I understand that the Deputy is referring to the potential for individuals to transfer their pension funds abroad with a view to avoiding tax on a chargeable excess that might arise at the time the pension benefits would otherwise become payable in Ireland.
By way of background, under legislation introduced in Budget and Finance Act 2006, a limit of €5 million was placed on the maximum allowable pension fund on retirement for tax purposes. This limit is known as the Standard Fund Threshold (SFT). The limit was further reduced in Budget and Finance Act 2011 to €2.3 million. If the individual had already built up pension rights above that amount on the specified date i.e. on 7 December 2010, a higher threshold known as the Personal Fund Threshold (PFT), applies. In due course, on each occasion that an individual draws down pension benefits, known as a "benefit crystallisation event (BCE)", the capital value of those benefits is measured against the individual's SFT or PFT, as the case may be. Where the capital value of a BCE, either on its own or when added to earlier BCEs, exceeds the SFT or the individual's PFT, an immediate income tax charge is triggered at a rate of 41% on the amount of the excess. This is in addition to any tax charged on the pension benefits drawn down in the normal way. In that regard, it should be noted that a transfer to an overseas pension arrangement itself constitutes a BCE under the provisions of the legislation and the value of the transfer would have to be measured against the SFT or the individual's PFT at the point of transfer to determine if a chargeable excess arose at that point.
On the question of the transfer of pension funds abroad generally, provision does exist in Irish legislation for the transfer of an occupational pension scheme member's pension fund benefits or a PRSA contributor's PRSA assets to an overseas arrangement. Such transfers are, however, subject to all of the relevant conditions being met. In that regard, such transfers have, in the first instance, to comply with the Department of Social Protection's "Occupational Pension Schemes and Personal Retirement Savings Accounts (Overseas Transfer Payments) Regulations 2003". Under these Regulations, in the case of occupational pension schemes, the facility to transfer only applies to a scheme member who is entitled under the Pensions Act 1990 to "preserved benefits" under the scheme — in other words to a scheme member whose service in the relevant employment has terminated.
It is a requirement of the Regulations that the trustees of the pension scheme or the PRSA provider, as appropriate, satisfy themselves that
the benefits provided by the overseas arrangement are "relevant benefits" within the meaning of the pension tax legislation, and
that the overseas arrangement has been approved by an appropriate regulatory authority in the country concerned.
In practice, trustees and PRSA providers are required to obtain written confirmation to that effect from the trustees, custodians, managers or administrators of the overseas arrangement to which the transfer is to be made.
In addition to the foregoing, I am advised by the Revenue Commissioners that in late 2009, they introduced an additional approval condition for all existing and new retirement benefit schemes and PRSAs to the effect that all overseas transfers under the provisions of the above mentioned Regulations may be made to facilitate bona fide transfers only, that is that they are not made with the primary purpose of circumventing Irish tax requirements. Moving pension funds abroad primarily to frustrate Irish tax rules would fall foul of that approval condition and could ultimately result in approval being withdrawn, which would have very significant consequences for any individual concerned.
Additional Revenue rules also apply depending on where the transfer is to be made. Where the transfer is to another EU Member State, the overseas scheme must be operated or managed by an Institution for Occupational Retirement Provision (IORPS), within the meaning of the EU Pensions Directive, and must be established in a Member State of the European Communities which has implemented the Directive in its national law. The scheme administrator must be resident in a EU Member State.
A transfer to a country outside the EU may only be made to a country in which the member or PRSA contributor is employed at the time of the transfer.
Apart from falling foul of the Revenue Commissioners approval conditions, I am also advised by the Commissioners that transferring pension funds abroad primarily to avoid potential tax charges in this jurisdiction would also come within the ambit of section 811 of the Taxes Consolidation Act 1997. This is the general anti-avoidance provision which could also be used by Revenue to pursue such cases that come to their attention. In summary, therefore, transfers of pension benefits abroad are governed by existing legislation, regulations and Revenue rules. In light of that, I have no plans at this time to introduce further legislation in the area but I will keep the matter under review. However, I would ask the Deputy to provide any further information he might have in relation to his concerns generally, to my Department and, if he has any details of specific cases, to provide such details to the Revenue Commissioners so their bona fides can be tested.
