Members Seminar

Presented by:Eugene Foley

Paul Dunne

Clive Slattery5th December 2013

• AGENDA

Revenue Commissioners Update Finance Bill Summary - presented by Clive SlatteryAIFMD and Exempt Unit Trusts Trustee TrainingPensions Board UpdateCRO and Receiverships

Main focus is on DB schemes

Revenue Commissioners Update

• Multiple OPS with benefits being paid from DB & DC. Revenue asked for submission for sample and examples.

• CHC schemes – Revenue have said that a letter should be sent to them with an undertaking that any assets which cannot transfer due to the Central Bank restriction, will be transferred when it is capable of doing so.

• There is no further update on the eligibility of PRSAs to fall within the Ireland/UK Double Taxation Agreement

Main focus is on DB schemes

Revenue Commissioners Update • Finance Bill 2013 - New penalties introduced would relate to

online applications for personal fund thresholds, expected to be available from Feb 2014. Manual applications can be submitted prior to the online applications being available.

• Professional added years don’t vest equally over the term until retirement and the calculation and what multiple is to be used is with Policy for review

• Currently negotiating a common Trust Deed that members could adopt

Main focus is on DB schemes

Revenue Commissioners Update • A gain from an AMRF drawdown can be deducted

from ARF distribution calculation at year end.• Shares must be sold in cases of early retirement due

to ill-health

Finance Bill UpdatePresented by Clive Slattery, mobile: 087 6791759 email: cslatz1@gmail.com

• Review main points from Finance & Social Welfare Bills that will impact on administrators & clients.

• More text less importance.• These new Regulations will fundamentally change the way we get around them.• What do we need to tell clients?• Big difference: measures w.e.f 1 January 2014

Finance Bill UpdateWHAT’s IN SECTION 18• Older Public Sector schemes provide for contributions to

be paid for spouse/children pensions by deduction from retirement lump sum.

• Individuals who took early retirement under the 2009 scheme, must wait until age 60 to get 90% of TFLS.

• Confirms that where deductions are made from LS balance relief will be given.

Finance Bill UpdateEARLY ACCESS to AVCS• Amends Sec.782A to strengthen existing override

provisions.• Concerns that some rules/contracts don’t allow early

access.• Provides that option may be exercised notwithstanding

rules/contract don’t facilitate.• No longer necessary to amend rules/contract.

Finance Bill UpdateReduction in Standard Fund Threshold• Reduced to €2M w.e.f. 1/1/2014.• Some scope for additional funding to €2.3M

before 31/12/2013.• Probably seek to retire immediately.• Fund growth will create Chargeable Excess Tax

liability.

Finance Bill UpdatePersonal Fund Threshold• Those with funds between €2M and €2.3M will need

to apply for a PFT.• Revenue developing an electronic system for future

PFT notifications.• Must include statements from administrators

certifying information in the notification.• Existing holders of a PFT are not affected.

Finance Bill UpdateLump Sum• SFT reduction has a consequential effect on lump

sums.• Convoluted methodology in Sec.790AA.• “tax free amount”: 200,000.• “standard chargeable amount” is calculated using a

formula:• SFT divided by 4 less the tax free amount.

Finance Bill UpdateSec. 790AA• “excess lump sum” is the amount by which the lump

sum received exceeds the tax free amount and is taxed @20%.

• BUT any amount of the excess lump sum that exceeds the standard chargeable amount is treated as income of the individual and is taxed @ marginal rate.

Finance Bill UpdatePlain English• No change to existing 200K tax free amount.• Previous amount taxable @20% is reduced from 375K

to 300K as the standard chargeable amount has been reduced from 575K to 500K.

• 75K taxed @ higher rate, plus USC, PRSI.• Additional liability 24,000.• Take lump sum before year end.

Finance Bill UpdateValuation of DB Pensions.• Benefits accrued to 31/12/2013 continue to be

valued by applying the 20 factor to the annual pension.

• Benefits accrued from1/1/2014 valued by applying an age-based factor.

• The later you take benefits, the lower the factor.

Finance Bill UpdateDB Factors• Age Factor Age Factor• 50 (&under) 37 61 29• 51,52 36 62 28• 53 35 63,64 27• 54 34 65 26• 55,56 33 66 25• 57 32 67,68 24• 58 31 69 23• 59,60 30 70 + 22

Finance Bill UpdatePublic Service Example• Asst. Sec., Salary 120K, age 50, NRA 65, will have 40

years service, assume salary @NRA 150K.• Pension 50% plus LS 1.5 salary.• Pension 75K, LS 225K• Previously valued @ 75K x 20 • 1,500,000 + 225,000• 1,725,000

Finance Bill UpdateRevised Valuation• Accrued to 31/12/2013• 150K x 25/80 = 46,875• From 1/1 2014• 150K x 15/80 = 28125• 46875 x 20 = 937,500• 28125 x 26 = 731,250• Lump sum = 225,000• Valuation = 1,893,750.

Finance Bill UpdateImpact of Factors• Age when benefits are taken is important.• Main relevance to those some distance from retirement.• NRA 66 using factor of 25 (previously 20) for benefits

accrued from 1/1/2014• Discourage high earners from joining or remaining in a DB

scheme• Impact on future early retirement calculations.

Finance Bill UpdateIssues for DB• Calculations more complicated.• Retain details as at 31/12/2013.• Revaluing benefits on age, lower as you get older.• Continue scheme membership?• Transfer to DC.• Design new remuneration packages.

Finance Bill UpdateExample• Executive age 50, new position 1/1/2014.• NRA 60, 10 years service, 2/3rds pension.• Net SFT (after 200K LS) = 1.8M• Age 60 factor is 30.• Max. pension is 60K• Less any retained benefits.

Finance Bill UpdatePayment of Chargeable Excess by Public Servants• Existing reimbursement options amended &

extended.• Maximum amount recovered from lump sum

reduced from 50% to 20%.• Reduce gross pension payable over a period of up

to 20 years.

Finance Bill UpdatePenalties• New fixed penalty system applies to any person

who fails to comply with any obligations imposed by Chapter 2C or Schedule 23B.

• Fixed penalty of €3,000 for each “failure”.• Administrators beware!

Finance Bill UpdateAttack on Savers• Upward rate trend continues.• DIRT & Exit tax rates now 41%, same as earnings.• Are long term savings better off in a pension

product?• Impact of pensions levy is a problem.• Still get marginal rate relief on contributions.

Finance Bill UpdateRedundancy Payments (1)• In general all redundancy payments are taxable

except:• Statutory redundancy payments• Payments made on account of injury or disability• Any relief that may be due if in respect of a

foreign employment.

Finance Bill UpdateRedundancy Payments (2)• Taxable Amount of the Payment can be reduced:• Basic exemption: 10160 plus 765 for each full year of

service.• Increased exemption: Additional 10000 if not a member of

a pension scheme or if you irrevocably waiver your entitlement to a pension scheme lump sum. This amount is reduced by pension scheme lump sum.

Finance Bill UpdateRedundancy Payments (3)• SCSB: This method attractive for high earners with long

service. The exempt amount is calculated using a formula: A x B/15 – C.

• A= average remuneration for last 36 months service.• B = number of complete years service• C = value of TFLS from pension scheme ( maximum

200K).

Finance Bill UpdateRedundancy Payments (4)• Joe has 18 years service, redundancy lump sum 60K,

pension scheme lump sum 11K, salary last 36 months 95K.

• Basic exemption 23930 ( 10160 x 765 x 18)• Increased exemption: NIL (pension scheme lump sum

more than 10K)• SCSB: 27,000 ( 95000/3 x 18/15 – 11000)

Finance Bill UpdateRedundancy Payments (5)• Effective lifetime cap of €200K.• Top slicing relief abolished for amounts in excess of this last

year.• Now extended to all payments.• TSR ensured that payment not taxed @rate higher than

average rate in previous 3 years.• Use pension scheme top up as an alternative to taxable

severance payment.

Finance Bill UpdatePension Levy• Section 67 confirms the revised arrangements.• 2014: increase from 0.6% to 0.75%.• 2015: 0.15%.• Rationale: Waterford Glass case?• Minister claims misleading information• Retire prior to 30 June.• Defer contributions to July.

Finance Bill UpdateTax Return Filing Date• Revenue consultation paper on 15/10/13 (eBrief

43/13).• Proposed changes to 2014 Pay & File dates.• Budget brought forward from December to October.• Need accurate information on tax receipts to frame

the Budget.• Already have Preliminary Tax figures!

Finance Bill Update2014 Return Date?• Preferred date is 30 June.• Pay tax 4 months earlier?• Cash flow issues for clients.• Knock on effect for pension contributions.• Small U-Turn: no change for 2014• Final decision awaited.

Finance Bill UpdateSocial Welfare Bill• Last year’s announcement of extension of PRSI to

unearned income is in Section 3.• Extends PRSI liability to employed contributors and

pensioners under age 66 who have unearned income ( investment, dividend, deposit interest, rents).

• Chargeable @4% (class K) but no benefits.• PAYE taxpayers who have other income of €3,174 p.a.

Finance Bill UpdateMitigating SFT Impact• Early retirement• Overseas transfer• Create surplus• Split or Defer Benefits• Mix of public & private sector benefits• AVC early access• SFT only becomes an issue when there is a BCE• Death benefits if a large fund.

Finance Bill UpdateEarly Retirement• Access benefits before fund hits SFT.• Must be genuine retirement.• 20% director shares issue.• Restructure business.• Self-employed• May create other problems: bank, customers

Finance Bill UpdateOverseas Transfer• Creates a BCE so “caps” benefits Revenue circular 19/04/2012• Use of an overseas transfer payment to circumvent Irish

pension tax legislation and rules would be contrary to Irish approval conditions

• Transfer should be for bona fide reasons• Individual must complete & submit a Declaration stating

the reason for the transfer

Finance Bill UpdatePoints to Consider Who is the new Provider?• Do you need to move to get a result?• Costs• How will any lump sum received be treated for

Irish tax purposes?• Other rules in Chapter 13

Finance Bill UpdateCreate Surplus• Reduce salary to reduce “final remuneration”.• Wind up scheme.• Surplus returned to employer.• Use funds as pension contribution for spouse.

Finance Bill UpdateSplit/Defer Benefits• Prior to retirement transfer benefits into a

number of PRSAs.• BCE only occurs when PRSA is “vested”.• On death PRSA paid to estate.• 4 times salary problem.

Finance Bill UpdateCase Study (1)• Client age 61, big DC fund from previous employment,

small consultancy business with single member scheme. Total funds 1.8M

• Transfer previous DC to Newco scheme.• Close Newco scheme & transfer to 4 PRSAs• Split: 800K, 300K, 300K and 400K.• Take 200K LS from PRSA 1, balance to ARF/AMRF.

Finance Bill UpdateCase Study (2)• Option to use some ARF funds for annuity purchase.• Taxable withdrawal available from ARF at any time.• Vest another PRSA to take more cash @ 20%.• No imputed distribution until PRSA vested.• Diversify investments: long term growth.• Control, Flexibility, Tax Efficient

Finance Bill UpdateDefer Benefits (1)• What happens if you have funds in a PRSA & you never take benefits?• The legislation, Sec.787K (1) (c) (ii), confirms that PRSA assets may not be

paid to the owner “after he or she attains the age of 75”. The intention of the legislation was to make age 75 the latest permissible retirement age. A joint Revenue/Pensions Board FAQ document issued to PRSA Providers, (last updated in May 2009), states:

• “You may take benefits at any time once you reach age 60, but they must commence before age 75”.

Finance Bill UpdateDefer Benefits (2)• This stance was modified by Revenue in a Q & A

document circulated by the Irish Insurance Federation in May 2011:

• “If an individual leaves a balance in the PRSA beyond the age of 75 then no further withdrawal may be made during his/her lifetime and the PRSA balance is payable to his/her estate.”

Finance Bill UpdateCheck List• Internal procedures: SFT, PFT, BCE.• Record keeping for DB: review system• Clients wishing to act before year end: contributions

and/or retirement.• PFT Applications.• More clients with potential SFT issues.• Don’t get fined.

• AIFMD and Exempt Unit TrustsCB delay in responding to submissions on CP68Prospect of GrandfatheringApplic for AIFM status to commence in Feb

• Trustee TrainingTrustee Training is required within 6 months of

appointment and at least every two years thereafter

Where a person is already trustee prior to the 1 Feb 2010, training was required to be completed before 1 Feb 2012 and every two years thereafter

• Pensions Board UpdateAPTI attended the public consultation on future of

DC schemesWritten response to the consultation paper has

been submitted

• CRO and Receiverships1st stage of the Companies Bill passed, effectively

closed to submission from APTIAlternatives being discussed where a Receiver is

appointed over the assets of a pension trust

QUESTIONS?