784C Approved minimum retirement fund

Summary

This section sets out the consequences of an option (the ARF option) made by an individual under section 784(2A) to have the value of his or her annuity fund, net after any sum taken in part commutation, transferred to himself/herself or to an approved retirement fund (ARF).

Unless the individual has guaranteed annual pension income of at least €12,700 from an existing pension payable for life (specified income) at the time the ARF option is exercised a maximum “set aside” amount of €63,500 of the net fund (or the whole of the net fund where less than this amount) must be transferred to an approved minimum retirement fund (AMRF) or used to buy an annuity.

An AMRF automatically becomes an ARF when an individual becomes entitled to the required level of specified income at any time after exercising the ARF option, reaches the age of 75 years, or dies.

The same exemption of income and gains, as well as the taxation treatment of distributions, as apply in the case of ARFs (see section 784A) apply also in the case of AMRFs.

[It should be noted that higher specified income and “set-aside” requirements applied in the period 6 February 2011 to 26 March 2013. With effect from 6 February 2011 (the date of passing of Finance Act 2011), the specified income requirement was increased from €12,700 per annum to an amount equal to one and a half times the State Pension (Contributory) (i.e. €18,000), while the maximum “set aside” amount required to be placed in an AMRF was increased from €63,500 to an amount equal to ten times the rate of State Pension (Contributory) (i.e. €119,800).

The old limits of €12,700 and €63,500 were reinstated in respect of ARF options exercised on or after 27 March 2013 (the date of passing of Finance Act 2013), as reflected above. It was intended that these lower limits would remain in place for a period of 3 years, whereupon the earlier higher limits would be reapplied by legislation. As Finance Act 2015 did not provide for the re-instatement of the higher limits, the lower limits of €12,700 and €63,500 continue to apply.

In addition, to ensure that individual’s who were affected by the higher limits in the period 6 February 2011 to 26 March 2013 are not disadvantaged, section 17(6) of the Finance Act 2013, which cannot be consolidated with the Taxes Consolidation Act 1997, introduced alleviating measures which facilitate amounts held in AMRFs to become ARFs in certain circumstances. Please refer to the footnote for further information on these measures.]

Notwithstanding the references to section 784(2A) (retirement annuities), this section also applies to ARF options exercised under section 772(3A) (occupational pension schemes) and section 787H (PRSAs).

Details

(1) An “approved minimum retirement fund” (AMRF) is a fund which is held and managed by a qualifying fund manager (within the meaning of section 784A) and which complies with the conditions in section 784D.

(2) Where an individual, who has not reached the age of 75 years, exercises an option under section 784(2A), he or she is required to transfer to an AMRF, or to use to acquire an annuity payable immediately to him/herself, the lesser of —

• the value of the retirement annuity, net of any tax-free lump sum, and
• €63,500.

(3) Where an individual, who is required to transfer funds to an AMRF or to use funds to acquire an annuity to himself/herself, has a number of retirement annuity policies, the total amount to be so used in respect of all policies which have matured is the lesser of the aggregate of the value of such annuities, net of any tax-free lump sum(s), and €63,500.

*The amount that an individual must transfer to an AMRF or use to purchase an annuity is the lesser of the aggregate balances in the retirement annuity contracts, as reduced by “tax-free” lump sums, and €63,500, when the latest ARF option is exercised. In this example, the amount to be transferred to an AMRF is €63,500. As €60,000 was transferred in June 2013, a further €3,500 is required in August 2013.

If the individual exercises an ARF option in respect of a further retirement annuity, no amount need be transferred to an AMRF or used to purchase an annuity, since the total amount the individual has to use in this way cannot exceed €63,500.

(4) Where the individual is actually in receipt of (as opposed to having a future entitlement to) an annual income (specified income) of €12,700 or more from a pension which is payable for the life of the individual, including a social welfare pension or an equivalent pension payable from another State, at the time an ARF option is exercised, no amount need be transferred to an AMRF or used to purchase an annuity payable immediately to the individual.

(5) Subject to subsection (6), a qualifying fund manager may not make any payment or transfer of assets out of an AMRF, other than–

1. a transfer of all of the assets to another AMRF, or
2. a payment or transfer, on one occasion only, in any tax year, to the beneficial owner of the assets in the AMRF of an amount up to 4% of the value of the assets in the fund at the time of the payment or transfer.

(6) Where an individual beneficially entitled to the assets in an AMRF-

1. reaches 75 years of age, or
2. becomes entitled to the required level of specified income at any time after an ARF option is exercised (having placed funds in an AMRF because the specified income test was not met when the option was exercised), or
3. dies,

the AMRF thereupon becomes an ARF and the various provisions relating to an ARF, other than the requirements regarding declarations to be made on opening an ARF, apply.

However, please refer to the footnote for details of the measures introduced by section 17(6) Finance Act 2013 which allow amounts held in AMRFs to become ARFs in certain circumstances.

(6A) As a transitional measure for a period of 3 years from 6 February 2011 for the purposes of subsection (6)(b) i.e. in order for an AMRF to become an ARF, an individual who retired before that date and who transferred funds into an AMRF before 6 February 2011 need only satisfy the specified income test of €12,700 rather than the higher test which applied from 6 February 2011 to 26 March 2013 (i.e. 1.5 times the maximum annual rate of State Pension (Contributory), €18,000).

(7) The provisions of section 784A, with such modifications as are necessary, apply to income and gains arising from, and to distributions in respect of, assets held in an AMRF as they apply to assets held in an ARF.

Footnote – section 17(6) Finance Act 2013

Summary

To ensure that individual’s who were affected by the higher “specified income” and “set-aside” amounts on exercising an ARF option in the period 6 February 2011 to 26 March 2013 are not disadvantaged section 17(6) of the Finance Act 2013 introduced the following alleviating measures:

Firstly, where such individuals have guaranteed annual pension income of at least €12,700 on or after 27 March 2013 (the date of passing of Finance Act 2013) any AMRF immediately becomes an ARF. Likewise, ring-fenced amounts retained in vested PRSAs, immediately become non ring-fenced amounts.

Secondly, where such individuals do not have guaranteed annual pension income of €12,700 on 27 March 2013 but had originally transferred more than €63,500 to an AMRF, or had retained ring-fenced amounts in vested PRSAs of more than €63,500, the excess of the original amount transferred or ring-fenced above €63,500 immediately becomes an ARF, or as the case may be, a non ring-fenced amount or amounts.

Details

Section 17(6)(a) of the Finance Act 2013 defines the terms used in the subsection. These are largely based on definitions elsewhere in Part 30, but the following should be noted:

“non ring-fenced amount”, in relation to a vested PRSA, means the amount or value of assets in the vested PRSA that the PRSA administrator can make available to, or pay to, the PRSA contributor or to any other person.

“relevant option” means an option exercised in accordance with section 772(3A)(a), 784(2A) or 787H(1).

“ring-fenced amount”, in relation to a vested PRSA, means an amount retained within the vested PRSA equivalent to the amount which the PRSA administrator would, if the PRSA contributor had exercised an ARF option in accordance with section 787H(1), have had to transfer to an AMRF.

“vested PRSA” means a PRSA in respect of which assets have first been made available to, or paid to, the contributor by the PRSA administrator on or after 6 February 2011.

Where an individual, who exercised an ARF option or vested a PRSA on or after 6 February 2011 (the date of passing of the Finance Act 2011) and before 27 March 2013 (the date of passing of the Finance Act 2013) and, in so doing, transferred assets into an AMRF by way of one or more that one transfer) or retained a ring-fenced amount in a vested PRSA or in a number of vested PRSAs, has—

• guaranteed annual pension income of not less than €12,700 on or after 27 March 2013, the AMRF shall become an ARF (to which section 784A and subsections (1) & (5) of section 784C shall apply) or, as the case may be, the ring-fenced amount or each ring-fenced amount shall become a non ring-fenced amount.

or

• guaranteed annual pension income of less than €12,700 on 27 March 2013, but had originally transferred in excess of €63,500 to an AMRF or had retained in excess of €63,500 as a ring-fenced amount in a vested PRSA or vested PRSAs, the original amount transferred or retained in excess of €63,500 shall become an ARF (to which section 784A and subsections (1) & (5) of section 784C shall apply) or, as the case may be, shall become a non-ring-fenced amount(s).

A PRSA owner who has a ring-fenced amount in more than one vested PRSA which in the aggregate exceed €63,500, must decide how much of each ring-fenced amount is to become a non ring-fenced amount for the purposes of this section.

Relevant Date: Finance Act 2019