Pre-retirement access to AVCs

Introduction

Section 782A Taxes Consolidation Act (TCA) 1997 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 (AVCs). Amounts transferred to scheme members in accordance with this section are taxed at source by the administrator as Schedule E emoluments under PAYE.

Who can avail of the pre-retirement access option?

The option can be exercised by members of occupational pension schemes who have AVC funds. Where the AVC fund is subject to a to a pension adjustment order, both parties to the order may exercise the option independently in respect of their respective “share” of the fund. For the purposes of the option, scheme members can include both active members and those with preserved benefits. For example, an individual who is unemployed, but has preserved benefits in the form of AVCs, can avail of the early access option.

Buy Out Bond holders in respect of whom clearly identifiable employee AVCs have been used to purchase the bond may also exercise the option.

What is an AVC fund?

An AVC fund is the accumulated value of relevant AVC contributions made by a member, excluding the accumulated value of PRSA AVCs where benefits under the main pension scheme have become payable to the member.

What are relevant AVC contributions?

These are AVCs made for the purposes of providing benefits in retirement. They include 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. The following types of contributions are, however, specifically excluded for the purposes of the AVC access option –

  • employer contributions (howsoever described) to an occupational pension scheme or PRSA,
  • employee contributions to the main pension scheme,
  • PRSA contributions made by an individual (other than to an AVC PRSA), and
  • AVCs made for the purposes of purchasing notional service.

In circumstances where, for example, an employer "matches" employee voluntary contributions, while the employee’s AVCs qualify, the employer "matching contributions" are outside the scope of section 782A. It should also be noted that AVCs made to enhance death-in-service benefits are excluded from the pre-retirement access provision. Unless it can be clearly established that the relevant monies came from qualifying member AVC contributions, they cannot otherwise be included in the access option.

How do I exercise the pre-retirement option?

The first thing you should do is contact your pension fund administrator and establish what they may require you to do to exercise the option. If you qualify and decide to proceed you must advise the administrator, by way of an irrevocable written instruction, that you wish to exercise the option and provide the administrator with any other information that may be required to process your request.

How is the transfer amount calculated?

The transfer amount is calculated by reference to the percentage rate of draw-down you specify, up to a maximum of 30%, of the "accumulated value" of your AVC contributions at the time of the transfer less any scheme expenses due which are to be discharged from the accumulated value of those contributions as determined by the scheme administrator under the rules of the scheme.

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Will I be charged a processing fee?

This is a matter for the administrator but it is possible that a fee may be charged.

Can I exercise an option in stages?

No. As the option is exercisable on a once-off basis you must take the amount you are withdrawing in one sum. If, for example, you decide to access 20% of the AVC fund now, you cannot seek to access a further 10% of that fund at a later date.

What if I have more than one AVC?

You can withdraw up to 30% of each AVC fund. The option does not have to be exercised for each separate fund at the same time.

What are the income tax implications of exercising the option?

The amount transferred to you by your fund administrator is treated as emoluments to which Schedule E applies and tax is collected at source under the PAYE system by the administrator.

Do I need to provide a tax credit certificate?

No. You do not have to provide a tax credit certificate to the administrator but, in the absence of a certificate, the administrator is obliged to deduct income tax at a rate of 41% on the full amount of the withdrawal. If you are not using up any or all of your tax rate band and tax credits (for example if you are unemployed or in low paying employment) it may be better to arrange to have a certificate issued to the administrator before you draw down the payment as this will ensure that the amount of tax deducted more accurately reflects your circumstances.

How do I get a tax credit certificate?

A tax credit certificate may be obtained from your local Revenue office. You will need to give the PAYE Registration number of the fund administrator in order to obtain the certificate.

Can I use my employment tax credit certificate?

No. You must obtain a certificate in the name of the fund administrator who will be processing your claim.

What happens if I do not produce the certificate?

As noted above, the default position is that the administrator must deduct income tax at a rate of 41% on the full amount of the withdrawal in the absence of a certificate.

Will the administrator issue a P45?

Yes. The administrator will issue a P45 showing the "pay" (i.e. the amount of AVCs drawn down) and the tax deducted.

Can I get a refund if excess tax is deducted?

Yes. If you consider that you have paid too much tax on the AVC payment you may claim a refund after the end of the tax year by making a return of income from all sources to Revenue.

Alternatively, if you have a current PAYE employment, you can contact or drop into your local Revenue Office with the P45 issued by the pension fund administrator and the local office will advise you as to whether it may be feasible to have a new tax credit certificate issued to your employer, reflecting details of the AVC payment and tax paid on it, so that any refund due can be dealt with by your employer.

Will the administrator issue a P60?

No. The administrator will not issue a P60.

Is USC or PRSI charged on the amount transferred?

No. The AVC amount withdrawn is specifically exempt from USC and PRSI.

Is the AVC amount drawn down treated as a Benefit Crystallisation Event for pension Standard Fund Threshold limit purposes?

No. The amount transferred under the pre-retirement AVC access option is not a benefit crystallisation event at the point of retirement for tax-relieved pension fund limits.

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