Example illustrated below

Following continuing representations by the IAPF, we are pleased to advise you that a recent Revenue rule change means that many individuals can now put higher personal pension contributions into their pension and also fund for higher benefits.  Those affected are members of company share schemes.  The rule change will allow the value of shares to be included in the calculation of remuneration for the purpose of determining the maximum allowed personal pension contributions and the maximum benefits that can be provided on death, leaving service or retirement.

Up to this, if an employee participated in an employee share scheme, the value of shares provided by the employer and from employee contributions were excluded from remuneration for pension purposes and their ability to fund for their pension annually and also the level of retirement benefits they could receive were significantly impacted. In December 1999, following a decision of the Appeal Commissioners, Revenue allowed share rights under approved share schemes to be included for redundancy calculations (SCSB).  However, this was not allowed for retirement benefits.

IAPF argued that if it was allowed it for redundancy purposes, it should also be allowed for retirement provision. Adequacy of income in retirement is a key consideration for every individual and is one of the IAPF’s main objectives.   It was our view that people should not have to be driven to choose between pension and shares but should be able to make adequate provision through both options.

The revised rule allows individuals who participate in Approved Profit Sharing Schemes to include the value of their share rights in their remuneration for pension purposes.  The attached briefing confirms that the taxable value of amounts granted under Share Options and Restricted Stock Schemes can also be included in remuneration.

Revenue indicated that this rule change applies from 30 January 2007 for all future benefit and contribution limit calculations.  For example, when calculating the maximum benefits for a Deferred Pensioner who is now retiring, the value of shares provided or purchased under an Approved Profit Sharing Scheme in the years prior to leaving service  can be included in the calculation of final remuneration. Please note however that the discount applying under a Save as you Earn share scheme is not pensionable.

Please note however that the rule change cannot be applied retrospectively to members who have already retired but whose benefits have not been finalised prior to 30 January 2007.

Please find example below which shows the effects of this rule change: