# Question on cashing in a pension



## onekeano (16 Feb 2017)

I have have €31k approx. in with a pension company relating to previous employment where I had worked for 7 years with a final salary of €63k - I am advised that I am entitled to a lump sum of €16k approx. (excluding any indexation if appropriate). 

With the balance I could by an annuity but the amount would be really negligible so this is not very attractive. 

The final option apparently is to transfer the retirement bond from the current pension compamy to another one who have a minimum €20k for annuities and so would allow me to cash in that surplus (paying marginal rate tax and levies etc) on it. So, if the gross surplus was €15k and I paid 50% tax I’d net €7.5k.

My pension pot with my current employer is > €400k.

I'm wondering if the final option is the most effetcive?
If the calculations above are pretty much correct?
If I do take that option is there any impact on my main pension (with my current employer)
To exercise this option would cost around €1,500 - is that reasonable?
Any advice would be much appreciated,

Roy


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## Dan Murray (16 Feb 2017)

Hi onekeano,

Interesting question. I suppose to answer it, one would need to know the following....

What age are you?
When are you planning to retire?
When did you leave your former job?
Are you married and what will be the combined income in retirement, if relevant (need to assess likely tax situation)?
Can you explain what you mean exactly about the €1,500 please?


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## Gordon Gekko (16 Feb 2017)

Is there not scope to take a 25% lump sum and transfer the balance to an ARF/AMRF?

Or transfer the €31k into the current €400k pot.


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## onekeano (16 Feb 2017)

Dan Murray said:


> Hi onekeano,
> 
> Interesting question. I suppose to answer it, one would need to know the following....
> 
> ...


 *The broker tells me the cost of cashing in the old pension would be €1k but if I wanted to take the final option there would be a lot more work so cost would be €1,500.*


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## onekeano (16 Feb 2017)

Gordon Gekko said:


> Is there not scope to take a 25% lump sum and transfer the balance to an ARF/AMRF? *I suppose that would mean 8k lump sum and then about €1k p.a. at most so not too attractive (especially after tax)*
> 
> Or transfer the €31k into the current €400k pot.


 *yes that is possible (probably some charge involved though ) - but it would be more attractive to get €24/5k net at this stage*


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## Gordon Gekko (16 Feb 2017)

onekeano said:


> *yes that is possible (probably some charge involved though ) - but it would be more attractive to get €24/5k net at this stage*



How old are you?


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## Steven Barrett (16 Feb 2017)

There's two different rules under trivial pensions. 

If the pension payable before the tax free lump sum is less that €330 per annum, the fund can be paid out at tax of 10%. This applies to the preserved benefit from that employment solely. As it is deferred, you have to wait until normal retirement age. I ran a quote for you and the pension payable for a pot of €15,000 for a 57 year old is €968 a year. So it doesn't meet this criteria on two fronts. 

The other option is if your total pension benefits after the tax free lump sum is less than €20,000, you can have that benefit paid in a once off lump sum subject to PAYE and PRSI. As you have a fund of €400,000 from your current employment, this rule doesn't apply to you. 

Those are Revenue rules so they apply to all life companies. I don't see why you should have to transfer your benefits from one provider to another and then cash it in immediately. 

I have pasted the rules on Trivial pensions below. It's from a technical manual from one of the life companies and is written in clearer language than the Revenue Pensions Manual

*Trivial Benefits*
If retirement benefits are below certain amounts, they can alternatively be paid out as trivial
benefits.  There are two options when it comes to establishing if pension scheme benefits are
considered trivial or not.

1) If a member’s total pension entitlements from the same employment (before any lump sum is taken) do not exceed €330 p.a. then this benefit is considered to be trivial and can be fully commuted. In a DC scheme the annuity rate used must be based on a single life annuity with no escalation in order to determine whether or not the fund is within the €330 p.a. trivial limit. Where a trivial pension is a deferred pension, it cannot be commuted until it becomes payable unless the scheme is winding up.     The rules of the particular scheme will determine what amount can be paid out as a retirement lump sum amount and the balance will then be subject to tax at 10%. As the benefit is trivial it is quite likely that there would be little or no tax payable if the scheme rules allowed for Revenue’s maximum retirement lump sum amount to be payable.

Unlike commutation on grounds of serious ill health, the retirement lump sum amount cannot be calculated on the basis of including potential service to NRA, only actual completed service can be taken into account in the calculation.

2) In 2004 Revenue introduced alternative rules regarding the calculation of trivial benefits. A once off pension can be paid if, after taking the maximum retirement lump sum the balance left in the fund is less than €20,000. Benefits from all sources must be taken into account when determining if the fund value after retirement lump sum is less than €20,000. The fund value is payable as a once off pension and is therefore subject to PAYE as would apply to a normal pension payment.


Steven 
www.bluewaterfp.ie


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## onekeano (16 Feb 2017)

Gordon Gekko said:


> How old are you?



57...


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## Gordon Gekko (16 Feb 2017)

Hi Steven,

Shouldn't he just bounce it into a PRB, take 25% tax-free and park the balance in an AMRF?

The broker who's spoofing about more work and a €1,500 fee should be just kicked to the kerb.


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## Steven Barrett (16 Feb 2017)

The trivial pension rule doesn't apply to him so it's his only route if he wants cash now. There's no need for him to bounce it into a PRB either, he can do it within the scheme and transfer the 75% remainder straight into the AMRF. 

Having a decent retirement is an expensive business, so unless he really needs the money, I think he should look at keeping it in a pension structure until he retires. If it grows, that 25% tax free amount will grow too. 


Steven 
www.bluewaterfp.ie


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## Gordon Gekko (16 Feb 2017)

I agree


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## onekeano (16 Feb 2017)

Thanks guys ... I'm thinking taking 25% would give c. €8k cash now and moving the rest to an AMRF @ 4% (think it's 4%...) would give <€1k p.a. 

At present I'm considering a buy to let with a colleague over 10 years so, if I was about to reduce my borrowings by 25k (@ say a rate of 5%) that might make more sense 

Gordon - you reckon the €1,500 quote is OTT?


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## onekeano (16 Feb 2017)

SBarrett said:


> The trivial pension rule doesn't apply to him so it's his only route if he wants cash now. There's no need for him to bounce it into a PRB either, he can do it within the scheme and transfer the 75% remainder straight into the AMRF.
> 
> Having a decent retirement is an expensive business, so unless he really needs the money, I think he should look at keeping it in a pension structure until he retires. If it grows, that 25% tax free amount will grow too.
> 
> ...



Steven - I understand the point about pensions being expensive and last time I checked annuities were running at about €3k per €100k. I do have an interest in a couple of buy to lets which would be on top of the €400k fund with my employer..... I guess I'm just thinking if €25k in the hand (to invest elsewhere eg. another BTL) would be more effective than the potential growth of €31k?

Thanks for the advice so far...


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## Steven Barrett (17 Feb 2017)

But you can't get €25k into the hand because your don't qualify for a trivial pension. 

The €1,500 is certainly expensive seeing as you are getting incorrect advice. 


Steven 
www.bluewaterfp.ie


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