Key Post PRSA FAQ from Revenue.

boaber

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Recently received a PRSA FAQ document published by The Revenue. Thought it might be useful to post the details here.....


EMPLOYER ACCESS

Q.1 An employer operates an occupational pension scheme which provides death in service benefits only (i.e. no pension benefits). If this employer allows payment of AVCs is this sufficient to satisfy the requirements of Section 121 to provide access to some form of pension provision for excluded employees?


A.1 Where an employer provides access for his excluded employees to an occupational pension scheme for death in service benefits only and the payment of additional voluntary contributions for pension benefits is permissible, the Board considers that such an employer will have met the obligations in relation to access to some form of pension provision for employees under Sections 121(1) and (2) of the Pensions Act, 1990, as amended, provided all categories of employees are eligible to join the scheme within 6 months of the commencement of their employment.

Revenue has also advised that for such a scheme to meet Revenue requirements it must satisfy the requirements of Paragraph 4.1 of Chapter 4 of the Revenue Pensions Manual insofar as the employer must meet the establishment and ongoing operating costs of such a scheme, including the full costs of the provision of death in service benefits under the scheme.

If either of the above requirements is not met then the employer will be deemed to have excluded employees and be required to provide access in accordance with Section 121 of the Pensions Act, 1990, as amended.


TAX RELIEF

Q.2 What tax relief is available for individuals (employed and self-employed)?

A.2 The maximum annual tax deductible contributions are based on a percentage of the individual’s net relevant earnings. The allowable percentages rise with age.

Relief is allowed against relevant earnings, i.e. earnings from a trade, profession, office or employment. Earnings as a proprietary director or proprietary employee of an investment company are not relevant earnings. Net relevant earnings are relevant earnings less losses, capital allowances and certain payments which reduce a person’s income for tax purposes such as tax effective convenants.

The maximum pension contribution, in any one year, for which you are entitled to tax relief, is related to your age and is expressed as a percentage of your gross income. The maximum gross income figure for relief purposes is €150,000 for 2009.


The percentage relief limits are:

Under 30 years 15%
30 – 39 years 20%
40 – 49 years 25%
50 – 54 years 30%
55 – 59 years 35%
60 years or over 40%



Q.3 Can an individual contributing to a PRSA NOT through the net pay system get tax relief when they complete their tax returns at year end?

A.3 Yes, if the PRSA contribution qualifies for tax relief, the quantum of relief is the same regardless of the manner in which it is claimed.


Q.4 Can a person earning €10,000 per annum who is jointly assessed with their spouse get tax relief at the higher rate of 41% which is their marginal rate?

A.4 No. In calculating the amount of PRSA relief due each spouse’s income is looked at separately. The PRSA relief as calculated is then available for set off against the relevant earnings of the spouse to whom the PRSA related.


Q.5 Can an employee who is included in an occupational pension scheme for death in service benefits only claim tax relief on standalone PRSA contributions?

A.5 Yes, following changes made in the Finance Act 2003, both employee and employer contributions to a standalone PRSA qualify for tax relief within the normal limits.


Q.6 Can tax relief on Additional Voluntary PRSA contributions paid after the end of the tax year and before the return filing date for that year be claimed for that tax year?

A.6 Yes.


Q.7 How do I obtain tax relief on my PRSA contributions?

A.7 Where qualifying PRSA contributions are deducted by your employer, the net pay arrangement will apply. This means that PAYE, PRSI and Health Levy deductions will be calculated on your wages or salary net of PRSA contributions.

Where the PRSA contributions are not deducted by your employer, you can claim relief directly from the Tax Office. Tax relief will be allowed through the PAYE system, as an additional tax credit.

If you are self-employed, tax relief for contributions may be claimed in your annual tax return.


Q.8 If an individual, aged over 50, in an occupational pension scheme paying 5% of salary into the Superannuation scheme opens an AVC PRSA can he now invest 25% of his salary and get tax relief at the marginal rate?

A.8 The individual would not automatically be entitled to tax relief on the remaining 25%, this would depend on the benefits from the main scheme. As total pension and AVC PRSA contributions must be limited to the amount required to provide the maximum benefits permitted in line with Revenue limits, the actual limit in any individual circumstance may be less than the percentages which generally apply. In addition, the maximum tax free lump sum arising from an AVC PRSA must be in line with the occupational pension scheme rules.

The PRSA provider should not accept AVC PRSA contributions until satisfied that there is no excess funding.


Q.9 If a person receives a lump sum as part of a redundancy payment, for example, can they invest all or part of this in a PRSA?

A.9 Yes, but the contributions cannot be used to reduce any tax liability on the redundancy payment. Tax relief on contributions (regardless of the source) is calculated by reference to the individual’s age and relevant earnings.


Q.10 Where an individual decides not to proceed with the PRSA during the cooling off period should tax be deducted from the contributions being refunded?

A.10 No.


Q.11 Can the employer net pay arrangement be applied to PRSA and AVC PRSA lump sum contributions?

A.11 Yes, subject to the usual tax relief limits and provided the contribution is deducted from the employee’s salary.


Q.12 What is the tax treatment of PRSA contributions made by an employer to an employee’s PRSA?

A.12 Contributions made by an employer to an employee’s PRSA are aggregated with the employee’s own contributions for the purpose of calculating the maximum tax-relieved contributions. They are treated for relief purposes as contributions made by the employee.

For example, if an employee contributes 5% of their earnings to a PRSA and the employer contributes a further 10%, the employee is treated as having made total contributions of 15% of their earnings and chargeable on a corresponding benefit in kind of 10%. While technically the employee is chargeable on the employer’s contribution of 10% as a benefit in kind, where the aggregate contributions (15%) are within the limits for tax relief purposes the benefit in kind charge is negated by the tax relief due to the employee on the employer’s contribution.

In the small number of cases where aggregate contributions made by the employee and the employer exceed the limits for tax relief purposes in the tax year, the excess may be carried forward and relieved against the employee’s tax in future years subject to the overall relevant limits in each year.
In a very small number of cases (where the employer pays the full or substantial part of the contributions to the employee’s PRSA and the aggregate contributions exceed the age based limits) a benefit in kind charge may arise in the tax year but the amount brought into charge will be available for tax relief in future years subject to the overall relevant limits in each year.


Q.13 If an individual is in receipt of a pension from an occupational pension scheme and/or a State pension, can this individual open a PRSA and, if so, would they be entitled to tax relief on their contributions?

A.13 Yes, the individual can open a PRSA, however, tax relief will only be allowed if they have a source of relevant earnings. The pension from the occupational pension scheme and/or the State pension are not relevant earnings.


Q.14 If an individual is in receipt of disability benefit or unemployment benefit, can this individual open a PRSA and, if so, would they be entitled to tax relief on their contributions?

A.14 Yes, this individual can open a PRSA and, as disability benefit and unemployment benefit are treated as a source of relevant earnings, tax relief will be allowed based on the individual’s age and relevant earnings.


REFUND OF CONTRIBUTIONS

Q.15 Is a refund of PRSA contributions permitted?

A.15 A refund of PRSA contributions is only permitted in the following circumstances

(i) Under Section 111(3) of the Pensions Act, 1990, as amended where monies can be refunded within the 30 day cooling off period; or

(ii) Under Section 109 of the Pensions Act, 1990, as amended, where the assets do not exceed €650, no contributions have been received for 2 years and a period of 3 months has expired since the PRSA Provider wrote to the contributor advising the contributor to transfer his/her PRSA assets to another PRSA or pension arrangement or to make further contributions.


Q.16 Where a refund is given under (ii) above is the amount subject to tax?

A.16 No tax is deducted from the amount which cannot exceed €650.


AVC PRSAs

Q.17 Can an AVC PRSA be used as a PRSA?

A.17 Yes, provided AVC PRSA contributions are segregated in the fund, there is no reason why the same PRSA may not be used for both types of contributions.


Q.18 Can benefits be taken from an AVC PRSA at a different time from the main scheme benefits?

A.18 No, benefits under the AVC PRSA and the main occupational pension scheme must be taken together.


Q.19 What are the obligations of PRSA providers in relation to AVC PRSAs?

A.19 1. Where there is a change to the scheme rules (Section 787A (1)(i))

The PRSA provider must be satisfied that the main scheme rules have been amended as necessary before accepting Additional Voluntary PRSA contributions. Revenue is prepared to accept that this condition has been satisfied if the PRSA provider;

 notifies the main scheme trustees of all necessary information in relation to their member who has commenced to make additional voluntary PRSA contributions,

and

 ensures that the trustees acknowledge this notification and confirm that the main scheme rules will be amended as necessary.

It would also be expected that the provider would follow up on this matter within 12 months to ensure that they had received written confirmation from the trustees that the rule had been changed as necessary.

2. Where a separate AVC arrangement is established (Section 787A (1)(ii))


In order for Revenue to consider approving an application to set up an AVC PRSA scheme under Section 787A(1)(ii) it would be expected that the PRSA provider would;

1. take responsibility for advising the main scheme trustees of the relevant details of all their members who make AVC PRSA contributions,

and

2. take responsibility for carrying out a funding test, to ensure that the future overall benefits would not exceed Revenue limits, before accepting AV PRSA contributions and would also carry out a similar test before eventually paying out benefits.


Q.20 Would a member of an employer sponsored occupational pension scheme wishing to take out a tax relieved PRSA related to earnings from that employer be confined in choice to an AVC PRSA?

A.20 Yes.


TRANSFERS

Q.21 Are transfers from occupational pension schemes to PRSAs permitted?


A.21 Yes, a member’s entitlements under a scheme may, on the member changing employment or on the scheme being wound up, be transferred to one or more PRSAs, provided the period for which the individual has been a member of the scheme (or any other scheme related to the same employment) is 15 years or less and benefits have not become payable.

However, the above restriction does not apply on transfers of AVCs to PRSAs.


Q.22 Will it be necessary to amend the rules of an occupational pension scheme to allow for transfers to a PRSA?

A.22 Yes.


Q.23 Can you outline the position on transfers?

A.23 No tax liability arises on any of the transfers mentioned below:

1. Transfers to and from other PRSAs
Your entitlements under a PRSA contract may be transferred to one or more other PRSAs in your own name.

2. Transfers from RACs
Transfers from an RAC to a PRSA are allowed, subject to the RAC rules

3. Transfers from Occupational Pension Schemes
Subject to the rules of the scheme, you may transfer your entitlements under an occupational pension scheme or a statutory scheme to a PRSA where you have been a member of the scheme for 15 years or less and either;

 the scheme is being wound up
or
 you are changing employment

The requirements of Section 113 of the Pensions Act, 1990, as amended also apply, where appropriate;

4. Subject to scheme rules and legislative requirements, the value of AVC contributions to an occupational pension scheme may be transferred to a PRSA at any time – the 15 year rule does not apply to AVC contributions.

5. The value of your PRSA account may be transferred to an occupational pension scheme or to a statutory pension scheme, subject to the rules of the scheme.


Q.24 In the case of a deferred member transferring pension benefit to a PRSA does the period of deferred membership count as service for the purposes of the “15 year rule”?

A.24 No – only periods of active membership where contributions are being made by and/or on behalf of the member applies.


Q.25 Does previous service in an unrelated scheme (Scheme A) when transferred over to another scheme (Scheme B) count if a person wants to transfer out of Scheme B to a PRSA for the purposes of the “15 year rule”?

A.25 No if there is no direct relationship between Scheme A and Scheme B.


Q.26 Are transfers from a PRSA to an RAC permitted?

A.26 No. The legislation does not permit transfers from a PRSA to an RAC.



PENSION ARRANGEMENTS OUTSIDE THE STATE


Q.27 Can a transfer be made from a PRSA to an overseas pension arrangement?

A.27 Yes, provided the proposed transfer complies fully with the Occupational Pension Schemes and Personal Retirement Savings Accounts (Overseas Transfer Payments) Regulations, 2003. Prior to making a transfer payment, the PRSA provider must be satisfied that:

(a) The benefits to be provided under the overseas arrangement are relevant benefits within the meaning of Section 770(1) of the Taxes Consolidation Act, 1997.

(b) The overseas arrangement has been approved by the appropriate Regulatory Authority in the country concerned.

Written confirmation in relation to the above two points must be obtained by the PRSA Provider.


Q.27A Are transfers from occupational or personal pension arrangements outside the State into PRSAs permitted?

A.27A Both PRSA and Revenue legislation is silent on this issue. However, Revenue has advised that they have no objection to such transfers provided;

(a) the foreign scheme/policy facilitates the transfer,

(b) the relevant Revenue authority in the host state approves the transfer

NOTE: Only bona fide transfers are permissible. 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.


Q.28 Can an individual living abroad open a PRSA contract or contribute to a contract which they commenced while living in Ireland? If so, what are the tax relief implications?

A.28 Yes, such a person can make contributions but tax relief can only be received on income assessable in the State. Relief can be carried forward to when the individual returns to relevant employment in the State subject to the usual limits.



TAKING BENEFITS/RETIREMENT


Q.29 What are the 2009 thresholds for the Standard Fund Threshold (SFT) and the Maximum tax free lump sum threshold?

A.29 The 2009 rates for the SFT is €5,418,085 and for the maximum tax free lump sum is 25% of the SFT which is €1,354,521. Further details relating to these thresholds, which are index linked, are contained in Chapter 25 of the Revenue Pensions Manual which is available at www.revenue.ie.


Q.30 What are the PRSA rules about taking benefits before reaching age 60?

A.30 Benefits can only be taken before age 60 in the following circumstances;

1. PRSA (Employee):
(a) on retirement from employment at age 50 or over,

or

(b) if, at any time, an employee becomes permanently incapable through infirmity of carrying on their occupation or a similar occupation for which they are trained or fitted.

2. AVC PRSA (Employee):
Where their pension benefits are being paid from the main scheme and,

(a) the employee is retiring from employment at age 50 or over,

or

(b) if, at any time, the employee becomes permanently incapable through infirmity of carrying on their occupation or a similar occupation for which they are trained or fitted.

3. PRSA (Self-Employed):
If, at any time, they become permanently incapable through infirmity of carrying on their occupation or a similar occupation for which they are trained or fitted.


Q.31 Can a PRSA contributor (other than an employee or a self-employed person) take benefits before reaching age 60?


A.31 No.


Q.32 What are the rules regarding retirement ages for PRSA contributors whose employment status changes (e.g. from self-employed to employment or vice versa)?

A.32 It is the employment status of the PRSA holder immediately prior to retirement that determines when the value of the PRSA assets can be drawn down.


Q.33 In relation to Section 787K (2)(b) of the Taxes Consolidation Act, 1997, in the event of an employee retiring at 51 does he/she have the option of deferring the withdrawal of the PRSA assets at anytime thereafter?

A.33 Yes, subject to the benefits being taken at age 75 or earlier.


Q.34 Can an employee continue to work with the same employer after drawing PRSA benefits after they reach age 50?

A.34 No. A provider must be satisfied that the contributor has retired from that employment before paying benefits before age 60.


Q.35 Can more than one tax free lump sum be taken from a PRSA?

A.35 No. On the occasion benefits are first drawn a tax free lump sum not exceeding 25% of the value of the PRSA assets may be taken.


Q.36 I am a PRSA contributor and am not a member of a pension scheme, what are the benefits available to me?

A.36 You may take benefits at any time once you reach age 60, but they must commence before age 75. In certain circumstances benefits can be taken earlier e.g. retirement from employment at age 50 or over, if, at any time, you become permanently incapable through infirmity of carrying on the occupation for which you are trained or fitted or a similar occupation.

When you first take benefits from your PRSA, you may withdraw up to 25% of the value of the assets in the PRSA tax free. Once you commence taking benefits you may invest those funds in an annuity or opt to retain the funds in the PRSA and withdraw funds from the PRSA as you wish. Tax will be deducted under PAYE from withdrawals. However, if you choose this option, a minimum of €63,500 must be used to purchase an annuity payable immediately or kept in the PRSA until you reach age 75 unless you have a pension or annuity for life of at least €12,700 per annum (including any Social Welfare Pension to which you are entitled). These limits are the same as those that apply to an AMRF where the ARF option is taken.

Alternatively, the value of the assets in the PRSA may be transferred to an Approved Retirement Fund (ARF). If you choose this option, a minimum of €63,500 must be used to purchase an annuity payable immediately or kept in an Approved Minimum Retirement Fund (AMRF) until you reach age 75, unless you have a pension or annuity for life of at least €12,700 per annum (including any Social Welfare Pension to which you are entitled). The funds in an ARF may be withdrawn at any time or invested in an annuity. Where the funds are withdrawn, tax will be deducted by the manager of the ARF under PAYE.


Q.37 What happens if the PRSA contributor dies?

A.37 Death prior to taking benefits:
Where death occurs before benefits are taken from your PRSA, the PRSA fund will pass in its entirety to your estate, free of income tax. Inheritance tax will apply as normal.

Death after benefits commence:
Where death occurs after draw-down of benefits has commenced, the taxation rules for the PRSA fund will be similar to the taxation rules for an ARF, following death of the ARF holder viz.

Generally the amount distributed is treated as the income of the deceased for the year of death. Where the distribution is made to another ARF in the name of the ARF holder’s spouse or to a child of the ARF holder who is under 21 at the date of death of the ARF holder, no income tax liability will arise.

Where the distribution is made from the ARF following the death of the surviving spouse or where the distribution is made to a child of the ARF holder who is over 21 at the date of death of the ARF holder, tax will be deducted under PAYE at the standard rate of income tax (currently 20%) for the year in which the distribution is made. No further tax liability will arise in respect of such a distribution.


MISCELLANEOUS

Q.38 Is it possible to contribute to more than one PRSA at the same time?

A.38 Yes, however, tax relief is dependent on the individual’s age and source(s) of income, e.g. relevant earnings.


Q.39 Can a PRSA be used for a pension mortgage?


A.39 No, Section 98(2) of the Pensions Act, 1990, as amended, states that no legal or equitable charge may subsist over the PRSA assets so long as a contributor is the beneficial owner of them.


Q.40 Is it possible to get relief on PRSI contributions if I am paying my PRSA contributions other than by payroll deduction?


A.40 If you are a person to whom PAYE applies and you make PRSA contributions outside the payroll system, regulations made by the Department of Social & Family Affairs provides, subject to conditions set out in those regulations, for a refund of PRSI contributions.


Q.41 Where can I get more information on the tax rules relating to PRSAs?

A.41 Further information is contained in the Form IT14A – Personal Retirement Savings Account on the Revenue’s website at www.revenue.ie
 

BAC13

Registered User
Messages
1
PRSA FAQ document published by The Revenue

I was wondering if it was possible to get a copy of the PRSA FAQ document published by The Revenue?

Revenue have informed me that disability benefit is not relevant earnings and so have disallowed tax relief on PRSA contributions which seems at odds to their FAQ - see relevant Q & A below.

Q.14 If an individual is in receipt of disability benefit or unemployment benefit, can this individual open a PRSA and, if so, would they be entitled to tax relief on their contributions?

A.14
Yes, this individual can open a PRSA and, as disability benefit and unemployment benefit are treated as a source of relevant earnings, tax relief will be allowed based on the individual’s age and relevant earnings.

I cannot argue the point with them unless I can refer to a written doc.
 

Itchy

Frequent Poster
Messages
287
Relief is allowed against relevant earnings, i.e. earnings from a trade, profession, office or employment. Earnings as a proprietary director or proprietary employee of an investment company are not relevant earnings. Net relevant earnings are relevant earnings less losses, capital allowances and certain payments which reduce a person’s income for tax purposes such as tax effective convenants.
Can some one point me in the direction of the method of calculating 'net relevant earnings'? I am trying to work out the maximum relief that applies to my situation... I am making AVC's outside my employers scheme so I have to claim relief annually from the RC. I am under 30 so my max relief is 15 % of NRE. I am public sector, so I pay superann.

I have applied for relief for previous years but I cant work out what my NRE are. I over paid my AVC PRSA in 2012 and was granted (what I can only assume was) the maximum relief.

For example:
Max AVC relief: €4000
Super ann paid: €2000
=> €6000=15% of NRE => NRE= €40000

Yet the €40k figure does not match any figures on my P60 i.e. 'Gross pay for the purposes of USC', Gross taxable income etc.

How do I calculate my net relevant earnings?
 

SBarrett

Frequent Poster
Messages
3,126
It's your gross salary. You P60 shows your gross salary less pension deductions.

In the public service, you pay 6.5% into the pension and widows & orphans scheme. The pension levy isn't included.



Steven
www.bluewaterfp.ie
 
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