# Pension & Redundancy



## Bedlam (20 Aug 2007)

Where you are offered as part of a redundancy package the option to take the pension lump sum (which at retirement is tax free) and would be taxed now. The amount is €15,000 before tax. From peoples experience are you better off taking it now and paying the tax or leaving it until retirement age and taking it tax free?

Any feedback comments appreciated


Thanks


Bedlam


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## ClubMan (20 Aug 2007)

Not all pension savings are tax free. Usually up to 25% can be taken as a lump sum payment but any other pension income will be assessable for income tax. However for high rate taxpayers there probably still is a significant tax advantage in taking a lump sum as a pension topup rather than as cash all other things being equal (e.g. not needing the money for other purposes now/imminently, needing to top up the pension etc.). Probably one to get independent, professional advice on from somebody who can judge the options in the context of your overall financial/personal circumstances.


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## South (20 Aug 2007)

Bedlam said:


> Where you are offered as part of a redundancy package the option to take the pension lump sum (which at retirement is tax free) and would be taxed now. The amount is €15,000 before tax. From peoples experience are you better off taking it now and paying the tax or leaving it until retirement age and taking it tax free?
> 
> Any feedback comments appreciated
> 
> ...


 
What you are usually offered is the choice between a higher tax-free lump-sum (i.e. more of your redundancy payment in tax-free form) now by waiving your right to tax-free cash from the pension later...the situation you have described seems unlikely.

In this case it depends on the size of your redundancy payment and the size of your tax-free amount from the company pension plan (which would not be 25% of the fund, it would be a % of salary at date of redundancy).


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## Bedlam (20 Aug 2007)

Many thanks for the prompt replies.

I have been told that to take it now would result in me paying tax in that regard I have been told that 15,000 of the redundancy would be the pension lump sum and that after tax this would net down to 4500. which strikes me as being high.


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## South (20 Aug 2007)

Seems extremely odd...without knowing more details it is impossible to comment, would need your salary & company service & the present value of tax-free lump-sum from the pension plan.


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## Bedlam (20 Aug 2007)

Salary is 50,000, 19 years service and 15,000 is the present value


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## South (20 Aug 2007)

And how is the redundancy payment being calculated, is it Statutory or are you getting something better?

How much is the redundancy payment?

Are you using the basic exemption OR increased exemption OR SCSB exemption?


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## Bedlam (20 Aug 2007)

I am getting a bit confused, reading the TAB Moneyguide it says under redundancy that a lump sum payment fom an approved pension scheme is totally exempt from tax, but excluding a refund of an employees contributions to that pension scheme?


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## ClubMan (20 Aug 2007)

Does the _Revenue _guide help at all?

[broken link removed]


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## South (20 Aug 2007)

There are two things here:


You have a redundancy payment
You have a pension scheme that will eventually yield a tax-free lump-sum and a pension
You can increase the tax-free part of the redundancy payment by foregoing any tax-free lump-sum from the pension scheme (it will still be yours but you won't get it in lump-sum form).

Whether or not it makes sense to sacrifice the pension lump-sum to boost the tax-free part from redundancy is a personal decision but certainly should not be done unless it will boost the tax-free part from redundancy by as much as you are not going to get tax-free from the pension.

I hope this makes sense!!


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## Bedlam (20 Aug 2007)

South & Clubman,

Thank you both for you input I am clearer now in my mind

Bedlam


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## South (20 Aug 2007)

You're welcome (to Bedlam!) - and good luck with your decision.


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## muesli (9 Feb 2008)

South said:


> Whether or not it makes sense to sacrifice the pension lump-sum to boost the tax-free part from redundancy is a personal decision but certainly should not be done unless it will boost the tax-free part from redundancy by as much as you are not going to get tax-free from the pension.



I am being being made redundant also and face this question.
I am in my early 30s so nowhere near retirement age.

My tax-free lump sum is 2.5K.

If I decide to keep this lump sum in place, I am faced with paying tax on 5K, so 2k. 

Some questions:
[1] How is the lump sum figure calculated ? Is it a % of the employers contribution to the fund or a % of the overall value of the fund ?
[2] Just to get it clear in my head, it is in my best interests NOT to use the tax free lump sum now to increase my limits as this tax-free lump sum figure will (hopefully) grow (as the pension grows) in the next 30 years ?
[3] If I join a new Pension scheme in a new employers, has the fact that I did or didn't exercise this lump sum in a previous Pension scheme be of any consequence ?

Many thanks for any replies


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