Retirement Annuities
Revenue Pensions Manual RACs
Introduction
21.1
The legislation governing retirement annuity contracts (RACs), often referred to as personal
pensions, is contained in sections 783, 784 and 785 to 787 of the Taxes Consolidation Act
1997. The contract must be between an individual and an insurance company. The Life
Office will agree the terms of a standard contract with Revenue and is then able to market
the contract. Following receipt of a contribution or premium, the insurance company issues
an RAC Certificate to the individual, who is then in a position to claim relief.
Eligibility
21.2
In order to obtain tax relief on contributions to a contract the individual must have a source
of “relevant earnings”. In simple terms “relevant earnings” means income arising in any
income tax year from a trade or profession or from a non-pensionable employment.
A “non-pensionable employment” is one where either the individual is not included for
retirement benefits under an approved occupational pension scheme relating to the
employment or where the sole benefit arising is restricted to a lump sum payable upon
death.
Once there is a source of relevant earnings, the fact that an individual may also have a
separate source of pensionable employment is not of concern. However, tax relief will be
allowable based on the source of relevant earnings only. Income must be earned income
and income from an investment company does not qualify.
An individual working abroad on a temporary basis may continue to make contributions
provided that the secondment abroad is directly related to his/her source of earnings prior
to the move and is for a period of less than 5 years with a clear expectation of return
following the absence.
In the case of married couples or couples in a civil partnership, each spouse or civil partner
must have his/her own source of relevant earnings in order to effect or contribute to a
contract. Again tax relief is allowable against own relevant earnings only.
Tax Relief
21.3
As with other pension products, tax relief for premiums paid in respect of RACs is subject to
two main controls.
The first control is an age-related percentage limit of an individual’s net relevant earnings1
.
This provides that the maximum amount of pension contributions in respect of which an
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individual may claim tax relief may not exceed the relevant age-related percentage of the
individual’s net relevant earnings in any year of assessment.
The age-related percentage limits are:
Under 30 15%
30-39 20%
40-49 25%
50-54 30%*
55-60 35%
60 or over 40%
* The 30% limit applies, irrespective of the lower actual age based percentage limits, to
certain categories of professional sportspersons2
.
The second control places an overall upper limit on the amount of net relevant earnings that
may be taken into account for the purposes of giving tax relief.
The earnings limit is currently set at €115,0003 and applies whether an individual is
contributing to a single pension product or to more than one pension product.
Where an individual is contributing solely to one or more RACs the maximum amount of tax
relievable premiums is the relevant age-related percentage of the lower of:
the individual’s net relevant earnings, and
the earnings limit.
Where an individual has two sources or more of income (e.g. earnings from employment
and profits from self-employment and is making pension contributions to an occupational
pension scheme and to an RAC) a single aggregate earnings limit, which, as noted above, is
currently €115,000, applies in determining the amount of tax relievable contributions.4
For years of assessment prior to 2011, the earnings limits were as follows:
2003 – 2006: €254,000
2007: €262,382
1 Net relevant earnings consist essentially of income less deductions which would be made in computing total
income for tax purposes. These deductions include losses and capital allowances relating to a source of
relevant earnings.
2 Athletes, badminton players, boxers, cricketers, cyclists, footballers, golfers, jockeys, motor racing drivers,
rugby players, squash players, swimmers and tennis players.
3 The limit of €115,000 was introduced by section 19 Finance Act 2011.
4 Please refer to Chapter 26 for detailed information and examples on tax relief for pension contributions,
including contributions to more than one pension product.
Tax and Duty Manual Pensions Manual – Chapter 21
2008: €275,239
2009 & 2010: €150,0005
Where full relief cannot be given for a year of assessment in respect of premiums paid in
that year, the unrelieved amount may be carried forward to the next or succeeding years
and treated as a qualifying premium paid in subsequent years.
If a premium is paid after the end of the year, but on or before the following 31 October
relief may be allowed in the earlier year provided an election to do so is made by the
individual on or before the 31 October. Taxpayers who are entitled to avail of the extended
return filing and payment date under ROS may also avail of the extended date to make an
election and pay a premium. As the payment of a qualifying premium is a pre-condition to
the availability of relief, an election made in advance of such a payment is not effective.
The date for making elections for premiums paid in the year of retirement may be extended
in certain circumstances (see Appendix III of this Manual).
Full details of RAC premiums should be included on the annual Return of Income. In the case
of employees who are contributing to an RAC, relief may be given using the net pay
arrangement, as is the case for AVCs.
Tax relief is non transferable between spouses or civil partners.
PRSI & Universal Social Charge
21.4
There is no relief from PRSI or the Universal Social Charge in respect of premiums made to
RACs.
Benefits on Retirement
21.5
Benefits may be taken at any time after age 60, even if the individual is still working, but
must be taken on or before the individual’s 75th birthday (see Para 21.8 in relation to RAC
benefits which are not taken on or before an individual’s 75th birthday). In certain
occupations, with prior Large Cases Division (Financial Services Pensions) approval, benefits
may be taken before age 60 but in no case before age 50. In cases of serious ill-health,
For the year of assessment 2010, the earnings limit is deemed to be €115,000 for the purpose of determining
how much of a premium paid by an individual in the year of assessment 2011, is to be treated as paid in the
year of assessment 2010. Please refer to Chapter 3.2 for an example.
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benefits may be taken at any age provided the Life Office has received medical evidence to
show that the individual is “permanently incapable through infirmity of mind or body of
carrying on his own occupation or any occupation of a similar nature for which he is trained
or fitted” (Section 784(3)(b)).
Up to 25% of the fund may be taken as a tax-free lump sum (see Chapter 27) and the
balance used to either purchase an annuity from a Life Office or to exercise one of the
retirement options detailed in Chapter 23, Approved Retirement Funds. All annuity
payments are chargeable to tax under Schedule E.
With effect from 8 February 2012, section 787TA provides a one–off opportunity (the
encashment option) for individuals with dual private and public sector pension
arrangements who meet certain conditions to encash their private pension rights, in whole
or in part, from age 60 (or earlier, where retirement is due to ill health) with a view to
eliminating or reducing the chargeable excess that would otherwise arise when their public
service pension crystallises. The exercise of this option attracts income tax (which is ringfenced)
at the point of encashment on the full value of the rights at the higher rate of tax in
force at that time plus 4% USC. No benefits can be taken from a scheme in respect of which
the encashment option has been exercised. Please refer to Chapter 25 for information on
the circumstances in which a chargeable excess can occur.
Please refer to Chapter 7.4 for details of the circumstances in which the practice relating to
the commutation of trivial pensions may be extended to holders of RACs.
Death Benefits
21.6
On death before retirement, the value of the fund may be used to purchase a spouse’s, civil
partner’s or dependants’ pension or, if no pension is purchased, the fund may be paid to the
individual’s personal representatives. A contract approved under Section 785 provides
death benefits only. Total relief for both Section 784 and 785 contracts is limited to the age
based percentage limits and earnings ceiling detailed above.
Please refer to Para. 21.8 in relation to the treatment of cash and other assets in an RAC
from which benefits had not been taken on or before the individual’s 75th birthday.
Group Schemes
21.7
It is possible for a representative body to establish, under an irrevocable trust, a group
scheme to provide Section 784 and 785 benefits. The same conditions apply to a group
scheme as apply to an individual RAC. A group scheme must be established by a body of
persons comprising or representing the majority of the individuals so engaged in the State.
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Retirement benefits not taken on or before age 75
21.8
An RAC from which retirement benefits have not commenced on or before the date of an
individual’s 75th birthday is treated as becoming a vested RAC (within the meaning of section
787O) on that date. Where the individual was 75 before 25 December 2016 (i.e. the date on
which Finance Act 2016 was passed), the RAC is deemed to vest on 25 December 2016. A
consequence of an RAC vesting in these circumstances is that, subject to the transitional
measures described below, the individual cannot access the RAC assets in any form from the
date of his or her 75th birthday.
As a transitional measure, the owner of an RAC which is deemed to vest on 25 December
2016 (i.e. where the owner was 75 before that date) may, on or before 31 March 2017, take
retirement benefits from the RAC in the form of an annuity, a retirement lump sum or under
the ARF options.
The vesting of an RAC is a Benefit Crystallisation Event for the purposes of Chapter 2C of
Part 30 of the TCA 1997 (see Chapter 25).
Cash and other assets in a vested RAC representing an individual’s rights under the RAC
when he or she dies are treated as if they were cash and other assets of an ARF and section
784A(4) applies accordingly (see Chapter 23.10).
Similar vesting provisions apply to PRSAs (see Chapter 24).
Reviewed June 2016
CHAPTER 16
Revenue Pensions Manual Group Schemes
Associated Employers
16.1
Revenue is prepared to exercise its discretion to approve a group scheme in which
two or more employers participate, provided that the following conditions are
satisfied:
(a) The employers must be sufficiently closely associated to be treated as carrying
on a single trade or undertaking. This condition is met if the employers all
belong to a group of companies forming a single financial unit, e.g. if they are
parent and subsidiary, or fellow subsidiaries of the same parent. For this
purpose, a company may be regarded as a subsidiary if at least 50% of its
equity share capital is owned by the other, directly or indirectly. However, a
company or partnership formed as a joint-enterprise by two or more parent
companies may participate in a scheme established by any one of those
parents, even though that parent has less than a 50% interest in it.
Alternatively, even though no parent/ subsidiary relationship exists, there
may be enough links between the employers to warrant a group scheme
based on close association through permanent community of interest. Such
links could be common management or shareholders, inter-changeable or
jointly employed staff and inter-dependent operations (e.g. one selling the
bulk of the other’s products).
(b) Each employer participating in the scheme must be under an obligation to
observe the rules of the scheme.
(c) Each employer must contribute in respect of their own employees. Relief is
confined to contributions paid in respect of persons employed in the
employer’s trading activities.
(d) The rules must provide for the withdrawal of an employer who ceases to be
sufficiently closely associated with, or related to, the other, or who goes out of
business. This usually involves the segregation of an appropriate proportion
of the scheme assets and the application of the winding-up rule. If, however,
the seceding employer is continuing in business, the segregated assets may
form the nucleus of a new scheme, or be transferred to another scheme in
which the employer has become eligible to participate.
(e) An employer who is not resident in the State may participate in a group
scheme if there is a sufficiently close association with the principal employer.
Approval
16.2
Any proposal to establish a group scheme to admit an employer to participate, or to
retain in the scheme an employer who has ceased to satisfy the conditions for
participation, should be submitted to Revenue for consideration.
Basis for Providing Benefits
16.3
A group scheme may provide benefits based on the employee’s final remuneration
where all the participating employers are closely associated. In such a case, the
employee’s total service within the group, irrespective of moves from one
participating employer to another, is regarded as constituting a single unbroken
employment, except where part of his service was given abroad with a non-resident
employer.
Employers Not Related or Associated
16.4
Even where there is no close relationship or association between the employers, it
may be possible to approve a group scheme provided the following conditions are
satisfied:
(a) The employees are employees working in a particular industry in a particular
area or, on a nation-wide basis, or are employees of employers who are
members of a particular professional or trade association or similar body and
wish to participate in a scheme sponsored by the association or body. In such
cases, Revenue must be satisfied not only that the sponsoring body is truly
representative of the employers desiring to participate and actively concerned
with such matters as the code of conduct of its members and conditions of
employment in the trade or profession, but also that the participating
employers together have enough pensionable employees to ensure reasonable
continuity in the scheme.
(b) Each employer participating in the scheme must be under an obligation to
observe the rules of the scheme.
(c) Each employer must contribute in respect of his own employees.
(d) The rules must provide for the withdrawal of an employer who ceases to
satisfy the conditions of approval or goes out of business.
Reviewed June 2016
(e) If any of the participating employers have other schemes in which members
of the group scheme also participate, Revenue will require that the group
scheme be treated in all such cases as the employer’s basic scheme. It will
follow that if any restrictions in members’ benefits are necessary they will be
affected primarily in the other schemes.
Basis for Providing Benefits
16.5
An employee, as described in 16.4, who moves from one participating employer to
another, is changing employment and should not receive greater total benefits than
he would if each employer had his own scheme. Accordingly, although each
employer may provide benefits by reference to the employee’s final remuneration
while in his service, when an employee moves, the benefits attributable to service up
to that date must be “frozen” within the maximum approvable for an employee
who withdraws from service on a given level of remuneration, and cannot be
increased solely because under a subsequent employer the employee is paid more.
Refunds to Employers
16.6
If surplus monies, arising for example when an employee withdraws from service,
are payable to the employer, any refund should be made either to the employer
with whom the employee was serving at the time, or apportioned between all the
employers who had previously contributed in respect of the employee concerned,
whichever method is thought most convenient. Where no actual refund arises
(because there is a trust fund or a controlled funding policy) the excess
contributions may be applied to the general purposes of the scheme in any manner
desired, except that if the participating employers include one or more nonresident
employers, excess contributions derived from non-resident and resident
employers respectively should be kept separate.
Irish Employers Associated with Overseas Employers
16.7
An Irish subsidiary or associate company of an overseas company may participate
in a scheme established in the State by that overseas company or by another Irish
subsidiary or associate of the overseas company. Alternatively, an Irish subsidiary
of an overseas company may participate in the parent company’s own overseas
scheme, provided the part of that scheme applicable to the Irish company is
approved here.
Change of Residence
16.8
Where an overseas branch of an Irish employer becomes a separate company
resident abroad for tax purposes, or there is any change in the tax residence status of
any employer participating in a scheme, the approval of the scheme will need to be
reconsidered by Revenue.
Revenue Pensions Manual Fund Limits
2
Introduction
25.1
Chapter 2C1 of, and Schedule 23B to, the Taxes Consolidation Act (TCA) 1997 deal
with the limit on tax-relieved pension funds. These provisions, which were originally
inserted into the TCA 1997 by the 2006 Finance Act, impose a maximum allowable
retirement pension fund for tax purposes.
The provisions operate by imposing a lifetime limit, or ceiling, on the total capital
value of pension benefits that an individual can draw in their lifetime from tax
relieved pension products where those benefits are taken, or come into payment,
for the first time on or after 7 December 2005 (benefits which came into payment
prior to 7/12/2005 are ignored). This limit is called the standard fund threshold (SFT)
and is currently €2m (see paragraph 25.2). In certain circumstances, a higher
threshold called the personal fund threshold (PFT) may apply (see paragraph 25.3).
In many cases individual pension funds will be restricted to lower limits reflecting
Revenue maximum benefit rules.
On each occasion on or after 7 December 2005 that an affected individual becomes
entitled to receive or, in the case of vested RACs or vested PRSAs (see Chapters 21
and 24 respectively) is treated as having received, a benefit (e.g. a pension,
retirement lump sum etc.) under a pension arrangement (referred to in the
legislation as a “benefit crystallisation event” or BCE – see paragraph 25.4), they use
up part of their SFT or PFT to the extent of the capital value of that benefit.
When the capital value of a BCE (either on its own or when added to BCEs that have
been taken since 7 December 2005) exceeds an individual’s SFT or PFT, a
“chargeable excess” arises equal to the amount by which the fund threshold is
exceeded (see paragraph 25.6). The whole of the amount of the chargeable excess is
subject to an upfront income tax charge2
, at the higher rate of income tax for the
year in which the BCE occurs. The pension scheme administrator is required to
deduct and pay this tax to the Collector-General.
This Chapter summarises how the provisions operate and how any tax charge is
calculated. The topics covered in this Chapter are:
25.2 Standard Fund Threshold
25.3 Personal Fund Threshold
25.4 Benefit Crystallisation Events
25.5 BCE Certificate
25.6 Chargeable Excess
25.7 Pension Adjustment Orders
25.8 BCE Declaration
1 Chapter 2C contains sections 787O to 787U.
2 For the years of assessment 2015, 2016 and 2017 the higher rate of income tax is 40%. For earlier
years, the rate was 41% or 42%, depending on when the BCE occurred.
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25.9 Credit for lump sum tax against chargeable excess tax
25.10 Schedule 23B
Standard Fund Threshold (SFT)
25.2
The SFT is the generally applicable maximum tax-relieved pension fund3
for an
individual and, as provided for in section 18 Finance (No. 2) Act 2013 which
amended section 787O of the TCA 1997, is set at €2m from 1 January 2014 (the
“specified date”). The Minister for Finance may amend the SFT in subsequent years
in line with an earnings adjustment factor.
From 7 December 2010 to 31 December 2013 the SFT was €2.3m
The amount of the SFT prior to 7 December 2010 was:
Tax Year Factor SFT
2005 n/a €5,000,000 (from 7 December 2005)
2006 n/a €5,000,000
2007 1.033 €5,165,000
2008 1.049 €5,418,085
2009 1 €5,418,085
2010 1 €5,418,085 (to 6 December 2010)
Personal Fund Threshold (PFT)
25.3
A PFT is an increased maximum tax-relieved pension fund which may apply instead
of the SFT where the capital value of an individual’s pension rights on the “specified
date” (within the meaning of section 787O) exceeds the amount of the SFT which
applies on that date. As noted in paragraph 25.2, section 18 Finance (No. 2) Act
2013 amended the SFT for the tax year 2014 to €2m (from the previous value of
€2.3m). In addition, the specified date was amended to 1 January 2014 (from 7
December 2010).
Individuals with pension rights whose capital value as at 1 January 2014 exceeds €2m
are able to protect that higher capital value (up to an amount not exceeding the
previous SFT of €2.3m) by claiming a PFT from the Revenue Commissioners. Details
of the procedures for making a PFT notification on or after 1 January 2014 are set
out below.
3 The maximum tax-relieved pension fund is the limit on the capital value of pension benefits (benefit
crystallisation events) that may be drawn down by an individual on or after 7 December 2005,
without the application of excess fund tax.
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Calculation of a PFT
A PFT is calculated by taking the sum of the capital values on 1 January 2014 of all of
an individual’s
“uncrystallised” pension rights4
, i.e. pension rights that the individual is
building up on that date but has not yet become entitled to, and
“crystallised” pension rights5
, i.e. pension benefits that an individual has
already become entitled to from any pension arrangements since 7
December 2005.
Where, on 1 January 2014, the overall capital value of an individual’s crystallised and
uncrystallised pension rights exceeds the SFT of €2 million, that higher amount will
be the individual’s PFT, subject to a maximum PFT of €2.3m (i.e. the previous SFT
limit). The only exception to this is where an individual holds a PFT issued in
accordance with the legislation as it applied before 18 December 2013 (i.e. the date
Finance (No.2) Act 2013 was enacted). Such an individual retains that earlier PFT and
there is no need to make a new application to Revenue.
It should be noted that where a pension arrangement is (or was) subject to a Pension
Adjustment Order (PAO), the PAO must be ignored in determining the capital value
of the pension arrangement for PFT purposes. In other words the capital value must
be calculated as if the PAO had never been made. This requirement applies
regardless of whether or not the PAO beneficiary takes a transfer value to another
pension arrangement. The corollary of this is that the designated benefit under the
PAO in favour of the former spouse or civil partner does not form part of the former
spouse/civil partner’s PFT calculation.
Determination of pension rights for PFT purposes
In the case of uncrystallised rights, the capital value of defined contribution (DC)
arrangements for PFT purposes is the value of the assets in the arrangement that
represent the member’s accumulated rights on 1 January 2014, i.e. the value of the
DC fund on that date.
The position is different for members of defined benefit (DB) arrangements because
such arrangements do not have an individual “earmarked” fund for each member.
Where a DB arrangement provides a lump sum commutation option, the amount of
a member’s pension rights is the annual amount of the gross pension (i.e. before any
4 For example, rights under defined benefit (DB) and defined contribution (DC) occupational pension
schemes, AVCs, retirement annuity contracts and PRSAs.
5 For example, the commencement of a pension or annuity, the receipt of a retirement lump sum or
the proceeds of a pension fund being placed in an Approved Retirement Fund (ARF), an Approved
Minimum Retirement Fund (AMRF) or retained in a vested PRSA. These are known as “benefit
crystallisation events” (BCEs).
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commutation for a lump sum) that would have been payable under the rules of the
arrangement if the member had retired on 1 January 2014 at his/her salary and
service on that date and on the assumption that he/she had attained normal
retirement age on that date, multiplied by 20.
Where a DB arrangement provides a separately accrued lump sum entitlement
(otherwise than by way of commutation of part of the pension) e.g. public service
schemes, the value of the lump sum entitlement (calculated on the same
assumptions as in the preceding paragraph) is added to the capital value of the DB
pension to arrive at the overall capital value of the member’s pension rights on 1
January 2014.
In the case of crystallised rights, the capital value of the pension benefits from DC
arrangements is the value of the cash/assets that were used, for example, to
purchase an annuity or that were transferred to an ARF. The value of a retirement
lump sum is the amount of the lump sum paid.
For a DB arrangement with a lump sum commutation option, the capital value of the
crystallised pension benefits is the gross amount of pension that would have been
payable (before any commutation for a lump sum) in the first 12 months (ignoring
any adjustments over that period) from the date the individual became entitled to it,
multiplied by 20 (the standard capitalisation factor).
Where a DB arrangement provides for a separately accrued lump sum (other than by
way of commutation of part of the pension), the capital value of the crystallised
pension benefits is the actual annual amount of pension paid in the first 12 months
(ignoring any adjustments over that period) from the date the individual became
entitled to it multiplied by 20, plus the cash value of the separate pension lump sum
paid at that time (disbursements from the lump sum, e.g. for arrears of Spouse’s and
Children’s pension, do not reduce its cash value for PFT purposes).
Notes:
(i) In the case of a crystallised DB pension with commutation option, the gross
amount of the DB pension for PFT purposes is the amount that would have
been payable in the first 12 months before any commutation. It is not the
initial annual rate of pension actually paid to the individual in the first 12
months (which would probably reflect the fact that part of the pension was
commuted for a lump sum) nor the annual rate of the pension being paid at
the specified date or later (which could reflect increases in the pension since
it was first awarded) Rather, it is the amount of pension that would have
been payable in the first 12 months from the date the individual became
entitled to it on the assumption that there had been no commutation of part
of the pension for a lump sum. Any lump sum actually paid is, therefore,
ignored in computing the capital value of the crystallised pension rights in
such cases as it is already reflected in the calculation of the pension capital
value.
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(ii) The higher age–related valuation factors which apply for determining the
capital value of DB pension benefits at the point of retirement, where an
individual retires after 1 January 2014 (see Schedule 23B) must not be used
for PFT purposes. The factor for PFT purposes is always 20.
(iii) The value of a lump sum is the amount before excess lump sum tax, if any.
Procedures for making a PFT notification on or after 1 January 2014
Section 787P TCA 1997 requires that a PFT notification in respect of the capital value
of pension benefits on 1 January 2014 must be made electronically within 12 months
of a new electronic notification system being made available by Revenue. However,
regardless of this 12 month period, where an individual becomes entitled to a
pension benefit (i.e. a benefit crystallisation event occurs) after 1 January 2014 (e.g.
through retirement) in circumstances where he or she would be claiming a PFT, the
notification must be submitted to Revenue prior to the BCE arising.
As the electronic system was made available on 1 July 2014, the deadline was
originally set at 1 July 2015. This deadline was subsequently extended however to 31
July 2015.
For the purposes of the application an individual must
provide basic identifying information about him or herself and the various
pension arrangements he or she is a member of,
obtain from the administrator of each pension arrangement of which he/she
is a member, a statement –
o certifying the capital value of his/her pension rights (both crystallised
and uncrystallised) on 1 January 2014 in relation to each
arrangement, calculated in accordance with the provisions of
Schedule 23B, and
o in the case of a DB arrangement, certifying the annual amount of
pension accrued at 1 January 2014 underpinning that calculation (see
above for details of how this amount is computed).
Miscellaneous
PFT certificates issued by Revenue stating the amount of an individual’s PFT should
be retained as they will be required by pension scheme(s) administrator(s) when
retirement benefits eventually come into payment or are drawn down to determine
if a chargeable excess arises.
The Revenue Commissioners may withdraw a certificate issued in respect of a PFT
and, where appropriate, issue a revised certificate if it subsequently transpires that
the information included in the PFT notification is incorrect or it comes to light that
the individual is not entitled to a PFT.
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As with the SFT, there is provision for amending the PFT from 2015 in line with an
earnings adjustment factor.
An individual who received a PFT certificate from the Revenue Commissioners
following the introduction of the limit on tax-relieved pension funds on 7 December
2005 or following the reduction of the SFT from just over €5.4m to €2.3m on 7
December 2010 continues to be entitled to the amount on that certificate, amended,
as appropriate, in line with the earnings adjustment factors applicable since the PFT
was granted, and there is no need to apply to Revenue for a new certificate.
Examples
The following examples illustrate how the PFT provisions operate in practice.
Example 1
The capital value of Paul’s pension fund on 1 January 2014 (i.e. his uncrystallised
pension rights) was €1.5m. He had not become entitled to any pension rights since 7
December 2005. As the capital value of Paul’s uncrystallised rights on 1 January was
below the SFT of €2m, he cannot claim a PFT and the maximum allowable pension
fund for tax purpose that he can build up is €2m.
Example 2
The capital value of John’s uncrystallised pension rights on 1 January 2014 was
€2.2m. He had not become entitled to any pension rights since 7 December 2005. As
the capital value of John’s uncrystallised pension rights exceeded the SFT of €2m, he
is entitled to claim a PFT of €2.2m.
Example 3
Mary had uncrystallised pension rights valued at €2m on 1 January 2014. She
became entitled to pension benefits under another scheme on 1 January 2011, with
a capital value of €0.5m. The combined value of Mary’s crystallised and
uncrystallised pension rights is €2.5m. As this amount exceeds the old SFT of €2.3m,
the maximum PFT she can claim is €2.3m.
Example 4
Jean had uncrystallised pension rights on 7 December 2010 valued at €4m and had
crystallised pension benefits under another scheme on 1 July 2006 with a capital
value of €2m. As the combined value of Jean’s crystallised and uncrystallised pension
rights on 7 December 2010 exceeded the (then) SFT of €2.3m, she applied for, and
received, a PFT of €5,418,085, i.e. the amount of the SFT which applied from 7
December 2005 to 6 December 2010 (as adjusted by the earnings adjustment factors
designated by the Minister for Finance). She continues to be entitled to the amount
on that certificate and she is not required to apply for a new PFT.
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Example 5
Ben is a member of a DB scheme on a salary of €200,000 and had 39 years service on
1 January 2014. The scheme provides for a separately accrued lump sum
entitlement. His accrued pension rights on that date were an annual pension of
€97,500 (€200,000 x 1/80 x 39) and a gratuity of €292,500 (€200,000 x 3/80 x 39). He
may claim a PFT of €2,242,500, calculated as follows: (Annual pension €97,500 x 20 =
€1,950,000 + gratuity of €292,500).
If the scheme had provided for a lump sum commutation option instead of a
separately accrued lump sum entitlement, the amount of Ben’s pension rights would
be the annual amount of the gross pension (i.e. before any commutation for a lump
sum) multiplied by 20.
Benefit Crystallisation Events (BCEs)
25.4
A BCE occurs on each occasion that, in relation to a “relevant pension arrangement”
of which the individual is a member, any of the following takes place:
1. The individual takes a pension, annuity or retirement lump sum.
2. The individual exercises an ARF option.
3. The individual does not elect under section 787H(1) to transfer PRSA assets
to an ARF and instead retains the assets in a PRSA.
4. A payment or transfer is made to an overseas pension arrangement.
5. There is an increase in a pension which an individual becomes entitled to on
or after 7 December 2005 in excess of the “permitted margin” (viz. the
greater of 5% p.a. or CPI plus 2%). This is an anti-avoidance measure to
prevent commencement of a pension at a low rate in order to bring the
capital value of the pension benefit below the SFT, with the pension
subsequently increased at an accelerated rate after the benefit has been
valued for BCE purposes.
6. A retirement Annuity Contract (RAC) or PRSA becomes vested on the date
the owner attains age 75, or on 25 December 2016 (the date Finance Act
2016 was passed), if the owner was 75 before that date, where retirement
benefits from the RAC or PRSA have not commenced by age 75. For
additional information on vested RACs and PRSAs, see Chapters 21 and 24
respectively.
Note: Payment of death in service benefits or a dependant’s pension is not a BCE.
Tax and Duty Manual Pensions Manual – Chapter 25
9
A “relevant pension arrangement” means any one or more of the following –
a retirement benefits scheme, within the meaning of section 772, approved
by the Revenue Commissioners for the purposes of Chapter 1 of Part 30 TCA
1997,
an annuity contract or a trust scheme or part of a trust scheme approved by
the Revenue Commissioners under section 784,
a PRSA contract, within the meaning of section 787A, in respect of a PRSA
product within the meaning of that section,
a qualifying overseas pension plan within the meaning of Chapter 2B of Part
30 TCA 1997,
a public service pension scheme within the meaning of section 1 Public
Service Superannuation (Miscellaneous Provisions Act 2004),
a statutory scheme, within the meaning of section 770(1), other than a public
service pension scheme referred to in the previous bullet.
When a BCE arises, a capital value must be attributed to the benefit and this is tested
against the individual’s SFT or PFT by the scheme administrator.
Where two, or more, BCEs occur on the same day, the individual must determine the
order in which they are to be deemed to occur. If entitlements from different
arrangements occur on the same day, and a chargeable excess arises, the individual
may choose which entitlement gives rise to the excess and which administrator
should deal with it.
How is the capital value of a BCE calculated?
In the case of DB pension arrangements, the capital value of pension rights drawn
down after 1 January 2014 is determined by multiplying the gross annual pension
that would be payable to the individual (before commutation of part of the pension
for a lump sum) by the appropriate age-related valuation factor as provided for in
the Table to Schedule 23B.
If the DB arrangement provides for a separate lump sum entitlement (otherwise
than by way of commutation of part of the pension) e.g. most public service
schemes, the value of the lump sum is added to the capital value of the DB pension
to arrive at the overall capital value.
However, where part of a DB pension has been accrued at 1 January 2014 and part
after that date, transitional arrangements allow the capital value of the pension at
retirement to be calculated by way of a “split” calculation, so that the part accrued
Tax and Duty Manual Pensions Manual – Chapter 25
10
up to 1 January 2014 (called the “accrued pension amount”) is valued at a factor of
20 and the part accrued after that date is valued at the appropriate higher agerelated
factor as set out in the Table to Schedule 23B. A condition of applying the
“split” calculation is that the administrator concerned is satisfied from information
and records available to the administrator that an accrued pension amount arises in
relation to the DB pension in question.
For DC pension arrangements, the capital value of pension rights when they are
drawn down after 1 January 2014 is the value of the assets in the arrangement that
represent the member’s accumulated rights on that date. For example, in the case of
an annuity, it is the value of the assets used to purchase the annuity.
The value of a retirement lump sum is the amount of the lump sum (before excess
lump sum tax, if any).
In the case of the exercise of an ARF option, or an overseas transfer, the capital value
is the actual amount transferred to the ARF or to the overseas arrangement.
In the case of an increase in a pension in payment in excess of the “permitted
margin”, the value is calculated by applying the appropriate age-related factor as set
out in the Table to Schedule 23B (see paragraph 25.10) to the amount of annual
pension which exceeds the “permitted margin”.
In a case involving the retention of assets in a PRSA, the amount crystallised is the
aggregate of the retirement lump sum (before excess lump sum tax, if any) and the
market value of any assets retained in the PRSA.
In the case of an RAC or a PRSA vesting due to the owner not taking benefits on or
before age 75, the amount crystallised is the aggregate of the cash sums and the
market value of any assets which represent the owner’s rights under the RAC at the
date the owner attains the age of 75 years or, in the case of a PRSA, the aggregate of
the cash sums and the market value of the assets in the PRSA at that date. Where
the owner attained the age of 75 years prior to 25 December 2016, the relevant date
for establishing the aggregate of the cash sums and the market value of the assets is
25 December 2016.
As with the position in determining pension benefit capital values for PFT purposes,
where a pension arrangement is subject to a PAO, the PAO must be ignored in
determining the capital value of a BCE arising under the pension arrangement. In
other words, the capital value of the BCE must be calculated as if the PAO had never
been made. This requirement applies regardless of whether or not the PAO
beneficiary had taken a transfer value to another pension arrangement. (See
paragraph 25.7). The corollary of this is that the former spouse or civil partner’s
designated benefit under the PAO when drawn down is not treated as a BCE for
SFT/PFT purposes in respect of the former spouse/civil partner
Tax and Duty Manual Pensions Manual – Chapter 25
11
Examples
The following examples illustrate how BCE capital values are determined.
Example 6
Michael is a member of a DC pension scheme. He has no PFT. Michael retires on 1
July 2015. The value of his DC fund on that date is €1.5m. The capital value of the
BCE is therefore €1.5m. As this is below the SFT of €2m no chargeable excess arises.
Example 7
Jim is a member of a private sector DB scheme. He retires on 1 February 2020 aged
65. The relevant age-related valuation factor applying to Jim is, therefore, 26. The
annual amount of pension that his scheme would pay him on retirement (before any
commutation of part of the pension for a lump sum) is €75,000. Jim’s pension fund
administrator is aware that €50,000 of this pension had already been accrued at 1
January 2014 (i.e. the accrued pension amount). The administrator calculates the
capital value of Jim’s pension rights at retirement for BCE purposes as follows:
€50,000 x 20 = €1m (i.e. accrued pension amount x the standard valuation factor)
€25,000 x 26 = €0.650m (pension accrued after 1 January 2014 x age-related factor)
Capital Value = €1.65m.
As the capital value of Jim’s retirement benefits based on the “split” BCE calculation
is less than the SFT, no chargeable excess arises.
Example 8
Lucy retires at age 60. She does not have a PFT. Her annual DB pension at retirement
is €90,000 (before commutation for a lump sum). The relevant age-related valuation
factor applying to Lucy is 30. Lucy’s pension fund administrator is aware that €45,000
of her pension had already been accrued at 1 January 2014 (i.e. the accrued pension
amount). The administrator calculates the capital value of Lucy’s pension rights at
retirement for BCE purposes as follows:
€45,000 x 20 = €0.900m (accrued pension amount x the standard valuation factor)
€45,000 x 30 = €1.350m (pension accrued after 1 January 2014 x age-related factor)
Capital Value = €2.250m
Less SFT = €2.000m
Chargeable excess = €0.250m
As Lucy has a chargeable excess of €250,000, she is liable to chargeable excess tax of
€100,000 (i.e. €250,000 @ 40%, assuming the higher rate of tax is 40% for the year in
which she retires). The pension fund administrator must pay this tax to Revenue
upfront and recover it from Lucy.
Tax and Duty Manual Pensions Manual – Chapter 25
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BCE Certificate
25.5
An administrator may, in order to determine if a chargeable excess arises on a BCE,
request information on any previous BCEs from an individual for that purpose. There
is provision for an administrator to withhold payment of benefits until such time as a
completed declaration is provided. The administrator must retain the declarations
for a period of 6 years and make them available to Revenue on request. The
suggested format of the declaration is set out at paragraph 25.8.
However, an individual whose RAC or PRSA is treated as vesting at age 75, or on 25
December 2016 (i.e. the date Finance Act 2016 was passed), must provide a
declaration to the administrator within 30 days from the date of the deemed vesting,
regardless of whether or not the administrator requests a declaration. Where such
an individual fails to provide a declaration, the administrator must assume that the
individual’s SFT or PFT is fully used up and treat the entire value of the BCE as a
chargeable excess taxable at the higher rate of income tax in force for the year in
which the BCE arises.
Where a chargeable excess has been incorrectly included in a return or the full
amount of a BCE has been charged to tax (in the circumstances of the preceding
paragraph), Revenue may, on a case being made to them, make the necessary
adjustments to ensure that the tax chargeable on the BCE in question does not
exceed the charge that would have arisen if all details had been provided.
Chargeable Excess
25.6
When the capital value of a BCE, either on its own or when aggregated with a
previous BCE which occurred since 7 December 2005, exceeds the SFT or a PFT, a
chargeable excess arises. The following examples illustrate how this applies in
practice:
Example 9
The capital value arising exceeds the amount of the SFT available at the date of the
BCE.
Value of current BCE €4.0m
SFT €2.0m
Chargeable excess €2.0m
Example 10
Not all of the individual’s PFT is available as part of the amount was utilised in earlier
BCEs.
Tax and Duty Manual Pensions Manual – Chapter 25
13
PFT €5m
Value of earlier BCE €4m
Remaining PFT €1m
Value of current BCE €2m
Chargeable excess €1m
Example 11
None of the SFT is available as it was fully used by a previous BCE.
SFT €2m
Value of earlier BCEs €3m
Chargeable excess €1m
Remaining SFT Nil
Value of current BCE €0.2m
Chargeable excess €0.2m
The full amount of a chargeable excess is subject to an upfront income tax charge
(see footnote 2 for the appropriate rate of tax) under Case IV of Schedule D in the
year of assessment in which the BCE giving rise to the chargeable excess occurs. No
reliefs, allowances or deductions may be set against the chargeable excess when
computing the amount of tax due. In certain circumstances, however, standard rate
lump sum tax may be offset against tax due on a chargeable excess (see paragraph
25.9).
The administrator of a pension arrangement who deducts tax from a chargeable
excess in accordance with section 787R TCA 1997, must submit a Form 787S to the
Collector-General and pay the tax, by electronic fund transfer (EFT), within 3 months
of the end of the month in which the BCE giving rise to the chargeable excess occurs.
The chargeable excess should not be included on forms P30, P35, P45, P60 etc.
Tax on a chargeable excess is payable by the administrator of the relevant pension
arrangement in the first instance although both the administrator of the relevant
pension arrangement and the individual are jointly and severally liable for the tax
due. This means that both the administrator and the individual are equally and
separately liable for the whole charge to tax and that payment by one will discharge
the liability of the other to the extent of the payment made. The liability arises
irrespective of whether or not either or any of them are resident in the State. Please
refer to paragraph 25.7 where a chargeable excess arises under a pension
arrangement in respect of which a PAO has been made.
Recovery of chargeable excess tax paid by an administrator
In the case of private sector DC arrangements, the administrator pays the chargeable
excess tax due from the assets held in the individual’s fund.
Tax and Duty Manual Pensions Manual – Chapter 25
14
In the case of private sector DB pension arrangements, section 787Q provides for an
administrator to recover any chargeable excess tax paid either by way of an actuarial
reduction in the individual’s pension rights or by arranging to be directly reimbursed
by the individual.
In the case of public sector DB pension arrangements, a range of reimbursement
options were introduced in Finance Act 2012 and these were amended and
extended in Finance (No.2) Act 2013. As a result, the following options are now
available from 1 January 2014.
1. Where the excess fund tax amounts to 20% or less of the tax-free lump sum
net of any standard rate tax (referred to as the ‘net lump sum’), the
reimbursement of the chargeable excess tax is to be by way of:
(i) appropriation from the net lump sum,
(ii) payment by the individual to the administrator,
(iii) a combination of (i) and (ii), or
(iv) solely by way of a reduction in the gross pension payable to the
individual over a period not exceeding 20 years.
2. Where the excess fund tax is greater than 20% of the net lump sum, the
reimbursement of the chargeable excess tax is to be by way of:
(i) appropriation of not less than 20% of the net lump sum,
(ii) payment by the individual to the administrator of an amount that
equates to at least 20% of the net lump sum, or
(iii) a combination of (i) and (ii), such that the aggregate is not less than
20% of the net lump sum,
with any balance to be reimbursed by:
a) reducing the gross pension for an agreed period of up to 20 years,
b) a payment by the individual to the administrator within 3 months of
the relevant BCE, or
c) a combination of both (a) and (b).
or
(iv) solely by way of a reduction in the gross pension payable to the
individual over a period not exceeding 20 years.
Where an individual agrees to pay an amount to a public sector pension
administrator to reimburse the administrator for tax paid “up-front” on a chargeable
excess, rather than the administrator appropriating part of the net lump sum for that
purpose, that payment must be made before the administrator pays over the lump
sum, or the appropriate part of the lump sum, to the individual.
With effect from 1 January 2015, where a PAO (see paragraph 25.7) applies to a
public sector scheme in situations where no transfer amount has been applied to
provide an independent benefit for the non-member spouse/civil partner, or where
Tax and Duty Manual Pensions Manual – Chapter 25
15
a transfer amount has been applied to provide a independent benefit for the nonmember
within the member’s scheme, the reimbursement options described above
also apply to the non-member spouse/civil partner.
From 8 February 2012 to 31 December 2013, the reimbursement options were, the
same as those set out above, other than:
The applicable percentage rate was 50% rather than 20%,
The period over which the gross pension could be reduced under Option 2 to
recoup the balance of the chargeable excess tax was 10 years rather than 20
years, and
Options (1)(iv) and (2)(iv) did not apply.
Chargeable Excess Tax Paid by Administrator
Where the tax arising on a chargeable excess is paid by the administrator, and is not
recovered from the individual by restricting benefits, the amount of tax paid will be
considered a benefit and subject to tax in its own right. For example:
On 1 March 2015, the capital value of benefits for an individual without a PFT is
€2.1m which gives a chargeable excess of €100,000 (€2.1m – SFT of €2m), tax due
€100,000 @ 40% = €40,000 (i.e. the higher rate of tax for the year in question). If the
administrator pays the tax without recovering it from the individual, a grossing up
calculation is required to arrive at the correct tax liability due:
The chargeable excess of €100,000 is taken to be the after tax balance of a
chargeable excess which has been taxed @ 40%. The €100,000 is grossed up to
€166,666 and the correct tax charge @ 40% is €66,666, which the administrator is
required to pay.
The administrator must, within 3 months of the end of the month in which the BCE
giving rise to the chargeable excess occurred, make a return to the Collector-General
on Form 787S and pay the tax due by electronic fund transfer (EFT).
In situations involving PAOs, special arrangements apply in relation to the liability
for, payment and recovery of chargeable excess tax. Please refer to the Notes for
Guidance to Chapter 2C of Part 30 of the TCA 1997 for further details.
The chargeable excess should not be included on forms P30, P35, P45, P60 etc.
The standard assessment, collection, late payment and appeal provisions apply.
Pension Adjustment Orders
25.7
Chapter 22 explains the impact of a PAO when calculating maximum retirement
benefits for a pension scheme member, etc. Paragraphs 25.3 and 25.4 note,
Tax and Duty Manual Pensions Manual – Chapter 25
16
respectively, that, when determining capital values for PFT and BCE purposes, PAOs
must be ignored, with the calculations carried out as if no PAO had been made
As described in paragraph 25.6, where the SFT or an individual’s PFT is exceeded, a
chargeable excess arises which is subject to an immediate tax charge at the higher
rate of income tax for the year in question. Prior to 1 January 2015, any chargeable
excess tax arising on a BCE in situations where a PAO applied, was recovered by the
administrator solely from the member’s part of the pension benefits after the
application of the terms of the PAO such that the former spouse/civil partner’s
designated share of the pension benefits was unaffected.
Section 19 Finance Act 2014, made a number of amendments to Chapter 2C of Part
30 of the TCA 1997 in this regard. With effect from 1 January 2015, chargeable
excess tax arising in relation to pension scheme or pension plan benefits that are
subject to a PAO, must be apportioned by the scheme administrator, having regard
to the terms of the PAO, so that both the member and non-member spouse/partner
share the tax charge with the charge being recovered from their respective
retirement funds.
Section 787R(2A) TCA 1997 sets out how the apportionment is to be made between
the parties and who is liable for the respective shares of the tax in such situations. It
also provides, in cases where a non-member spouse/civil partner has availed of a
transfer amount to provide an independent benefit in a separate scheme, for a
process of certification by the administrator of the member‘s scheme, of the amount
of the non-member‘s share of the tax, to the administrator of the non-member
spouse/civil partner‘s scheme etc. In addition, the section provides for notification of
the amount of the non-member‘s share of the tax to the non-member.
It should be noted that the requirement to apportion chargeable excess tax applies
equally to the administrator of a pension arrangement to which a member may have
taken a transfer value after the PAO was made. In other words, the chargeable
excess tax liability to be shared may arise on foot of a BCE in an entirely different
scheme to the one where the PAO was originally made.
Section 787R(b) & (c) set out how the sharing of a chargeable excess tax liability is to
be determined. The approach depends on whether the former spouse/civil partner
in whose favour the PAO was made leaves the designated benefit in the member’s
scheme or takes a transfer value (within the same scheme) or to an independent
scheme.
No transfer value paid out
Where no transfer value has been paid out and hence the member and the former
spouse/civil partner remain in the same scheme in respect of which the PAO was
made, the apportionment is straightforward. In such cases, the chargeable excess tax
shares are calculated:
Tax and Duty Manual Pensions Manual – Chapter 25
17
Pro rata to their relative shares (having regard to the PAO) of the value of the
retirement benefit giving rise to the BCE
The following examples illustrate how the calculation is performed:
Example A – Defined Contribution Arrangement:
Assume Peter has a PRSA valued at €2.6m at the point it is crystallised. He does not
have a PFT. Earlier a PAO had been made in respect of the PRSA in favour of Peter’s
former spouse Mary. The designated benefit under the PAO represents 40% of the
total value of the PRSA at the point of crystallisation. Notwithstanding that a PAO
applies to the PRSA, Peter is deemed to mature the full €2.6m value (i.e. the PAO is
ignored so the capital value of the BCE is €2.6m). This means that a chargeable
excess of €0.6m arises with chargeable excess tax of €0.240m (i.e. €2.6m – €2m (SFT)
x 40%).
The chargeable excess tax must be shared pro rata to the share of the retirement
benefit each gets as follows:
In Peter’s case it is: 60% x €0.240m = €0.144m
In Mary’s case it is: 40% x €0.24m = €0.096m
Example B – Defined Benefit Arrangement.
Assume Vivion is a member of a defined benefit arrangement in respect of which a
PAO has been made in favour of his former civil partner Michael. Vivion has no PFT.
At the point of retirement at age 65 (and ignoring the PAO) Vivion’s scheme will pay
him an annual pension of €100,000 (before any commutation for a lump sum). Of
this amount, the administrator determines that €60,000 of the pension had been
accrued at 1 January 2014. The capital value of Vivion’s BCE is therefore:
€60,000 x 20 = €1.200m plus
€40,000 x 26 = €1.040m
Total capital value = €2.240m.
This results in a chargeable excess of €0.240m and chargeable excess tax of €0.096m
(i.e. €2.240m – €2m (SFT) x 40%).
Under the terms of the PAO, Michael’s designated benefit provides him with a
pension equivalent of €20,000.
Vivion’s pension under the pension scheme is therefore the residual of €80,000 (i.e.
€100,000 – €20,000)
The chargeable excess tax must be shared pro rata to the share of the retirement
benefit each gets as follows:
Tax and Duty Manual Pensions Manual – Chapter 25
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In Vivion’s case it is: €96k x €80k/€100k = €76,800
In Michael’s case it is: €96k x 20k/€100k = € 19,200.
Where no transfer value has been paid out, the administrator of the pension
arrangement must recover the chargeable excess tax from the member’s and former
spouse/civil partner’s respective shares of the fund (in the case of DC arrangements)
or by way of an actuarial reduction in the pension payable to each (in the case of DB
arrangements), and make the necessary return section and pay the tax due to the
Collector General in accordance with section 787S.
Transfer value paid out.
Where a transfer value has already been paid out at the time the member
crystallises his or her benefits under the pension arrangement the apportionment of
the chargeable excess tax is more complicated. In such situations the member and
his or her former spouse or civil partner will be in independent pension
arrangements at the time the member’s benefits crystallise. In these cases, the
chargeable excess tax shares are calculated:
Pro rata to their relative shares (having regard to the PAO) of the value of the
retirement benefit giving rise to the BCE
But taking:
The former spouse/civil partner’s share as:
o in the case of a defined contribution arrangement, the actual PAO
transfer value originally paid out from the arrangement under the
PAO, or
o in the case of a defined benefit arrangement, the designated benefit
on which the actual PAO transfer value was calculated.
Note that the former spouse/civil partner’s share is not the current accumulated
value of the PAO transfer amount wherever it is held – but rather the actual nominal
PAO transfer value paid out originally.
The member’s share as:
o in the case of a defined contribution arrangement, the total capital
value of the BCE giving rise to the chargeable excess tax, less the
actual PAO transfer value originally paid out under the PAO, or
o in the case of a defined benefit arrangement, the residual pension at
the point of crystallisation after deducting the designated benefit on
which the transfer value was calculated from the pension that would
have been payable to the member if no PAO had bee made.
The following examples illustrate how the calculation is performed:
Tax and Duty Manual Pensions Manual – Chapter 25
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Example C – Defined Contribution Arrangement:
Assume Eamonn has a PRSA with a value of €1.5m at the point of crystallisation. He
does not have a PFT. A PAO had been made in respect of the PRSA 3 years earlier in
favour of Eamonn’s former spouse Joan. At that time, a transfer value of €1m was
paid out of the PRSA in respect of Joan’s designated benefit to a separate PRSA with
a different PRSA provider.
The capital value of the BCE arising on the crystallisation of Eamonn’s PRSA has to be
determined as if no PAO had been made. The PRSA administrator must, therefore,
calculate the investment return earned by the PRSA from the date the transfer value
was paid out to Joan’s PRSA, to the date of crystallisation of Eamonn’s PRSA –
assume a return of 20%.
The capital value of Eamonn’s BCE is, therefore, deemed to be (€1.5m + €1m x 120%)
= €2.7m.
This gives rise to a chargeable excess of €0.7m and chargeable excess tax of €0.280m
(i.e. €2.7m – €2m (SFT) = €0.7m x 40%).
The chargeable excess tax must be shared as follows:
In Joan’s case it is: €0.280m x €1m (the actual transfer amount)/€2.7m (the deemed
capital value of the BCE) = €103,704
In Eamonn’s case it is: €0.280m x €1.7m (Eamonn’s deemed share of the BCE)/€2.7m
(the deemed capital value of the BCE) = €176,296.
Example D – Defined Benefit Arrangement:
Assume Jean is a member of a defined benefit arrangement in respect of which a
PAO has been made in favour of her former spouse Gerry. Jean has no PFT. At the
time the PAO was made Gerry took a transfer amount in respect of his designated
benefit to a PRSA. The designated benefit payable to Gerry on which the transfer
value was calculated (i.e. the portion of the “leaving service” benefits that would
have been payable to Jean at the time of the transfer under the rules of the pension
arrangement) was a pension of €25,000. At the point of retirement at age 60 (and
ignoring the PAO) Jean’s scheme would have paid her an annual pension of €90,000
(before any commutation for a lump sum). Of this amount, the administrator
determines that €40,000 of the pension had been accrued at 1 January 2014. The
capital value of Jean’s BCE is therefore:
€40,000 x 20 = €0.800m plus
€50,000 x 30 = €1.500m
Total capital value = €2.3m.
Tax and Duty Manual Pensions Manual – Chapter 25
20
This results in a chargeable excess of €0.300 and chargeable excess tax of €0.120m
(i.e. €2.3m – €2m (SFT) x 40%).
The chargeable excess tax must be shared as follows:
In Gerry’s case it is: €0.120m x €25,000 (the designated benefit on which the transfer
value was based)/€90,000 (the pension that would have been payable to Jean if no
PAO had been made) = €33.333
In Jean’s case it is: €0.120m x €65,000 (i.e. €90,000 – €25,000)/€90,000 = €86,667.
For additional information on the requirements of the legislation regarding the
interaction of tax-relieved pension funds and PAOs, please refer to the Notes for
Guidance to Chapter 2C of Part 30 of the TCA 1997.
Tax and Duty Manual Pensions Manual – Chapter 25
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BCE Declaration
25.8
A suggested format for a BCE declaration is set out below.
BCE DECLARATION
AS PROVIDED FOR UNDER SECTION 787R (4) OF THE TAXES
CONSOLIDATION ACT 1997
– FOR THE PURPOSES OF DISCLOSING PENSION BENEFIT CRYSTALLISATION
EVENTS OCCURRING PRIOR TO THE PENSION ENTITLEMENT CURRENTLY
BEING CLAIMED
This Declaration should be completed and given to the Administrator of your
pension arrangement prior to the payment of any benefits from that
arrangement.
Information in relation to payment of the State pension from the Department
of Social Protection is not required.
This Declaration should be completed in respect of benefits arising on or after
7 December 2005.
***********************
PART A
1. On or after 7 December 2005 and up to and including the date you
make this declaration:
(a) Did you become entitled to any pension benefits6
(ignoring the
pension entitlements currently being claimed under this pension
arrangement)?
YES NO
6 This includes any pension, annuity, retirement lump sum or any other pension related benefit (e.g.
transfer to an Approved Retirement Fund) which you became entitled to under a pension
arrangement but does not include i) social welfare benefits, such as the State Pension or ii) pension
benefits which came into payment before 7 December 2005. Please note the key point is an
entitlement to a pension on or after 7 December 2005 in respect of which benefits actually came into
payment e.g. if you retired or otherwise became entitled to an immediate payment of a pension
benefit from a pension arrangement on or after 7 December 2005).
Tax and Duty Manual Pensions Manual – Chapter 25
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(b) If the answer to (a) is YES, did you direct that a payment or transfer
be made to an overseas pension arrangement?
YES NO
2. From the date you make this declaration up to the date of receiving
benefits under this pension arrangement:
(a) Do you expect to become entitled to any other pension benefits7
in addition to the pension entitlements currently being claimed?
YES NO
(b) If the answer to (a) is YES, do you intend to direct that a
payment or transfer be made to an overseas pension
arrangement in respect of those benefits?
YES NO
3.
IF YOU HAVE ANSWERED NO TO ALL OF THE ABOVE QUESTIONS
THEN:-
(i) COMPLETE PART C , and
(ii) SIGN THE DECLARATION.
IF YOU HAVE ANSWERED YES TO ANY OF THE ABOVE QUESTIONS
THEN:-
(i) PROVIDE THE INFORMATION REQUESTED IN PART B, AS
APPROPRIATE;
(ii) COMPLETE PART C, and
(iii) SIGN THE DECLARATION.
PART B
4. If you have an entitlement to any pension benefits under a pension
arrangement on or after 7 December 2005 and up to the date of receiving
benefits under this pension arrangement, please provide the following
7 This includes any pension, annuity, retirement lump sum or any other pension related benefit (e.g.
transfer to an Approved Retirement Fund) which you expect to become entitled to for the first time
under a pension arrangement belonging to you after the date of this declaration, but does not include
social welfare benefits such as the State Pension.
Tax and Duty Manual Pensions Manual – Chapter 25
23
details, as appropriate, in a separate document for each such pension
arrangement:
a) The type of pension arrangement (e.g. defined benefit/defined
contribution occupational pension scheme, retirement annuity contract,
PRSA, Buy-Out-Bond, Additional Voluntary Contributions (AVC) for
the purpose of supplementing retirement benefits etc.).
b) The date you became (or expect to become) entitled to the benefit(s)
under the arrangement.
c) The name of the scheme/arrangement.
d) The contact details for the scheme administrator.
e) Your policy or reference number under the scheme/arrangement.
f) In the case of a transfer made (or to be made) to an overseas pension
arrangement, provide the name of the scheme to which the transfer
was (or is to be) made,
g) Where the pension arrangement is a defined benefit scheme (whether
a private sector or a Civil/Public Service scheme) please provide the
following details, as appropriate. (You should obtain this information
from the pension fund administrator):
(i) where the scheme provided (or provides) you with the option to
commute part of the pension for a lump sum (i.e. most private
sector schemes), the capital value of the pension benefits based on
the annual amount of pension that would have been payable (or is
expected to be payable) to you when the pension commenced (or
commences), before any commutation for a lump sum (see
footnote for fuller explanation8
)
(ii) where the arrangement provides for a separately accrued lump sum
benefit (i.e. most Civil/Public Service schemes):
(a) the capital value of the pension benefit based on the actual
annual amount of pension paid (or to be paid ) to you in the
first 12 months from the date you became (or become)
entitled to it, and
8 Note the capital value to be included here is not to be based on the actual annual rate of pension
paid to the individual at the time he/she became entitled to it, which could reflect the fact that the
individual commuted part of the pension entitlement for a lump sum. Neither is it to be based on the
current annual rate of pension being paid if this reflects adjustments in the pension rate since it was
first awarded. Rather, it is to reflect the annual rate of pension that would have been (or would be)
payable to the individual on the assumption that there was (or will be) no commutation of part of the
pension for a lump sum or no adjustments made in relevant pension payable. The corollary of this is
that the capital value of any actual lump sum taken (or to be taken) is ignored as it is already
“captured” as part of the pension capital value.
Tax and Duty Manual Pensions Manual – Chapter 25
24
(b) the actual cash value of the separately accrued lump sum
paid (or expected to be paid) to you.
h) Where the pension arrangement is a defined contribution
arrangement (e.g. a defined contribution occupational pension scheme,
a retirement annuity contract, a PRSA, a Buy-Out-Bond, an AVC etc.)
please indicate in the following table the nature of, and capital value
(or the expected capital value) of, the benefits taken (or to be taken) –
i.e. the Benefit Crystallisation Events – on the date you became (or
expect to become) entitled to them.9
Nature of Benefit (BCE) Capital Value of
Benefit (€)
Lump Sum10
Annuity11
Transfer to an ARF12
Transfer to an AMRF13
Transfer to Self14
Amount retained in a vested PRSA15
Transfer to an Overseas Arrangement16
9 You should obtain this information from the pension fund administrator.
10 The capital value is the cash value of the lump sum paid to you.
11 The capital value is the amount or market value of the cash or other assets of the pension fund
used to purchase your annuity.
12 Where you have exercised (or intend to exercise) an “ARF Option” in accordance with section
772(3A), 784(2A) or 787H (1) of the Taxes Consolidation Act 1997, the capital value is the amount or
market value of the cash or other assets as were (or are expected to be) transferred to an ARF
following the exercise of the option.
13 Where you have exercised (or intend to exercise) an “ARF Option” (see footnote 5), the capital
value is the amount or market value of the cash or other assets as were (or are expected to be)
transferred to an AMRF following the exercise of the option.
14 Where you have exercised (or intend to exercise) an “ARF Option” (see footnote 5), the capital
value is the amount or market value of the cash or other assets as were (or are expected to be)
transferred to you as a taxable lump sum following the exercise of the option.
15 Where you have not exercised an ARF Option (or do not intend to do so) (see footnote 5) and
instead have retained (or intend to retain) the assets of the PRSA in that or any other PRSA (as a
vested PRSA), the capital value is the amount or market value of the cash or other assets as were (or
are to be) retained in the vested PRSA(s).
16 Where you have (or intend to) make a transfer to an overseas pension arrangement, the capital
value is the amount or value (or expected amount or value) of the payment or transfer to the
overseas arrangement.
Tax and Duty Manual Pensions Manual – Chapter 25
25
Other
Note: Section 787O(3) provides that where more than one pension benefit
(BCE) arises on the same day in relation to an individual, the individual must
decide which is deemed to arise first and inform the relevant pension
administrators accordingly.
PART C
5. Do you have a certificate from the Revenue Commissioners stating the
amount of your Personal Fund Threshold in accordance with section
787P of the Taxes Consolidation Act 1997?
YES NO
6. If the answer to question 5 is YES –
(a) please enclose a copy of the certificate, and
(b) where the PFT includes a defined benefit arrangement(s) please
state the valuation factor used.
7. May we contact the scheme administrator(s) directly on your behalf for
the purposes of clarifying if necessary, any aspect of the information
provided by you under this declaration?
YES NO
I DECLARE THAT THE INFORMATION PROVIDED BY ME IN THIS
FORM IS COMPLETE AND CORRECT
FULL NAME__________________________
ADDRESS_____________________________
_____________________________
_____________________________
_____________________________
PPS NUMBER ________________________
Tax and Duty Manual Pensions Manual – Chapter 25
26
SIGNATURE: _________________________
DATE: ________________________________
Pension Declaration Forms may be audited by the Revenue Commissioners.
Tax and Duty Manual Pensions Manual – Chapter 25
27
Credit for lump sum tax against chargeable excess tax
25.9
Section 787RA TCA 1997, which applies to BCEs occurring on or after 1 January 2011,
provides that where tax at the standard rate (i.e. under section 790AA (3)(a)(i) or
(3)(b)(i)(I) TCA 1997 – please refer to Chapter 27) is deducted from a retirement
lump sum paid to an individual under a pension arrangement on or after that date
and tax also arises on a chargeable excess in relation to that individual (the amount
of which will have been influenced by the retirement lump sum), the pension
scheme administrator is required to reduce the tax on the chargeable excess by the
amount of standard rate tax deducted from the retirement lump sum under section
790AA (3)(a)(i) or (3)(b)(i)(I) and pay the net amount of chargeable excess tax, if
any, to the Collector-General with Form 787S.
Only tax paid on that part of a retirement lump sum up to 25% of the SFT when the
lump sum is paid (i.e. €500k for lump sums paid on or after 1 January 2014 and
€575k for lump sums paid between 1 January 2011 and 31 December 2013), and not
previously offset against tax on an earlier chargeable excess, can be offset against
chargeable excess tax. In this regard, it should be noted that the retirement lump
sum tax regime is a cumulative one. Individuals have a lifetime tax-free limit of
€200k after which tax applies at the standard rate under Case IV on amounts
between the tax-free limit and 25% of the applicable SFT (the SFT cut-off point) and
at the individual’s marginal rate under Schedule E on amounts above the SFT cut-off
point.
Lump sum tax deducted from the portion of a retirement lump sum over the SFT
cut-off point (i.e. the portion which is charged to tax under Schedule E at the
individual’s marginal rate) may not be offset against chargeable excess tax.
This provision includes the following features:
lump sum tax includes standard rate tax paid on an earlier retirement lump
sum from another pension scheme administered by the same administrator
or by another administrator (to the extent, in all cases, that the lump sum tax
has not been previously offset against chargeable excess tax),
an administrator (A) can only offset earlier lump sum tax paid by another
administrator (B) where A receives a certificate, as required in section 787RA,
from B.
unused standard rate lump sum tax (i.e. where the amount of the lump sum
tax to be offset exceeds the chargeable excess tax) can be carried forward
and used against chargeable excess tax arising on future BCEs occurring in
relation to the individual.
Tax and Duty Manual Pensions Manual – Chapter 25
28
Schedule 23B TCA 1997
25.10
Schedule 23B TCA 1997 is linked to Chapter 2C of Part 30 – relating to the limit on
tax relieved pension funds. The Schedule deals with the operational aspects of the
arrangements as follows:
how the value of an individual’s uncrystallised pension rights on 1 January
2014 are to be calculated for both DC and DB type arrangements,
the various types of BCE and when they are deemed to occur e.g. entitlement
to a pension, annuity, lump sum etc. under a pension arrangement,
how the capital value of a BCE is to be calculated for the various types of BCE
identified, and
how the amount of the standard fund or personal fund threshold that is
available at the time of a BCE is to be determined.
Schedule 23B also includes the following table which sets out the relevant agerelated
valuation factors.
TABLE
Age Relevant age-related factor
(1) (2)
Up to and including 50 37
51 36
52 36
53 35
54 34
55 33
56 33
57 32
58 31
59 30
60 30
61 29
62 28
63 27
Tax and Duty Manual Pensions Manual – Chapter 25
29
64 27
65 26
66 25
67 24
68 24
69 23
70 and over 22