Techtalk - The Finance Bill 2021

The Minister for Finance published the Finance Bill 2021 on Thursday 21 October 2021. The Finance Bill 2021 included several significant pension changes which will enable the implementation of some of recommendations detailed in the report produced by the Inter-Departmental Pensions Reform & Taxation Group (IDPRTG).

The main sections in the Finance Bill 2021 relating to pensions were as follows:

Section 12. Retirement benefits: amendment of death-in-service provision

This section firstly amends the rules in relation to the pension entitlements of a spouse or dependants of a deceased member of an occupational pension scheme who dies in service.

In future, occupational pension scheme rules can provide that the aggregate pension that can be provided for a spouse or for dependants of a deceased member of a scheme who dies in service, can be taken as either a pension or the benefits transferred to an Approved Retirement Fund (ARF). This is a significant and welcome development.

Secondly, the section adds that where benefits are transferred to an ARF for a spouse or for dependants of a deceased member of a scheme who dies in service, the legislative rules applying to ARFs and the conditions relating to ARFs shall apply.

Section 13. Retirement benefits: removal of 15 year rule

This section amends section 772(3D) of the Taxes Consolidation Act 1997 to allow for the transfer of a scheme member’s entitlements from an occupational pension scheme to a Personal Retirement Savings Account (PRSA).

This is another important development as Scheme members were previously not permitted to transfer an occupational pension scheme to a PRSA if they had more than 15 years’ pension scheme service with that employer.

Section 14. Retirement benefits: removal of Approved Minimum Retirement Fund (AMRF) – and the removal of amount required to be retained/ring-fenced in a Vested-PRSA-AMRF by deleting clause (IV) in Section 787K (1)(c)(i)

This section amends Part 30 of the Taxes Consolidation Act 1997 to provide for the removal of the Approved Minimum Requirement Fund (AMRF) requirement for individuals availing of the Approved Retirement Fund (ARF) option on retirement and the transfer of current AMRF funds to an ARF for current AMRF holders.

Firstly, the AMRF requirement will no longer apply to individuals availing of the ARF option from occupational pension schemes, retirement annuities and personal retirement savings accounts with effect from the passing of this Act.

Secondly, on 1 January 2022 current AMRFs shall become an ARF and the legislative rules applying to ARFs shall apply.

Thirdly, the current legislative rules applying to AMRFs and conditions relating to AMRFs will be repealed with effect from 1 January 2022. Qualifying fund managers shall not accept any assets into an AMRF on or after 1 January 2022.

In general we welcome these changes – things have moved on a lot since the introduction of the AMRF in 1999 - and the associated restrictions were no longer fit for purpose.

Such changes will apply to AMRFs and Vested-PRSA AMRFs (a Vested-PRSA is a PRSA where the Retirement Lump Sum has been paid out and the residual fund remains in the PRSA rather than transfer to an AMRF).

Further information on the changes to Approved Minimum Retirement Funds

We intend to issue a separate TechTalk to Advisers on this issue giving a detailed explanation of the AMRF changes – and the implications for AMRF holders and those with amounts ring-fenced in a Vested-PRSA-AMRF.

Section 15. Retirement benefits: amendment of section 774 of Principal Act (certain approved schemes: exemptions and reliefs)

This section amends section 774(6) of the Taxes Consolidation Act 1997 which provides tax relief for pensions contributions made by a company to occupational pensions schemes set up for the employees of another company in certain defined circumstances, such as a scheme of reconstruction, a merger, a division or a joint venture.

The qualifying criteria will now provide that, in addition to parties to an agreement, scheme members may be current or former employees of a company for the benefit of whose employees the contributions are paid under the terms of a legally binding agreement between two or more companies.

What was not included in Budget 2022 or the Finance Bill 2021?

The Finance Bill 2021 included most of the points that had been anticipated in relation to pensions, but unfortunately there was no mention of the following:

Tax issues on Employer Contributions to a PRSA

The expected removal of the Benefit-in-Kind Charge to an Employer Contribution to a PRSA was not included in Budget 2022 and did not make it to the Finance Bill 2021.

However, we hope that the position will be clarified in the near future, with a view to any changes being implemented in next year's Finance Bill 2022.

Apart from the anticipated (and long overdue) required removal of the BIK on an Employer Contribution to a PRSA, we also wait to see whether it will be possible for Employers to maximise pension funding using a PRSA/Contract based arrangement – in the same way that it is possible for Employers to maximise pension funding using an Occupational Pension Scheme.

This is a very important issue for many Employers and Advisers as they review the pension options available to them and their clients as a result of IORPS II – and when considering which options are available for future pension funding – and whether they should be using a Master Trust or a Contract based arrangement.

Certificate of Benefits Comparison

The Finance Bill does not make reference to the removal of the requirement for a Certificate Of Benefits Comparison COBC when transferring to a PRSA if the Scheme has not been wound-up

This current COBC requirement is detailed in the Pensions Act (Section 113) and so we will hopefully see the COBC requirement removed by the Social Welfare and Pensions Bill due at the end of November/start of December 2021.

This Social Welfare and Pensions Bill could also include amendments in relation to IORPS II.

If you have a query on any of the above points, please feel free to contact our Technical Services Team on 01 209 2020 or or your Zurich Life Broker Consultant.