Revenue Note for Guidance

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Revenue Note for Guidance

782A Pre-retirement access to AVCs

Summary

This section provides members of occupational pension schemes with a three-year window of opportunity from 27 March 2013 (i.e. the date of passing of Finance Act 2013) during which they can opt to draw down, on a once-off basis, up to 30% of the accumulated value of certain additional voluntary contributions.

For the purpose of this section, AVCs include additional voluntary PRSA contributions made to AVC PRSAs.

Where AVCs are subject to a pension adjustment order (PAO), both parties to the order may exercise the option independently in respect of their respective “share” of the AVCs.

Amounts transferred to scheme members in accordance with this section are taxed at source by the administrator as Schedule E emoluments under PAYE.

Details

(1)(a) Subsection (1)(a) defines the terms used in the section. These are largely self-explanatory but the following should be noted:

“accumulated value” in relation to relevant AVC contributions (as defined) essentially means, in the case of AVC contributions made under a trust based occupational pension scheme, the realisable value of the contributions as determined by the scheme administrator under the rules of the scheme less any scheme expenses due to be discharged from the realisable value of those contributions. In the case of AVCs made to an AVC PRSA, the definition is modified to reflect the contract based nature of PRSAs, but again essentially means the current realisable value of the contributions under the terms of the contract less any dischargeable expenses.

“AVC fund” is defined as the accumulated value of relevant AVC contributions (as defined) made by a member, but specifically excludes the accumulated value of PRSA AVCs where benefits under the main pension scheme have become payable to the member. This could occur where the member chooses to retain the AVCs in the PRSA after retirement, rather than using them to enhance retirement benefits under the main scheme at the time of retirement.

“member” is defined in a manner that allows both active members of a scheme and members with preserved benefits under the scheme to qualify for the early access option. For example, an individual who is unemployed but has preserved benefits in the form of AVCs can still avail of the option.

“relevant AVC contributions” means AVCs as currently provided for in the legislation i.e. AVC contributions made by a member of a scheme under a rule of the main scheme permitting such contributions, or contributions made by a member under a separately arranged AVC scheme linked to the main scheme; and AVC PRSA contributions made by a member of a scheme under a rule of the main scheme permitting the payment of voluntary contributions to a PRSA, or such contributions made under a separately arranged scheme linked to the main scheme and which allows voluntary contributions to a PRSA. The definition allows for AVCs that may have been made by an individual to a previous employer’s scheme or to a previous AVC PRSA and that have been transferred into the individual’s current scheme to qualify as relevant AVC contributions.

The definition makes it clear that it is only AVCs made for the purposes of providing benefits at retirement that are included – AVCs made to enhance death-in-service benefits are excluded. Also excluded are AVCs made for the purpose of purchasing notional service. This is on the basis that such AVCs were made for the purpose of enhancing benefits at retirement due to the member having insufficient service –allowing access to such AVCs would, in effect, be allowing access to "core" pension benefits.

“relevant individual” means a member of a pension scheme who has an AVC fund and, where the AVC fund is subject to a PAO, the spouse or former spouse or civil partner or former civil partner of the member.

(1)(b) Where an AVC fund is subject to a PAO, each relevant individual i.e. the member and the spouse or former spouse or civil partner or former civil partner is deemed to have a separate AVC fund. The value of these separate AVC funds is to be determined on the basis that the designated benefit under the PAO was payable at the time the AVC access option is exercised.

(1)(c) This subsection puts beyond doubt that the following contributions, regardless of how they may be characterised, or described, are not AVC contributions for the purposes of this section —

  • employer contributions,
  • employee main scheme contributions, or
  • PRSA contributions.

In circumstances, where, for example, an employer “matches” employee voluntary contribution, the employer “matching contributions” are outside the scope of this section.

(2) Notwithstanding —

  • section 32 of the Pensions Act 1990, which precludes a member of a scheme from getting a refund of contributions made to the scheme, or
  • the rules of the retirement benefits scheme or the terms of the PRSA contract concerned, (which may otherwise prohibit early withdrawals of contributions etc.), or
  • the provisions of a PAO made in relation to a relevant individual, which would normally require the trustees of the scheme to pay the designated benefit in accordance with the scheme rules in force at the date of the PAO (which rules would not permit early access to AVCs),

a relevant individual may during the specified period (defined as the 3 year period commencing on 27 March 2013, i.e. the date of passing of the Finance Act 2013) irrevocably instruct the administrator of the AVC fund to exercise, on a once-off basis, the pre-retirement access option provided for in subsection (3). The legislation effectively overrides, therefore, any restriction or limitation on early access to pension savings contained in the rules of a retirement benefits scheme or a PRSA contract and allows the option to be exercised, and the trustees or administrator to execute the option without the need for scheme rules on contract terms to be changed.

(3) The pre-retirement access option is the transfer by the administrator to the relevant individual (before retirement) of up to 30% of the value of the AVC fund at the time of the transfer.

(4) This subsection contains the charging provision and essentially provides that —

  • (4)(a) the amount transferred to the relevant individual is to be taxed at source by the administrator as Schedule E emoluments under PAYE. This is notwithstanding that section 780 (which deals with situations where an employee is entitled to a return of contributions if they leave a scheme within 2 years), provides for tax to be charged on the administrator at the rate of 20% under Case IV of Schedule D on any repayment of employee contributions, and
  • (4)(b) such tax is to be charged at the higher rate unless the administrator has received from Revenue a tax credit certificate or a tax deduction card in respect of the individual. Individuals availing of the early access option will have to contact Revenue for a tax credit certificate.

(5) An administrator must retain irrevocable instructions provided under subsection (2) for 6 years and must make them available to an officer of the Revenue Commissioners if requested by notice in writing.

(6) The amount transferred under the AVC access option is not to be treated as a benefit crystallisation event (within the meaning of section 787O(1)) at the point of retirement for the purposes of Chapter 2C and Schedule 23B which deal with the limit on tax-relieved pension funds.

Relevant Date: Finance Act 2019