Pan-European Personal Pension Product
Finance Act 2022 introduced a new Chapter 2D into Part 30 of the TCA 1997 that provides the taxation and relief rules for the pan-European Personal Pension Product (PEPP) which has been introduced as required under Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019.
A PEPP is a contract-based product between an individual and a PEPP provider in the form of an investment account. PEPPs are of a similar nature to the equivalent Irish product, the Personal Retirement Savings Accounts (PRSA).
PEPP s is taxed according to the “Exempt-Exempt-Taxed” or “E-E-T” system that applies to Irish pension products. This means taxpayers who invest in a PEPP will get tax relief subject to certain limits, and the growth of the funds is exempt, and tax will apply on pension payments drawn down from the fund, with the exception of a tax-free lump sum.
The taxation measures for PEPPs are modelled on the existing PRSA tax provisions in Chapter 2A TCA. The key features of the provisions include:
- tax relief for PEPP savings by individuals is calculated by reference to net relevant earnings and is subject to an overall earnings cap of €115,000;
- tax relief for employer contributions to a PEPP for an employee;
- relief for PEPP contributions is given in respect of relevant earnings from any trade, profession, office or employment carried on by an individual and allowable;
- contributions are deducted from or offset against relevant earnings for the year in which the contributions are paid;
- claims to relief must be in in the prescribed form detailed by the Revenue Commissioners, and Revenue decisions on relief can be appealed to the Tax Appeals Commission;
- payments from a PEPP will generally be taxed under PAYE but certain payments may be made without deduction of tax, such as the tax free lump sum at retirement or the transfer for PEPP assets to an ARF;
- rules for payments to beneficiaries following the death of a PEPP saver;
- rules for the “vesting” of PEPPs where the beneficiary reaches age 75 are, as well as subjecting the vested PEPP to the “imputed distribution” regime; and
- provision for an Approved Retirement Fund option for PEPP savers at the time their assets become available to them
The maximum allowable contribution and thresholds which apply to relief on PEPP contributions (subject to the overall earnings cap of €115,000 mentioned above) are-
|Up to age 30
|15% of remuneration
|30 to 39
|40 to 49
|50 to 54
|55 to 59
|60 and over
Finance Act 2022 contains a number of consequential amendments to the TCA 1997, the Capital Acquisition Tax Consolidation Act 2003 and the Stamp Duties Consolidation Act 1999 to ensure that PEPP products are subject to the same taxation, relief, and administration provisions as set out for Personal Retirement Savings Accounts (PRSAs) and is taxed according to the “exempt-exempt- taxed” or “E-E-T” system in common with other Irish pension products.
The provisions amended in the TCA 1997 include:
- to provide that the payment of profit participating interest is tax deductible where it is paid to a PEPP;
- to include relevant definitions of PEPP in the interpretation section relating to Dividend Withholding Tax (DWT);
- to include a PEPP distribution in the exemptions from DWT for relevant distributions made by a company resident in the State to a person who is beneficially entitled to the distributions;
- to include relevant definitions of PEPP in the interpretation section relating to interest payments by certain depositt takers in relation o DIRT and to add the PEPP to the list excluded from the definition of “relevant deposit” in relation to DIRT;
- details of new “Declarations relating to deposits made by a PEPP provider held for a PEPP” for;
- to exclude contributions from an employer to a PEPP from being chargeable to USC;
- to provide for the exclusion of disposal of investment assets held in a PEPP for CGT purposes;
- to provide that payments to PEPPs are qualifying premiums for pension business, in relation to Life Assurance Companies;
- to include PEPP providers in the list of policyholders in relation to chargeable events not giving rise to a gain;
- to set out the details required to be included in the declarations by PEPP providers to an assurance company for the life policy concerned to be exempt from exit tax on a gain arising on a chargeable event;
- to provide for the inclusion of PEPP and PEPP provider in the cases where a chargeable event in respect of a unit holder does not arise to an investment undertaking in the case of certain persons/ entities that comply with a declaration procedure;
- to include relevant definition of PEPP and insertion in “specified person” of a PEPP and vested PEPP in part (a);
- to provide that a contributor to a PEPP is a member of a pension scheme for the purposes of this section;
- to provide that when calculating the amount of any reduction in net relevant earnings for contributions to a retirement annuity, a PEPP contribution shall also be treated as qualifying for the purpose of applying the age-related limits;
- to state that any contribution made to a PEPP will reduce the maximum amount of relief available to a PRSA contribution by that amount;
- to include a PEPP in the definition of overseas pensions plan and relevant migrant member, to sets out the mechanism for claims to relief in relation to contributions to a PEPP subaccount;
- to include a PEPP in the limit on tax-relieved pension funds regime;
- to allow a fund administrator to use the assets of a vested PEPP fund to satisfy a tax liability of a non-member where a chargeable excess arises on a pension adjustment order;
- to include the PEPP in the chargeable excess tax regime;
- to ensure that any PEPP assets used to purchase an annuity shall not be subject to that section, concerning purchased life annuities;
- to include PEPP in the limit on earnings for the purposes of tax relief;
- to include PEPP lump sums in the taxation of lump sums in excess of the tax free amount;
- to include PEPP in the imputed distribution regime, by the inclusion of the definition for vested PEPPs – this definition replicates the current treatment of a vested PRSAs;
- to include employer PEPP contributions in returns by employers;
- to include PEPP in the regulations for collection and recovery of income tax on certain emoluments (PAYE system);
- by inserting a new part 12 “Declaration to be made by a PEPP provider” arising from conditions which must be adhered to by the PEPP provider regarding their administration of a PEPP on behalf of a PEPP beneficiary;
- by inserting a new “Declaration of a PEPP provider”
- Schedule 2C, by inserting new parts 12 and 13 which details ‘Declaration of PEPP providers’ and ‘Declaration of PEPP providers regarding PEPPs and vested PEPPs’ respectively arising from the amendment to section 739K;
- to include PEPP in the provisions dealing with the limit on tax-relieved pension funds; and
- to include PEPP in the provision dealing with specified arrangements referred to in Section 817RI.
The Capital Acquisitions Tax Consolidation Act 2003 is amended to include references to PEPP.
The Stamp Duties Consolidation Act 1999 is amended to include PEPP under existing definitions of ‘pension scheme’, ‘administrator’ and ‘scheme’
Finance Act 2022 exempts an employer contribution to an employee’s PRSA or PEPP from an income tax charge to Benefit-in-kind (BIK). This is a recommendation of the Inter-departmental Pensions Reform and Taxation Group (IDPRTG).