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

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.

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.

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.

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?

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?

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
a payment to, or transfer assets to, an arrangement for the provision of
retirement benefits outside the State (i.e. an overseas arrangement) under the
provisions of the Occupational Pensions Schemes and Personal Retirement
Savings Accounts (Overseas Transfer Payments) Regulations 2003 (S.I. No. 716 of
2003) must, prior to any transfer, sign a declaration to the effect that the transfer
conforms to the requirements of the regulations and Revenue pension rules, is
for bona fide reasons and is not primarily for the purpose of circumventing
pension tax legislation and Revenue rules.

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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.

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?

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.

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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?

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.

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

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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........

Steven Barrett · 7 Jul 2016

Always looking for content Dan!

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

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

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
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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.

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.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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?

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

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