# Cashing out a pension early but not cheating



## ksmith169 (25 Feb 2022)

Hello All,

I earn about €100K per year. I have a pension with about €100K in it. I am 48 years old.

I would like to cash out the pension before retirement and use the cash more freely in a US stock brokerage account.

To be clear I don't want to do any dodgy offshore tax vehicle to avoid paying back the tax benefits already gained when contributing to the pension.

Here is my question. I presume the only punishment (tax wise) for taking out the pension money before retirement is paying back the tax benefits on the contributions made up until now?

So for the most part this will be a blended rate of 20% (first tax band) and 40% (second tax band).

Are there any other punishments for cashing out the pension into cash early and legally?

Any help/information much appreciated,

Kevin.


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## Conan (25 Feb 2022)

You cannot "cash out" the pension early. There is no option to repay the tax relief.
You don't say what type of Pension it is, Occupational Pension, PRSA, Personal Pension. You might be able to retire early, after age 50,  take some of the fund as a lump sum and the rest as a pension income, but you must leave employment and "retire".
What you seem to be proposing is NOT POSSIBLE.


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## Dave Vanian (25 Feb 2022)

If your purpose is to choose your own shares that your pension fund invests in, you could transfer it into a pension product that facilitates self-direction.


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## ksmith169 (27 Feb 2022)

Conan said:


> You cannot "cash out" the pension early. There is no option to repay the tax relief.
> You don't say what type of Pension it is, Occupational Pension, PRSA, Personal Pension. You might be able to retire early, after age 50,  take some of the fund as a lump sum and the rest as a pension income, but you must leave employment and "retire".
> What you seem to be proposing is NOT POSSIBLE.


It is a company pension. I am self employed. It does not sound right to say I cannot cash out early if I agree to repay the tax benefits when I made contributions. So any pension company in Ireland can lock up peoples contributions completely? Even if I agree to re-pay any tax benefits gained on contributions?


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## ClubMan (27 Feb 2022)

ksmith169 said:


> It is a company pension. I am self employed. It does not sound right to say I cannot cash out early if I agree to repay the tax benefits when I made contributions. So any pension company in Ireland can lock up peoples contributions completely? Even if I agree to re-pay any tax benefits gained on contributions?


You can only get a refund of pension contributions in very limited circumstances. I did it once years ago.








						Refund of member contributions
					

In certain circumstances you may be eligible to take a refund of contributions paid into a pension arrangement...



					www.pensionsauthority.ie


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## ksmith169 (27 Feb 2022)

Thanks Clubman. Holy Moly. I did not know that. Pretty damning on the pension industry and/or revenues rules in Ireland. No real freedom outside the reguarl big players even if with shrink wrapped inside self share trading platform. Thanks again for info.


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## ClubMan (27 Feb 2022)

@Dave Vanian's suggestion above may be relevant to you if the key issue is a desire to have more hands on control of how your pension savings are invested. But bear in mind that even professional active managers may run up higher trading costs and poorer returns than, say, passively managed index tracking.


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## Gordon Gekko (27 Feb 2022)

There is a non-dodgy way to avoid paying tax on your investment gains.

It’s called a pension.

To be honest, your strategy, it I can call it that, is ridiculous. Your focus should be on ramping up your pension contributions, i.e. trying to contribute €25,000 a year, as €100,000 at 48 on a €100,000 salary represents woeful underprovision.

Instead, your grand plan is to turn your €100,000 into €60,000 (which isn’t even allowed) and then to punt that in a US stockbroking account where your income and gains will be taxable.

Absolute madness.


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## Dave Vanian (28 Feb 2022)

ksmith169 said:


> Thanks Clubman. Holy Moly. I did not know that. Pretty damning on the pension industry and/or revenues rules in Ireland. No real freedom outside the reguarl big players even if with shrink wrapped inside self share trading platform. Thanks again for info.



I don't understand this at all.  As I've mentioned above, you can transfer to a self-directed pension vehicle if you like and from there, you can trade away on your own share trading platform to your heart's content.  What more "freedom" are you looking for?  

When you started your pension fund, were the basic rules not explained to you that a pension is a long-term commitment?


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## ksmith169 (28 Feb 2022)

ClubMan said:


> @Dave Vanian's suggestion above may be relevant to you if the key issue is a desire to have more hands on control of how your pension savings are invested. But bear in mind that even professional active managers may run up higher trading costs and poorer returns than, say, passively managed index tracking.





Dave Vanian said:


> If your purpose is to choose your own shares that your pension fund invests in, you could transfer it into a pension product that facilitates self-direction.


This is definately something I am looking into. The Fees even to keep the money wrapped as a pension and the trading fees look huge compared to any regular stock broking account. €15 per trade (pension wrapped) versus €1 per trade. Still definitely something I am investigating.


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## ksmith169 (28 Feb 2022)

Gordon Gekko said:


> There is a non-dodgy way to avoid paying tax on your investment gains.
> 
> It’s called a pension.
> 
> ...


To be clear I did not describe any strategy. I just wanted to understand the legalities of the situation.


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## ksmith169 (28 Feb 2022)

Conan said:


> You cannot "cash out" the pension early. There is no option to repay the tax relief.
> You don't say what type of Pension it is, Occupational Pension, PRSA, Personal Pension. You might be able to retire early, after age 50,  take some of the fund as a lump sum and the rest as a pension income, but you must leave employment and "retire".
> What you seem to be proposing is NOT POSSIBLE.


So it is a limited company pension. I am a director of the company. I may need to wind down the company as it is not going as well as I hoped. I think I may be wasting my time with it (the company) to be honest.


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## Gordon Gekko (1 Mar 2022)

ksmith169 said:


> To be clear I did not describe any strategy. I just wanted to understand the legalities of the situation.


Cashing out the pension and using the proceeds in a US brokerage account is a strategy.


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## Steven Barrett (1 Mar 2022)

Conan said:


> You cannot "cash out" the pension early. There is no option to repay the tax relief.
> You don't say what type of Pension it is, Occupational Pension, PRSA, Personal Pension. You might be able to retire early, after age 50,  take some of the fund as a lump sum and the rest as a pension income, but you must leave employment and "retire".
> What you seem to be proposing is NOT POSSIBLE.


Back in 2007, I had a client who was under 50 years of age and managed to cash in her pension completely. It was with Canada Life at the time. I don't know how she did it. I have a feeling she got lucky that someone was willing to break the rules for her. She needed the money to keep her business afloat (it eventually went bust anyway). 



ksmith169 said:


> It is a company pension. I am self employed. It does not sound right to say I cannot cash out early if I agree to repay the tax benefits when I made contributions. So any pension company in Ireland can lock up peoples contributions completely? Even if I agree to re-pay any tax benefits gained on contributions?


Terms and conditions of a pension, you get really favourable tax relief and in return, you have to keep the money there for your retirement. There is no option of cashing out early. It is not in the terms that you signed up for when your company was able to write that contribution off as a business expense. 

Also, as a company director, you are not eligible to cash in contributions early in any circumstances. Employees can cash in the value of their own contributions if they leave within 2 years. They are never entitled to cash in the value of their employers contributions. 

If you business isn't going well, liquidate it and at 50 you can access it. You will get 25% tax free and pay income tax, USC and PRSI on the other 75%. 

US brokers only set up accounts for US residents, so if you don't have a US address, you won't be able to open a US account. 


Steven
www.bluewaterfp.ie


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## ksmith169 (28 Mar 2022)

Thanks Steven. Good info on the pension. 

Just to let you know most US Brokers will take an Irish or European customer. Their may be trading restrictions due to EU laws on US ETFs (due to European KID documentation rules) but most US brokers will take European customers.

Best Regards,

Kevin.


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## RetirementPlan (29 Mar 2022)

If you are a PAYE employee and you have pension funds from previous (not current) employment, most funds will allow you to 'retire' at 50 or above. and get your hands on the money 'Retire' is meaningless in terms of your future work life, you can continue to work as normal with your new employer while you 'retire'. Any funds you get will be counted towards your lifetime tax-free lump sum limit.

I'm not sure if there is any similar provision for self-employed people, in the scenario where the company has shut down.

It is a bit of a tax scam to be honest, allowing middle and higher income earners to avoid a chunk of tax on their earnings and get their hands on it before their 'real' retirement, but it is legal.


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## Dave Vanian (29 Mar 2022)

RetirementPlan said:


> I'm not sure if there is any similar provision for self-employed people, in the scenario where the company has shut down.



If a company director and/or employee of a limited company leaves the employment of the company they can retire an Occupational Pension Scheme or PRSA relating to that employment from age 50 onwards.  In the case of a company director, all ties with the company must be severed, e.g. get rid of shares in the company (or wind the company up) etc.  

A sole trader must wait until age 60.  

A Personal Pension can only be retired from age 60 onwards.  

Early retirement due to ill health is allowed for all at any age, but you'd need to be severely ill.


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