Revenue clampdown threat on early payment of pension cash
Published 25/04/2012 | 05:00
REVENUE officials have threatened to tax any pensions they suspect were moved out of the country to get early access to the money and evade tax.
There has been an upsurge in companies claiming they can help cash-strapped workers release money early from their pension funds.
Strict rules mean that most private sector pension money cannot be accessed until people hit 60 and retire, although money in personal retirement savings accounts (PRSAs) can be drawn down from the age of 50 if the person is self-employed and retires.
Millions of euro are locked in pension funds and cannot be accessed at a time when people need funds to pay down debts, fund new businesses or pump money into a cash-starved firm.
But a string of financial advisers have begun advertising that they can get around these rules, and get access to pensions money that has been accumulated tax free.
The process involves transferring company assets and pension funds to the UK. However, sometimes the money is routed through the Middle East and on to New Zealand.
Pensions ombudsman Paul Kenny, who has been monitoring the growth of firms offering early access to pension money, said large fees were often being charged as part of the process.
The Irish Brokers Association (IBA) has proposed a change in the law to allow people to get immediate access to pension fund money, under certain conditions. The proposal has been championed by Fine Gael TD Mary Mitchell O'Connor.
Such a scheme has the potential to unleash €1.5bn in funds and dig 50,000 distressed borrowers out of financial trouble, the IBA said.
The Government has dismissed that idea as it would discourage people from putting money aside for old age.
Now Revenue said it will stop any transfer which it suspects is to circumvent tax rules, the Irish Independent has learned.
A memo sent out by tax officials to pensions companies and advisers states that Revenue has become aware of an increase in requests to Revenue for transfers of Irish pension funds overseas.
"The purpose of these transfers appears to be to circumvent existing pension tax legislation and current Revenue rules relating to early access to, and taxation of, retirement benefits and the use of pension scheme assets for investments prohibited in Ireland."
The memo goes on to threaten to invoke provisions in the Tax Consolidation Act 1997 to withdraw tax approval for schemes which are not "bona fide transactions".
If tax officials withdraw tax approval this could subject the entire fund to income tax, probably at 41pc, with pay related social insurance (PRSI) imposed on the scheme. This could mean that half of a fund that was enjoying tax relief up to now would end up going in tax to the Exchequer.