There was little pertaining to pensions in the Finance Minister’s budget speech, but some potentially significant changes to rules governing PRSAs were introduced in the Finance Bill.
PRSAs can only provide benefits to persons between the ages of 60 and 75. Once the PRSA contributor reaches 75, the benefits cannot be accessed by that person.
Up to now, where the benefits in the PRSA had not been accessed (an unvested PRSA), the full value of the PRSA would pass under the PRSA contributor’s estate on death and could pass tax free to the person’s spouse or would be subject to CAT in the hands of another beneficiary.
An unvested PRSA was not subject to the imputed distribution regime (applicable to Approved Retirement Funds (ARFs) and also, once no benefits were accessed by the PRSA contributor, a Benefit Crystallisation Event (BCE) would not arise for the purposes of calculating excess fund tax. On the other hand, where the benefits in a PRSA had been accessed (a vested PRSA) the PRSA became subject to the imputed distribution regime and the access to the benefit was a BCE.
The rules applicable to vested PRSAs are very similar to those which apply to ARFs. However, because of the inability to access benefits after the PRSA contributor reaches 75, usually when someone has a vested PRSA, they will be advised to transfer the benefits to an ARF prior to reaching 75 as otherwise the PRSA would be subject to the imputed distribution but the contributor could not access the benefits
The proposed amendments provide that benefits not taken by PRSA contributors on or before their 75th birthday will be treated as having been vested on that date. What this means is that PRSA assets shall be deemed to be “made available” to the PRSA contributor no later than their 75th birthday. Furthermore, the individual’s 75th birthday shall be a BCE for the purpose of determining any liability to excess fund tax.
As drafted, the legislation seems to indicate that someone who has an unvested PRSA but is under 75 at the date of the Bill will be treated differently from someone who has an unvested PRSA but is 75 or over at the date of the Bill. In the former case, the PRSA contributor will not be able to access the PRSA after they reach 75 (even though the PRSA will be subject to the imputed drawdown). In the latter case, it seems that the PRSA contributor will be able to access their benefits on an ongoing basis.
Once vested, at whatever age, PRSA assets may no longer automatically pass directly through the deceased’s estate, but may pass tax-free to a surviving spouse ARF or pass subject to CAT or income tax at 30% if received by a child.
The impact of the changes is clearly going to be complicated and we await the various stages of the Bill to see if the position changes further.
*Please note this content is the view of the author and not of Independent Trustee Company