# Technical question about tax free lump sums



## Dan Murray (19 Jul 2016)

Hi All,

My understanding was that if you were in an employer sponsored pension scheme and where you were going down the lump sum/annuity route at retirement, the lump sum was equal to the greater of 3N/80ths or the "uplifted scale" less retained benefits.

I was speaking to someone earlier who was trying to convince me that PRSAs are not included in the "retained benefit" calculation - and that this represented the proverbial "planning opportunity".

Can anyone shed any light please?


----------



## Steven Barrett (28 Jul 2016)

Hi Dan 

Personal and company benefits don't mix, so are not included when calculating the lump sum from an employment scheme.  
The tax-free lump sum for PRSA's or personal pensions is included when calculating that an individual doesn't exceed the tax-free lump sum ceiling of €200,000 or the taxed at 20% additional amount of €300,000.

But, if they are in an occupational scheme, they can't just throw money into a PRSA and the occupational pension scheme...they can't mix.

If they have two sources of income, there is an opportunity to make a contribution from the second source of income into a personal plan. But, they must max out the tax relief available from the income in the occupational scheme first. Hospital consultants is the perfect example in this scenario, HSE and private income. They have to max out the tax relief under their HSE income first before they can make contributions from the private practice income. As their HSE income is over €115,000, the opportunity has been lost and they can only make AVC top-ups.

Steven
www.bluewaterfp.ie


----------



## Dan Murray (28 Jul 2016)

SBarrett said:


> Personal and company benefits don't mix, so are not included when calculating the lump sum from an employment scheme.



Hi Steven,

Please don't take this the wrong way - but I missed you! Please also don't go fishing again without clearing it first with the AAM community!!

Getting serious, if it's true that there is no relationship between maximum occupational benefits and personal benefits, then the "planning opportunity" as explained to me works and is actually pretty cool. However, I'm still not convinced that no relationship exists between occupational schemes and personal plans, as follows:

_from the Revenue Manual...._
*Section 7.2
*
Lump sum benefits greater than 3/80ths of _final remuneration _for each year of _service _may be given on retirement at _NRA _in accordance with the table set out below....
provided that the aggregate of the value of non-pension retirement benefits in
respect of _service _with the current employer and any _retained benefits _does not exceed 1.5 times _final remuneration*.*_

and in the Appendix
*
Retained Benefits *is defined as*:*_ 

relevant benefits (pension and lump sum) provided for the member under other schemes whether deferred or already in payment. Included
are:

(i) Approved or statutory schemes relating to previous employments;

(ii) Buy-out bond policies held in respect of entitlements relating to previous employments;

(iii) Retirement annuity contracts;

(iv) Personal retirement savings accounts;

(v) Schemes relating to overseas employment._


What am I missing?!


----------



## Steven Barrett (2 Aug 2016)

You're right Dan. 

If you were entitled to 150% lump sum, you can't start a personal pension plan from that employment and get 25% tax free.

If you have personal pensions from other employment or have a second source of income, you can use personal pension plans. 

Steven
www.bluewaterfp.ie

No more holidays planned for the rest of the year. I have a wedding and a long weekend to go to but I think you can manage with that!


----------



## Dan Murray (2 Aug 2016)

SBarrett said:


> No more holidays planned for the rest of the year. I have a wedding and a long weekend to go to but I think you can manage with that!



Well, I suppose that's fair enuff!!

Just to finish off on this, I was speaking with my contact again and I told him that I thought he was getting his wires crossed - so he emailed me the offending presentation. I'm not going to quote the source (very well known) which makes all this curiouser and curiouser.......(as in, my contact is adamant that if so and so said it, it must be true, etc.!!) Anyway, the relevant "pension planning solution" - as directly copied from the presentation is as follows:

Scenario

_Jane (age 58) is company director with 20 years service, salary of €100k 

Jane has NRA of 60 and €800k accumulated in executive pension funds since 2003. 

Jane is happy with current levels of pension funding and is looking at retirement relief and other exit structures 

At age 60 Jane can take a lump sum of 25% of fund = €200k and retain ARF options. This is > 1.5 x salary of €150k so looks obvious choice. 

Can we increase tax free cash using PRSA planning ???_


Solution

_Jane has only been in pensionable service since 2003 when first executive scheme was established. As such option exists to wind up exec scheme and transfer to one or more PRSAs. Wind up strategy put in place. 

€800k transferred to PRSA contracts. 

At age 59 Jane’s company establishes a new executive pension on her behalf. Employer contributions are made of a further €150k. Existing PRSAs are returned as retained benefits. 

At age 60 Jane retires her executive plan and takes the full proceeds of plan as tax free lump sum of 1.5 x final salary of €100k = €150k. PRSAs are not drawn down. 

PRSAs may be drawn down at later dates and still retain option to take 25% (€200k) as cash. Combined cash option could be €350k (less 20% tax on balance over €200K) 
_
**************

Personally, I don't agree with it for the reasons mentioned in earlier posts!


----------



## Steven Barrett (2 Aug 2016)

Let me look into it a bit further.


----------



## Dan Murray (26 Aug 2016)

Hi Stephen,

Just wondering whether you got a chance to look into this?

Regards,

Dan


----------



## North Star (26 Aug 2016)

Hi Dan,

I am coming to this thread a bit late, but I would be in agreement with you in that the Revenue limit on tax free cash from pensions is a universal limit of €200k irrespective of source. Could it be that the mythical 'planning opportunity' relates to termination payments?? There is an argument to be made that if a significant redundancy payment is made and calculated using SCSB option where the client gives up the right to a future pension tax free amount from an Occupational Pension scheme relating to the same employment ( which increases the tax free element of any termination payment - then any PRSA could/might be permitted to pay a tax free lump sum as technically it id not defined as an Occupational pension scheme. Though this is materially different from the scenario you outlined. Now I'm curious ...
Regards Vincent


----------



## Dan Murray (26 Aug 2016)

Hi Vincent,

I fully take your point regarding the SCSB and how the waiving of the TFLS gets circumvented by using (if possible) PRSAs. However, this is a different kettle of fish. Why I haven't been able to dismiss it totally is because the source is a "heavy hitter" who did a nationwide tour on "pension planning opportunities", in which this concept (together with some variations) is very much front and centre. So, it's all very curious.

All the best,

Dan


----------



## Steven Barrett (29 Aug 2016)

Hi Dan 

The guy I go to for technical questions was on holidays and then I forgot about it.  I've sent him an email. I'll update this thread once I hear back. 


Steven
www.bluewaterfp.ie


----------



## Dan Murray (29 Aug 2016)

Such candour..........which is to be.......sincerely applauded. Thanks Steven.

It will be interesting to get to de bottom of it


----------



## Steven Barrett (6 Sep 2016)

Hi Dan 

I've heard back and the opinion I was given is that it is not as runner as the PRSA is a retained benefit from the same employment, it would have to be deducted from the 1.5 times lump sum. 

It is not something that the expert in the insurance company I spoke to would promote at all. He also disclosed that the presentation came from one of the more aggressively minded stockbrokers about town. 

From my own point of view, I stay away from borderline approaches like that. It doesn't do your business much good if you have to go back to clients and tell them that the Revenue are unwinding your tax free lump sum payments!

Steven
www.bluewaterfp.ie


----------



## Dan Murray (6 Sep 2016)

SBarrett said:


> ......It doesn't do your business much good if you have to go back to clients and tell them that the Revenue are unwinding your tax free lump sum payments!



Agreed - best to get a ruling from the Revenue to understand the precise tax treatment - at least then you can never get into trouble, right ........

Seriously, it's kinda what I thought and quite scary.

Thanks for the confirmation - mucho appreciated.


----------

