Section 125B Levy on Pension schemes

Summary

This section provides for the collection of a levy on pension schemes. When first introduced the levy applied in the years 2011, 2012, 2013 and 2014 and the levy was charged at 0.6% on the value of the assets in a scheme on the 30 June in each year. [An exception may apply, as set out in the definition of “chargeable amount”, to defined benefit occupational pension schemes and small self-administered schemes, as respects the assets of such schemes held other than by way of contracts of assurance.]

Under section 71 of the Finance (No. 2) Act 2013, the rate of the levy was increased by 0.15% to 0.75% for the year 2014 and the levy was extended to the year 2015 at the rate of 0.15%.

The levy is payable to the Revenue Commissioners on 25 September in each year and the statement, together with the payment, must be made electronically.

Details

(1) Definitions are provided for certain terms used in this section. Most of these definitions are self-explanatory:

“Administrator” is defined in relation to a scheme (defined later) as meaning the trustees or “other persons having the management of the assets of the scheme”. It is usual that the trustees of a scheme would hand over the management of the scheme and the scheme assets to professional administrators and/or investment managers. It is administratively desirable that such administrators/investment managers should value the assets, determine the liability to the levy and make the necessary return and payment. The definition goes on to put beyond doubt that it includes within its terms:

• An administrator of a retirement benefits scheme,
• An insurer carrying on a business of granting retirement annuity contracts and annuity contracts providing death in service benefits,
• An administrator of a Personal Retirement Savings Account.

“Assets” is defined to include all property, including investments, deposits, debts and contracts of assurance, held for the purposes of a scheme, other than excluded assets. Contracts of assurance are included so that there will be no doubt that the value of such contracts will be an asset of a scheme for the purposes of determining a chargeable amount under subsection (2). However, where the trustees of a retirement benefit scheme hold such contracts the levy will be charged not on the trustees but on the insurer who holds the investments backing the contract.

“Chargeable Amount” is the amount on which the levy of 0.6% is to be calculated. It is defined as the aggregate market value of the assets of a pension scheme (and in the case of land the market value is to be calculated net of any outstanding borrowings used to acquire the land) on a fixed valuation date of 30 June in each of the years 2011, 2012, 2013, 2014 & 2015 subject to the exception provided for in paragraph (b) of the definition. In essence, all pension scheme assets held in the form of contracts of assurance and all defined contribution occupational pension scheme assets will be valued for levy purposes on 30 June in each of the years 2011 to 2015.

An exception to the fixed valuation date will apply in the case of defined benefit occupational pension schemes and small self-administered schemes, as respects the assets of such schemes held other than by way of contracts of assurance. In these cases, the administrator may choose to value the assets at 30 June in each year or, where it has been customary to prepare accounts to an appropriate accounting standard to a different date, to use the valuation of the assets on the last day of the most recent scheme accounting period ended in the preceding 12 months.

Note the 30 June valuation date reflects the fact that most Life Companies value unit funds etc. backing contracts of assurance at the end of each quarter and so avoids such companies having to undertake an additional valuation if any other date was chosen, thus avoiding added administrative costs which might otherwise be passed on to trustees and scheme members.

“Chargeable Person” is defined to mean an insurer, in relation to a contract of assurance and an administrator, in relation to any other assets of a scheme.

‘Contract of Assurance’ means:

(a) a contract of assurance linked to pension business ( as described in section 706(3) of the Taxes Consolidation Act 1997) undertaken by pension schemes with Life Companies, and

(b) any other policy or contract of assurance undertaken by the administrator of a retirement benefit scheme with Life companies. This brings with the definition what is called “investment only” business between pension schemes and Life Companies. The only exception to this is in relation to Small Self-Administered Schemes who hold trustee investment plans with Life Offices – the case has been made that in such cases the trustees of the scheme should remain responsible for the levy and the legislation provides accordingly.

“Due Date” is the date by which the levy is to be paid to the Revenue Commissioners by the chargeable person and is a fixed date of 25 September in each of the years 2011 to 2015.

“Excluded Assets” are assets that will not be subject to the levy. Essentially they are assets that represent the liabilities of an occupational pension scheme in respect of benefits to members whose employment, in the case of active members, is and always was exercised wholly outside the State, or in the case of deferred or retired members, whose employment always had been exercised outside the State. The exclusion applies, therefore, whether the member is still employed or has left the employment but with deferred benefits retained in the scheme, or is actually retired and in receipt of pension benefits from the scheme, once the employment is and always was exercised out side the State.

This exclusion is designed primarily to ensure that the assets attributable to those members of certain Irish approved pension funds who are based wholly abroad, primarily in the United Kingdom, are not subject to the levy.

Assets of pension funds that are referable to individuals who are, or were, temporarily assigned to work abroad are not exempt from the levy.

“Insurer” means an insurance undertaking within the meaning of the European Communities (Life Assurance) Framework Regulations 1994 (S.I. No. 360 of 1994).

“Market Value” has the same meaning as in Section 548 of the Taxes Consolidation Act 1997 – which generally provides that market value is the price that an asset might reasonably be expected to fetch on an arm’s length sale in the open market. The only exception applies in relation to assets that are Land – in such cases the definition of “chargeable amount” provides that any outstanding borrowing used to acquire the land may be deducted from the market value.

“Member”, is defined as any person admitted to membership of a retirement benefits scheme under the rules of the scheme;

“one member scheme” means, in effect, a single member Small Self-Administered Scheme – Small Self-Administered Schemes are the only retirement benefit schemes in respect of which Revenue approval requires the delivery of annual scheme accounts to Revenue.

“Pension Fund”, in relation to an insurer, is defined in accordance with section 706(2) of the Taxes Consolidation Act 1997 (which in the normal course would relate to the insurer’s pension business) but expanded to include “investment only” business as well (as per the definition of contract of assurance). The relevance of this term is in relation to subsection (12)(a) where insurers are permitted to treat the levy as a disbursement from their “pension funds” and adjust accordingly the benefits under any contract.

“Scheme” essentially includes:

• a retirement benefits scheme, approved by Revenue under the Taxes Consolidation Act 1997 or under any other enactment (including any enactment that is repealed) – the latter ensures that schemes approved under now repealed legislation are also caught.
• an annuity contract or a trust scheme or part of a trust scheme approved under section 784 (which relates primarily to retirement benefits under retirement annuity contracts) or section 785 (which relates to annuities providing for death in service benefits) of the TCA 1997 – but excluding “vested” annuity contracts. As regards the latter, there are certain older type deferred annuity contracts where the annuity becomes payable automatically as part of the contract, as opposed to an open market purchase option that applies in more modern annuity contracts. The definition clarifies that once an annuity is vested, which in most cases arises when the tax-free lump sum is taken, it is no longer subject to the levy.
• a personal retirement savings account contract - other than a “vested” PRSA, i.e. a PRSA in respect of which a lump sum, to which paragraph (a) of section 787G(3) of the Act of 1997 applies, has been paid or made available to the PRSA contributor.

However, as regards retirement benefit schemes, it does not include a scheme in respect of which-

(a) the trustees have passed a resolution to wind-up the scheme, and

(b) the employer is insolvent, for the purposes of the Protection of Employees (Employers’ Insolvency) Act 1984.

“valuation date” means the appropriate date under paragraphs (a) or (b) of the definition of “chargeable amount” used to value the scheme assets. This definition has relevance to subsection (12)(b) in the context of the option provided to scheme trustees to reduce benefits to members

(2) A chargeable person must provide no later than the due date, in electronic format, a statement to Revenue of the chargeable amount on which the levy is calculated for each year 2011, 2012, 2013, 2014 & 2015.

(3) The stamp duty is 0.6% for the years 2011, 2012 & 2013, 7.5% for the year 2014 and 0.15% for the year 2015 of the chargeable amount included in the statement mentioned in subsection (2).

(4) The stamp duty is to be paid by the chargeable person on delivery to Revenue of the statement mentioned in subsection (2) and the payment, like the statement, must be made electronically.

(5) This subsection provides-

(a) that a chargeable person who is liable to pay the levy is entitled to dispose of or appropriate scheme assets for the purposes of meeting the amount of the levy payable. Such action by the chargeable person does not affect the Revenue Commissioner’s approval of a scheme, and

(b) that where a chargeable person, who is not a trustee, for example a Life Office in respect of insurance contracts held as assets of a scheme, pays the levy through the disposal or appropriation of scheme assets that the trustees must allow that course of action and that the chargeable person is acquitted and discharged as regards any such disposal.

(6) There is an explicit protection for a chargeable person from any court action by reason of having paid the levy by way of disposal or appropriation of scheme assets.

(7) It is put beyond doubt-

(a) that the chargeable person and the trustees of a scheme are both jointly and severally liable for payment of the levy, and

(b), that this joint and several liability of the chargeable person and the trustee also applies in the particular circumstances of one member Small Self-Administered Schemes, where both the member and the administrator are trustees of the scheme.

(8) This subsection is a standard provision that provides that failure to deliver the necessary statement, or to pay the stamp duty by the due date, will result in:

(i) an interest charge, and

(ii) a daily penalty of €380,

for each day the stamp duty remains unpaid.

(9) This subsection is also a standard provision that provides for the situation where a chargeable person, who is liable to deliver a statement and pay the stamp duty, ceases to carry on business prior to a due date and the business is taken over by a successor.

If the successor was a chargeable person in his/her own right before taking over the business of another chargeable person, the successor must include, in the statement to be delivered by him /her, the chargeable amount in respect of the business taken over. It also provides that if the successor was not a chargeable person in his /her own right before taking over of a business, the successor must nevertheless deliver the statement due to be delivered in respect of the business taken over.

(10) This subsection is again a standard provision providing for enforcement by the Revenue Commissioners where there is default by a chargeable person in the delivery of a statement.

(11) This provides that the stamp duty charged by the section cannot be claimed as a deduction or a credit in computing any other tax or duty for which the chargeable person is liable.

(12) This subsection provides that, notwithstanding any provision of any enactment or any rule of law, or anything in the rules of a scheme, or in the terms and conditions of a contract that might otherwise restrict the adjustment of scheme benefits, if

(a) a chargeable person who is an insurer, pays the levy in respect of a contract of assurance, the levy amount shall be deemed to be a necessary disbursement from the pension fund of the insurer and the insurer may pass on the levy to the insured person by adjusting any benefits payable under the contract; any such action on the part of the insurer will not prejudice Revenue approval of the contract as a retirement annuity contract.

(b) a chargeable person who is an administrator pays the levy in respect of the assets of a scheme or if the levy in respect of any assets of the scheme is paid by some other chargeable person (e.g. an insurer in respect of assets of the scheme that are held in the form of contracts of assurance), any such payment shall be deemed to be a necessary disbursement from the scheme assets and the trustees may pass on the levy by adjusting any benefits payable currently or prospectively to any scheme member. Paragraph (b) also provides that, should the option of reducing scheme benefits be taken, it must essentially be applied in an equitable fashion across the different classes of scheme members that could include active, deferred and retired members. In no case may the reduction in an individual member’s or class of member’s benefits exceed the member’s or class of member’s share of the levy. Any action on the part of the trustees to adjust scheme benefits will not prejudice Revenue approval of the retirement benefits scheme.

(13) The Commissioners have authority to review any case where assets are disposed of by administrators or trustees in order to pay the levy to ensure that any such disposals are in keeping with or needed in order to pay the levy. It also gives the Commissioners oversight authority to review instances where benefits are adjusted as a result of the payment of the levy to ensure that any such adjustment is made in accordance with the requirement of the levy legislation and, in particular, with the requirements of subsection (12)(b) which stipulates that, as respects any member of a scheme, the adjustments must ensure that any diminution in value of the benefits shall not exceed the amount of the levy on the assets attributable to the schemes liabilities in respect of that member.

As regards the latter function, it also allows the Revenue Commissioners to consult with appropriate experts, where necessary.

Relevant Date: Finance Act 2014