LCP Radar Update - Budget 2012
7 December 2011

Budget 2012: After last year’s Pensions Levy blow, a welcome respite for pensions.

Removal of Employer relief on employee contributions

Following its partial removal last year the remaining relief available on the employer PRSI exemption for employee contributions to occupational pension schemes has been fully removed (50% relief was available in 2011). From 2012, employers will therefore have to pay up to 10.75% PRSI on employee contributions.

Deemed distributions for tax purposes increase for high value Approved retirement funds (Arfs)

Individuals who hold Approved Retirement Funds are deemed to withdraw 5% of their fund each year for tax purposes. ARFs valued at more than €2m will now be subject to a deemed distribution of 6% (up from 5%). The increase will apply from 31 December 2012.

Deemed distributions introduced for "Vested" PRSAs

Individuals with PRSAs are not compelled to invest in an ARF on their retirement. From 1 January 2012, in a similar manner to ARFs, individuals with a vested PRSA (where the person has taken their lump sum) will now be subject to the same deemed distribution as ARFs on all their PRSA holdings (vested and non-vested).

Transfer of Approved Retirement Fund to a child over 21

The rate of tax payable on the transfer of an ARF is to be increased from 20% to 30%.

PRSI contribution requirement increased from 3 to 10 years for widow's pension

The total number of weekly PRSI contributions that an individual must have paid to qualify for a full widow(er)'s/civil partner pension has increased from 156 to 520.

What next for pensions in ireland?

Pensions have not formed a major part of this year's budget. The Minister has however signaled that pensions will come under scrutiny in the coming year. This could result in reduced thresholds or reduced the tax relief on pension contributions in Budget 2012.

LCP Comment

LCP is pleased with the Government's acknowledgement of the contribution already made by pension funds through previous changes in reliefs and the Pensions Levy. We are also pleased to hear the stated intention of the Minister to work with the various stakeholders during 2012 in order to develop a workable and equitable solution for any future reduction in reliefs in this area.

Your questions answered - what has remained unchanged?

Tax relief on pension contributions	No change was announced to the marginal rate of tax relief on employee pension contributions. Therefore, for 2012, tax relief of up to 41% continues to be available on these contributions.
Contribution Limit	The annual earnings limit which determines the maximum tax-relievable contributions for pension purposes has been maintained at €115,000.
Retirement lump sums	The maximum amount of retirement lump sum which can be taken tax-free has been maintained at €200,000. The next €375,000 will be subject to tax at the standard income tax rate (currently 20%) and the balance of any lump sum will be subject to the individual's marginal rate of income tax.
Standard Fund Threshold	The "Standard Fund Threshold" (SFT) concept introduced in 2005 imposed a ceiling on the capital value of a member's pension benefit or fund. In 2011 this was reduced to €2.3m (from €5.4m). No change was announced to the SFT in Budget 2012
State Pension	As expected, in line with other "core" social welfare payments, the full-rate contributory State Pension for a single person is to remain unchanged at €230 per week.

If you have any questions on the impact of Budget 2012 on your pension arrangements, please contact Roma Burke at 01 614 4393 or the LCP partner who normally advises you.