News Ross, Gorey, Wexford, and Waterford based Pensions and Investment broker E W Levingstone Accountants & Co, and Levingstone Financial Services set out Question and Answers on:
PENSION FUND LEVY Finance (No. 2) Act 2011
The Department of Finance published Finance (No. 2) Bill on the 19th May 2011 which on enactment would provide for the imposition of the Pensions Levy. The Bill has been passed by both Dail Eireann and the Seanad. It has been signed by the President and is now referred to as Finance (No. 2) Act 2011.
The key details of the Act are set out below:
Q. What is the Pension Levy?
A. The Pension Levy is a 4 year levy of 0.6% per annum which will apply to the market value of assets under management in pension funds established in the State and will apply for the four years 2011 to 2014.
Q. What is the valuation date for the Pension Levy?
A. The valuation date allowed for in the Act is the 30th of June each year for 4 years (2011-2014 inclusive). Aviva will be deducting the levy as soon as is practicable following the 30th June.
Q. When will be levy be paid to the Revenue?
A. The levy is due to be paid to Revenue by 25th September each year for 4 years (2011-2014 inclusive).
Q. When will be Pension Levy be deducted from pension funds?
A. Aviva are currently assessing the practical implementation of the levy and the date on which the levy will be deducted.
Q. How is the levy going to be deducted from pension funds?
A. Aviva will calculate the number of units to be deducted from the policyholder’s pension fund based on the value and the unit price on the 30th of June each year (2011-2014 inclusive) and deduct the relevant number of units from the policyholder’s funds on dates that are still to be finalised.
Q. How much will be deducted from pension funds?
A. The amount that will be deducted will be – (The Fund Value @ June 30th x 0.6%)
For funds that have Market Value Adjusters (MVAs) and/or Surrender Penalties applying to them the deduction will be based on the fund value gross of the MVA and/or Surrender Penalty. For initial unit contracts the amount deducted will be the unit holding multiplied by the bid price multiplied by 0.6%.
Q. What funds will the Pension Levy apply to?
A. The Pension Levy will apply to all pension funds relating to the following products:
• Retirement Annuity Contracts (RACs), more commonly known as Personal Pension Plans
• Executive Pension Plans
• Personal Retirement Savings Acvcounts (PRSAs)
• Group Defined Contribution (Group DC), and
• Group Defined Benefit (Group DB)
Q. What funds will the Pension Levy not apply to?
A. The Pension Levy will not apply to:
• A Group DC or Group DB scheme that the Trustees have passed a resolution to wind-up the scheme and the employer is insolvent.
• Approved Retirement Funds (ARFs) and Approved Minimum Retirement Funds (AMRFs)
• Vested PRSAs (which are PRSAs from which a lump sum has been paid or made available to the PRSA contributor)
• Vested RAC’s (which are RACs from which a lump sum has been paid or made available to the PRSA contributor)
• Assets or Occupational Pension Schemes in respect of employees whose employment is or was wholly exercised outside the State.
The position regarding certain types of annuity payments remains to be clarified.
Q. Will the Pension Levy apply to Investment Only Business?
A. The assets of a scheme are described in the Act as meaning all property, including investments, deposits, debts and contracts of assurance – Investment Only Business with Aviva is held under a contract of assurance linked to pension business and approved under section 706(3) of the Taxes Consolidation Act 1997 and therefore will be liable for the levy.
Q. Have Aviva given any consideration to funds that currently have liquidity issues:
A. Aviva is currently assessing the practical implementation of the levy which includes determining the approach where a fund may have liquidity issues.
Q. Are Aviva meeting the cost of the Pension Levy in any way?
A. No. The legislation refers to the levy being a “necessary disbursement from the pension fund of the insurer” and that “the insurer may adjust accordingly any current or prospective benefits or guarantees under the contract.” Aviva will therefore be deducting the Levy from Pension Funds, valued at June 30th each year, for the 4 years of the levy (2011-2014 inclusive).
Q. How will the Pension Levy be communicated?
A. Aviva’s immediate priority is the valuation of the relevant funds at 30th June 2011. The timing of the actual deduction and communication of same is currently being assessed.
Q. For employer sponsored arrangements with Aviva, who pays the levy?
A. As Aviva is the “chargeable person” we must submit payment of the Pension Levy to Revenue by 25th of September each year.
Q. What if a client’s policy surrenders between the valuation date and deduction date?
A. The valuation date allowed for in the Bill is the 30th of June and any maturities or transfers processed after that date will have the Pension Levy deducted before the policy is matured or transferred.