ARFs
Revenue Pensions Manual ARFs
Tax and Duty Manual Pensions Manual – Chapter 23
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Approved Retirement Funds
Pensions Manual – Chapter 23
Document last updated June 2017
Tax and Duty Manual Pensions Manual – Chapter 23
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Table of Contents
Introduction …………………………………………………………………….3
Eligibility …………………………………………………………………………3
Deferral of Annuity Purchase………………………………………………6
Specified Income Requirement……………………………………………6
Approved Minimum Retirement Fund (AMRF)……………………….7
Withdrawals from an AMRF/Conversion of an AMRF to an ARF..8
Full withdrawal of balance in retirement fund……………………..10
Approved Retirement Fund ………………………………………………10
Qualifying Fund Manager (QFM)………………………………………..12
Death ……………………………………………………………………………13
Proprietary Directors……………………………………………………….15
Additional Voluntary Contributions……………………………………15
Buy-Out Bonds ……………………………………………………………….16
Imputed Distributions………………………………………………………16
PAYE Exclusion Orders in respect of ARFs, AMRFs and retirement
fund balances…………………………………………………………………20
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Introduction
23.1
Flexible options on retirement for pension arrangements were introduced by Finance
Act 1999. Rather than purchase an annuity or pension, an individual can take the
balance of their pension fund in cash (subject to income tax under Schedule E), or invest
it in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund
(AMRF), as appropriate. These flexible options, which apply to that part of a pension
fund remaining after the drawdown by the individual of the appropriate retirement
lump sum, are collectively referred to as the ‘retirement options’ in this Chapter.
This Chapter details the retirement options and should be read in conjunction with
Chapters 6 and 7 dealing with maximum benefits for employees (including directors),
and also Chapters 21 and 24 dealing with Retirement Annuity Contracts (RACs) and
Personal Retirement Savings Accounts (PRSAs).
The topics covered are:
Eligibility
Deferral of Annuity Purchase
Specified Income Requirement
Approved Minimum Retirement Funds
Withdrawals from an AMRF/Conversion of an AMRF to an ARF
Full withdrawal of balance in retirement fund
Approved Retirement Funds
Qualifying Fund Managers
Death
Proprietary Directors
Additional Voluntary Contributions
Buy Out Bonds
Imputed Distributions
PAYE Exclusion Orders
Eligibility
23.2
The retirement options are available only to certain individuals who commenced to take
retirement benefits after 2 December 1998. They apply at retirement only and do not
apply to death in service benefits.
The retirement options are available to:
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All holders of Retirement Annuity Contracts set up after 6 April 1999 and, in
certain circumstances, they may also be offered to holders of contracts
established prior to that date.
Members of Retirement Annuity Trust Schemes approved under section 784(4)
TCA 1997.
Holders of PRSAs.
All members of defined contribution (DC) schemes and members of defined
benefit (DB) schemes who are proprietary directors, in respect of their accrued
benefits from
1. the scheme, including benefits from additional voluntary contributions
(AVCs), or
2. AVCs only.
Members of DB schemes who are not proprietary directors in relation only to
pension benefits arising from their AVCs.
The spouse or former spouse, or (with effect from 27 July 2011) civil partner or
former civil partner of all members of DC or DB schemes where there is a
pension adjustment order. (Where the member of a DB scheme is not a
proprietary director, the ARF option applies only to benefits arising from AVCs).
(Please refer to paragraph 23.12 for additional information on AVCs)
Notes
Prior to 6 February 2011 only proprietary director members of retirement
benefits schemes (and their spouse or former spouse) could avail of the
retirement options in respect of all of their benefits (whether from a DB or DC
scheme). Other members of such schemes (again whether DB or DC schemes)
could avail of the options in respect of benefits arising from AVCs only.
In relation to DC schemes, the retirement options apply to the main benefits
from schemes approved on or after 6 February 2011 and from schemes in
existence prior to that date where the scheme rules are amended to allow the
exercise of the option.
Where an individual opts for the retirement options (other than an individual
who opts only in respect of his or her AVCs) the value of the lump sum that he or
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she can take in part commutation of pension can not exceed 25% of the value of
the pension fund.
All individuals wishing to avail of the retirement options must satisfy the specified
minimum income requirement detailed in paragraph 23.4.
The option to purchase an annuity at retirement remains.
Holders of more than one RAC may exercise a different option in respect of each
contract. Similarly, holders of more than one PRSA may also exercise a different option
in respect of each contract.
Members of multiple occupational pension schemes relating to the same employment
must exercise the same option in respect of each scheme. However, as noted above, an
individual may exercise a different option in relation to AVC funds than that made in
respect of their main occupational pension scheme benefits.
Proprietary director means a director who, either alone or together with his or her
spouse, civil partner and minor children or the minor children of the civil partner is or
was, at any time within 3 years of the date of –
(i) The specified normal retirement date,
(ii) An earlier retirement date, where applicable,
(iii) Leaving service, or
(iv) In the case of a pension or part of a pension payable in accordance with a
pension adjustment order, the relevant date in relation to that order,
the beneficial owner of shares which, when added to any shares held by the trustees of
any settlement to which the director or his or her spouse or civil partner has transferred
assets, carry more than 5 per cent of the voting rights in the company providing the
benefits or in a company which controls that company.
AVCs mean voluntary contributions made to a scheme by an employee which are –
(i) Contributions made under a rule or part of a rule, as the case may be, of
a retirement benefits scheme (in this definition referred to as the “main
scheme”) which provides specifically for the payment of members’
voluntary contributions, other than contributions made at the rate or
rates specified for members’ contributions in the Rules of the main
scheme, or
(ii) Contributions made under a separately arranged scheme for members’
voluntary contributions that is associated with the main scheme.
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Deferral of Annuity Purchase
23.3
Under the deferred annuity purchase option introduced by the Minister for Finance on 4
December 2008, a member of a DC occupational pension scheme who retired on or
after that date, and who would otherwise have been compelled to purchase an annuity,
was allowed to postpone the purchase of an annuity until 31 December 2010. That
deadline was further extended to 5 March 2011.
The deferred annuity option did not apply to holders of RACs or PRSAs or to proprietary
directors who qualified for the ARF options.
Individuals who postponed the purchase of an annuity and who wished to avail of the
ARF option following the amendment of the rules of their former DC scheme to allow
for the option had until 5 March 2011 in which to do so.
Please refer to Appendix IV for further details.
Specified Income Requirement
23.4
An individual wishing to have the balance of their pension fund, after taking any
retirement lump sum, paid to them or transferred to an ARF, must, if under 75 years of
age, have a minimum guaranteed annual pension income (“specified income”) for life in
payment at the time an ARF option is exercised in order to avoid having to go the AMRF
or annuity route.
The specified income amount is currently €12,700.
For ARF options exercised on or after 6 February 2011 and before 27 March 2013 (the
date of passing of Finance Act 2013) the specified income requirement had been
increased from €12,700 per annum to an amount equal to 1.5 times the maximum
annual rate of State Pension (Contributory) (rounded up or down to the nearest €100),
which during that period was €18,000. However, the previous lower limit of €12,700
was reinstated for ARF options exercised on or after 27 March 2013 and it was intended
that the lower limit would remain in place for a period of 3 years, whereupon the higher
limit implemented on 6 February 2011 would be reapplied by legislation1
. As the higher
limit has not been re-instated, the lower limit of €12,700 continues to apply.
1 Please refer to paragraph 23.6.1 for details of measures that may be relevant to individuals who were
subject to the higher specified income and AMRF requirements in the period 6 February 2011 to 26 March
2013.
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Specified income is defined in section 784C (4)(b) TCA 1997 as a pension or annuity
which is payable for the life of an individual, including a pension payable under the
Social Welfare Consolidation Act 20052 and any pension payable to which the provisions
of section 200 TCA 1997 applies. Section 200 provides that certain foreign occupational
and social security pensions may be exempt from income tax, whether the recipient is
resident in Ireland or otherwise. While a pension to which section 200 applies may be
exempt for tax purposes, the amount of the pension can be taken into account by an
individual when determining whether he or she meets the specified income
requirement.
Specified income must be in payment at the date of exercise of the ARF option. For
example, an individual retiring at age 60 cannot include a Dept. of Social Protection
pension payable from age 66 as specified income at the time of retirement. Pensions
paid directly to an individual’s spouse or civil partner or pensions/allowances received
on behalf of a spouse, civil partner or dependant may not be taken into account in
computing that individual’s specified income.
Approved Minimum Retirement Fund (AMRF)
23.5
Where the specified income requirement is not satisfied in the case of an individual
aged under 75, he/she must, after taking a retirement lump sum, transfer the lesser of
the balance of the pension fund or €63,500 to an AMRF or use it to purchase an annuity
(or a combination of both).
For ARF options exercised on or after 6 February 2011 and before 27 March 2013 (the
date of passing of Finance Act 2013), the amount to be transferred to an AMRF had
been increased to an amount equal to 10 times the maximum annual prevailing rate of
State Pension (Contributory) (rounded up or down to the nearest €100), which during
that period was €119,800.
However, the previous lower amount of €63,500 was reinstated for ARF options
exercised on or after 27 March 2013. As is the case with the specified income
requirement, it was intended that this lower amount would remain in place for a period
of 3 years, whereupon the higher amount implemented on 6 February 2011 would be
reapplied by legislation (please refer to footnote 1). As the higher amount has not been
re-instated, the lower amount of €63,500 continues to apply.
Where an individual exercises a sequence of ARF options in relation to separate pension
benefit schemes, the maximum amount that has to be placed in an AMRF or used to
purchase an annuity in respect of all such schemes is €63,500 or, where the maximum
2 State Pension, Widow’s, Widower’s or Surviving Civil Partner’s Pension, Invalidity Pension and Blind
Pension, regardless, where appropriate, of whether the pension is contributory or non-contributory.
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amount is calculated by reference to the maximum annual rate of the State Pension
(Contributory), the rate that applies at the date each option is exercised.
The following general points should also be noted:
An individual cannot have more than one AMRF at any one time. However, all
assets in an AMRF may be transferred from that AMRF to another AMRF.
An AMRF may not be used as security for a loan.
AMRF funds may be used to purchase an annuity for the beneficial owner at any
time.
Similar operating and administrative provisions apply for AMRFs as apply for
ARFs (see paragraph 23.8).
There is no provision for an apportionment of the maximum amount that must
be placed in an AMRF or used to purchase an annuity where an individual
partially meets the specified income requirement. For example, an individual
who has specified income of €6,350 p.a. (at a time when the specified income
requirement is €12,700) must still place €63,500 or the fund balance, if lower, in
an AMRF rather than half of that amount (on the basis that they satisfy half the
specified income requirement).
Withdrawals from an AMRF/Conversion of an AMRF to an ARF
23.6
Section 19(2)(b) Finance Act 2014 introduced a measure, effective from 1 January 2015,
which allows for the payment or transfer on one occasion only in any tax year of up to
4% of the value (at the time of the payment or transfer) of the assets in an AMRF to the
AMRF owner. Any amount paid or transferred to the owner is taxable in the same
manner as a distribution from an ARF (see paragraph 23.8).
Please refer to paragraph 23.15 regarding the issue of PAYE Exclusion Orders.
Prior to 1 January 2015, the initial capital transferred into an AMRF could not be
withdrawn other than to purchase an annuity, which meant that only the income or
gains of an AMRF could be paid or transferred to the AMRF owner, subject to tax.
An AMRF automatically becomes an ARF where an individual:
attains the age of 75 years,
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is in receipt of the required level of specified income, having previously placed
funds in an AMRF because the specified income test was not met when the ARF
option was exercised (please refer to paragraph 23.6.1), or
dies.
Transitional arrangements
23.6.1
Section 17(6) Finance Act 2013 introduced measures to ensure that individuals who
were subject to the higher specified income and AMRF limits which applied during the
period 6 February 2011 to 26 March 2013 were not disadvantaged (see paragraphs 23.4
and 23.5).
Firstly, where such individuals have guaranteed annual pension income of at least
€12,700 on or after 27 March 2013 (the date of passing of Finance Act 2013) any AMRF
immediately becomes an ARF.
Secondly, where they do not have guaranteed annual pension income of €12,700 on 27
March 2013 but had originally transferred more than €63,500 to an AMRF, the excess
amount transferred above €63,500 immediately becomes an ARF.
Pension and Property Adjustment Orders
23.6.2
A transfer from an ARF or AMRF into another ARF/AMRF in the name of a spouse or civil
partner in exercise of rights under a Pension or Property Adjustment Order will not be
regarded by Revenue as a distribution from the transferring ARF/AMRF.
In both scenarios the recipient spouse or civil partner may open an ARF/AMRF to
facilitate the transfer notwithstanding that he or she may not, strictly speaking, have
that option under Part 30 of the TCA 1997.
For further information on Pension Adjustment Orders please refer to Chapter 22.
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Full withdrawal of balance in retirement fund
23.7
Provided the individual has satisfied the specified income or AMRF/annuity
requirements (see paragraphs 23.5 and 23.8), the balance of the retirement fund, after
any amount taken as a retirement lump sum, may be paid to the individual. This amount
is treated as emoluments of the individual and is taxable under Schedule E. The person
making the payment (Life Office or Scheme administrator) is deemed to be an employer
for all obligations under the TCA 1997.
Life Offices and Scheme Trustees should record the following details of individuals
availing of this option: name, address, PPS number, amount withdrawn.
Please refer to paragraph 23.15 regarding the issue of PAYE Exclusion Orders.
Approved Retirement Fund
23.8
As an alternative to full fund withdrawal, an individual who has satisfied the specified
income or AMRF requirements may transfer the balance of the retirement fund,
excluding any amounts taken as a retirement lump sum to an ARF. The Life Office or
Scheme Administrator should pay any retirement lump sum to the individual prior to
transferring the balance of the fund to an ARF. The funds in the ARF remain the property
of the individual who is the beneficial owner and may be withdrawn at any time.
Income and gains of ARF funds are exempt from tax while retained in the ARF.
An amount withdrawn from an ARF, including an imputed amount (see paragraph 23.14
and Chapter 28), is referred to as a “distribution”. A distribution has a very wide
meaning and encompasses any payment or transfer of assets out of an ARF, or the
assignment of the ARF, or assets in the ARF, by any person, including a payment,
transfer or assignment to the person beneficially entitled to the assets. It does not,
however, include the transfer of assets to another ARF owned by the individual or to the
transfers described in paragraph 23.6.2.
Without prejudice to the generality of the definition of the term “distribution”, the
following are specifically regarded as distributions by virtue of section 784A(1B) TCA
1997:
Loans made to the beneficial owner or connected person, or the use of
the assets of an ARF as security for such a loan,
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Acquisition of property from the beneficial owner or connected person,
Sale of an ARF asset to the beneficial owner or connected person,
Acquisition of residential or holiday property for use by the beneficial
owner or connected person,
Acquisition of property which is to be used in connection with any
business of the beneficial owner, or of a connected person,
Acquisition of shares in a close company in which the beneficial owner, or
connected person, is a participator,
The use of ARF assets by an ARF owner to invest in any fund, trust or
scheme etc. where a pension arrangement of a person connected with
the ARF owner (for example, an adult child, spouse etc.) invests in the
same, or any other, fund, trust or scheme etc. and there is an
arrangement whereby the investment return to the pension arrangement
is attributable in any way to the investment by the ARF owner (for
example, any remaining income or capital in the fund reverts to the
pension arrangement on the death of the ARF investor or otherwise on
the winding up of the fund). (Where a distribution arises in these
circumstances, section 790E provides that the connected person’s
pension arrangement is chargeable to income tax under Case IV of
Schedule D on any income or capital gains arising to the arrangement
from the investment in the fund etc.).
In the case of property acquisition, the distribution is the amount of the value of the
ARF assets used in connection with the acquisition, improvement and/or repair of the
property.
A close company means a company under the control of 5 or fewer participators, or of
participators who are directors. Please refer to section 430 TCA 1997 for a complete
definition.
A participator in relation to any company, means a person having a share or interest in
the capital or income of a company. Please refer to section 433 TCA 1997 for a complete
definition.
Definitions of “connected persons” and “relative” are contained in section 10 TCA 1997.
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Any distribution in relation to an ARF is deemed, for the purposes of section 784A, to
have been made by the QFM.
A distribution is treated as a payment of emoluments to which Schedule E applies.
However, the following are not taxable distributions–
A distribution from an ARF which is used to reimburse a pension scheme
administrator for tax paid by that administrator on a chargeable excess (see
Chapter 25.6) relating to the ARF holder.
Where a benefit crystallisation event (BCE) giving rise to chargeable excess tax
occurs in respect of retirements benefits which are the subject of a pension
adjustment order (PAO), a distribution from an ARF of the non-member spouse
or partner for the purposes of paying his or her share of the chargeable excess
tax arising on the BCE, or a part of it.
Certain distributions arising following the death of the ARF owner (see
paragraph 23.10).
Please refer to paragraph 23.15 regarding the issue of PAYE Exclusion Orders.
An individual may have more than one ARF.
Transfers may be made from one ARF to another ARF but may not be made from a postApril
2000 ARF to a pre-April 2000 ARF.
ARF funds may be used at any time to purchase an annuity payable to the beneficial
owner. The annuity purchase is not a distribution. However, the purchase of an annuity
for any other person is treated as a distribution.
Qualifying Fund Manager (QFM)
23.9
An ARF or AMRF must be managed by a QFM. A QFM is defined in section 784A TCA
1997 as one of the following:
Bank
Building society
Trustee savings bank
Post office savings bank
Credit union
Collective investment undertaking (e.g. unit trust)
Life assurance company
Stockbroker
Certain authorised investment intermediaries
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The QFM has complete responsibility for the discharge of all obligations in relation to
tax due on all distributions from the ARF and, as the case may be, AMRF in question.
A QFM who is not resident in the State, or who is not trading in the State through a fixed
place of business, may appoint a resident administrator to take responsibility for the
obligations imposed by the Taxes Acts. If a resident administrator is not appointed, a
QFM, resident in another EU Member State, must enter into a contract with Revenue
agreeing to discharge all legislative obligations imposed on the QFM.
A QFM must advise Revenue of the intention to act as a QFM within one month of
commencing to act in that capacity.
Prior to the establishment of an ARF or an AMRF, the QFM must receive a declaration
from the beneficial owner and a certificate from the Life Office, Scheme Administrator
or PRSA Provider. This information is also required where there is a transfer from one
ARF to another.
The declaration should contain the following:
Name, address, tax reference number of the beneficial owner.
Confirmation that the assets which are to be transferred consist only of assets to
which the individual is beneficially entitled, and
Confirmation that the assets which are to be transferred are currently held in an
RAC, PRSA, or an exempt approved occupational pension scheme.
The policy number and name of the Life Office/Provider or the name and
Revenue reference number of the scheme should be stated.
If the declaration refers to the establishment of an ARF, it must also provide detailed
confirmation that the AMRF requirements have been met or that the beneficial owner is
in receipt of the specified income. It is necessary to state the name and reference
number of the QFM who manages the AMRF, details of any annuity purchased, or the
name and reference number of the person paying the specified income.
Death
23.10
Any payment, or imputed payment, from an ARF following the death of the ARF owner
is a distribution and is taxable as such. The amount of the distribution is treated as
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income of the ARF owner for the year of assessment in which he or she dies. There are
some exceptions:
A transfer to an ARF in the name of the deceased’s spouse or civil partner
(referred to below as the second-mentioned ARF) is not a distribution.
A transfer to, or for the sole benefit of, any child of the deceased or of the
deceased’s civil partner who is under 21 at the time of ARF owner’s death is not
a distribution.
However, a distribution:
from the deceased’s ARF to a child of the deceased or of the deceased’s civil
partner who is 21 or over at the time of death, or
from the second-mentioned ARF, following the death of the surviving spouse or
civil partner, to a child of the spouse or civil partner who is 21 or over at the time
of that death (but not to a child who is under 21 at that time),
is subject to an income tax charge under Case IV of Schedule D at the rate of 30% (which
is a ring-fenced final liability tax).
Case IV tax deducted by a QFM from this type of distribution is subject to the reporting
and collection provisions applying to the excess lump sum tax regime (see Chapter 27).
Prior to 31 March 2012, the rate of charge was the standard rate and the tax was
collected under the PAYE regime.
The position regarding Income Tax & Capital Acquisitions Tax on the death of the ARF
holder and on the subsequent death of the spouse/civil partner into whose ARF the
original ARF was transferred is summarised below. The usual CAT thresholds apply:
Beneficiary Death of Holder Death of Spouse/Civil Partner
Income Tax CAT Income Tax CAT
Spouse/civil
partner
No No
Child under 21 No Yes No Yes
Child 21 or over Yes No Yes No
Others Yes Yes Yes Yes
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Proprietary Directors
23.11
The options outlined in this chapter are available to proprietary directors (also referred
to as ‘5% directors’) regardless of whether the scheme is a DC or DB scheme. A 5%
director wishing to exercise one of the retirement options is still subject to the usual
funding and contribution rules. A maximum benefits test should take place at
retirement and retirement options are based on the fund determined by the maximum
benefits test.
A 5% director taking one of the options may take a retirement lump sum of up to 25% of
the value of the retirement fund. This replaces the amount that is calculated by
reference to final remuneration and years of service (see Chapter 7). All schemes for
proprietary directors approved since 6 April 1999 must offer the retirement options.
Where a 5% director exercises a retirement option, he/she must exercise the same
option in relation to all schemes from the same employment.
A retirement option may be exercised on early retirement.
An option may only be exercised when benefits are taken. Where a 5% director reaches
NRA and continues working but takes benefits at NRA and is eligible to take further
benefits on actual retirement at a subsequent date, the benefits must be of the same
type as those taken at NRA.
Additional Voluntary Contributions
23.12
Please refer to paragraph 23.2 which clarifies what contributions qualify for the
retirement options. The definition of an AVC excludes employee contributions if such
employee contributions are matched by employer contributions. This means that
members of DC or DB schemes cannot choose to transfer only their AVCs benefits to an
ARF where their AVC contributions are matched by employer contributions. However, in
the case of a DC scheme, the transfer to an ARF of pension rights accruing to an
individual from AVCs where there are matching employer contributions is permitted
where the individual transfers all of his/her accrued rights (i.e. from both the main
scheme and AVCs) into an ARF at the same time.
The retirement lump sum calculation used where a retirement option is exercised in
respect of AVCs only continues to be on the 3N/80th basis as outlined in Chapter 7.
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Buy-Out Bonds
23.13
In the case of Buy-Out Bonds (BOBs), access to the ARF option in respect of main
scheme benefits under the occupational pension scheme arrangement from which the
transfer value to the BOB originated can be summarised as follows:
Defined Benefit (DB) Schemes:
With effect from 22 June 2016, the ARF option is available in respect of transfer values
from all DB occupational schemes to BOBs where benefits are taken on or after that
date and regardless of when the transfer occurs, i.e. whether the transfer to the BOB
took place before that date or from that date.
Prior to 22 June 2016, the ARF option applied only where the scheme member had the
right to exercise the option under the scheme rules prior to the date of transfer to the
BOB i.e. where he or she met the proprietary director test before the date of transfer.
Defined Contribution (DC) Schemes:
With effect from 26th May 2014, the ARF option is available in respect of transfer values
from all DC occupational schemes to BOBs regardless of when the transfer occurs.
Prior to 26 May 2014, the ARF option was not available in respect of transfers to BOBs
which occurred before 6 February 2011 (the date of passing of Finance Act 2011 which
extended the ARF option to the main scheme benefit from DC schemes) – other than in
the case of proprietary directors.
Imputed Distributions
23.14
The following describes the imputed distribution regime which applied for all years to 31
December 2011 in respect of assets held in an ARF.
For the year of assessment 2012 and following years, a new regime applies and
provides for imputed distributions for both ARFs and vested PRSAs on a composite
basis. Please refer to Chapter 28 for further details.
An imputed distribution on the market value of assets held in an ARF on the specified
date (31 December each year) has applied since 2006.
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The scheme, as introduced, provided for a 3% distribution on the market value of such
assets, phased in over a three year period, with a rate of 1% applying in 2007, 2% in
2008 and 3% in 2009.
The rate applicable in 2010 and 2011 was 5%.
QFMs were required to review all ARFs under their management each year to ascertain
if an imputed distribution arose.
When does an imputed distribution arise?
An imputed distribution applies:
for a year of assessment where the ARF owner is 60 years of age or over for the
whole of that year, and
in respect of ARFs created on or after 6 April 2000.
The imputed distribution regime does not apply to AMRFs.
How is the imputed distribution, if any, calculated?
The imputed distribution is calculated as a percentage of the market value of assets in
an ARF on 31 December each year (to 2011). In the case of buildings, where a valuation
is not readily obtainable as at 31 December, it is acceptable to use a valuation at any
date within 3 months prior to 31 December.
Actual distributions made during the year, from the ARF or AMRF (in respect of income
or gains) may be deducted from the “imputed distribution” to arrive at a “net” imputed
distribution (if any).
However, any amounts treated as distributions arising from certain transactions (section
784A(1B) TCA 1997), as detailed in paragraph 23.8, are not deductible for the purposes
of the calculation.
For the years of assessment 2010 and 2011, the formula used to calculate the imputed
distribution was:
(A × 5)
100 minus B
where A is the value of the assets in the ARF (or ARFs) at 31 December in the relevant
year and B is the value of any actual distributions made in that year.
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Examples:
1. Joe has an ARF valued at €600,000 at 31/12/2010. During the year of assessment
2010 the qualifying fund manager made distributions of €10,000 from his ARF. The
amount of the imputed distribution based on the fund value at 31/12/2010 is calculated
by using the formula,
(A x 5)
100 minus B
where A is €600,000 and B is €10,000
(€600,000 x 5) = €30,000
100
€30,000 minus €10,000 = €20,000, i.e. the amount of the imputed distribution for 2010.
2. Joan has an ARF valued at €400,000 and an AMRF valued at €63,500 at 31/12/2010
(The ARF was valued at €549,000 on 31 December 2009 and growth the following year
was €5,000). During 2010 she received distributions of €2,000 from the AMRF and
€4,000 from the ARF. On 30/06/2010 the ARF bought a holiday home for Joan’s personal
use at a cost of €150,000.
The amount of the imputed distribution based on the fund value at 31/12/2010 is
calculated by using the formula,
(A x 5)
100 minus B
where A is €400,000 and B is €6,000
(€400,000 x 5) = €20,000
100
€20,000 minus €6,000 = €14,000, i.e. the amount of the imputed distribution.
Notes
Actual distributions are €6,000 (€2,000 plus €4,000)
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Although the cost of the holiday home is treated as a distribution (see
paragraph 23.8), it can’t be included in the calculation of B (section 784A(1B)(d)
TCA 1997) as an offset against the tax due.
A is arrived at as follows:
€
Value at 31/12/2009 549,000
Growth during 2010 5,000
Distributions during 2010 (4,000)
Asset disregarded under S784A(1D) (150,000)
Value at 31/12/2010 400,000
More than one ARF
The calculation of the imputed distribution for a year of assessment is based on the
aggregate value of the assets in all ARFs, and the aggregate amount of distributions
from all ARFs and AMRFs, that are beneficially owned by the individual.
Where the ARF owner has more than one ARF, all of which are not managed by the
same QFM, the ARF owner may nominate one of the QFMs for the purposes of
operating these provisions and for accounting for any tax due on any overall imputed
distribution. This arrangement is optional and there is no obligation on a QFM to accept
such a nomination. Where a QFM agrees to act as the “nominee QFM”, the ARF owner
must advise all the other QFMs involved of the name and address of the nominee, and
the “other QFMs” must provide the “nominee QFM” with a certificate detailing the ARF
asset values and actual distributions made by them. The “nominee QFM” must then
calculate the imputed distribution as if the nominee had managed all of the ARFs and
had made all of the actual distributions.
Procedure for Payment of Tax
The imputed distribution is to be regarded as a distribution made not later than
February in the year of assessment following the year of assessment to which the
imputed distribution relates. The QFM must deduct tax from the imputed distribution in
accordance with the provisions of section 784A(3) TCA 1997. Tax deducted must be
included in the QFMs P30 return submitted to Revenue not later than 14 March of that
year.
For example, in respect of an imputed distribution calculated for 2010, the tax must be
paid by 14 March 2011.
Details of the tax deducted should also be included in the annual P35 return due in
February 2012.
Tax and Duty Manual Pensions Manual – Chapter 23
20
All payments of tax should be forwarded to:
Office of the Revenue Commissioners
Collector-General’s Division
PO Box 354
Limerick
The remittance should be accompanied by the following statement completed by the
QFM.
Approved Retirement Funds
Name of QFM:
Address:
I confirm that all Approved Retirement Funds under management have been reviewed
for the purposes of establishing if liability arises under Section 784A(3) TCA 1997.
Arising from this review, a sum of € ___ is reflected in the P30 for (month) in respect of
tax deducted from (insert number) Approved Retirement Funds, and is included in the
remittance to the Collector General in respect of that month.
Authorised Signatory: Date:
A payment and return can be sent electronically using Revenue-On-Line (ROS). For
details phone 1890 201106 or see the Revenue website:
http://www.revenue.ie/en/online/ros/index.html.
PAYE Exclusion Orders in respect of ARFs, AMRFs and retirement
fund balances
23.15
Income and assets retained in an ARF (see paragraph 23.8) or an AMRF (see paragraphs
23.5 & 23.6) are beneficially owned by the ARF/AMRF owner. Distributions (including
deemed distributions) from ARFs and AMRFs are treated and taxed as emoluments
under Schedule E, regardless of the residence status of the individual.
As Revenue’s position is that distributions from ARFs or AMRFs are not payments of
pension, PAYE Exclusion Orders are not issued in respect of such distributions.
Tax and Duty Manual Pensions Manual – Chapter 23
21
For the sake of completeness, Revenue also confirms that PAYE Exclusion Orders are not
issued where an individual takes the balance of his or her pension fund3 as a taxable
lump sum (see paragraph 23.7).
3
i.e. the balance of the fund after any retirement lump sum and, in circumstances where the specified
income requirement is not satisfied (see paragraph 23.5), any amount which has been transferred into an
Revenue Pensions Manual Imputed Distributions from Approved Retirement
Funds and Vested PRSAs
Pensions Manual – Chapter 28
Document last updated June 2017
Table of Contents
Introduction …………………………………………………………………2
Vested PRSAs ……………………………………………………………….2
Value of Assets……………………………………………………………..3
Specified Amount………………………………………………………….3
Appointment of a nominee……………………………………………..5
Provision of certificate(s) to nominee ……………………………….6
Nominee receives some or no certificates …………………………6
Nominee not appointed …………………………………………………7
Computation of imputed distribution where funds are held in
fixed-term deposits – alternative approach ……………………….7
PAYE Exclusion Orders in respect of ARFs and PRSAs…………..9
Tax and Duty Manual Pensions Manual – Chapter 28
2
Introduction
28.1
Section 790D TCA 1997, which applies for the year 2012 onwards, provides for a
scheme of imputed distributions for both Approved Retirement Funds (ARFs) and
vested PRSAs on a composite basis.
Prior to 2012, the imputed distribution regime applied only to ARFs created on or
after 6 April 2000 (the date the existing gross roll-up regime for ARFs was
introduced. Please refer to Chapter 23 for further details).
This regime was, with effect from the year 2012, extended to certain PRSAs vested
on or after 7 November 2002 (the date PRSAs were introduced) and applies to a year
of assessment where the ARF and/or vested PRSA holder is aged 60 years or over for
that entire year.
Vested PRSAs
28.2
A vested PRSA is defined in section 790D(1) as a PRSA
(a) from which assets of the PRSA have been made available to the PRSA owner
or any other person. In general this will be in the form of benefits taken from
age 60 (e.g. a retirement lump sum or taxed distribution) on or after 7
November 2002 (the date of introduction of PRSAs),
(b) which is a PRSA AVC, at the time benefits are taken from the main
occupational pension scheme (i.e. at the point of retirement), or
(c) in respect of which the owner reaches the age of 75 years, where, up to and
including the date of his or her 75th birthday, the PRSA assets have not been
made available to or paid to the owner or any other person, other than in
circumstances where part of the assets were transferred to another PRSA in
the owner’s name.
In certain instances the making available of PRSA assets does not constitute the
vesting of the PRSA, i.e.
(i) an amount transferred to an ARF/AMRF,
(ii) an amount made available to a personal representative of the PRSA holder,
(iii) the transfer, before a tax-free lump sum is taken, from one PRSA to another
PRSA or pension scheme of the owner.
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3
The definition ensures that where assets are in a PRSA AVC, vesting is deemed to
take place at the time benefits are taken from the main occupational pension
scheme (i.e. at the point of retirement) as that is when AVC benefits are required to
be taken.
A PRSA held by an individual who was 75 years of age before 25 December 2016 (the
date on which Finance Act 2016 was passed), and from which benefits had not been
taken on or before he or she attained that age, is deemed to become a vested PRSA
on 25 December 2016.
Value of Assets
28.3
The value of an asset in a relevant fund (other than cash) is the market value of the
asset in question within the meaning of section 548 TCA 1997. A ‘relevant fund’
means the assets in all of the ARFs and vested PRSAs beneficially owned by an
individual on 30 November in a tax year.
Specified Amount
28.4
The imputed distribution for a tax year is referred to in section 790D TCA 1997 as the
specified amount and is computed by way of a formula:
(A x B) – C (where the amount so computed is greater than zero) and where –
100
A is the value of the assets in a relevant fund on 30 November for the year 2012
onwards, excluding the value of assets retained by a PRSA administrator as would be
required to be transferred into an AMRF in accordance with an option to transfer
PRSA assets to an ARF.
B is1–
where the relevant value is not greater than €2m,
a. 4, where the individual is not aged 70 years or over for the whole of
the relevant tax year, or
b. 5, where the individual is aged 70 years or over for the whole of the
relevant tax year.
6, where the relevant value is greater than €2m.
1 These rates were introduced in Finance Act 2014 and are effective from 1 January 2015. Prior to that
date, where the relevant value was not greater than €2m, “B” was 5 irrespective of the age of the
individual. Where the relevant value is greater than €2m, there is no change.
Tax and Duty Manual Pensions Manual – Chapter 28
4
C is the amount or value of any relevant distributions made in the tax year.
The reference to “the value of the assets retained by the PRSA administrator as
would be required to be transferred to an AMRF” in the meaning of “A” excludes
from the asset base the assets that a PRSA administrator is obliged to retain in the
PRSA because the owner has not satisfied the specified income requirement or has
not established an AMRF of the required amount. As the assets in the AMRF are
specifically excluded from the specified amount calculation, this ensures that the
retained PRSA assets are also excluded from the calculation.
This formula basically provides that where–
the value of a relevant fund on the specified date is €2m or less, the specified
amount is equivalent to–
where the individual involved is not aged 70 years or over for the
whole of the relevant tax year, 4%, or
where the individual involved is aged 70 years or over for the whole
of the relevant tax year, 5%
of that value less the value of any relevant distributions (i.e. actual
distributions from the ARF, any associated AMRF and PRSA assets made
available to the PRSA owner after deducting excluded distributions in that
year from the relevant fund),
the value of the assets is greater than €2m, the specified amount is
equivalent to 6% of the full value (i.e. not just on that part of the fund that
exceeds €2m), less any relevant distributions.
For the most part, excluded distributions are essentially distributions that do not
attract a tax liability in their own right, e.g. the transfer of assets from one ARF to
another beneficially owned by the same individual, or a tax-free lump sum taken
from a PRSA on vesting. As noted above, the value of excluded distributions is
deducted in computing the value of relevant distributions. Excluded distributions are
the following:
imputed distributions themselves,
transfers between ARFs of the owner and transfer from the owner’s AMRF to
a replacement AMRF,
transactions by an ARF or PRSA that are regarded as distributions or the
making available of PRSA assets,
taking of a tax-free lump sum from a PRSA, transfers from a PRSA to an ARF
or AMRF or to the deceased owner’s estate and pre-vesting transfers to
another PRSA or pension scheme of the owner, and
use of ARF or PRSA assets to discharge an excess fund tax liability or to pay
the chargeable excess tax share of a former spouse or civil partner of a
Tax and Duty Manual Pensions Manual – Chapter 28
5
member of a retirement scheme, the benefits from which are the subject of a
pension adjustment order.
Depending on the nature of the relevant fund, the specified amount is regarded
either as a distribution of that amount from an ARF or as the making available of
PRSA assets of that amount to a PRSA contributor and separate taxing provisions
apply as appropriate to ARF distributions (section 784A(3) & (7)(b)) and to the
making available of PRSA assets (section 787G(1) & (2)).
For example, the specified amount of a relevant fund which consists solely of one or
more ARFs or one or more vested PRSAs is regarded as a distribution from an ARF or
the making available of PRSA assets respectively. Where there is a mixture of ARFs
and vested PRSAs the particular taxing regime depends on whether the QFM and the
PRSA administrator are the same person, in which case the specified amount is
regarded as a distribution from an ARF.
Where the QFM and the PRSA administrator are not the same person and the
individual appoints a nominee (see paragraph 28.5), the taxing regime depends on
whether the nominee is a QFM, a PRSA administrator, or both, in which case the
specified amount will be considered to be a distribution from an ARF, a PRSA and an
ARF, respectively.
The specified amount is regarded as having been distributed or made available not
later than the second month of the year of assessment following the year of
assessment for which the specified amount is determined.
Please refer to paragraph 28.9 in relation to the computation of the specified
amount where section 17(6) of the Finance Act 2013 applies and funds are held in
fixed-term deposits.
Appointment of a nominee
28.5
An individual may appoint a nominee where his or her relevant fund comprises ARFs
and/or PRSAs that are not all managed or administered by the same QFM or PRSA
administrator.
The appointment of a nominee is optional where the relevant fund has a value of
€2m or less. If no nominee is appointed, each QFM and PRSA administrator must
operate in isolation and apply the 5% notional distribution to the relevant ARF(s) or
PRSA(s) they manage/administer. Please refer to paragraph 28.8 where an individual
opts not to appoint a nominee.
The appointment of a nominee is compulsory where the relevant fund has a value
greater than €2m as in such situations the QFM or PRSA administrator will not have
sufficient information to operate in isolation as, unless the ARF/PRSA that they
Tax and Duty Manual Pensions Manual – Chapter 28
6
manage is itself greater than €2m they won’t know whether to apply the 4%, 5% or
6% rate.
An individual who appoints a nominee must advise the other QFMs and/or PRSA
administrators of that fact and provide them with the name, address and telephone
number of the nominee.
Where the appointment of a nominee is compulsory (i.e. where the relevant fund
has a value greater than €2m) the individual must advise the other
manager/managers that the appointment of the nominee is a compulsory
appointment and that the reason for the appointment is that the aggregate value of
the assets in the ARFs/PRSAs is greater than €2m and therefore attracts the 6% rate
of tax.
Provision of certificate(s) to nominee
28.6
Where a nominee is appointed for any year, the other manager(s) must provide the
nominee with a certificate for that year stating the aggregate value of the assets in,
and relevant distributions from, the ARFs/PRSAs they manage within 14 days of the
specified date (i.e. by 14 December of a tax year).
In the case of a PRSA fund, the certificates should exclude any amount retained by
the PRSA administrator for AMRF purposes (see paragraph 28.4), as these do not
form part of the asset base for the specified amount.
The nominee must retain these certificates for 6 years for production to Revenue, if
required.
A nominee who receives a certificate or certificates from the other manager(s) must
determine the specified amount (see paragraph 28.4) as if the value of the assets
and the relevant distributions stated in each certificate so received were the value of
assets in, and relevant distributions from, an ARF or a vested PRSA managed or
administered by the nominee. This applies even if the nominee only gets some but
not all of the required certificates (see paragraph 28.7).
Nominee receives some or no certificates
28.7
Where the relevant fund value is €2m or less –
Where the nominee receives no certificates at all from the other fund
manager(s) then the nominee and the other manager(s) must determine in
isolation the specified amount in respect of the ARFs/PRSAs that they
Tax and Duty Manual Pensions Manual – Chapter 28
7
manage, i.e. as if the individual’s relevant fund comprised solely of the
ARFs/PRSAs that each manages.
Where the nominee has received some certificates but not all of them, the
managers that failed to provide certificates must determine in isolation the
specified amount as described in the preceding paragraph. As the nominee
will have received at least one or more certificates from the compliant
manager(s) the nominee must calculate the specified amount in accordance
with section 790D (8) in respect of the nominee and the other managers that
provided certificates (see end of paragraph 28.6).
These provisions also apply where the relevant fund value is greater than €2m
except that any specified amount calculated in isolation is to be based on 6% of the
value of the fund.
Nominee not appointed
28.8
Where an individual, whose relevant fund comprises ARFs and/or PRSAs
that are not managed or administered by the same QFM and/or PRSA
administrator, opts not to appoint a nominee because the value of the assets in
the relevant fund does not exceed €2m, each QFM and/or PRSA
administrator must determine in isolation the specified amount in respect of
the ARFs/PRSAs that they each manage as if the individual’s relevant fund
comprised solely of those ARFs/PRSAs that each manage.
Computation of imputed distribution where funds are held in
fixed-term deposits – alternative approach
28.9
As advised in Chapters 23 and 24, the specified income amount and the amount to
be transferred to an AMRF were increased in Finance Act 2011 to €18,000 and
€119,800 respectively and subsequently reduced to the previous lower limits by
section 17 Finance Act 2013.
Section 17(6) Finance Act 2013 introduced measures to ensure that individuals who
were subject to the higher specified income and AMRF limits which applied during
the period 6 February 2011 to 26 March 2013 were not disadvantaged.
Firstly, where such individuals have specified income of at least €12,700 on or after
27 March 2013 (the date of passing of Finance Act 2013) any AMRF immediately
becomes an ARF and any ring-fenced amounts retained in vested PRSAs immediately
become non ring-fenced amounts.
Tax and Duty Manual Pensions Manual – Chapter 28
8
Secondly, where they do not have specified income of €12,700 per annum on 27
March 2013 but had originally transferred more than €63,500 to an AMRF or
retained that amount in a vested PRSA, the excess amount transferred or retained
above €63,500 immediately becomes an ARF or a non ring-fenced amount.
Funds that become ARFs or non ring-fenced amounts retained in vested PRSAs in
these circumstances are subject to the imputed distribution arrangement (see
paragraph 28.4). However, it is accepted that difficulties may arise in paying the
resultant tax where the funds which were originally transferred into an AMRF or
retained as ring-fenced amounts in a vested PRSA (the amount of which was
computed on the basis of the higher limits which applied in the period 6 February
2011 to 26 March 2013), were invested in fixed-term deposits which do not permit
early withdrawals or where penalties apply to early withdrawals, such that no funds
are available during the term of the deposit to pay the tax on the imputed
distribution.
In recognition of these difficulties, Revenue will accept that the provisions of section
790D need not be applied until 30 November following the date on which the fixedterm
account matures where the following circumstances apply:
Funds in excess of the lower specified amount of €63,500 were transferred
into an AMRF or retained as a set-aside amount in a vested PRSA during the
period 6 February 2011 to 26 March 2013,
During that period, the funds were invested in a fixed-term deposit account
or accounts for a term not exceeding 5 ½ years,
Due to contract conditions funds cannot be withdrawn from the account
during the term of the account, or early withdrawals are subject to penalties,
and
The provisions of section 17(6) Finance Act 2013 apply so that some or all of
those funds become an ARF or a non ring-fenced amount in a vested PRSA
on or after 27 March 2013.
Where these circumstances apply, the amount of the imputed distribution may be
computed on the basis of the value of the funds on 30 November immediately
following the date the fixed term account matures multiplied by the number of years
in question, i.e. the years for which an imputed distribution was not computed and
the year in which the 30 November following the maturity date of the account falls,
and tax paid and accounted for accordingly.
It should be noted that the alternative approach outlined above is not compulsory
and insurers are free to account for and pay tax on the imputed distribution annually
in the normal way.
Tax and Duty Manual Pensions Manual – Chapter 28
9
PAYE Exclusion Orders in respect of ARFs and PRSAs
28.10
Revenue does not issue PAYE Exclusion Orders in respect of distributions or
withdrawals from ARFs and PRSAs (whether actual or imputed). Please refer to
Chapters 23.15 and 24.10, respectively.