While there was little in the Budget 2015 on pensions, the Finance Bill 2014 published 23rd October included a number of changes affecting pensions, in particular Approved Retirement Funds (ARFs), Approved Minimum Retirement Funds (AMRFs) and vested Personal Retirement Savings Accounts (PRSAs).

Approved Retirement Funds 

  • No minimum income withdrawal is required until the year in which the policyholder turns age 61.
  • From the year the policyholder turns age 61 the minimum income withdrawal is 4%
  • From the year the policyholder turns age 71 the minimum income withdrawal is 5%
  • If the total value of ARFs and vested PRSAs (less restricted fund) is over €2 million, then from the year the client turns age 61 the minimum income withdrawal is 6%. The percentage remains at 6% when the client turns age 71.

This change is to be welcomed as it will help to reduce risk of individuals outliving their ARFs and Vested PRSAs.

Approved Minimum Retirement Fund Withdrawals

Prior to 1st January 2015, any growth in AMRF value over the initial investment amount could be withdrawn by the policyholder.

  • Instead the policyholder will have the option to withdraw 4% of their AMRF value in any one year. This will be based on 4% of the value of the fund at 1st February in that year.
  • The Bill does not make any changes to vested-PRSAs, and so this would need to be amended before the Act is finalised if treatment between AMRFs and vested-PRSAs is to be equalised.

Tax Rate on Excess over €2 million Standard Fund Threshold/Personal Fund Threshold

Prior to 1st January 2015 the tax rate applying to excess over Standard Fund Threshold/Personal Fund Threshold (SFT/PFT) was a specified rate of 41%. From 1st January 2015 the rate will be the “higher rate” for the tax year in which the retirement claim or overseas transfer is made. As such the rate for 2015 will be 40%, and going forward  any changes to the higher rate of income tax will automatically apply to excess over SFT/PFT.

Other Changes

The Finance Bill makes changes to the legislation relating to cases where a pension is split under a Pension Adjustment Order, and the total funds are in excess of the €2million SFT or PFT. The new legislation is intended to split the tax more equitably between the original member and the beneficiary of the Pension Adjustment Order.