Irish Pension Transfers to a Maltese Pension Scheme
An Irish pensioner living in Ireland has won an historic court case to allow a transfer of his PRSA to a Maltese Retirement Scheme similar to British expats who transfer their pensions to QROPS in Malta.
“PRSA holders may now move their retirement benefits to overseas pension scheme administrators in the EU, even if living and working in Ireland.”
This means an Irish pension transfer overseas to a Maltese Retirement Scheme or Gibraltar retirement scheme is allowed.
Michael O’Sullivan V Canada Life Assurance (Ireland) Limited
Mr O’Sullivan had a PRSA policy with Canada Life Assurance (Ireland) Limited to the value of €116,000 and wanted to move his pension to a Maltese Retirement Scheme even though he lived and worked in Ireland.
Canada Life sought the approval of the Revenue Commissioners (the Inland Revenue in Ireland) who said that it was for Canada Life to determine whether to allow the transfer, having regard to the Transfer Regulations and, in particular, the requirement that the transfer be for “bona fides” reasons.
Canada Life declined the request on the grounds that, as Mr O’Sullivan did not reside in and was not employed in Malta.
In the case of Mr. O’Sullivan, the court ruled in favour of the plaintiff. This is a landmark case and now essentially means that any personal Irish pension scheme can be transferred overseas irrespective of whether you have employment overseas or not, although it will be on a case by case basis.
You can now move personal pension plans in Ireland to Maltese Retirement Schemes or Gibraltar Retirement Schemes to avoid Irish taxes. Irish expats and foreigners who have built up a pension in Ireland can now transfer PRSAs overseas to suitable overseas pension plans such as these. This is similar to a QROPS in Malta or QROPS in Gibraltar.
PRSA Transfer Rules
The judge ruled that:
“PRSAs are not related to employment; they can be taken out regardless of employment status”.
Anyone with an Irish pension and thinking of moving abroad can now transfer their Irish pension to a Maltese Retirement Scheme even if they are not employed overseas.
Furthermore, PRSA transfers are now much less likely to be stopped by Irish pension providers after the court ruling in April, 2014.
If you retire overseas, your pension will avoid Irish taxation and any taxes upon growth as well as avoiding the death tax in Ireland. Income tax on your Maltese pension income would depend on the country you wish to retire in and any Double Taxation Agreements with Malta, but the tax if often zero in Malta, with income tax being taken on pension income in retirement in the country you reside in.
A PRSA transfer to a retirement scheme in Gibraltar is also possible. A PRSA transfer to Malta is often chosen for Irish expats retiring overseas in Europe. A PRSA transfer to Gibraltar is a popular choice for Irish expats moving elsewhere in the world.
Is it a Bona Fide Pension Transfer?
The crux of the case boiled down to whether there was a “bona fide” reason for the transfer out of a PRSA from Ireland and the PRSA transfer was not just to avoid Irish taxes.
Any member of a pension scheme or PRSA wishing to make an overseas transfer must sign a declaration to the effect that the transfer is for “bona fide reasons and is not primarily for the purpose of circumventing pension tax legislation and Revenue rules”.
The court ultimately found that the Irish pension provider does not have to investigate the circumstances of the transaction as it is “not obliged to conduct an independent examination and evaluation of the motives of the fund owner”. This was provided there were no facts which would “give rise to suspicion as to the bona fides of the transaction”.
The Irish pension provider does not have to investigate the circumstances of the transaction as it is “not obliged to conduct an independent examination and evaluation of the motives of the fund owner”. This was provided there were no facts which would “give rise to suspicion as to the bona fides of the transaction”.
In other words, it is up to the Irish pension provider to find out if a pension transfer is trying to just circumvent Irish tax rules AND they would need the evidence to back it up. Seeing as Canada Life Assurance lost this case, it is unlikely that other Irish pension providers would refuse a transfer out unless they could prove that the member is transferring out of a PRSA for tax reasons only.
Can I Transfer My Irish PRSA Overseas to a QROPS in Malta or Gibraltar?
A QROPS is a transfer out of a UK scheme into a recognized scheme. Irish pensions can also be transferred to overseas pensions, but they aren’t known as a QROPS, although they use the same local pension scheme administrators.
In summation, the 2003 regulations surrounding Occupational Pension Schemes and Personal Retirement Savings Accounts (Overseas Transfer Payments) in Ireland and the recent court ruling mean that private Irish pension schemes can be transferred overseas to a recognized overseas pension scheme such as in Gibraltar or Malta.
This can often be beneficial for Irish expats as their pensions would then lie outside the Irish tax system and thus avoid Irish taxation.
such as Canada Life PRSAs, Zurich Life PRSAs, Friends First PRSAs, Aviva Life PRSAs and Irish Life PRSAs can now been transferred overseas to QROPS.
Why Transfer a PRSA Overseas to Malta or Gibraltar?
If you are living and working in Ireland, you can transfer your pension abroad to a Maltese or Gibraltan Retirement Scheme.
Malta has a Double Taxation Agreement with Ireland and if you are still living in Ireland at retirement, you would only get taxed on any income or benefits you receive in Ireland at Irish income tax rates.
“If you are living in Ireland and getting an occupational pension from another country such as Malta, you should generally receive it gross and then pay Irish tax on it.”
Reasons for Transferring Out of a PRSA Overseas
- Can access your pension at 50 if you have lived overseas for 5 years already
- 30% lump sum available
- 150% GAD rates are possible; a higher annual pension income
- Avoid Irish income tax of 20% – 41%
- Avoid Irish taxation on lump sum payments
- Avoid Irish inheritance tax of up to 33%
- Avoid the Standard Fund Threshold of 2m EUR
- Protect against Irish final salary scheme failure
- Avoid Irish pension levy and any future tax increases in Ireland
- No need to purchase an annuity
- Choose the currency of your pension
- Choose the mutual funds, bond funds, ETFs or cash you want to hold in your pension
- 150% GAD rates on drawdown
This would avoid the Irish pension levy. There is a levy of 0.6% on the market value of assets which are managed in pension funds and pension plans approved under Irish tax legislation. (These include occupational pension schemes, Retirement Annuity Contracts and Personal Retirement Savings Accounts). This levy applies until the end of 2014. In 2014 an extra levy of 0.15% was introduced. This will continue to apply. This means that the total pension levy in 2014 is 0.75% and the levy from 2015 on will be 0.15%.
The new pension levy will amount to an average of 7.5% on their pension pot. The contribution will be made up of 3% on the first €15,000 of pay, 6% on the next €5,000 and a 10% levy on the remainder of earnings.
Avoid Irish Income Tax on Pensions with a Transfer Overseas
Since 1 January 2012, the tax rates apply as follows:
20% income tax on:
- the first €32,800, for individuals without dependent children
- the first €36,800, for single or widowed persons qualifying for the One-Parent Family tax credit
- the first €41,800, for married couples
The balance of income is taxed at 41% (the higher rate).
The €41,800 amount may, for married couples, be increased by the lesser of: €23,800 or the income of the second spouse. This brings the total maximum standard rate band for a married couple to €65,600, twice the single person’s band. The increase is not transferable between spouses.
“A transfer out of a PRSA scheme to a Malta retirement scheme would avoid all Irish taxes if you retired abroad. If you retired in Ireland, you would still pay Irish income taxes.”
Avoid the death tax in Ireland. Should you die before you have taken a benefit from your PRSA then the value of your retirement fund is payable to your estate. Your estate would face inheritance tax of up to 33%. A PRSA transfer to an overseas pension scheme would avoid the Irish inheritance taxes.
You can also choose what you wish to invest in as well as the currency you like. So, you could transfer your pension to GBP or USD, for example, and invest in low cost ETFs or employ the top investment fund managers from around the world such as JPMorgan or Black Rock.
You would also avoid the Standard Fund Threshold of 2 million EUR. If your Irish pension pot is above 2 million EUR, you would be taxed 41% on the excess as it is drawn from the fund. Under a QROPS, there is no maximum limit.
You would also be protected from an Irish final salary scheme if it failed. New rules written in December 2013 mean that if the pension scheme is underfunded or insolvent, then people with a lower order of priority do not get what they expected from the scheme.
A transfer out of an Irish defined benefit scheme to a Maltese Retirement Scheme would protect you from an Irish final salary scheme becoming insolvent.
You would avoid taxation on the lump sum. Since 1 January 2011 there has been a limit of €200,000 on the amount of the tax-free retirement lump sum. Lump sum payments above that limit will be taxed as follows in Ireland:
|Amount of Lump Sum||Income Tax Rate|
|Up to €200,000||0%|
|€200,001 – €575,000||20%|
|Over €575,000||Highest Marginal Tax Rate|
A transfer of a PRSA to a Maltese Retirement Scheme would avoid this taxation on the lump sum.
“Please note that there is no Irish pension tax relief on a Maltese Retirement Scheme and is intended for Irish expats considering retiring abroad. You would also lose any benefits that are guaranteed under a PRSA.”
What are the Fees to Transfer an Irish PRSA to a Maltese Retirement Scheme?
The overseas pensions landscape is constantly evolving with companies such as Sovereign and Momentum provide local pension schemes in Malta and Gibraltar. Many Irish expats however, may be better off transferring to a Retirement Scheme in Gibraltar which just has a flat rate of income tax of 2.5%. The move would depend on which country you wish to retire to.
Sovereign Trustees currently charge 750 GBP set up fee, then 900 GBP per year for a Gibraltar Retirement Scheme.
They charge 800 EUR set up fee for a Maltese Retirement Scheme with an annual fee of 1100 EUR.
There are discounts if your pension pot is below 100,000 EUR.
Your PRSA provider cannot charge you for transferring the value of your fund.
This is just an example of what the trustees charge.
Please email email@example.com to ask for a free pension transfer analysis and ask what the latest fees are. We are always striving to get the best QROPS discounts for our clients and we work with multiple overseas retirement trustees to get you the best deal.
To find out more about how a pension transfer from a PRSA to a QROPS works, please click here.Irish Pensioner Wins Court Case to Transfer to a Maltese Pension Scheme by Richard Malpass