Holders of Approved Retirement Funds [ARF] and vested PRSAs, aged 61 or older, must take a minimum annual income from their policies in every tax year called an ‘Imputed Distribution’. The rate of imputed distribution is aged related. From 61 to 74, the rate is 4% pa and from 75, it rises to 5% pa. If you have a total fund from all sources of €2 million or more, the rate is a flat 6% pa from age 61.
An imputed distribution is treated as income for tax purposes; assessable to PAYE, USC and if you are under 66, PRSI. You can write off your tax credits against this tax liability. The Qualifying Fund Manager [QFM] is responsible for paying the imputed distribution and acts like your ‘employer’ for the purpose of making the payments. However, the individual policy holder is responsible for getting a Certificate of Tax Credits to set against the imputed distribution payments thus ensuring you will not be overtaxed. Failure to provide tax credits may result in the full imputed distribution being taxed under ‘emergency tax’ provisions.
Imputed distribution payments can be paid monthly, quarterly, half-yearly or annually. The full annual rate must be taken in the relevant tax year. This means an individual taking a monthly income who sets up an ARF in July, must take the full imputed distribution before the end of the year.
For annual payments, the latest payment date is usually mid-December. A policyholder must notify the QFM of their request for a withdrawal before 30th November. That is also the Revenue cut-off date for adjustment of tax credits.
If you do not elect to take an imputed distribution, the QFM is obliged to value the fund; deduct the necessary taxes due and remit them to Revenue.
If you hold more than one ARF/ vested PRSA, with different QRMs, you can appoint one QFM to act as a ‘Nominated QFM’ and they will operate the imputed distribution in respect of all your policies.
The above rules do not apply to occupational pensions or annuity pensions from Insurers.