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Irish Pensions Magazine Autumn 2016
Analysis
make a different option in relation to AVC funds than
that made in respect of their main occupational pension
scheme benefits
.”
2
This additional provision is wider in scope (applies to
all scheme members and not just 5% directors) and to
all schemes (whether related to the same employment
or not) than the previous provision which related only
to 5% directors and scheme benefits from the same
employment.
The provision was clarified in the July 2014 Manual as
applying only to benefits from multiple schemes related
to the same employment (which may well have been
the original intention):
“
Members of multiple occupational pension schemes
relating to the same employment must exercise the same
option in respect of each scheme. However, as noted
above, an individual may exercise a different option in
relation to AVC funds than that made in respect of their
main occupational pension scheme benefits.
”
A revised August 2016 Chapter 23, issued by Revenue,
contains the same provision as above.
In simple terms, the Revenue Practice requirement
attempts to deny the ARF option in a DC scheme where
the individual also takes benefits from a separate DB
scheme related to the same employment, as the DB
benefits must be taken under the traditional benefit
option (unless the member is a proprietary director).
However as outlined above, my view is that Revenue
have no powers to deny the ARF option to such DC
retirees with separate DB benefits; the power to decide
who is and isn’t entitled to the ARF option is reserved
to the Dail.
April 2014 ‘concession’
Industry representations on the issue of mixed DB and
DC benefits from the same employment triggered an
apparent ‘concession’ from Revenue which is clarified in
a letter of 27th March 2014 to the IAPF.
The ‘concession’ is that in the specific circumstances
of closed frozen DB accrual and future DC approval in
the same employment, the ARF option can be provided
in relation to the DC benefits (non AVCs) subject to
restrictions on the maximum lump sum and pension
combinations between the two schemes.
Further clarification was promised in the 2014 Pensions
Practice Manual, but when the updated Manual
appeared it did not contain any such clarification and
therefore continues to contain the existing the provision
outlined above.
The letter suggests that only in the circumstances of a
closed DB scheme where future accrual is made by way
of a separate DC scheme that:
• If no lump sum is taken from the DB scheme, 25%
of the DC fund can be taken as a lump sum under
the ARF option; however, in this case the maximum
approvable pension which can be provided by the
DB scheme is reduced by the DC lump sum taken
divided by 9.
• If the maximum allowed lump sum (under the
traditional benefit option) is taken under the DB
scheme, e.g. by commutation of pension, then
no lump sum can be taken from the DC scheme
under the ARF option; the entire DC scheme fund
can be transferred to an ARF;
• If a lump sum taken from the DB scheme is less
than the maximum allowed lump sum (under the
traditional benefit option), then a further lump
sum can be taken from the DC fund (under the
ARF option), to bring the total lump sum provided
to the maximum allowed lump sum under the DB
scheme. The maximum approvable pension which
can be provided by the DB scheme is reduced by
the DC lump sum taken divided by 9.
In effect Revenue are attempting by use of Revenue
Practice to restrict or in some cases deny entirely the
25% lump sum option under the ARF option in the
DC scheme. However as outlined above, my view is
that Revenue have no powers to restrict or deny the
25% lump sum option under the ARF option in the DC
scheme as the ARF option must mirror that of s772(3A)
(a) TCA 1997, which taken with s772(3B)(b) TCA 1997,
provides an unfettered right to take a 25% lump sum as
part of the ARF option.
DC scheme trustees
Trustees of DC schemes should look to their own rules
first and examine their ARF option as approved by
Revenue (where the scheme was established on or after
6th February 2011) or the ARF option inserted into the
scheme rules where the scheme was approved before
6th February 2011.
The ARF option should be the full unrestricted ARF
option as set out in s772(3A)(a) TCA 1997. In that event,
DC scheme trustees should take legal advices before
attempting (on foot of a Revenue practice intervention
which has no legal underpinning) to either deny a
member the ARF option under the DC scheme or to
restrict or deny the 25% ARF lump sum option, even if
the member has separate DB benefits.
1 February 2006 Revenue Practice Manual
2 Chapter 23.2, Revenue Practice Manual, June 2013
Tony Gilhawley FSAI
Director
Technical Guidance Ltd.
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