The Finance Bill 2021 was published by the Minister for Finance on Thursday 21 October 2021. The Bill has to go through the Dail first and be passed be passed before it becomes law as the Finance Act. It introduced some significant proposed changes to Pensions which we welcome. The proposed changes are very practical, removing some of that anomalies that exist and should help to simplify pensions somewhat.
So what are the proposed changes that you need to know about?
Retirees no longer need to invest in an Approved Minimum Retirement Fund (AMRF)
If you have already drawn down your pension fund, then you may already have what is known as an AMRF (Approved Minimum Retirement Fund).
An AMRF is a post-retirement vehicle for those retirees who do not require a guaranteed income known as an annuity, and is a useful vehicle for passing on wealth to your estate.
Going forward in 2022, retirees can invest directly in an ARF and do not need a guaranteed income of €12,700. This is good news for retirees as it means they can now access their ARF fund without any restrictions. Whoopee!
It is worth noting that any income withdrawn from an ARF is subject to income tax at the retiree’s marginal rate of tax.
These changes will also apply to Vested-PRSAs AMRFs.
If you have a Company Pension fund do you know what happens in death?
Currently if you are in a company pension scheme and you die in service, there is a compulsory requirement for your dependents to purchase an annuity with the balance of your funds over four times your salary. This is particularly relevant to employees who have a large fund, but possibly a smaller salary, thereby forcing their dependents to buy an annuity which does not always provide the best value for money
Going forward, any excess over four times salary can now be transferred to an ARF (Approved Retirement Fund), and does not have to be used to buy an annuity. Although the annuity option still remains.
This is a welcome change in practice giving more options and flexibility to dependents who are already going through a stressful time on the death of a loved one.
The rules for Personal Pension/PRSAs are different, and on death values are paid as a lump sum to the estate and the proposed legislation does not impact here.
Transfers from Occupational Pension Schemes (OPS) to Personal Retirement Savings Accounts (PRSA) will no longer be restricted to those with less than 15 years of scheme service
If you were a member of an Occupational Pension Scheme for more than 15 years, you were not allowed to transfer your pension fund to a PRSA. This 15 year rule limit is now to be removed.
The requirement for a Certificate of Benefit Comparison remains in place if the scheme is not been wound up, and the transfer value exceeds €10,000
If you need guidance on how these changes affect you, or if you want to find out more about ARFs – why not reach out and see how we can help you!