20 / 30
Irish Pensions Magazine Autumn 2016
20
Analysis
The ARF option and mixed DB & DC benefits
by Tony Gilhawley
M
embers of frozenDB schemeswhoare alsomembers
of a DC scheme related to the same employment
will take retirement benefits from two schemes, either
when they retire from that employment or as a deferred
member having previously left that employment.
A Revenue Practice requirement seeks to deny the ARF
option under the DC scheme to such retirees, or at
least to restrict their DC scheme lump sum entitlement.
But this flies in the face of legislation as Revenue have
not in fact any discretionary powers to impose such
restrictions on the ARF option under a DC scheme.
Entitlement to the ARF option
When the ARF option was introduced in Finance Act
1999 it was implemented into legislation in such a way
as to NOT be subject to normal Revenue discretionary
powers applicable to exempt approved retirement
benefit schemes. And this approach has been followed
in various amendments and extensions of the ARF
option since then. The current legislative position in
relation to DC schemes and the ARF option is:
• A DC scheme established on or after 6tH February
2011 can NOT be approved by Revenue unless
it contains the full unconstrained ARF option as
set out in s772(3A)(a) Taxes Consolidation Act
1997. Basically a scheme approved on or after
6tH February 2011
MUST
offer the full ARF option
as set out in s772(3A)(a) Taxes Consolidation Act
1997 as part of its rules.
• Revenue can NOT use the discretionary power
(set out in s772(4)(a) TCA 1997) to deny the ARF
option to any DC scheme established on or after
6th February 2011. See s772(4)(c) TCA 1997 which
was inserted into legislation when the ARF option
was originally introduced in 1999. It is therefore
the clear intent of the Dail that deciding who is
and who isn’t entitled to the ARF option (and the
terms of the ARF option) would be a power held
by the Dail and not by Revenue.
• DC scheme established before 6tH February
2011 are entitled to change their rules, without
requiring Revenue consent or approval, to offer
the full ARF option as set out in s772(3A)(a) Taxes
Consolidation Act 1997. See S19(7)(f) Finance Act
2011 (No 1).
The combination of the above is that all DC schemes
established on or after 6th February 2011 MUST offer
the full ARF option to scheme members when taking
retirement benefits, regardless of whether the member
has or has not separate DB benefits related to the same
employment. And DC schemes established before
that date can offer the full ARF option to all scheme
members, regardless of whether the member has
or has not separate DB benefits related to the same
employment, as if scheme was established on or after
6tH February 2011.
Revenue practice intervention
Revenue introduced (at some stage on or before
February 2006) a restriction on 5% directors in relation
to how they can take their retirement benefits as
between the traditional benefit and the ARF options:
Where a 5% director exercises an option, he/she is
treated as having exercised the same option in relation
to all schemes from the same employment. An option
may only be exercised if the individual is a 5% director
of the company that established the scheme and if all
benefits from the same employment are treated in the
same way.
1
The position above continues but was supplemented
by an additional provision in the June 2013 Revenue
Pensions Practice Manual (following the extension of
the ARF option to all DC schemes from 6th February
2011):
“
Members of multiple occupational pension schemes
must exercise the same option in respect of each
scheme. However, as noted above, an individual may