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

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

From the very outset, I have said "with planning"...
 
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".
 
Gordon Gekko said:
No they don't (have to be accessed at the same time).

Not if they've been moved elsewhere first.
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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.
 
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??
 
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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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.
 
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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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.
 
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.
 

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



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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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.
 
Gordon Gekko said:
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 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.
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Gordon Gekko said:
We'll agree to disagree so.
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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?
 
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.
 
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.
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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.
 
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.
 
Is it 15 years of service or 15 years of membership in the occupational pension scheme?
 
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?
 
Merowig said:
Is it 15 years of service or 15 years of membership in the occupational pension scheme?
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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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