Can I drawdown on my pension before I retire?

[Dave Byrne]

I'm a >50 year old PAYE employee. I have a pension from a previous employer and a private pension from when I was a a contractor as well as a pension with current employer (None are DB).

I need to source funds now, can I draw down on any of my pensions now?

Thanks

 

[Dave Vanian]

Can you say what types of pension product each are, e.g. Occupational Pension Scheme or PRSA for the old and current company schemes? Possibly Buy-Out-Bond (a.k.a. Personal Retirement Bond) for the old employer's one. Personal Pension or PRSA for the private pension? Different rules exist for different types.

 

[tictokboc]

Short answer is Yes, once you are over 50, you can access pensions

 

[Sarenco]

Short answer is Yes, once you are over 50, you can access pensions

Not necessarily true.

It depends on the pension type (and hence Dave’s question).

 

[Dave Byrne]

Both the oldest & current ones are occupational pensions (both I & employer contributed / contributing). Tx

 

[Conan]

Both the oldest & current ones are occupational pensions (both I & employer contributed / contributing). Tx

Well it depends on the individual scheme rules. Some may allow you to access the benefits (retire the benefits) before your Normal Retirement Age. Others may not, unless you are ill or disabled.
So you need to check with your previous employer whether they will allow you access the benefits before the nominated Normal Retirement Age.

 

[Dave Byrne]

Well it depends on the individual scheme rules. Some may allow you to access the benefits (retire the benefits) before your Normal Retirement Age. Others may not, unless you are ill or disabled.
So you need to check with your previous employer whether they will allow you access the benefits before the nominated Normal Retirement Age.

Emailed my previous employer. Let's see what they come back with. I also have a PRSA (from my contracting days). Not sure if there is any avenue there to redeem?

 

[Steven Barrett]

Both the oldest & current ones are occupational pensions (both I & employer contributed / contributing). Tx

Emailed my previous employer. Let's see what they come back with. I also have a PRSA (from my contracting days). Not sure if there is any avenue there to redeem?

If the old one is DC, you most probably can cash it in. I have never come across scheme rules for a DC scheme that didn't allow access to a pension before normal retirement age.

For your current one, you will have to leave the scheme. I strongly advise against this as you will be giving up free future money.

The PRSA, you have to be retired to access the pension before age 60. Seeing as you are obviously still working, you will not be able to access this.


Steven
www.bluewaterfp.ie

 

[Dave Byrne]

So I eventually got in touch with my previous employer's pension administrator. They said that as I'm over 50, I could exit this pension and take up to 25% in cash and put the remainder in either an ARF or Annuity. As I understand it, I can leave the ARF (not a fan of annuities) alone until I actually retire and it will act like a pension in so far as any (market) gains will be tax free.

So to me it seems logical to pull the cash I need now out of the pension rather than borrow the same amount at say 5%. The money I would have needed to pay off the personal loan can be funneled back into my current employers pension to make good the bite I've just taken out of it. What's more, that's me putting my gross salary into the pension, rather than paying off a loan with my net salary.

If I have the above right then the only questions I have is
- Will the ARF gain in value in the same way as the pension was or is it an inferior product in any way?
- If I take, say 15% of my pension in cash, does this impact the amount of cash I can take out of my other pensions when I actually retire?
- Anything else I'm not thinking of?

 

[Dave Vanian]

- Will the ARF gain in value in the same way as the pension was or is it an inferior product in any way?

Yes - you have pretty much the same choice of funds on an ARF as with a pre-retirement pension fund. You don't have to take the ARF with the same provider that currently holds the pension fund unless you want to. And ARF charges are different depending on what sales channel you go to, so shop around for the ARF.

- If I take, say 15% of my pension in cash, does this impact the amount of cash I can take out of my other pensions when I actually retire?

If you can take 25% tax-free now, I'd be inclined to take it. You only get one chance to take tax-free cash out of the fund, so if you pass up the chance to take the full 25% and take 15% instead, the balance goes into your ARF and when you eventually withdraw from the ARF, it's taxable. So take the full 25% now, use the 15% for what you need and recycle the other 10% into a pension fund relating to your current employment, getting tax relief on it.

Maximum you can take out as pension tax-free lump sums in your lifetimes is €200,000. So if you take, for example, €100,000 now as a tax-free lump sum, that eats into your lifetime €200,000 allowance. Let's say you have an entitlement to a €150,000 lump sum from your other pension plans when you retire in the future, the first €100,000 (in this example) will be tax-free. Anything from €200,000 to €500,000 is taxed at 20%.

- Anything else I'm not thinking of?

If you have an ARF then from the tax year you turn 61, you must start drawing an income of at least 4% per year from it, which is taxable (or else face the prospect of being taxed on a notional 4% annual withdrawal).

If you're still working at that time the additional income from the ARF might be taxed at the high rate along with your salary, so you'd lose a chunk of the withdrawals to tax at a time when you might not need to be withdrawing from the ARF at all. This is why it can sometimes be advisable to leave taking your lump sum and setting up the ARF until you've actually retired and your income (and tax rate) has dropped. But if you need the lump sum now, that's also a consideration. Each example needs to be evaluated on its own merits.

 

[Dave Byrne]

Thank you Dave V, this is a great response. I get your point with respect to taking the maximum cash now given anything that goes into the ARF is likely to be subject to tax once the 4% disbursements begin.

Given your responses, maybe you have an opinion on the following

If 25% is more than I currently need, I expect I can take this surplus and put it straight back into my current employers pension by way of an AVC (I'm not currently maxing out my contributions). In fact, if I didn't need the money, but wasn't maxing out my contributions, I wonder would it be beneficial to take the cash out of the old pension and put it into the current one and in doing so, create a 40% tax credit as the contribution would be considered as coming from net income?

With respect to that current pension, do you know if I can take 25% of that once I leave that employment or is this 25% entitlement a one life-time event?

 

[ginslia]

Afaik it’s 25% per pension fund, up to a max of 200k.

 

[Dave Vanian]

If 25% is more than I currently need, I expect I can take this surplus and put it straight back into my current employers pension by way of an AVC (I'm not currently maxing out my contributions). In fact, if I didn't need the money, but wasn't maxing out my contributions, I wonder would it be beneficial to take the cash out of the old pension and put it into the current one and in doing so, create a 40% tax credit as the contribution would be considered as coming from net income?

It makes sense to put any excess tax-free lump sum back into a pension. Assuming you're already paying tax at the 40% rate on your earned income, then you'll get 40% tax relief on any AVCs.

But I wouldn't be cashing in the other 75% of your old pension for this. You'll get hit for 40% tax, PRSI and USC on the withdrawal and then you'll only get the 40% tax relief when you put it back into an AVC.

With respect to that current pension, do you know if I can take 25% of that once I leave that employment or is this 25% entitlement a one life-time event?

Assuming it's a private sector Defined Contribution pension scheme or PRSA then you can take 25% of it also. (If it's a DC scheme, there's a second calculation of the lump sum, based on your salary and service with the company. It might give a better result and you can choose the better result.) Lump sums from all pension schemes are tax-free up to €200,000 in your lifetime and if you exceed €200,000, there's 20% tax on €200,001 to €500,000.

 

[Dave Byrne]

But I wouldn't be cashing in the other 75% of your old pension for this. You'll get hit for 40% tax, PRSI and USC on the withdrawal and then you'll only get the 40% tax relief when you put it back into an AVC.

No, that wasn't my intention. More of a thought exercise for someone in my position who didn't need the money. e.g. an old pension worth 200k, take 50k in cash and put it straight into an existing pension, say 25k in Dec & 25k in Jan and create a tax rebate of 10k for each tax year (assuming they are paying marginal tax). Thanks again