Cashing in very small pension - cant get final figure from pensionnprovider

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Mothergoose

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I have only a small pension from the company I work with - only 5 years pension. I am leaving there and don't want to return. I am 58. I have some assets for pension. If I earned 62k last year - what exit tax do I pay on the 41k, and also how do I get my company pension provider to respond to my query.
 
If I'm reading your query correctly, you have around €41,000 in the pension scheme of your current employer and you're about to leave that employment. When you've left, you can take early retirement from that pension scheme. You'll receive 25% of the fund (around €10,250) as a lump sum, tax-free and if you want you can withdraw the balance (€30,750) as a lump sum also, but you'll pay Income Tax, PRSI and USC on the €30,750 as if you earned it as salary.

Unless you need the cash now, you might be better off deferring the drawdown of this pension until you've actually retired from work so your tax hit on it will be lower.

You say you're "leaving there" which suggests you're leaving around now. If so, there might be a final contribution for September or October to be added to your fund before the administrators can calculate the fund value and send you your options. Usually, administrators will wait until the last month's contribution has been added and then issue what's known as a Leaving Service Options letter which details what your options are. Companies vary but typically it takes 2 or 3 weeks to issue a Leaving Service Options letter after the last contribution has been added.

Regards,

Liam
www.FergA.com
 
Thanks, Liam, that really explains it well. I am unsure re decision to leave. I was going to return to a contract of just 18 hrs per week and would be earning then only 27k per year compared yo 65k - other half of my job is well paid but due to interpersonal issues, it is stressful. The company pension guy advised, when I spoke with him, that I take my pension out and leave, as if I stayed and substantially reduced my salary, the amount I would receive if I decided to leave in a year's time, would be substantially less. How could this be?
 
Mothergoose said:
The company pension guy advised, when I spoke with him, that I take my pension out and leave, as if I stayed and substantially reduced my salary, the amount I would receive if I decided to leave in a year's time, would be substantially less. How could this be?
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Do you know is it a Defined Contribution (DC) Pension scheme - you build up a fund value over time - or a Defined Benefit (DB) pension - you received a fixed amount of pension for each year you work there?

When you mentioned 41k in your first post I assumed it was a DC pension fund with a value of around €41,000.
 
Hi! Liam, yes, it's a defined contribution scheme, so why does it matter if I go down to a much lower salary I terms of withdrawing my contributions at a later date? Will I have to pay 40 per cent tax on it after 25% withdrawal?
 
Your tax rate after retirement will depend on your income after retirement. What is your expected income in retirement?
 
Mothergoose said:
The company pension guy advised, when I spoke with him, that I take my pension out and leave, as if I stayed and substantially reduced my salary, the amount I would receive if I decided to leave in a year's time, would be substantially less. How could this be?
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If it's a Defined Contribution scheme, I don't get what he's talking about at all. Your fund value might go up or down due to market conditions, but none of us can predict that. Other than that, it would benefit you to be on a lower salary.

I'm assuming you've earned over €48,000 in the first 9 months of 2022, so you're already paying higher-rate tax. If you draw your pension this year the taxable amount (roughly €30,000) would also be taxed at the higher rate.

If you go onto €27,000 salary then in 2023 you could draw an additional €13,000 per year and still stay on the lower rate of tax. (I'm ignoring any possible sharing of tax credits etc., between you and your spouse if you have one.) It's possible to draw the taxable amount of your pension fund out over a period of years to achieve this.

Even better, if you don't need the money right now, wait until you've actually retired from work to draw your pension. You might be paying even less tax then if you have no salary.
 
I am reading this with interest as I have an irish pension on a defined contribution status too.. my understanding ( I am not an economic expert particularly on pensions) is that you can withdraw 25% of the lump sum or a multiplier of your current salary tax free when u leave( I am with irish life and that is 1.5 times your leaving salary.. I think you have to have a certain amount kept intact to be able to fund a pension. On your current salary of 62k that might be what he means? If you reduce your hours and are on a lower salary then the multiplier would be lower?
Full disclosure.. I don't know much myself and I find pensions a minefield!! so I am following this thread with interest.
 
sunnywalk said:
I am reading this with interest as I have an irish pension on a defined contribution status too.. my understanding ( I am not an economic expert particularly on pensions) is that you can withdraw 25% of the lump sum or a multiplier of your current salary tax free when u leave( I am with irish life and that is 1.5 times your leaving salary.. I think you have to have a certain amount kept intact to be able to fund a pension. On your current salary of 62k that might be what he means? If you reduce your hours and are on a lower salary then the multiplier would be lower?
Full disclosure.. I don't know much myself and I find pensions a minefield!! so I am following this thread with interest.
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With only 5 years' service, the alternative method you speak of would produce a lump sum of under 19% of salary AND you'd be obliged to use the balance of the fund to buy an annuity - no ARF options. So it doesn't explain what was said to @Mothergoose

A lump sum of 1.5 x final salary by that method of calculation requires a minimum of 20 years' service.

sunnywalk said:
I think you have to have a certain amount kept intact to be able to fund a pension.
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Interestingly, you don't, so if the figures line up nicely for you (typically a modest fund and/or a big salary) you can draw the entire fund out as a tax-free lump sum at retirement. Example, if you have more than 20 years' service, no other pension funds and your pension fund happens to be worth exactly 1.5 times' your salary at retirement, you draw the whole fund out tax-free, assuming it's <€200,000. If you think about it, it's sometimes possible to engineer such an outcome in the years approaching retirement with a bit of planning.
 
Hi! All, thanks for the replies. So is ot worth leaving the meagre pension fund with the company, as I am leaving in the next few months, or wait to take it out at end of Jan 2023 when I will have commenced my 27k salary. Would I then be taking outv25% tax free, and the remainder would be taxed at 20% so I would be getting about 20k. Is this correct?
 
Mothergoose said:
Hi! All, thanks for the replies. So is ot worth leaving the meagre pension fund with the company, as I am leaving in the next few months, or wait to take it out at end of Jan 2023 when I will have commenced my 27k salary. Would I then be taking outv25% tax free, and the remainder would be taxed at 20% so I would be getting about 20k. Is this correct?
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If you have a salary of €27,000 and you take a taxable €30,000 from the pension fund then you'd end up paying some tax at 40% as any income over €40,000 in 2023 will be taxed at the higher rate. It would be more tax efficient to spread the withdrawal of the taxable balance of the pension fund out over a few years to stay in the 20% tax band.

Unless you really need the money, it would be better still to leave the whole lot until you actually retire from all work.
 
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