The Finance Bill, 2013 (the “Bill”) was published on 13 February 2013. The Bill will implement the changes announced by the Minister for Finance in Budget 2013. There are two significant changes from a pensions perspective. They are:
Early draw down of Additional Voluntary Contributions (“AVCs”)
The Bill gives members a once off opportunity to draw down up to 30% of the value of their AVCs for a period of three years commencing on the date of the passing of the Finance Act, 2013. The option is available solely for AVCs made by the member to provide additional benefits in retirement and expressly excludes employer contributions, contributions made to a Personal Retirement Savings Account (“PRSA”) that are not AVCs or AVCs made for the purposes of purchasing notional service. Where a member’s AVCs are the subject of a Pensions Adjustment Order (“PAO”) the member and the non-member spouse will be deemed to each hold a share of the AVC fund and permitted to exercise the option independently. Amendments introduced at Committee Stage now provide that the option to draw down AVCs overrides the rules of the relevant pension scheme and so, if the Bill is passed with these new provisions, where members wish to avail of the option, no scheme amendment will be required.
Tax at the higher rate will automatically be applied to an early drawdown unless the member provides the administrator with the relevant Revenue documentation. The payments are not liable to USC and it is proposed that they will be exempted from PRSI in the next Social Welfare and Pensions Bill. The Bill also sets out certain documentation retention and disclosure requirements that will apply to administrators where early draw down requests are received.
Temporary reversal of Approved Retirement Fund (“ARF”) and Approved Minimum Retirement Fund (“AMRF”) limits
The pre-2011 monetary limits for ARF options have been reinstated by the Bill. These limits are lower than those that currently apply. These are intended to apply for a period of three years from the passing of the Bill.
The reapplied lower limits are:
- the minimum guaranteed pension income for life that a member must have is €12,700 per annum in order for an individual under 75 to establish an ARF (this had been increased to 1.5 times the State Pension (Contributory) which, at present, amounts to approximately €18,000 per annum); and
- the maximum amount to be set aside in an AMRF if the minimum guaranteed pension income for life is not met must be €63,500 (this had been increased to 10 times the State Pension (Contributory) which, at present, amounts to approximately €119,800).
Interim provisions have also been included in the Bill to ensure that individuals who established ARFs while the higher limits were in force (i.e. between 6 February 2011 and the date of the revision, probably April 2013) will not be disadvantaged.