Drawing down small pension early- do I need a Broker or Financial Advisor

H

Hilda2021

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I have a small pension (compared to whats being mention here) of almost €90k that is currently in a Defined Contribution Scheme from my previous Employer. I would like to get access to some of it to try clear down some of my mortgage balance to reduce monthly repayments.

I understand that there is a requirement to put €63.5k in to an AMRF so I will be left approx €25k.

Can I drawdown all the €25k in one go and pay tax/ prsi/usc on it as I had waived the tax free lump sum when I was made redundant a number of years ago? If so who do I need to do this for me and roughly how much fees or hidden costs I haven't factored in would I be looking at?

Then with the €63.5k I intend to invest in something that will give me maybe a 2-3% return. I understand there is the option to drawdown a max of 4% a year from this, I'm presuming this is on the profit (if any) and that I would need to keep the €63.5k, is this correct? Again is it a broker or should I contact Zurich etc myself.

A few things that may be relevant, I'm on Social Welfare Disability Allowance and due to health reasons it will be the case probably up to government retirement age. I know it probably doesn't make sense to some to start drawing my pension at 52 but my mortgage is crippling me so anything to help reduce it down is something I need to consider, my current interest rate is 2.8%

I would appreciate any feedback/guidance thanks
 
Hi Hilda2021,

How long were you with that previous employer?

It might be possible to get access to a tax-free lump sum again.

Gordon
 
Gordon Gekko said:
Hi Hilda2021,

How long were you with that previous employer?

It might be possible to get access to a tax-free lump sum again.

Gordon
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Hi Gordon thanks I was in the pension scheme for 10 years, worked there for 14 and finished in 2008.
 
That’s great Hilda2021.

On that basis, and subject to you paying around €1,200 for what’s called a “Certificate of Benefit Comparison”, you could transfer your pension from the DC scheme to a PRSA.

That would ‘wipe the slate clean’ so to speak in terms of you previously waiving your right to a tax-free lump sum. On that basis, you could withdraw the following;

- €22,500 tax-free (your 25% lump sum)

- €63,500 would go into the AMRF, from which you could withdraw 4% (of the whole lot to answer your question), i.e. €2,540; given that we’re almost in October and these things take a few weeks to get over the line, you could get around €2,500 this side of Christmas and the same again in January, mindful of the fact that withdrawals obviously reduce that 4% number. This should be pretty tax-efficient as it sounds like your income is relatively low anyway

- €4,000 into the ARF which you could take out immediately (subject to tax); as above, my sense is that your tax liability should be low enough

Perhaps you could share details of the broader issue in relation to the mortgage and your income? People might be able to provide additional advice.

Regards,

Gordon
 
Gordon Gekko said:
That’s great Hilda2021.

On that basis, and subject to you paying around €1,200 for what’s called a “Certificate of Benefit Comparison”, you could transfer your pension from the DC scheme to a PRSA.

That would ‘wipe the slate clean’ so to speak in terms of you previously waiving your right to a tax-free lump sum. On that basis, you could withdraw the following;

- €22,500 tax-free (your 25% lump sum)

- €63,500 would go into the AMRF, from which you could withdraw 4%, i.e. €2,540; given that we’re almost in October and these things take a few weeks to get over the line, you could get around €2,500 this side of Christmas and the same again in January. This should be pretty tax-efficient as it sounds like your income is relatively low anyway

- €4,000 into the ARF which you could take out immediately (subject to tax); as above, my sense is that your tax liability should be low enough

Regards,

Gordon
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Hi Gordan,

I appreciate your detailed reply it will be of great use to me, I had no idea I could do that, it will make a huge difference to me. Will I need a broker to do all this for me?
 
Hilda2021 said:
Hi Gordan,

I appreciate your detailed reply it will be of great use to me, I had no idea I could do that, it will make a huge difference to me. Will I need a broker to do all this for me?
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I think so, yes. There are some decent brokers who contribute to this site, for example Steven Barrett. I don’t know them, but I like the cut of their jib.

Delighted to help.

PS, if paying the €1,200(ish) upfront is an issue, some actuaries will wait for payment for the Certificate of Benefit Comparison (COBC) until after you get your pension money. I have also seen some actuaries getting paid from the pension pot.

The COBC process is a complete racket but a necessary evil as things stand for anyone looking to move from a scheme that isn’t winding-up to a PRSA.

It’s rumoured to be for the chop in the next Budget/Finance Act. That may or may not happen though, plus the PRSA jiggery-pokery that I’ve set-out above might also get canned in the next Budget, and that’s of more importance to you right now. So personally I’d be inclined to kick-on if I was you.
 
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Gordon Gekko said:
I think so, yes. There are some decent brokers who contribute to this site, for example Steven Barrett. I don’t know them, but I like the cut of their jib.

Delighted to help.

PS, if paying the €1,200(ish) upfront is an issue, some actuaries will wait for payment for the Certificate of Benefit Comparison (COBC) until after you get your pension money. I have also seen some actuaries getting paid from the pension pot.

The COBC process is a complete racket but a necessary evil as things stand for anyone looking to move from a scheme that isn’t winding-up to a PRSA.

It’s rumoured to be for the chop in the next Budget/Finance Act. That may or may not happen though, plus the PRSA jiggery-pokery that I’ve set-out above might also get canned in the next Budget, and that’s of more importance to you right now. So personally I’d be inclined to kick-on if I was you.
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Thank you so much for all your advice and help. I will look into it sooner than later, this will make a massive difference especially the COBC which I wasn't aware of at all. Many thanks again
 
Delighted to hear that and glad to help. Feel free to reach out if you need any further guidance and best of luck with everything.
 
This shows the importance of getting good financial advise. When you take a redundancy payment you irrevocably your rights to tax free cash .By transferring to be a prsa you are entitled to 25% tax free but potentially you are exposing yourself to revenue reviewing the taxation of redundancy payment and clawing back tax relief and imposing penalties . A lot of people will say this is not happening in practice but I personally would not take risk . Interested to hear advise of financial brokers however
 
Realcork said:
This shows the importance of getting good financial advise. When you take a redundancy payment you irrevocably your rights to tax free cash .By transferring to be a prsa you are entitled to 25% tax free but potentially you are exposing yourself to revenue reviewing the taxation of redundancy payment and clawing back tax relief and imposing penalties . A lot of people will say this is not happening in practice but I personally would not take risk . Interested to hear advise of financial brokers however
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This is wildly inaccurate and has no technical basis at all.

We’re not talking about financial advice either…this is a tax issue.

There is no need at all to alarm the OP with vague references to non-existent Revenue practices; that’s just innuendo.

What you are suggesting has never happened because it can’t.
 
Thanks for clarification Gordon ,

I was previously advised that this was a potential issue but I don’t profess to be an expert and is why I asked for an expert opinion
 
Hi, back looking for further clarification please if anyone can help. So after taking longer than expected I contacted a broker, at this stage we discussed the options available so I can have access to the funds at a marginal rate over the next 3 years.

However I have received my documents from Zurich and it shows my money has been included in prsima3 (as agreed) but it also states that there are early redemption penalties if withdrawn within the first 5 years, being 5% for this year. While I don't remember being advised of this is there anyone that can confirm if this would be normal and is the 5% based on the total value of your investment or the amount I drawdown for this year.

I was hoping to use the funds to try clear down my outstanding mortgage balance substantially over the next few years so every euro I can avoid paying in penalties is important to me. Thanks in advance.
 
Apologies if it’s already been mentioned, but the AMRF requirement is obviously gone since I posted the guidance earlier in the thread.
 
Gordon Gekko said:
Apologies if it’s already been mentioned, but the AMRF requirement is obviously gone since I posted the guidance earlier in the thread.
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Thanks Gordon, yes I had read it on another post you had posted on, thats a welcome change too, thanks again.
 
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