Employment pension at age 50 25% tax free 75% taxable possible ?

[BlueHorseShoe]

As per title I have an occupational pension (private sector employer)

I have left employment and wonder if I can cash out the whole pension at age 50 with 25% tax free and 75% taxable

Or would I have to cash it out all taxable

Or is this only possible with ill health?

TLDR Is it possible to cash out occupational pension private sector at age 50 and get any tax relief and pay the tax on the remainder

 

[cally1990]

If you've left your job, you might be able to tap into your pension as early as 50!

there are some things to consider:

You'll need the thumbs up from your employer/trustee.
Your benefits will likely take a hit compared to waiting till normal retirement age.
You gotta be a "deferred member" - basically, you've stopped paying into the scheme after leaving the job.


When it comes to withdrawals:

You can take out as much or as little as you want.
BUT remember, this will impact your future retirement income. Think long-term!

:

First €200k of any lump sum: Tax-free!
Next €300k (€200,001 to €500,000): 20% tax
Anything over €500k: Taxed at your regular income tax rate

The max tax-free lump sum from an occupational pension is 1.5 times your final salary (with some service requirements).

Lump sums - pensionsauthority

Virtually all pension arrangements allow you to take a tax-free lump sum within certain limits at retirement. Most people avail of this option. You may also be able to take an additional lump sum which is taxable. Different rules apply to the amount of cash you can take out of a pension...

pensionsauthority.ie

 

[BlueHorseShoe]

Yes it won’t be as good as gathering more interest in the scheme for the next say 16 years

I left employment I am a deferred member cannot contribute any more

I have a UK (28 years) and Irish state pension (22 years) both currently fully paid up (making voluntary contribs on the UK one since leaving UK) so the long term is covered but I need to get to 66 for those

So you think I can withdraw up to 200k tax free with the Trustees permission ? - but it seems they are only offering 25% with the remainder in an annuity bond on paper

 

[Fortune]

Yes it won’t be as good as gathering more interest in the scheme for the next say 16 years

I left employment I am a deferred member cannot contribute any more

I have a UK (28 years) and Irish state pension (22 years) both currently fully paid up (making voluntary contribs on the UK one since leaving UK) so the long term is covered but I need to get to 66 for those

So you think I can withdraw up to 200k tax free with the Trustees permission ? - but it seems they are only offering 25% with the remainder in an annuity bond on paper

You have two separate routes you can take.

You can have 25% as a lump sum. If this is under 200k, no tax is payable. 20% tax on 200k to 500k. PAYE on anything over 500k.
The balance can then go to an annuity, go to an ARF, or be taken as a taxable lump sum.

The other option is to have you lump sum calculated based on your salary and service. The maximum is 1.5 times salary, but your service does not qualify for this much. The pension scheme administrator will be able to give you the actual figure. If you go for this route, the balance after the lump sum must be used to buy an annuity.

 

[BlueHorseShoe]

You have two separate routes you can take.

You can have 25% as a lump sum. If this is under 200k, no tax is payable. 20% tax on 200k to 500k. PAYE on anything over 500k.
The balance can then go to an annuity, go to an ARF, or be taken as a taxable lump sum.

The other option is to have you lump sum calculated based on your salary and service. The maximum is 1.5 times salary, but your service does not qualify for this much. The pension scheme administrator will be able to give you the actual figure. If you go for this route, the balance after the lump sum must be used to buy an annuity.

I think I would go 25% lump sum tax free and remainder as 75% taxable at age 50 - is there any circumstances or pension scheme rules under which 75% taxable lump sum would not be allowed ? Or is this industry standard - i would guess this should be possible especially if it happens to be my only source of income that year declaring myself retired

 

[Fortune]

I think I would go 25% lump sum tax free and remainder as 75% taxable at age 50 - is there any circumstances or pension scheme rules under which 75% taxable lump sum would not be allowed ? Or is this industry standard - i would guess this should be possible especially if it happens to be my only source of income that year declaring myself retired

The 25% lump sum is on legislation. The balance being available as a taxable lump sum isn't, but it's industry standard (technically the 75% has to go to an ARF, but as the ARF allows a total encashment at any point, the pension providers allow the skipping of the ARF step is a taxed lump sum is chosen when accessing the pension fund).

 

[Dr Strangelove]

I left employment I am a deferred member cannot contribute any more

I have a UK (28 years) and Irish state pension (22 years) both currently fully paid up (making voluntary contribs on the UK one since leaving UK) so the long term is covered but I need to get to 66 for those

I think you are looking at one corner of your finances in isolation while it might make more sense to look at the whole picture.

I’d suggest a money makeover: https://www.askaboutmoney.com/forums/money-makeover.62/

 

[BlueHorseShoe]

The 25% lump sum is on legislation. The balance being available as a taxable lump sum isn't, but it's industry standard (technically the 75% has to go to an ARF, but as the ARF allows a total encashment at any point, the pension providers allow the skipping of the ARF step is a taxed lump sum is chosen when accessing the pension fund).

Thanks so much for the info provided very good to know - my only concern is don’t you have to meet certain criteria aside from just being age 50 for an ARF ? or would this not apply if a taxable sum was requested ? - also the total amount requested would be under 200k

 

[Gordon Gekko]

You’re overcomplicating it and the question has been answered.

For example, if you have €100k, you can take €25k tax free and the other €75k as taxable cash or send it across to an ARF.

 

[LDFerguson]

Depending on your circumstances, size of fund etc., it may not be a good idea to take all of the 75% as taxable lump sum all in one go. If the fund is, say, €200,000 and you take 25% or €50,000 as a tax-free lump sum and the remainder €150,000 as a taxable lump sum, you'll be taxed on the €150,000 as if you earned €150,000, so you'll pay 40% tax + PRSI + USC.

If you have no other income, then it would make more sense to draw the 75% down over a period of years at less than €42,000 per year so you'll only pay 20% tax. This also has the advantage that you'll get another few years' Class S PRSI which counts towards your Irish State Contributory Pension.

 

[BlueHorseShoe]

Ok thanks - such options were not mentioned in any of the documentation only 25% lump sum and an Annuity Bond or ARF

You’re overcomplicating it and the question has been answered.

For example, if you have €100k, you can take €25k tax free and the other €75k as taxable cash or send it across to an ARF.

Ok thanks - I could not find any mention of taking a 75% taxable lump sum anywhere in the documentation or online - everywhere it mentioned 25% and an ARF or Annuity Bond - I probably do not qualify for an ARF at age 50 if I have no other income at the time and the Annuity Bond is not desirable

 

[LDFerguson]

Ok thanks - such options were not mentioned in any of the documentation only 25% lump sum and an Annuity Bond or ARF

Ok thanks - I could not find any mention of taking a 75% taxable lump sum anywhere in the documentation or online - everywhere it mentioned 25% and an ARF or Annuity Bond - I probably do not qualify for an ARF at age 50 if I have no other income at the time and the Annuity Bond is not desirable

You can start an ARF at 50 if you want to. There's no minimum qualifying income at that time.

 

[BlueHorseShoe]

Depending on your circumstances, size of fund etc., it may not be a good idea to take all of the 75% as taxable lump sum all in one go. If the fund is, say, €200,000 and you take 25% or €50,000 as a tax-free lump sum and the remainder €150,000 as a taxable lump sum, you'll be taxed on the €150,000 as if you earned €150,000, so you'll pay 40% tax + PRSI + USC.

If you have no other income, then it would make more sense to draw the 75% down over a period of years at less than €42,000 per year so you'll only pay 20% tax. This also has the advantage that you'll get another few years' Class S PRSI which counts towards your Irish State Contributory Pension.

Yes makes sense to amortise it if it big - in my case Its 50k so 12.5k lump sum tax free and 37.5k taxable (also annuity bond is pointless) - there is not likely to be any other income that year (except savings interest and CGT from share dealing) - I paid in 2 look back AVCs just before leaving the company got 2 tax rebates and will be 50 in a few years time - all in I put in 19k total with my own contributions after AVC tax rebates and between the employer contributions and investment returns assuming I can cash the whole thing out should get about 42k after tax - so more than double the money in a few years basically - almost like a redundancy payment too - I have 2 state pensions 28 year UK one (voluntary contributions) and 22 year Irish state pension but naturally thats a long way off

 

[BlueHorseShoe]

You can start an ARF at 50 if you want to. There's no minimum qualifying income at that time.

I just want to cash out the whole pension - I guess if this is done via an ARF without any criteria needed other than age or the pension provider skips the ARF step if taxable lump sum is requested (as indicated by user Fortune) then thats great

 

[Gordon Gekko]

I just want to cash out the whole pension - I guess if this is done via an ARF without any criteria needed other than age or the pension provider skips the ARF step if taxable lump sum is requested (as indicated by user Fortune) then thats great

Why?

Do you need the cash?

 

[Fortune]

Thanks so much for the info provided very good to know - my only concern is don’t you have to meet certain criteria aside from just being age 50 for an ARF ? or would this not apply if a taxable sum was requested ? - also the total amount requested would be under 200k

You just need to be 50 and not in the employment relating to the pension. You need the trustees to sign off on it, but as it's a DC scheme this is just a formality.

 

[BlueHorseShoe]

Why?

Do you need the cash?

No its just a good return on investment - I've worked out that I am getting essentially 29% return a year by investing in the pension largely a result of the tax rebate for 2 AVCs I made in Oct 2023 and Jan 2024 but also includes 6 months of EE and ER contribs (3 initial months auto enrolled and 3 final months I reenrolled) plus about 3 years investment interest and then a 25% tax free lump sum and also it being only source of income at 50 with tax credits and lower rate of tax for the remaining 75% - I mean it wont be the only source there will be savings interest and shares but those are taxed by DIRT and CGT separately

 

[micheller]

Apologies slightly off topic on a point earlier, someone mentioned 'This also has the advantage that you'll get another few years' Class S PRSI which counts towards your Irish State Contributory Pension.'

Does this mean that if I have 2 occupational pensions and I would like to retire early say 60, and use one for 25%+75% arf in drawdown until state pension...that it will fulfill the prsi requirements for contributions to state pension and I wouldn't have to make the minimum prsi contribution yearly instead?