Schemes now are often quite happy to pay out to the Rev max. Generally there is a provision to allow this with employer/trustee consent. Depending on the commutation factors it lowers the funding liability for the scheme. So win win.The Revenue rules indicate the maximun that can be taken tax-free. The lump-sum amount that the scheme will pay is determined by the scheme's rules and may well be less than the allowed Revenue maximum. it is unlikely that the scheme can change it rules to allow a higher tax-free sum
Total emoluments over any period of 3 or more years ending within 10 years of the date of retirement or leaving service.
Let me guess. You are dealing with Mercer?My pension provider has only asked me for my last three P.60's in order to recalculate the tax free lump sum available to me.
Thanks for the replies.
My pension provider is basing my tax free lump sum on my stated salary as given to them by my employer.
However, I have had a look at my P60's for the last 3 years of work from back in the year 2000.
My salary for my last year of work is completely different to the previous 3 years. It is only coming in at about half of the previous 3 years.
My pension provider has only asked me for my last three P.60's in order to recalculate the tax free lump sum available to me. I assume that I can choose any three P60's over a 10 year period? As my salary was based on performance related pay I would have received different amounts over different years.
I am trying to maximise the tax free lump sum that is available to me
I understand that I can also claim for B.I.K, to be taken in to consideration. On top of my basic salary I note that I paid about €5k in B.I.K.
Is B.I.K shown on a P60? Where do I get this information from?
Let me guess. You are dealing with Mercer?
It would be fairly unusual for a DB scheme not to allow members to take up to the Revenue maximum lump sum. However, some schemes limit the amount of pension that can be exchanged for a lump sum to something less than Revenue maximum, either by only allowing a strict 3/80ths per year of service or by excluding some elements of remuneration from the lump sum calculation. Having said this, most of these schemes allow members who have paid AVCs to use these AVCs to bridge the gap between the maximum permitted commutation and the Revenue maximum lump sum.
For Revenue maximum purposes, final remuneration can be calculated in one of three ways.
Total emoluments can include any taxable pay or benefits such as company cars, medical insurance, bonus, overtime, etc. and can also include the value of shares provided under an approved profit sharing scheme and the value of tax free commuter tickets.
- Basic annual salary at date of retirement or leaving service plus the average of fluctuating emoluments over the previous 3 years or longer.
- Basic annual salary in any one of the 5 years preceding date of retirement or leaving service plus the average of fluctuating emoluments over a period of 3 years or longer ending on the last day of the year used to determine basic annual salary.
- Total emoluments over any period of 3 or more years ending within 10 years of the date of retirement or leaving service.
Where earnings are calculated over a period not coinciding with the member's date of leaving service or retirement, they can be adjusted in line with inflation over the intervening period.
As you can see from the above, the calculation of final remuneration for the purposes of determining Revenue limits is quite complicated and it's quite possible that the plan administrators may not be prepared to explore all options in order to arrive at the maximum possible figure.
For someone retiring at normal retirement age with 20 or more years service, the maximum permitted lump sum is the greater of (a) 3/80ths of final remuneration for each year of service (subject to a maximum of 40 years) or (b) 1.5 times final remuneration minus any retained lump sum benefits from previous employment or periods of self employment. A sliding scale applies to members with less than 20 years service.
Where a member leaves service before normal retirement age, the maximum lump sum at retirement is scaled back on a pro rata basis (i.e. you calculate the maximum lump sum based on potential service to normal retirement age and then multiply this by the ratio of completed service to potential service). Where benefits are drawn prior to normal retirement age by someone who has completed less than 20 years service with the employer, the sliding scale is also applied if this gives a lower result.
Of course, all of this may be TMI for the OP. If the main purpose of the question was to determine what salary figure would be used to determine his or her basic entitlement under the DB scheme, the answer is that it depends on the rules of the scheme, but is unlikely to include anything other than basic pay and quite likely to include an offset for the State pension. The scheme booklet should clarify the position in this regard and the member is also entitled to access the formal scheme rules on application to the trustees.
Thanks for that.Remuneration can be defined as total of basic pay plus overtime payments, bonuses, commissions, fees, etc assessed to tax under the PAYE system (i.e. Schedule E), including the value of any benefit-in-kind. In determining “Final Remuneration” for maximum allowable benefits purposes, the Revenue will allow the use of any one of three different definitions, provided you are not a ‘20% Director’ (in which case Definition 2 must be used).
Definition 1.
Basic salary over any twelve month period in the five years before retirement, plus
the average of any fluctuating emoluments (commission, bonuses, benefit-in-kind, etc.), over three or more consecutive years, ending on the last day of the twelve month period chosen.
Definition 2.
The average of total emoluments (income taxed under Schedule E) for any
three or more consecutive years, ending not earlier than ten years before retirement.
Definition 3.
The rate of basic pay at retirement, or at any date within the year ending on the
retirement date, plus the average of any fluctuating emoluments (commission, bonuses, benefit-in-kind, etc.) over three or more consecutive years, ending on the day used to determine.
(For Definition 1. It is not necessary that the 12 month period is a calender year.)
Just to note that overtime, etc, is not pensionable in the PS main scheme. This non-pensionable pay can be used in terms of Revenue rules, ie, to "top up" the main scheme pension benefits from an AVC pot.Thats the reason you see so many public sector workers doing as much overtime, night duties and weekends as possible in the final three years of employment.
Thanks I am aware of that. I am looking to make the most of my AVC and maximise the TFLS element.Just to note that overtime, etc, is not pensionable in the PS main scheme. This non-pensionable pay can be used in terms of Revenue rules, ie, to "top up" the main scheme pension benefits from an AVC pot.
Remuneration can be defined as total of basic pay plus overtime payments, bonuses, commissions, fees, etc assessed to tax under the PAYE system (i.e. Schedule E), including the value of any benefit-in-kind.