# What do people typically do with their 25% DC Tax free amount



## fayf (12 Aug 2021)

I was wondering, what fo people generally do with their, very often substantial tax free amounts when they t/f from DC to an ARF/AMRF.

The obvious are some big ticket items, like house move, home improvements, big holidays, new car, or investment in a hobby or partime business.

But what about investing some of that in something low risk, savings certs have a poor return but certainly better than anything the banks are offering.


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## ClubMan (13 Aug 2021)

There's almost certainly no "one size fits all" answer.
Some will spend it.
Some will save it
Some will invest it - for different timeframes and at different risk/reward profiles.
Some will do a mix of the above.

Are you asking what YOU should do with YOURS?
Is so then you probably need to post more details about your own specific overall personal/financial situation and goals/plans/priorities.


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## moneymakeover (13 Aug 2021)

Guessing, I would imagine people pay down personal debt
Buy new car
Take big holiday


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## time to plan (13 Aug 2021)

Pay off mortgage?


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## Gordon Gekko (13 Aug 2021)

I would have thought:
- Clear mortgage / other debts
- Invest
- Help kids
- Do some “nice things”, e.g. trip of a lifetime, change car, renovate house
- Buy a holiday home


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## NoRegretsCoyote (13 Aug 2021)

time to plan said:


> Pay off mortgage?


The Central Bank in their recent "arrears shortfall" work tended to miss this point a bit.

All public servants get a cash lump sum on retirement. CSO data show that 20% of owner-occupiers have a voluntary pension, with a median value of €55k (usually more by retirement age).

There are many people who will be well able to clear a €50k outstanding mortgage at retirement from either a DB lump sum or tax-free drawdown from a DC scheme.


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## Ndiddy (13 Aug 2021)

paying off mortgage at age 50 and then using the rest as living expenses to delay tapping into ARF is my plan.....


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## nest egg (13 Aug 2021)

Doesn't anyone else plan to reinvest it?


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## Dave Vanian (13 Aug 2021)

It's a difficult question to answer as different people have such widely different circumstances.  But in my experience this is a popular setup - 


Mortgage has been cleared and kids are self-sufficient by the time the person retires.  (There may be a generation coming along for whom this won't be the case, but that's another story.)    
ARF drawdowns and the State Pension are sufficient to meet the day-to-day living expenses, pay the bills etc.  
Lump sum is added to savings and kept for exceptional once-off expenses, e.g. changing the car, big holidays, house repairs etc.  
Same general principles apply to the lump sum as to any other form of savings, pre or post retirement.  A certain amount would be kept in low-risk, accessible savings - bank or State Savings.  Any excess that will probably not be touched for years can be invested, if the person's risk appetite is up for it.  (I find that people's risk profile can get more cautious when there's no more salary coming in.)


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## fayf (15 Aug 2021)

Ndiddy said:


> paying off mortgage at age 50 and then using the rest as living expenses to delay tapping into ARF is my plan.....


Thats one plan, which i also was thinking about, but issue with the delay strategy, is two fold:

there is up to 18 years, (50 to 68)until, the State Contributory Pension kicks in, and you won’t qualify for the full amount, if you are not paying PRSI for that length of time. You would however, get most of it, it would depending on circumstances, likely put you in the 30-39 yearly average PRSI contributions, so would likely give you 223.20 per week v 248.30 per week.

You are not utilising your annual tax credits, which would allow you to withdraw roughly 16,500 pa, without incurring any PAYE.

Having said all that, the upside is, the ARF will grow significantly as well.


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## bitethebullet (15 Aug 2021)

Doesn't the State pension kicks in at 66?


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## Gordon Gekko (15 Aug 2021)

You’d probably withdraw €16k from the ARF anyway then.

And maybe look to invest some of the lump sum in joint names or a spouse’s name to optimise the use of their credits and the €2,540 CGT exemption as well.


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## fayf (15 Aug 2021)

bitethebullet said:


> Doesn't the State pension kicks in at 66?


Its dependant on your current age, those born after 1959, will be 68 under current rules before they are entitled to the contributory state pension, allthough, this plan was paused last year, after it became a big topic in the last general election, its currently pending a review.

“The current qualifying age for all State pensions is 66. An increase to 67 in 2021 and to 68 in 2028 was planned. In *Budget 2021*, it was announced that the qualifying age for a State pension will continue to be 66. Legislation will be introduced later in 2020 to reverse the increase in pension age to 67 currently included in social welfare legislation.”


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## Conan (15 Aug 2021)

But the Pensions Commission is due to report shortly (originally July) on the future of the State Pension. This could well recommend the extension of the pension age, as was previously intended. Will the State Pension be means-tested in the future? 
With increasing longevity (the over 65 is the fastest growing sector of the population), the State Pension is becoming a very expensive benefit. But obviously it will be a political decision in the end as to what changes are made. If SF have their way, we can expect it to remain at age 65, be increased significantly and not means-tested (based on the SF money tree economic policy).


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## ArthurMcB (15 Aug 2021)

Conan said:


> If SF have their way, we can expect it to remain at age 65, be increased significantly and not means-tested (based on the SF money tree economic policy).


Is this really SF's position? Any link or reference point?


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## fayf (16 Aug 2021)

Yes, it certainly is their position, plenty of press releases and statements by them confirming this.

 “Money Tree”, is an excellent interpretation - Conan !! Like almost everything that SF proposes - almost always, unsustainable economically - but often popular.


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## ryaner (16 Aug 2021)

Conan said:


> Will the State Pension be means-tested in the future?


The non contributory pension is already means tested. Means testing all payments, like they do with other social welfare payments would have some huge unintended consequences, just look at Australia and how lots of people buy houses just before retirement, while also being hugely unfair and likely incentivise more people to stop saving for retirement.


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## Shirazman (16 Aug 2021)

ArthurMcB said:


> Is this really SF's position? Any link or reference point?



Here you go!   _*From the horse's mouth*_, so to speak!










						Hello everyone. Workers must have the right to retire (if they wish) with a pension at the age of 65 yrs . We are bringing a motion on  this to the Dail... | By Mary Lou McDonald - Sinn Féin | Facebook
					

49K views, 2.3K likes, 412 loves, 502 comments, 279 shares, Facebook Watch Videos from Mary Lou McDonald - Sinn Féin: Hello everyone. Workers must have the right to retire (if they wish) with a...




					www.facebook.com


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## garbanzo (17 Aug 2021)

Is it time to reduce the tax-free pension lump sum?
					

Some experts argue €200,000 limit overly favours high earners and costs exchequer too much




					www.irishtimes.com
				




Interesting article on this here…


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## ClubMan (17 Aug 2021)

garbanzo said:


> Is it time to reduce the tax-free pension lump sum?
> 
> 
> Some experts argue €200,000 limit overly favours high earners and costs exchequer too much
> ...


Behind a paywall.
Any chance somebody could do a synopsis?


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## AAAContributor (17 Aug 2021)

ClubMan said:


> Any chance somebody could do a synopsis?



Main points from the article:

Under current legislation, one can withdraw a portion of your pension fund, tax-free, up to €200,000.

This portion is 25% for retirement annuity contracts (RACs), Personal Retirement Savings Accounts (PRSAs) and for people transferring to Approved Minimum Retirement Funds (AMRFs) and Approved Retirement Funds (ARFs).

Members of DB Schemes can take up to 1.5x their final remuneration as a lump sum (with 20 years service and no other retained benefits).

ESRI economist speaking at an Oireachtas committee on budgetary oversight in June, said additional revenue would be needed for the Exchequer and limiting the tax-free lump sum could be a potential source as 2014 Revenue figures claim taxes foregone of €130mill. The economist argues that the relief is poorly targeted and benefits those on higher earnings.

An assistant professor at the School of Social Policy, Social Work & Social Justice at UCD, said that the current €200k limit is abnormally high in an international context, with many countries not facilitating any tax-free drawdown and that it benefits those with the largest incomes and pension savings.

Both the ESRI economist and professor from UCD argue that reducing the lump sum could improve equitability, with the UCD professor proposing a limit of two-thirds the average earnings, so a limit of €30,000. ESRI also suggest alternative subsidies to the lump sum to better target lower and middle earners such as higher personal tax credits for those over the State pension age or a top-up to pension funds if and when the fund is annuitised.

The counter arguments are provided by the CEO of Acuvest:
 - agrees that more revenue is needed for the Exchequer;
 - contrasts the potential €130m saving with more juicier targets such as removing CGT relief on homes (€2.4bn), CAT Business Relief (€200m p.a.) and increasing the standard rate of VAT (€440m p.a.).
 - tax free limit is used by citizens to pay down debt, add to savings or travel abroad.
 - with a rapidly ageing population, incentivization of private pension saving should be a priority, which is a struggle even at the current benefit levels.
 - pensions have already been made fairer by the cut in the Standard Fund Threshold from €5m to €2m. An ESRI report is also looking to reduce this further.

The 20% rate of tax on lump sums between €200,000 and €500,000 is also discussed which is significantly less than the marginal rate of tax which would ordinarily apply on income amounts received at those levels. Acuvest CEO argues that this incentivises withdrawal allowing the government to receive funds faster, otherwise the funds would be retained.


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## fayf (17 Aug 2021)

A potential reduction on the lump sum would have big impacts, and may be worth considering, pulling an early trigger on PRB to ARF, or DC to ARF, for those impacted.

If this is going to become a reality, A phased reduction is surely the more common sense and reasonable approach, as there would be a cohort about to transfer into an ARF in the next year or two.


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