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.
- 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.
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.
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.