Revenue Note for Guidance
This section sets out the circumstances in which retirement benefit schemes are to be approved by the Revenue Commissioners for tax purposes. It requires the Commissioners to approve a retirement benefits scheme which satisfies the “prescribed conditions” and enables them at their discretion to approve a scheme even though it might not comply with one or more of those conditions.
(1) The Revenue Commissioners must approve a retirement benefits scheme if it satisfies all the “prescribed conditions”, that is, the conditions in relation to both the scheme itself and the benefits provided.
(2) The following conditions must be satisfied —
(3) The following conditions must be satisfied —
(3A) As on and from 6 February 2011, and subject to the exception set out in the following paragraph, the Revenue Commissioners are not to approve a scheme unless it provides to an individual entitled to a pension under the scheme or, where a pension is payable under a pension adjustment order to the spouse, civil partner or former spouse, former civil partner of such an individual, an option (the ARF option) to have the value of their pension rights in respect of both main scheme benefits and AVCs, or in respect of their defined contribution AVCs only, – after the deduction of any lump sum under the scheme (in part commutation of pension) – paid to him or her or to an approved retirement fund (section 784A). A payment under such options cannot be made before the date on which the pension would otherwise have become payable. However, the option can be exercised up to that date.
The exception referred to in the preceding paragraph relates to members of defined benefit schemes, other than members who are proprietary directors. The ARF option referred to in the preceding paragraph is available to such members only in relation to that part of their pension fund that is attributable to AVCs.
(Prior to 6 February 2011 the ARF option in respect of both main scheme benefits and AVCs was available only to an individual who was a proprietary director or to the spouse civil partner or former spouse, former civil partner of a proprietary director where a pension was payable under a pension adjustment order. Otherwise, the ARF option was only available in respect of AVC benefits.) In the case of defined benefit occupational pension schemes the ARF option extends only to AVCs and not to the main scheme benefits.
The Minister for Finance introduced a measure on 4 December 2008 which allowed a member of a defined contribution scheme who retired on or after that date, and who would otherwise have been compelled to purchase an annuity, to defer the annuity purchase to 31 December 2010. In order to allow individuals who deferred the purchase of an annuity avail of the ARF option, the deadline for purchase was further extended to one month after the date Finance Act 2011 was signed into law i.e. up to 6 March 2011). This was to allow for any administrative arrangements that scheme administrators might have had to put in place. This deadline also applied where an individual decided to purchase an annuity rather than go the ARF route.
(3B) Where an individual exercises the ARF option, then the provisions of sections 784(2B), 784A, 784B, and 784E will apply with any necessary modifications. In addition, where an individual opts for the ARF option (other than a member of a defined benefit scheme who is not a proprietary director or a member of a defined contribution scheme who opts to ARF only his or her AVCs the value of the normal lump sum,, that he or she can take in part commutation of pension can not exceed 25 per cent of the value of the pension fund. Where the individual opts to ARF only the AVC fund the maximum lump sum he or she can avail of at retirement is one and a half times their final salary.
(3C) For schemes which allow deferral of purchase of an annuity, the date by which an option must be exercised (in subsection (3A)) is to be taken as the latest date on which an annuity must be purchased from an annuity provider in accordance with the rules of the scheme.
(3D) A retirement benefits scheme will not cease to be approved because of any rule permitting the transfer to a personal retirement savings account (PRSA) of either or both of —
(3E) A retirement benefits scheme will not have its approval revoked, or will not be denied approval, merely because of the inclusion in its rules of a provision which authorises the scheme to borrow.
(3F) Approval of a scheme will not be prejudiced by any scheme rule that allows administrators of private sector occupational pension schemes to commute part of a member’s entitlement under the scheme sufficient to discharge any tax charge on a chargeable excess, which arises in connection with that entitlement, under the provisions of Chapter 2C (relating to the maximum tax-relieved pension fund).
(3G) A retirement benefits scheme does not cease to be an approved scheme where, notwithstanding the rules of the scheme, the trustees discharge liabilities of the scheme under section 59(3) of the Pensions Act 1990 (inserted by section 43 of the Social Welfare and Pensions Act 2010).
(3H) The inclusion of a provision for the encashment option (see section 787TA) in the rules of an occupational pension scheme will not affect Revenue approval of the scheme.
(3J) Where benefits are provided as an ARF following the death in service of an employee, sections 784A and 784B will apply as if the transfer of the benefits were the exercise of an option in accordance with section 784(2A), and with any necessary modifications.
(4)(a) The Revenue Commissioners may, at their discretion, approve schemes even though one or more of the prescribed conditions is not complied with. However, the Revenue Commissioners cannot approve a scheme unless it appears to them to comply with the provisions of subsection (3A).
(4)(b) In particular, the Commissioners may approve schemes where —
(5) The Revenue Commissioners may withdraw approval of a scheme, already given, if they consider that the facts no longer warrant the continuance of approval.
(6) Where an alteration has been made to a scheme, any approval already given is not to apply unless the alteration has been approved by the Revenue Commissioners. However, section 19(2)(d) of the Finance Act, 1999 provides that a scheme approved before the 6th day of April, 1999 will not cease to be an approved scheme where the rules are altered to provide the options on retirement allowed by section 784A.
(7) When a scheme is being considered in relation to compliance with the prescribed conditions, account is to be taken of any other retirement benefits scheme which applies to the same class or description of employees. If the conditions are satisfied when all the schemes concerned are taken together, they are regarded as satisfied by each scheme; if not, they are regarded as not being satisfied by any of the schemes.
Relevant Date: Finance Act 2021