Changes to PRSA’s and RAC’s for over 75 year olds

There wasn’t much in Budget 2017 and the Finance Bill regarding pensions. One thing that did was announced was the closing of an anomaly regarding PRSA’s and RAC’s that were not matured past age 75. If you are over age 75 and have an unmatured PRSA or RAC, it is very important that you are aware of these changes.

Changes to PRSA’s and RAC’s for over 75 year olds

1. The PRSA or RAC will be deemed to vest for purposes of the Threshold limits on the date of passing the Finance Act, likely to be 20 December 2016.
2. You have to return a Benefit Crystallisation Event (BCE) Declaration within 30 days of the passing of the Act, chargeable excess tax at 40% will automatically taken from the PRSA or RAC.
3. Upon death, the PRSA and RAC no longer passes to your spouse tax-free. From the passing of the Act, the pension will change to an ARF. When the spouse draws down the benefit, it will be taxable.
4. The PRSA or RAC can be matured up to 31 March 2017. If benefits are not taken by that date, no benefits can be taken from the policy.
5. A PRSA will automatically be subject to imputed distribution from 2017 onwards regardless of whether the policy was matured or not. So the Revenue will take the income tax  due on 5% of the value of your fund but you aren’t able to take any money out. RAC’s are not subject to imputed distribution.

Vested RAC and Capital Acquisitions Tax

For ARF’s that are passed to adult children on death, the value of the ARF is taxed at 30% but is not subject to CAT. The Finance Bill does not contain a provision to exempt RAC’s that are not matured at age 75. It appears that the value of the RAC will be taxed at 30% and the remainder will then be subject to CAT in the hands of the adult children.

The message from Revenue is very clear, mature your PRSA’s and RAC’s before your 75th birthday!

If you have any questions, do not hesitate to contact me directly at steven@bluewaterfp.ie