Transcript Slide 1

Members Seminar
Presented by:
Eugene Foley
Paul Dunne
Clive Slattery
5th December 2013
• AGENDA
Revenue Commissioners Update
Finance Bill Summary - presented by Clive Slattery
AIFMD and Exempt Unit Trusts
Trustee Training
Pensions Board Update
CRO 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 Update
Presented by Clive Slattery, mobile: 087 6791759
email: [email protected]
• 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 Update
WHAT’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 Update
EARLY 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 Update
Reduction 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 Update
Personal 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 Update
Lump 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 Update
Sec. 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 Update
Plain 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 Update
Valuation 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 Update
DB Factors
• Age
• 50 (&under)
• 51,52
• 53
• 54
• 55,56
• 57
• 58
• 59,60
Factor Age
37
36
35
34
33
32
31
30
Factor
61
62
63,64
65
66
67,68
69
70 +
29
28
27
26
25
24
23
22
Finance Bill Update
Public 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 Update
Revised 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 Update
Impact 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 Update
Issues 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 Update
Example
• 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 Update
Payment 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 Update
Penalties
• 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 Update
Attack 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 Update
Redundancy 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 Update
Redundancy 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 Update
Redundancy 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 Update
Redundancy 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 Update
Redundancy 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 Update
Pension 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 Update
Tax 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 Update
2014 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 Update
Social 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 Update
Mitigating 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 Update
Early 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 Update
Overseas 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 Update
Points 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 Update
Create Surplus
• Reduce salary to reduce “final remuneration”.
• Wind up scheme.
• Surplus returned to employer.
• Use funds as pension contribution for spouse.
Finance Bill Update
Split/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 Update
Case 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 Update
Case 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 Update
Defer 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 Update
Defer 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 Update
Check 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 Trusts
CB delay in responding to submissions on CP68
Prospect of Grandfathering
Applic for AIFM status to commence in Feb
• Trustee Training
Trustee 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 Update
APTI attended the public consultation on future of
DC schemes
Written response to the consultation paper has
been submitted
• CRO and Receiverships
1st stage of the Companies Bill passed, effectively
closed to submission from APTI
Alternatives being discussed where a Receiver is
appointed over the assets of a pension trust
QUESTIONS?