The Budget Statement delivered in October 2016 did not highlight any significant developments in relation to pensions other than the cessation of the pensions levy. However, the recently published Finance Bill announced significant proposed changes to Personal Retirement Savings Accounts (“PRSAs”) and, latterly in subsequent amendments of the Bill, to Retirement Annuity Contracts (“RACs”).
The proposed changes are stated to be aimed at closing off certain tax planning opportunities and will, therefore, have potential tax consequences for some individuals. The amendments will be of particular relevance to PRSA/RAC holders, their advisers and relevant administrators. Currently, a PRSA/RAC holder cannot take benefits from either vehicle after the age of 75. The law is being amended so that, in future, a PRSA/RAC will be deemed to vest on the 75th birthday of the individual, if it has not already vested. Also, an unvested PRSA/RAC which is held by an individual who reaches 75 years of age before the passing of the Finance Act 2016 will be deemed to vest on the date of passing of that Act. It is understood that where an individual has already reached age 75, there will be a limited transition period probably until the end of March 2017 to consider any necessary or appropriate action.
The implications of the proposed changes are that after the age of 75 the assets in an unvested PRSA /RAC will, among other things:
- be subject to the imputed distribution regime which currently applies to Approved Retirement Funds; and
- the event will be treated as a benefit crystallisation event occurring on the 75th birthday for the purposes of the Standard Fund Threshold regime.
As currently drafted and envisaged, the proposed legislation will introduce significant changes to the PRSA/RAC tax regime and will be reasonably complex. The Bill has been amended as it makes its way through the legislative process and so it is certainly a case of “watch this space” for the final provisions. PRSA/RAC holders approaching, or who have reached, 75 years of age and their advisers will, no doubt, wish to consider their options in anticipation of the proposed changes. Administrators of PRSAs and RACs will also wish to consider any necessary administrative preparations for the changes. The Finance Act is expected to be signed either before Christmas 2016 or possibly early January 2017.