Irish Pensions Magazine Spring 2013
8
F
ollowing on from the Minister for Finance’s
announcement in his budget speech, the Finance
Act 2013 has made provision for persons with AVCs to
withdraw up to 30% of their value. The main features
of the provisions are:
• Access is on a once-off basis. Only one withdrawal
can be made. For, example a member may not
make 3 withdrawals of 10%
• Access to AVCs will be limited to 3 years starting
from 27 March 2013
• The maximum value that can be withdrawn is 30%
of the value of AVCs at the time of withdrawal
• Withdrawals will be subject to the member’s
marginal rate of tax but will not be subject to PRSI
or USC
• It is the responsibility of the scheme administrator
to deduct the appropriate tax and remit to the
Revenue
• Amounts withdrawn will not be treated as a
crystallisation of benefit
• Where an AVC is subject to a pension adjustment
order, both the member spouse and non member
spouse may exercise the option independently in
respect of their “share” of the AVC.
• AVC payments to PRSAs which are allowed under
the rules of a scheme are also in scope.
In his budget speech the Minister also referred to the
Government’s wish to encourage as many people as
possible to continue to invest in pension schemes.
While the Minister’s encouragement is very welcome,
allowing access to AVCs would appear somewhat
contradictory. The combination of the increasing
state pension age, a low interest rate environment,
increased longevity, the cost of purchasing annuities
and the growth of defined contribution schemes (which
frequently provide a limited level of benefit) mean
that AVCs play a critical role in allowing members
build up adequate funds for retirement. There is a
risk that allowing early access to AVCs, will diminish
the importance of making adequate provision for
retirement.
From a trustee perspective, the Act does not require
trustees to change the rules of the scheme to allow
members access AVCs. Trustees will need to arrange
with their scheme administrator for the appropriate
procedures to be put in place to give members access
to their AVCs. As part of these procedures the trustees
should ensure that members complete a declaration to
confirm that it is the member’s own decision to avail of
the option. The IAPF together with the IIF have worked
with the Pensions Board to agree a recommended
claim form with suitable declarations to be made by
the member. It should also be noted that there may
be fees and/or charges in withdrawing money from
certain funds and in some cases depending on the
nature of the fund early access may be restricted.
The administrator is responsible for determining
the value that should be put on the AVCs including
appropriate allowance for expenses. The responsibility
is also with the administrator to pay out the
appropriate amounts after deducting the correct tax
and remitting it to the Revenue. This is not necessarily
a straightforward process. Withdrawals are subject to
tax at the member’s marginal rate of tax. Members
who are only subject to the standard rate of tax will
need to get a tax certificate. Failure to do so will result
in them being taxed at the higher rate of income tax
and having to reclaim the tax separately from the
Revenue. Some scheme administrators may have
difficulty handling tax certificates and applying the
correct rate of tax on a member’s drawdown.
The administrator must also make quarterly returns to
the Revenue giving the following details:
• Number of transfers made
• The aggregate value of transfers made
• The tax deducted from the aggregate value of the
transfers made
There are many circumstances where withdrawing
AVCs may not be in the best interest of the members
including:
Pre-retirement Access to AVCs
by Gary Colclough
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