Private pensions and not living in Ireland
Ireland is a lot different to when I was growing up in the 70's and 80's. For the last few decades, people actually want to come to Ireland to work. There are great opportunities for people to work for some of the biggest companies in the world. But just like the Irish move abroad and eventually come home, the same is true for non-nationals. They may move here to work but Ireland is not their home and they may not want to retire here.
Retiring outside Ireland with Irish private pensions is not straight forward. There are many areas to watch out for. Please note that this is not and exhaustive list and is as the rules are now.
Taxation
If you purchase an annuity with your pension fund, the annuity will be taxed in the country that you are tax resident in, if you are both:
- Non resident in Ireland for tax purposes.
- Resident in a country that has a Double Taxation Agreement with Ireland.
You may apply for a PAYE Exclusion Order, which tells your annuity provider not to deduct income tax or USC from your pension income (annuities are not subject to PRSI). The exclusion order will remain in place while you are not resident in Ireland.
An ARF is treated as a post retirement investment fund and you will be taxed in Ireland regardless of where you are resident. You cannot apply for the PAYE exclusion order in respect of ARFs.
Some Double Taxation Agreements with other countries have specific provision dealing with the taxation of distributions of ARFs. For those that don’t, any payment from the ARF has to be separated between what is a return of capital and what is gain or income. The appropriate taxation is then applied to the capital and income paid out. The life company which holds the ARF will provide this information but you will need tax advice in the country you are resident in relation to the taxation of this income.
Options at Retirement
You need to check the licensing agreement with your pension providers and what they are allowed to sell to non-residents. A lot of life companies are not licensed to sell post retirement products to non-residents. A life company can typically provide the following options for money held with them pre-retirement :
- Lump sum and annuity.
- Lump sum and taxable cash. You will need tax advice on whether this needs to be declared in the country of tax residence and what the tax implications are.
If the ARF is set up before you leave Ireland, it can continue to be paid to a SEPA bank account. You need to check the payments the life company can facilitate. One company I spoke to can pay annual payments but not monthly payments from the ARF.
Transferring your benefits overseas
You can transfer your pension to a pension arrangement outside Ireland. Prior to making any overseas transfer payments, the trustees must be satisfied that the transfer is to facilitate bona fide transactions only and:
- The member has requested the transfer.
- The overseas arrangement provides relevant benefits similar to that in Ireland.
- The overseas arrangement has been approved as a pension scheme by the appropriate regulatory authority in the country concerned.
For transfers to another EU Member State, the overseas scheme must be operated or managed by an Institution for Occupational Retirement Provision (IORPS) and must be established in a Member State of the European Communities which has implemented the IORPS Directive in its national law. If the transfer is to a country outside the EU, a transfer may not be made to a country other than the one in which the member is currently employed.
Transfers that comply can be made without prior Revenue approval, but details of the transfer must be sent to the Revenue before the transfer payment is made. The amount that can be taken as a lump sum should be notified to the receiving scheme.
- If the money is in an Occupational pension scheme, a transfer may be possible to a IORPS scheme.
- If the money is in a PRSA, a transfer may be possible to a IORPS scheme but it may trigger a tax liability.
- If benefits are in a Buy Out Bond, a transfer is not possible and you can only transfer these benefits to the UK.
It is very important for non-nationals who intend to leave Ireland at retirement to take care with the decision that they make with regards to their pension before leaving Ireland.
Steven Barrett
17 April 2023