I left job which I have my previous pension pot with in 2017. I will be 50 in 7 years. Can I use inflation adjustment to increase my remuneration at that stage? Would this allow me to pay a little less tax on the 75% left?
Retiring members of DC employer pension schemes can choose to use their retirement fund to provide retirement benefits in one of two ways:
1. Under the
Traditional Benefit option, the retiree:
- First uses their fund to provide the maximum lump sum Revenue will allow, related to completed service, final remuneration and retained lump sums
AND
-
Must then use the balance, if any, to buy an annuity with a life assurance company, to provide a fixed pension for life.
2. Under the
ARF option, the retiree:
- Can take 25% of the fund as a lump sum (tax free up to €200,000 for all lump sums taken from all pension arrangements),
and
has three options with the balance of the fund (i.e. the 75%):
- Take as a lump sum subject to PAYE
OR
- Transfer to an ARF
OR
- Use to buy an annuity.
It’s possible with the balance to use a mix of these three options.
Seeing as you mentioned "the 75% left", you can see that remuneration is not a variable under the ARF option. The 25% lump sum is by reference to the value of the fund and not anything to do with your previous salary. Same for the balance ("the 75%").
Your previous salary is only relevant if you go for the Traditional Benefit option. In some cases the tax-free lump sum entitlement of a retiring DC scheme member under the traditional benefit option may be higher than the 25% allowed under the ARF option, but the remaining part of the fund under the traditional benefit option must then be used to buy an annuity.
In any event, when you approach the administrators of your pension scheme to access the benefits, you will be presented with the two options. Indexation (or "dynamisation" in Revenue-speak) will factor into the calculation of the Traditional Benefit option.