Revenue Requirements
Revenue Pensions Manual
CHAPTER 1
INTRODUCTION
General
1.1
The legislation governing the tax treatment of pensions is contained in Part 30, Taxes Consolidation
Act 1997:
Chapter 1 Occupational Pension Schemes
Chapter 2 Retirement Annuities and Approved Retirement Funds
Chapter 2A Personal Retirement Savings Accounts.
Chapter 2B Overseas Pensions Plans: Migrant Member Relief.
Chapter 2C Limit on Tax Relieved Pension Funds
Chapter 4 Miscellaneous
The Act grants discretionary powers to Revenue in relation to the approval of occupational pension
schemes. The Revenue Pensions Manual gives general guidance on how these powers are exercised.
While the Manual reflects the current tax position at the time of writing, it is not binding in law. In
any particular case, Revenue reserve the right to apply different treatment.
The Manual also contains Guidance Notes on Retirement Annuity Contracts, Approved Retirement
Funds, and Personal Retirement Savings Accounts.
All enquiries in relation to matters covered by the Manual should be addressed to Revenue’s
Financial Services ( Pensions) Business Unit.
How to use the Manual
1.2
The list of Contents details the various topics covered. The Glossary, (Appendix 1), defines all words
which are printed in italics.
Outline of Part 30 Taxes Consolidation Act 1997
The principal provisions of Part 30 are as follows:
1.3
Chapter 1 Occupational Pension Schemes
Section 770 Interpretation and supplemental.
Section 771 Definition of retirement benefits scheme.
Section 772 Conditions for approval of schemes and discretionary approval.
Section 772A Approval of Retirement Benefits Product.
Section 773 General Medical Services superannuation scheme
Section 774 Certain approved schemes: exemptions and reliefs.
Section 775 Certain approved schemes: employer contributions
Section 776 Certain statutory schemes: exemptions and reliefs.
Section 777 Charge to tax in respect of certain relevant benefits provided for employees.
Section 778 Exceptions from charge to tax under Section 777.
Section 779 Charge to tax of pensions under Schedule E.
Section 779A Transactions deemed to be pensions in Payment
Section 780 Charge to tax on repayment of employee’s contributions.
Section 781 Charge to tax commutation of entire pension in special circumstances.
Section 782 Charge to tax: repayments to employer.
Chapter 2 Retirement Annuities & Approved Retirement Funds
Section 783 Interpretation and General
Section 784 Retirement Annuities: relief for premiums
Section 784A Approved retirement funds
Section 784B Conditions relating to approved retirement funds
Section 784C Approved Minimum Retirement Fund
Section 784D Conditions relating to an approved minimum retirement fund
Section 785 Approval of contracts for dependants or for life assurance.
Section 786 Approval of certain other contracts
Section 787 Nature and amount of relief for qualifying premiums
Chapter 2A Personal Retirement Savings Accounts
Section 787A Interpretation and supplemental
Section 787B Relevant earnings and net relevant earnings
Section 787C Granting relief for PRSA contributions
Section 787D Claims to relief
Section 787E Extent of relief
Section 787F Transfers to PRSAs
Section 787G Taxation of payments from a PRSA
Section 787H Approved Retirement Fund option
Section 787I Exemption of PRSA
Section 787J Allowance to employer
Section 787K Revenue approval of PRSA products
Section 787L Transfers to and from a PRSA
Chapter 2B Overseas Pension Plans: Migrant Member Relief
Section 787M Interpretation and General
Section 787N Qualifying overseas pension plans: relief for contributions
Chapter 2C Limit on Tax-Relieved Pension Funds
Section 787O Interpretation and General
Section 787P Maximum tax-relieved pension fund
Section 787Q Chargeable excess
Section 787R Liability to tax and rate of tax on chargeable excess
Section 787S Payment of tax due on chargeable excess
Section 787T Discharge of administrator from tax
Section 787U Regulations (Chapter 2C)
Chapter 4 Miscellaneous
Section 790 Liability of certain pensions, etc. to tax
Section 790A Limit on earnings
Section 790AA Taxation of lump sum payments in excess of the lump sum limit.
Section 790B Exemption of cross-border scheme
Schedule 23 Occupational Pension Schemes
1. Application for approval of a scheme.
2. Information about payments under approved schemes
3. Information about schemes other than approved schemes or statutory schemes.
4. Responsibility of administrator of a scheme
5. Regulations
6-9 Charge to tax in respect of unauthorised and certain other payments
6-10
Schedule 23A Specified Occupations and Professions
Schedule 23B Limit on Tax-Relieved Pension Funds
1. Calculation of the uncrystallised pension rights of an individual on the specified date.
2. Occurence of benefit crystallisation event.
3. Calculation of amount crystallised by benefit crystallisation event.
4. Amount of standard fund threshold or personal fund threshold that is available at the date of
the current event.
5. Meaning of previously used amount.
CHAPTER 2
MEMBERSHIP OF SCHEMES
General
2.1
Membership of an approved scheme must be confined to remunerated employees of the employers
participating in the scheme. Employees include former employees of the employer concerned and
where the employer is a company, any officer, director or manager of the company. Special
conditions apply to 20% directors.
2.2
Membership need not be open to all the employees in an employer’s service or to any particular
category of them; a scheme may in fact relate to a single employee or to individuals selected on a
discretionary basis, subject to the principle of equal access. But every member of a scheme and every
employee who has a right to be a member must be notified of his or her rights under it (see paragraph
18.5).
2.3
Part-time and temporary employees may be included as members of schemes. Please refer to Chapter
20 for calculation of benefits for part-time employees.
Persons Assessed under Schedule D
2.4
Agents, consultants, proprietors, sole traders and others who are assessed to income tax on their
earnings under Schedule D cannot be provided with benefits under an approved scheme in respect of
those earnings.
Investment & Property Rental Companies
2.5
A 20% director of a company that is treated for tax purposes as an investment company cannot be
accepted into membership of an approved scheme in relation to that employment. However,
Revenue do not object to schemes for such directors of an investment company where the investment
company is a holding company of a group of trading companies, in which it acts as the coordinator of
the group. Any amount for directors’ remuneration that is allowed as a deduction for tax purposes in
the employing company’s accounts may be pensioned.
Spouses of Directors, Proprietors and Partners
2.6
The spouse of a 20% director, the proprietor or one of the partners, may be admitted to membership
provided that he or she is a genuine employee actively working in the business on a regular basis.
Temporary Absence and Secondment
2.7
The approval requirements in respect of temporary absence differ depending on whether the
temporary absence is within Ireland or overseas. The following paragraphs deal only with
temporary absence in Ireland. For temporary absence or secondment overseas, please refer to
Chapter 17.
2.8
An employee who is temporarily absent or is seconded to another employer and remains resident in
Ireland may remain in full membership of an approved scheme even though no remuneration is paid
during his or her absence if:
(a) There is a definite expectation of return to service, and
(b) He or she does not become a member of another approved retirement benefits scheme, other
than where membership of such other scheme is in respect of a concurrent employment.
These requirements do not apply where:
(i) No retirement benefits accrue during the absence.
(ii) The benefit of remaining a member flows from aggregation of two periods of service for
benefit calculation purposes.
(iii) The sole benefit is the provision of life cover during the absence.
2.9
A period of full membership while temporarily absent may, subject to paragraph 2.8 above, continue
for up to 5 years. Where the period exceeds 5 years the matter should be reported to Revenue.
2.10
An employee who is absent because of incapacity, whether or not receiving pay under a sick pay or
permanent health insurance scheme or directly from the employer, may be retained in full
membership for more than 5 years regardless of whether there is a clear expectation of return to
work.
CHAPTER 3
CONTRIBUTIONS BY EMPLOYEES
General
3.1
It makes no difference to the approval of a scheme whether or not its members are required to
contribute.
Tax Relief
3.2
Contributions to an exempt approved scheme are allowable as an expense in assessing the member’s
liability to tax under Schedule E. Tax relief is restricted in any year of assessment to a percentage of
the member’s remuneration from the employment being pensioned. Contributions are allowable in
the year of assessment in which they are paid.
The percentage relief limits are age related:
Under 30 15%
30-39 20%
40-49 25%
50 or over 30%
55 or over 35%
60 or over 40%
For the purposes of calculating relief, there is an overall aggregate earnings limit on an individual’s
tax relieved contributions in a tax year. A limit of €254,000 applies for the tax years 2006 and prior.
The limit for 2007 is €262,382.
3.3
Relief for ordinary annual contributions, including regular additional voluntary contributions, is
granted by operation of the net pay arrangement. Contributions are deducted from gross pay before
the member’s PAYE and PRSI deductions are calculated. The net pay arrangement can only be
operated following application to RBD for scheme approval and employers should also advise the
local PAYE Inspector when operation of the arrangement commences.
3.4
Relief for special contributions (or for a contribution not made under the net pay arrangement as in
paragraph 3.3) is given by way of adjustment to the employee’s tax credit certificate. If aggregate
contributions exceed the annual relief limit, relief will be given on a spread forward basis. If this is
not practical (e.g. payment made shortly before, or at, termination of employment), payments may be
allocated to the previous year.
Section 774, Taxes Consolidation Act, 1997, provides that relief may be allocated to earlier years,
subject to the statutory time limit of 10 years, in certain circumstances. The circumstances are:
(a) A provision which requires benefits for widows, widowers, children or dependants to be paid
for by deduction from the employee’s lump sum benefit.
(b) A repayment by the employee to the scheme of contributions which were previously refunded
to the employee
(c) Where the employee opted prior to 6 February 2003 to purchase additional years service.
3.5
An employee may be re-admitted to a scheme and required to repay a benefit, including a refund of
contributions, previously made. Normally, relief is due only on the interest element of the amount
repayable to the scheme’s administrator. Relief will be given by either of the methods described in
paragraphs 3.3 or 3.4, depending on how the interest is repaid, either by single payment or deduction
from salary.
3.6
During a period of temporary absence a member’s contributions may be either suspended or
continued.
Limit on Contributions
3.7
Employee contributions must be restricted, if necessary, to ensure that the member’s aggregate
benefits are within approvable limits and that the employer makes a meaningful contribution to the
scheme. (see paragraph 4.1). A funding review and maximum benefits test must take place before any
AVC is paid. It is the responsibility of the scheme trustees to ensure that excessive employee
contributions are not made. The purpose of any AVC should be made clear to the employee.
Salary Sacrifice
3.8
Any arrangement under which an employee waives an entitlement to remuneration or accepts a
reduction in remuneration, in return for a corresponding payment by the employer into a pension
scheme, is an application of the employee’s income and is not acceptable for approval purposes.
Contributions After Normal Retirement Age
3.9
A member who remains in service after normal retirement age may start or continue paying
contributions to fund any shortfall of maximum benefits (See paragraph 8.8).
CHAPTER 4
CONTRIBUTIONS BY EMPLOYERS
General
4.1
It is a condition of approval of a scheme that the employer must contribute to it but, subject to the
considerations mentioned in Chapter 5 and any funding requirements imposed by the Pensions Acts
(as regulated by the Pensions Board), the timing of the contributions is a matter for the employer.
While Revenue will not insist that there be a stated minimum level of employer contributions, it will
continue to be a requirement that such contributions be “meaningful” in the context of the
establishment, operation of and the provision of benefits under a scheme. For instance, in the
circumstances where an employer would bear the cost of the establishment of a scheme and the
ongoing operating costs of the scheme in addition to meeting the costs of the provision of death in
service benefits under the scheme, such overall contributions would generally be considered to be
meaningful.
In other circumstances, an employer’s contributions, which would not be less than 10% of the total
ordinary annual contributions to a scheme (exclusive of employee voluntary contributions), would
always be considered to be meaningful.
It will always be open for employers and their advisers to approach the Pensions Business Unit to
discuss the circumstances of particular schemes.
Ordinary Annual Contributions
4.2
Any ordinary annual contribution paid by an employer to an exempt approved scheme is allowed as a
deduction for tax purposes. Section 774(6), Taxes Consolidation Act 1997, provides that the amount of
the contributions shall be allowed to be deducted as an expense incurred in the year in which the sum
is paid. No deduction can be given in respect of any provision for an amount due but not actually
paid. The amount deductible must not exceed the amount contributed by the employer to the scheme
in respect of employees engaged in a trade or undertaking, the profits of which are assessable to Irish
tax on the employer. Thus, an allowance cannot be given in respect of a person who is not in his
employment, or in respect of an employee whose duties are not related to the business. Where the
employer carries on two or more separate businesses each with its own employees, the employer’s
contributions in respect of each group of employees can be allowed only against the profits of the
business in which the group is employed.
Special Contributions
4.3
If a contribution is not an ordinary annual contribution but a special contribution (made e.g. to
provide benefits for back service, or augment benefits already secured or make up an actuarial
deficiency in the fund), the Pensions Business Unit may require that the allowance be spread forward
over a period of years.
This will not normally be required if the aggregate of all special contributions made by an employer
to exempt approved schemes in the same chargeable period does not exceed the greater of the
employer’s corresponding aggregate ordinary annual contributions or €6350.
The period of the spread is usually determined by dividing the aggregate special contribution by the
aggregate ordinary annual contribution, subject to a maximum of 5 years and to a minimum divisor
of €6350.
In the following examples, OAC (Ordinary Annual Contribution), SC (Special Contribution)
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Max. spread €2000 €40,000 20 * 1st year €8,000
2nd year €8,000
3rd year €8,000
4th year €8,000
5th year €8,000
* The minimum divisor is €6350, which would give a spread of 6.3 years (i.e. 40,000 / 6350).
However, the maximum spread is 5 years.
The divisor for the purposes of determining the spread period in relation to a special contribution
paid during a short chargeable period will normally be equal to the greater of the actual ordinary
annual contribution paid during the short period in question or €6350.
If the quotient exceeds 1 but does not exceed 1.5, the special contribution will be allowed over 2 years.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded up €8000 €10000 1.25 1st year €8000
2nd year €2000
In all other cases a fraction of a year will be rounded down if it equals or is less than ½, and rounded
up if it exceeds ½.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded down €8000 €18000 2.25 1st year €9000
2nd year €9000
If a fraction is rounded up, the allowance in each of the relevant years except the last will be an
amount equal to the greater of the employer’s aggregate ordinary annual contribution at the time the
special contribution is made and €6350, the balance being allowed in the final year.
(A) (B) (C) (D)
OAC SC (B)/(A) Allowance
Rounded up €8000 €22000 2.75 1st year €8000
2nd year €8000
3rd year €6000
Once determined, the period of spread will not be varied because of subsequent fluctuations in the
ordinary annual contribution. Re-computation will be necessary if a further special contribution is
paid before the first one has been wholly allowed or if the employer should cease to trade.
4.4
In relation to contributions under one-man arrangements and insured schemes using earmarked
policies where contributions are paid over a short period to secure the benefits of an individual
member, the Pensions Business Unit will accept that no spreading is required even if the benefits are
primarily for past service, provided that –
(a) Payments are uniformly spread over at least 3 policy years, and
(b) Payments extend up to normal retirement date in the sense that the final one is made on the
policy anniversary immediately preceding normal retirement date, or, depending on the
terms of the policy, on some other appropriate date not more than 2 years before normal
retirement date.
4.5
The following types of expenditure will normally be allowed as an expense in the year in which they
are paid, without any necessity to consider spreading:
(a) Legal and other expenses on establishment of the scheme:
(b) Special contributions payable by installments over a period of 5 or more years, or paid
annually on a specified basis where, although the amounts may be liable to fluctuate,
substantial variations in successive years are not expected to occur:
(c) Special contributions that are certified as made solely to finance cost of living pension
increases for existing pensioners, or any part which is so certified.
4.6
The outright purchase of an annuity (Hancock Annuity) for an employee at the time of, or after, his
retirement, or a scheme set up not long before retirement by the payment of a single premium will, if
approved and if the annuity is the subject of a trust, constitute an exempt approved scheme. If there is
no trust, a direction that the scheme is exempt approved may be made but save in exceptional
circumstances the direction will not be made against the wishes of the employer. If the transaction is
exempt approved (whether because it is the subject of a trust or by virtue of direction) the purchase
price or single premium will then be an allowable contribution, but not an ordinary annual
contribution, and will be treated in the same way as a special contribution. (see paragraph 4.3)
Contribution to an Approved Scheme which is not “Exempt Approved”
4.7
Any relief in respect of contributions to an approved scheme which is not “exempt approved” will
generally be under the ordinary rules of Schedule D and governed entirely by the provisions of
Section 81(2), Taxes Consolidation Act 1997. If the members are related to the employer or, where the
employer is a company, to persons having any substantial beneficial interest in its share capital, the
position will be examined closely for the reason that to qualify for relief, the payment must be made
wholly and exclusively for the purposes of the employer’s trade. A contribution of a capital nature
i.e. one “bringing into existence an asset or an advantage for the enduring benefit of a trade” would
not be an allowable deduction. Contributions must be paid away or clearly alienated from the
employer’s other assets. There will then normally be no difficulty about the allowance of ordinary
annual contributions paid on a regular basis. Other contributions, e.g. lump sum payments securing
benefits for back service, may not qualify for relief and the matter will be one for consideration by the
Inspector dealing with the employer’s accounts.
A Hancock type annuity qualifying for simple approval may provide for the purchase of a
commutable annuity up to the normal limits on the same terms as an exempt approved scheme. The sole
consideration in opting for simple or exempt approval is the matter of claiming relief in the year of
payment under the ordinary rules of Schedule D or claiming relief under Section 774, Taxes
Consolidation Act 1997 and thereby perhaps involving spread forward relief. Lump sums may be
provided only by way of commutable annuity.
Any arrangement, “Hancock” or “exempt approved”, set up after the point of retirement may only
provide non-commutable benefits with any lump sum element of the package being treated as a
payment on termination of service subject to tax under Section 123, Taxes Consolidation Act 1997.
The point of retirement covers the period from the time that definite intention to retire is expressed
up to the point of retirement, during which time the employer makes provision for the payment of
benefits and provision for the cost of providing such benefit.
Refund of Employer Contributions
4.8
A refund of premiums or contributions paid in error may be made without contacting the Pensions
Business Unit, provided that:-
(a) The premiums were paid in error because, for example, a direct debit mandate was not
altered or cancelled immediately after a member left pensionable service or retired, or after a
scheme was discontinued, and
(b) The period over which the overpayment occurred was less than one year, and
(c) The amount involved is less than €5000.