conan (3 Jul 2016)

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?


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## Gordon Gekko (3 Jul 2016)

Conan said:


> 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.


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## paulie (3 Jul 2016)

Thanks very much for the excellent advice. It appears the two main things I missed were:

Pensions are exempt from CGT on investment returns
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!


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## Merowig (4 Jul 2016)

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.


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## Conan (4 Jul 2016)

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.


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## Gordon Gekko (4 Jul 2016)

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.


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## Conan (4 Jul 2016)

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.


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## Gordon Gekko (4 Jul 2016)

No they don't (have to be accessed at the same time).

Not if they've been moved elsewhere first.


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## Conan (4 Jul 2016)

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.


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## Gordon Gekko (4 Jul 2016)

Conan said:


> 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.



We'll agree to disagree so.


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## Merowig (4 Jul 2016)

Conan said:


> 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.


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## Conan (5 Jul 2016)

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.


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## Merowig (5 Jul 2016)

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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## Conan (5 Jul 2016)

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).


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## Brendan Burgess (5 Jul 2016)

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?


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## Merowig (5 Jul 2016)

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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## Conan (5 Jul 2016)

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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## Gordon Gekko (5 Jul 2016)

Folks

This is being oversimplified. Conan's contention that you must retire all of the benefits simultaneously is incorrect. Why? Because you can go off and pursue further economic activity via a new scheme and ultimately end up with everything in multiple PRSAs. You then retire a PRSA with €2.15m in it, and leave the rest untouched forever. Chargeable excess tax only becomes payable when you take the relevant retirement benefits. If you never take them, no problem arises.

Gordon


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## Sarenco (5 Jul 2016)

To be fair Gordon, Conan's contention was simply that an AVC PRSA must be retired at the same time as the related main occupational scheme benefits and you disagreed on this point.


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## Gordon Gekko (5 Jul 2016)

Sarenco said:


> To be fair Gordon, Conan's contention was simply that an AVC PRSA must be retired at the same time as the related main occupational scheme benefits and you disagreed on this point.



Because the contention was that the answer is A or B. There is also C.

From the very outset, I have said "with planning"...


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## Conan (5 Jul 2016)

Brendan,
It makes little sense tax wise to contribute to a pension if you are likely to exceed the €2.16m. Why... because firstly you will pay 40% tax on the excess and will still be liable for marginal rate tax on the income drawdown (effectively double tax on the excess).

Gordon,
I must disagree with you again. You are wrong on a number of points:

You must retire all benefits from the same employment at the same time (main scheme and AVCs as with the original poster). This is where this thread started.
If you go off and pursue other economic activity, you can only contribute to a new PRSA in respect of that particular income. This will clearly limit the amount that you can accumulate in that structure.
You cannot leave assets in an approved pension structure (including PRSAs) "untouched forever". You must draw down benefits by age 75 at the latest.
"if you never take them, no problem arises" - this is simply wrong. You have to draw down the benefits eventually and they will be aggregated with earlier drawn benefits to determine if a further excess tax is payable.  
Please Gordon, get your facts right. I am not the one being "oversimplified".


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## Sarenco (5 Jul 2016)

Gordon Gekko said:


> No they don't (have to be accessed at the same time).
> 
> Not if they've been moved elsewhere first.



Fair enough but could you explain how the funds sitting in the AVC PRSA are moved/split to avoid having to draw them down at the same time as the main scheme benefits?  I appreciate that you can contribute to a personal PRSA in respect of other income but that's a different issue.


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## Marc (5 Jul 2016)

Just to be clear.

You can defer benefits from a PRSA beyond age 75. We have successfully achieved this for a client. The legislation is silent on the treatment of the benefits but current practice is for the pension to be described as "locked" for the member. In other words they are no longer allowed to personally access the Lump sum or take an income from the fund.

However, the death benefits remain in force. The legislation on the treatment of the excess over and above the Lifetime limit is clear that there is no excess charge applied to death benefits payable to a spouse.

Therefore, by deferring a PRSA beyond age 75 a member effectively creates a gross roll up Whole of Life plan payable free from Income Tax, Capital Gains Tax and the excess tax normally applied to benefits in excess of the lifetime limit.

As Gordon correctly points out. There is some relatively convoluted planning involved in getting to a series of PRSAs but hey, we are talking about pension legislation - when was anything easy??


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## North Star (5 Jul 2016)

There are options to avoid the chargeable excess tax on amounts in excess of revenue limits. For a normal PRSA i.e. non AVC PRSA - these can be split into multiple PRSAs allowing phased retirement. If someone is approaching the pension limit, then this multiple PRSA route enables you to avoid the chargeable excess if you are happy for that or those PRSA to form part of the estate for CAT purposes. You will loose access to it for income purposes post age 75, therefore this should be looked at as part of a planning exercise. Benefits from Occupational schemes or Executive pensions can also transfer to a PRSA subject to less than 15 years service  and the need to provide a certificate of benefts comparison. So there is the option of CAT at 33% for the estate versus Chargeable excess at 67% for the amount you are over the pension limit and Income tax and USC on the amounts drawn down in retirement.


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## Conan (5 Jul 2016)

Without disputing what you did for a client, the Revenue Pensions Manual (Chapter 24.4) does say that PRSA benefits must be taken by age 75. Is this wrong?
I understand the use of multiple PRSAs (and Vested PRSAs) and accessing them on a phased basis, but if a PRSA from which a Lump Sum has been taken is not actually transferred into an ARF (or an Annuity ) by age 75, is it not treated the same as an ARF (i.e. compulsory drawdown etc)? I am not aware that a Vested PRSA can either avoid a level of compulsory drawdown or the Income Tax potentially liable on such actual or imputed drawdown after age 75. Equally on death I don't think the value of the Vested PRSA can transfer to a spouse as a lump sum with no tax (as with a Whole of Life Plan). The amount held in the Vested PRSA would have to transfer to an ARF and any drawdown would be taxable as income.
I am aware that some individuals have gotten involved in "convoluted planning" exercises, but to be honest I would be hesitant about some of the planning suggestions I have seen as sure fire ways of avoiding/reducing a potential tax liability.  
Fully agree that pensions regulations are simple, but my original point (and source of disagreement with Gordon) was the suggestion that the AVC PRSA could be detached from the main occupational pension and somehow not accessed at the same time as benefits are drawn down from the main scheme or could be excluded from the excess of funds calculation.


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## Steven Barrett (5 Jul 2016)

Just read through the thread from the beginning. Conan is right for most of it. 

I only disagree on the "locked" PRSA. The Revenue rules say benefits are to be drawn by age 75. There will always be cases of people who forget to do it. You would think that the Revenue would make them draw the benefits down but apparently their approach is to lock the policy until the policyholder dies. 

Gordon, saying that "you can go off and pursue further economic activity" is simpler said than done. The Revenue will be all over the bona fides of any "further economic activity". It's not just a case of redirecting income into newco consultancy ltd, as you well know. 

Steven
www.bluewaterfp.ie


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## Gordon Gekko (5 Jul 2016)

Let's agree to disagree with regard to what's possible and not possible.

I do not see the SFT as an insurmountable challenge, nor do I buy into the "double taxation"/70% stuff either.

Even if you ignore the planning opportunities and simply pay the chargeable excesss tax, I believe it's still a decent trade.


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## Conan (5 Jul 2016)

Gordon,
What is the "decent trade"? The original point here is whether an AVC fund based on the same earnings has to be exercised at the same time as the main occupational pension scheme. You still seen to think that the two can detached and thus are not aggregated for SFT purposes. 
For the benefit of any doubt, this is not correct.


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## Dan Murray (5 Jul 2016)

SBarrett said:


> Gordon, saying that "you can go off and pursue further economic activity" is simpler said than done. The Revenue will be all over the bona fides of any "further economic activity". It's not just a case of redirecting income into newco consultancy ltd, as you well know.



For the avoidance of doubt, I am not making any comment in relation to this element of Steven's commentary.




SBarrett said:


> Just read through the thread from the beginning. Conan is right for most of it.
> I only disagree on the "locked" PRSA. The Revenue rules say benefits are to be drawn by age 75. There will always be cases of people who forget to do it. You would think that the Revenue would make them draw the benefits down but apparently their approach is to lock the policy until the policyholder dies.



I have had personal experience of a SFT/PFT application and was advised by one of the Big 4. Steven's comments, immediately above, are precisely in accordance with the advice I received.

In summary, I think the key blockage that Gordon and Marc have is that they do not seem to appreciate that AVCs made whilst a member of an occupational pension scheme (OPS) - and in relation to income from that employment - must be "applied" at the same time as the benefits from the main OPS. Further, it does not matter whether such AVCs are in a traditional AVC arrangement or a PRSA AVC arrangement. [By "applied" I mean must be treated as a single unit. So, for example, if someone takes retirement benefits from an OPS, any associated AVCs/PRSA AVCs, must be included in any SFT/PFT calculations at that time.]

Hats off to Conan for his determination in ensuring the AAM record is accurate. One small point is that the splitting of this thread may now cause confusion - the original query related to AVCs being made whilst a member of an OPS. Marc's original answer would have legitimacy, to a point, if a different question was being asked.


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## Gordon Gekko (5 Jul 2016)

My contributions have been based around the €2m threshold - Not around AVCs and main scheme splitting. All I'm saying (and Marc I believe) is that when faced with a chargeable excess tax problem (whether with separate AVCs or not), there is legitimate planning that can be done to get a better result.

I'd also challenge Conan's comments on the Revenue Pensions Manual. It is not legislation. The position with regard to a PRSA and 75 is not as set out in the Manual.


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## Sarenco (5 Jul 2016)

Gordon Gekko said:


> No they don't (have to be accessed at the same time).
> 
> Not if they've been moved elsewhere first.





Conan said:


> 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 Gekko said:


> We'll agree to disagree so.



I'm lost. 

Is everybody now agreed that AVC funds do in fact have to be drawn down at the same time as the related main scheme benefits?  Or is this net point still in dispute?


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## Gordon Gekko (5 Jul 2016)

Hi Sarenco

I thought that I couldn't be clearer when I said that you don't have to access them at the same time if you undertake planning which involves moving them elsewhere.

I never said that one could just access them separately straight off the bat.


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## Sarenco (5 Jul 2016)

Gordon Gekko said:


> I thought that I couldn't be clearer when I said that you don't have to access them at the same time if you undertake planning which involves moving them elsewhere.



But how do you move/split them? 

I always understood that AVCs and benefits under a related occupational pension scheme had to be drawn at the same time but I would be happy to be pursuaded otherwise.


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## Gordon Gekko (5 Jul 2016)

Get everything into a PRSA, which can't be done directly if the individual has more than 15 years service. However, in my experience people with more than €2.15m in their pension fund tend to have skills that the wider world requires. They invariably undertake that economic activity in a bona fide way that facilitates the setting up of another occupational pension into which all existing benefits can be transferred. When they decide to cease that activity (after less than 15 years), they transfer everything into a PRSA, at which point the PRSA can be split into multiple PRSAs. For example, one with €2.15m which is retired, yielding the best outcome, and one with the balance which is never touched, thus never triggering a chargeable excess tax problem. What's left is a tax exempt vehicle motoring away in the background.


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## Merowig (5 Jul 2016)

Is it 15 years of service or 15 years of membership in the occupational pension scheme?


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## Sarenco (5 Jul 2016)

Ok Gordon but surely that strategy is only relevant to somebody with less than 15 years pensionable service in a particular job that is in danger of amassing aggregate pension benefits with a value in excess of €2.15m.  Is that correct?

As I understand it, you are not actually arguing that benefits under an occupational pension scheme and related AVCs can be drawn down at different times, which I (no doubt mistakely) thought was the issue in dispute.  Again, I don't want to put words in your mouth, but is that correct?


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## Gordon Gekko (5 Jul 2016)

Merowig said:


> Is it 15 years of service or 15 years of membership in the occupational pension scheme?



15 years of scheme service...essentially periods during which the individual was a member of occupational schemes linked to that employment.


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## Marc (5 Jul 2016)

In this thread I have not made any reference to AVCs and occupational pensions. Conan's point, which I have not disputed.

My point was that it is possible to use a PRSA to avoid the excess tax charge and that it is possible to defer benefits from a PRSA beyond age 75. A fact which was being challenged as impossible and which is factually inaccurate.

It is possible, although it may not be possible in the circumstances of the original post which I believe is Conan's main concern.

I also stressed that getting to that solution may require additional and I stressed, convoluted planning. Which I believe is Gordon's argument expressed clearly above.

As a general observation, there is, in my view, a tendency on AAM for some posters to obsess about the original poster's question and any perfectly valid and relevant observations are frequently attacked by posters who seem to believe that the only valid responses in a thread are those that directly relate to a question posed by the OP irrespective of how interesting or valid the subsequent debate.

I for one have never held this view on AAM.


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## Gordon Gekko (5 Jul 2016)

Sarenco said:


> Ok Gordon but surely that strategy is only relevant to somebody with less than 15 years pensionable service in a particular job that is in danger of amassing aggregate pension benefits with a value in excess of €2.15m.  Is that correct?
> 
> As I understand it, you are not actually arguing that benefits under an occupational pension scheme and related AVCs can be drawn down at different times, which I (no doubt mistakely) thought was the issue in dispute.  Again, I don't want to put words in your mouth, but is that correct?



No, it's more straightforward for someone with less than 15 years service. I was referring to someone with more than 15 years service.

No, I was never suggesting that one could take main benefits and leave AVCs or vice versa.

Just that a breach of the SFT can be dealt with.


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## Sarenco (6 Jul 2016)

Gordon Gekko said:


> No, I was never suggesting that one could take main benefits and leave AVCs or vice versa.



Thanks Gordon.  

I was certainly under the mistaken impression that you were arguing that they didn't have to be accessed at the same time but I obviously missed a subtlety.



Gordon Gekko said:


> No they don't (have to be accessed at the same time).



In any event, could you explain how somebody with more than 15 years' service can transfer occupational pension scheme benefits to a PRSA?  I didn't think that was possible.


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## Sarenco (6 Jul 2016)

Marc said:


> In this thread I have not made any reference to AVCs and occupational pensions.



Marc

I think your difficulty is that the OP clearly referred to the fact that he was contributing to an occupational pension scheme and making AVCs.  You then contributed as follows:



Marc said:


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



Was it not reasonable for readers to assume that you were referring to the position of the OP?  i certainly thought that was the position you were referencing - not the position of some other hypothetical employee.  

If that was your intention, it might have been sensible to make this clear or, perhaps, to start a new thread.

Leaving all that aside, I think (although I'm still not 100% sure that this is the case) that all contributors  to this thread now agree that it is not in fact possible to split AVCs from a related occupational pension scheme.

Any dissenters?


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## Merowig (6 Jul 2016)

Sarenco said:


> Marc
> 
> Leaving all that aside, I think (although I'm still not 100% sure that this is the case) that all contributors  to this thread now agree that it is not in fact possible to split AVCs from a related occupational pension scheme.
> 
> Any dissenters?



What about transferring your AVC PRSA to a pension vehicle abroad? Is this possible? (I would think so) - if so could this be a split?


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## Steven Barrett (6 Jul 2016)

Merowig said:


> What about transferring your AVC PRSA to a pension vehicle abroad? Is this possible? (I would think so) - if so could this be a split?



From the Revenue Handbook



> Only bona fide transfers are acceptable. The use of certain transfer arrangements
> relating to PRSAs, to circumvent Revenue rules on the tax treatment of
> retirement benefits (e.g. transfer payments to the UK and back again to Ireland)
> are not permissible. A PRSA contributor who directs the PRSA provider to make
> ...



That came out of the infamous "Heathrow ARF" that Standard Life ran. The Revenue used to turn a blind eye to it until a few fools started bragging about it at public events. The Revenue shut it down pretty sharp!

Steven
www.bluewaterfp.ie


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## Merowig (6 Jul 2016)

Ok so it seems the same rules apply for a AVC PRSA as for a "normal" PRSA?


So for me this means it is possible to split your AVC PRSA away from your occupational pension scheme.


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## Sarenco (6 Jul 2016)

Merowig said:


> So for me this means it is possible to split your AVC PRSA away from your occupational pension scheme.



But surely the value of your (transferred) AVCs would still be included in any SFT calculation at the time that you draw any benefits under your occupational pension scheme - no?


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## Merowig (6 Jul 2016)

Oversea transfers are considered as "Benefit Crystallisation Events" so I believe this is recorded.

But this still would mean that if you have bona fide reasons you can transfer a not active PRSA abroad where it can continue to growth without impacting the SFT further.


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## Steven Barrett (6 Jul 2016)

Merowig said:


> Ok so it seems the same rules apply for a AVC PRSA as for a "normal" PRSA?
> 
> 
> So for me this means it is possible to split your AVC PRSA away from your occupational pension scheme.



Putting AVC into a PRSA AVC is the split! You aren't restricted by the limited fund choice under the scheme etc. But the PRSA AVC is subject to the rules of the occupational pension scheme that they are attached to. 

An ordinary PRSA is a different pension with different rules attaching to it. 

Sarenco, it doesn't matter what pension structure the pension is in, the SFT is a lifetime limit on the value of benefits that an individual can draw down "from tax relieved *pension products*"



Steven
www.bluewaterfp.ie


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## Sarenco (6 Jul 2016)

SBarrett said:


> Sarenco, it doesn't matter what pension structure the pension is in, the SFT is a lifetime limit on the value of benefits that an individual can draw down "from tax relieved *pension products*"



And transferring AVC funds overseas doesn't change this position - right?  Or am I missing something?


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## Conan (6 Jul 2016)

Not so long ago people were buying property in overseas locations where they often struggled to find that location on a map (e.g. Cape Verde, Sunny Beach). We all know how many of those investments turned out. Now certain advisors are suggesting that Irish pension funds should transfer overseas to locations where they know little of the governance, legislation, tax rules or indeed the investment organisation holding their funds. If anything goes wrong I doubt you would have the same levels of recourse to securing your funds. 
In addition , the costs involved can be significant.

And yes, the Irish Revenue do require that the transfer be "bona Fide". 
So I am always wary of "planning" which suggests that the solution is transferring assets to some remote overseas location or that we establish a particular structure based on the view that the proposed structure is not specifically prohibited despite the fact that the structure could be viewed by Revenue as non-compliant ( e.g the "Heathrow ARF"). Some of these clever planning structures have turned out to be far less clever than anticipated over time.


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## Merowig (6 Jul 2016)

I never claimed transferring something overseas is suitable for everyone.

I am non-Irish (so I can have "genuine" bona fide reasons) and own property in my home country - my fiancee has a different nationality as well and also owns property in her home country (so I have already two countries too chose from where I could have easily argue bona fide reasons - though residence and employment are not even necessary connected to bona fide reasons).
Ireland is the 4th country I am living in and I speak multiple languages fluently - so yes I can inform myself.


In regards generally to Bona Fide:
[broken link removed]


> On the issue of bona fides, the Court had to consider whether a pension scheme administrator has to perform an evaluation of the reasons for the requested transfer of the funds. The Court held that, provided there is nothing in the facts of the case as presented to give rise to a suspicion as to the bona fides of the transfer, the pension scheme administrator is free to implement the wishes of the owner of the fund. However, the Court made it clear that it was not laying down a general rule and that each case would depend on its own particular circumstances.
> 
> In the current proceedings, Mr O’Sullivan had signed a Transfer Declaration Form, in accordance with a requirement introduced by the Revenue in 2012, confirming that the transfer (i) conformed to the requirements of the Transfer Regulations and Revenue pension rules; (ii) was for bona fide purposes; and (iii) was not primarily for the purpose of circumventing pension tax legislation or Revenue rules. The Court held that, in the circumstances of the case, Canada Life was not obliged to conduct an independent examination and evaluation of Mr O’Sullivan’s motives; the fact that he wanted to transfer his PRSA to another EU member state was not, in itself, an indicator of any suspicious circumstances.
> (...)
> Accordingly, the Court concluded that the Transfer Regulations did not require that Mr O’Sullivan be resident or employed in Malta in order to transfer his PRSA policy there.



Planning is for me important as I don't consider right now to retire here, nor do I know for how long I will stay here.
Keeping my old PRSA is part of that planning - as it means for me diversification and some added flexibility.

P.S.: I can point out Cape Verde and Sunny Beach immediately on a map 
I prefer though Mamaia (or the Cote D'Azur) to Sunny Beach


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## Steven Barrett (7 Jul 2016)

Sarenco said:


> And transferring AVC funds overseas doesn't change this position - right?  Or am I missing something?


 
AVC funds are still part of the occupational pension scheme so I can't imagine it would. 

We're getting into the finer details of pension law here. We are now in a position where I would double check everything with the technical experts in the industry who read every bit of detail on pension legislation.

Steven
www.bluewaterfp.ie


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## Dan Murray (7 Jul 2016)

SBarrett said:


> We're getting into the finer details of pension law here.......



Hi Steven,

A request/suggestion!

This thread is much longer and confusing than it needs to be. It seems to me that you have a really good handle on the subject. Do you think - at some stage - that you might be able to do one of your "blogs" to summarise the practical planning opportunities in this regard? I think that the challenge of such a piece is the need to include a high level overview of what's currently possible and sensible - whilst not becoming a slave to excessive technical minutiae. In addition, it would need to examine the balance between the need to make funding now in the realisation that future regulations are unknown!

Just an idea........


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## Steven Barrett (7 Jul 2016)

Always looking for content Dan! 

I'll do something on it in the near future. Summer holidays first!


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## Dan Murray (23 Nov 2016)

My adviser tells me that the days of the over 75 anomaly may be coming to an end. The attached link (from ITC) seems like a reasonable update of the stuff to look out for. I suppose it highlights the risk of long-term planning based on current anomalies of which, in fairness, my adviser gave me very clear warning.

http://www.independent-trustee.com/blog/pensions-update-changes-in-finance-bill-2017


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## Steven Barrett (23 Nov 2016)

Yep. If you don't submit a BCE to the Revenue by 20 January 2017 (likely date), you will be hit with the chargeable excess tax at 40%. 

An important change from estate planning point of view is that on death, a PRSA and RAC will change to an ARF, where the drawdown is liable to income tax. 


Steven 
www.bluewaterfp.ie


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## Gordon Gekko (23 Nov 2016)

A huge change alright.

A further lurch to the left in this land of gombeenery where intelligent productive people exist solely to feather the nests of lazy morons and cosseted public servants.


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## Dan Murray (25 Nov 2016)

SBarrett said:


> Yep. If you don't submit a BCE to the Revenue by 20 January 2017 (likely date), you will be hit with the chargeable excess tax at 40%.
> 
> An important change from estate planning point of view is that on death, a PRSA and RAC will change to an ARF, where the drawdown is liable to income tax.
> 
> ...



Hi Steven,

I'd say there must be quite a few folk interested in this. Is it possible for you to elaborate? In particular, are there transitional arrangements and what are the precise changes upon death to PRSAs and RACs?


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## Steven Barrett (25 Nov 2016)

Hi Dan 

I have to read up on it more myself. From my understanding, the changes on death applies to PRSA's & RAC's if you died post age 75. It will convert to an ARF in the spouse's name and she has to pay income tax. 

The Finance Bill does not contain any inheritance tax exemption for RAC's where the asset is passed to adult children, so they may have to pay 30% tax on receiving the benefit and then it is subject to inheritance tax. 

The transitional arrangements is that you have 30 days from the passing of the Act to submit a Benefit Crystallisation Event Declaration. 

The advice is mature any PRSA's and/or RAC's before age 75!!


Steven 
www.bluewaterfp.ie


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## Dan Murray (27 Nov 2016)

Hi Steven,

I've got my "need to understand this crazy pensions maze" head on me this morning - so can I just pose one further question about this stuff please?



SBarrett said:


> ....the changes on death applies to PRSA's & RAC's if you died post age 75. It will convert to an ARF in the spouse's name and she has to pay income tax.



I had understood that the anomaly that's now being removed just related to unvested PRSAs. What was the position regarding RACs prior to the Finance Bill (FB) and what changes are proposed in the FB in relation to RACs?


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## Steven Barrett (27 Nov 2016)

Hi Dan 

I don't know what happened to RAC's that weren't matured post 75. I knew about the PRSA anomaly but never came across is for RAC's. All my clients matured their pensions before then!

I'll come back to you on all changes to RAC's too when I do my update 

Steven 
www.bluewaterfp.ie


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## Steven Barrett (2 Dec 2016)

*Changes to PRSA's and RAC's for over 75 year olds*

The PRSA or RAC will be deemed to vest for purposes of the Threshold limits on the date of passing the Finance Act, likely to be 20 December 2016.
You have to return a Benefit Crystallisation Event (BCE) Declaration within 30 days of the passing of the Act, chargeable excess tax at 40% will automatically taken from the PRSA or RAC.
Upon death, the PRSA and RAC no longer passes to your spouse tax-free. From the passing of the Act, the pension will change to an ARF. When the spouse draws down the benefit, it will be taxable.
The PRSA or RAC can be matured up to 31 March 2017. If benefits are not taken by that date, no benefits can be taken from the policy.
A PRSA will automatically be subject to imputed distribution from 2017 onwards regardless of whether the policy was matured or not. RAC's are not subject to imputed distribution.
*Vested RAC and Capital Acquisitions Tax*
For ARF's that are passed to adult children on death, the value of the ARF is taxed at 30% but is not subject to CAT. The Finance Bill does not contain a provision to exempt RAC's that are not matured at age 75. It appears that the value of the RAC will be taxed at 30% and the remainder will then be subject to CAT in the hands of the adult children.

*The message from Revenue is very clear, mature your PRSA's and RAC's before your 75th birthday!

*
Steven
www.bluewaterfp.ie


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## Dan Murray (2 Dec 2016)

Thanks Steven,

Hope you had a nice weekend (read: _don't wreck your head with this one over the weekend!!_)

I'm having trouble reconciling these two statements quoted below....



SBarrett said:


> (1) Upon death, the PRSA and RAC no longer passes to your spouse tax-free. From the passing of the Act, the pension will change to an ARF. When the spouse draws down the benefit, it will be taxable.
> and
> 
> (2) For ARF's that are passed to adult children on death, the value of the ARF is taxed at 30% but is not subject to CAT. The Finance Bill does not contain a provision to exempt RAC's that are not matured at age 75. It appears that the value of the RAC will be taxed at 30% and the remainder will then be subject to CAT in the hands of the adult children.



What I mean is that statement 1 seems to be saying that RACs (for those over 75) are converted to ARFs upon death and statement 2 seems to be saying something else. For both statements to be true, the legislation would need to be saying that RACs are to be automatically converted to ARFs upon death over 75, but somehow not full ARFs. Maybe - that's exactly what is being said?! Do you agree? Is that the intent?


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## Conan (2 Dec 2016)

Effectively both the PRSA or the RAC will convert to an ARF at 75. This means that any drawdown by the  plan owner is taxable as income as per the current rules. On death the spouse "steps into the shoes " of the deceased and takes over the ARF. Amy drawdown by the spouse is taxed as income as per current rules.
On the death of the spouse any value remaining can pass to children but will be subject to tax of 30% and potentially liable to CAT if over the threshold.


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## Dan Murray (3 Dec 2016)

Conan said:


> (1) Effectively both the PRSA or the RAC will convert to an ARF at 75.
> and
> (2) On the death of the spouse any value remaining can pass to children but will be subject to tax of 30% and potentially liable to CAT if over the threshold.



Hi Conan,

This is exactly my point. If, as in point 1, the RAC is deemed to be an ARF, the tax treatment in point 2, is non standard ARF taxation - i.e. inconsistent with the regular taxation treatment of ARFs, as set out in the link immediately below......(click on your fund passes to your estate on death).

http://www.irishlifecorporatebusiness.ie/approved-retirement-funds-arf

Hence, my earlier comment.....



Dan Murray said:


> .....that RACs are to be automatically converted to ARFs upon death over 75, *but somehow not full ARFs!! *


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## Steven Barrett (4 Dec 2016)

Dan Murray said:


> Thanks Steven,
> 
> Hope you had a nice weekend (read: _don't wreck your head with this one over the weekend!!_)
> 
> ...



My understanding is that if it goes to the spouse, it is converted to an ARF and not paid as tax free cash.
If it goes to the adult children of the policy holder, it is subject to 30% tax and then the CAT thresholds. And yes, have the RAC's subject to CAT is outside the normal treatment of ARF's being passed on death to adult children. It looks like another anomaly as it doesn't apply to PRSA's. 


Steven
www.bluewaterfp.ie


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