Change of mind on retirement gratuity

Sorry, it took a while to get the relevant paragraph.

The maximum lump sum allowed from a retirement benefits scheme was set at 3/80ths of salary for each year of service to a maximum of 40 years service (ie 1.5 times salary) as a condition of the scheme receiving Revenue approval under the Finance Act 1972 (Chapter II, Part 15 (3) (f).
 
Just curious - where's that extract from? Something on the Pensions Board website or something?
 
AFAIK, (in the case of my DB scheme), you can commute years into cash up to 25pc at the rate of €9: €1. Assumed this was a general Revenue rule ( and I think it is) if the particular DB scheme allows for it. Surprised at Deckat's comment. Can anyone clear this up please. Thanks
K
 
Hello again,

I looked up the Act itself to get the details of the paragraph. A more accessible source is Chapter 7 of the Revenue Pension manual which sets out maximum lump sum benefits and commutation under approved schemes.

Having said that, if your benefits are based on n/60ths for pension and 3n/80ths for lump sum, where n is years of service, and you use a commutation factor of 9:1, you are effectively giving up 25% of your pension for the lump sum.
 
"I didn't ask how much his gratuity was as he didn't offer that information.

However, I understood that the pension he would have given up was about 10% of the gratuity amount. He has been with his employer for over 30 years and would be mid-management level. I'd reckon his gratuity would have been in excess of €100k. He is 65 year old.

There are pros and cons to each option. Personally, I'd take the gratuity....and yes, I've done the figures."

Friday,
Are you making this up as you go along ? You either know or you do'nt know. No guessing ,please.

Anyway , if as you say, you've done the figures, based on what is above , which may be right or wrong, le'ts have your figures then.

Rgds
Billo
 
My original query was not about the right or wrongs of taking a retirement gratuity over pension. The question was simply whether a person at retirement could change his/her mind on the retirement benefit they had originally chosen.

Anyhow, in response to your question here are my very basic figures:

A: 100k tax free
or
B: 10k pa subject to income tax at 42% plus 2% PRSI.

At 3% pa yield and drawing down an income of 5600 pa (10k net of tax/PRSI) the 100k will maintain the income for 25 years (i.e. until he is 90).

At a 5% yield there will still be over 60k in the account after 25 years.

And for balance, at a 2% yield the income will run out after 22 years.
 
Why is your tax rate 42% ? Is the person already in receipt of a pensions which brings him above the standard rate band (32,000 for a single person, 41,000 for a couple) ?

And to answer the original question, I think you will have to read the scheme rules and discuss with the trustees who are ultimately the only ones capable of deciding on the question.
 
Yes, he would be taxed at 42%.

Following your earlier reply I told him he should directly approach the trustees of his scheme.
 
I have a defined benefit pension which if I stay in my current employment until 63 will pay a defined benefit pension of 40/60. In addition I pay into an AVC. If I decide to take my full pension of 40/60 and no lump sum from DB scheme would I still be entiltled to take a lump sum of 1.5 times last years earnings(or average of last 3 yrs) from the AVC . What then would my options be in relation to the balance of the AVC funds ?
 
I have a defined benefit pension which if I stay in my current employment until 63 will pay a defined benefit pension of 40/60.
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Are you sure. Most schemes deduct the state pension. Also bear in mind that revenue allow you take 40/60 of final salary (P60) which includes BIK, Notional Pay etc. Most pension schemes allow final salary which excludes BIK, Notional Pay. If your pension allows for 40/60 of final salary without deduction of state pension and you intend to work till 63 + then you need to consider your AVC contributions.

If I decide to take my full pension of 40/60 and no lump sum from DB scheme would I still be entiltled to take a lump sum of 1.5 times last years earnings(or average of last 3 yrs) from the AVC
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Yes subject to above and total pension of 40/60. By taking the lump sum you are giving up a part of your annual salary. Schemes differ and you need to check this out (for every 12 euro taken in lump sum your annual pension is reduced by 1 euro pre annum)

If you overpay into your pension using AVC then you could be funding your company pension. The trustees take control of your pension incl AVC and administer it accourding to revenue rules of max pension of 40/60. If your pension and AVCs exceed this 40/60's then you do not get the benefit of the increase the pension scheme does.

You need to be very careful.

You could retire earlier to avail of the increased amount in the AVC.
Hope this makes sense. If not, let me know and I'll try and explain by way of example
 
Thks for your prompt reply. The DB scheme does not reduce the pension by state pension which makes it very attractive. I have no adjustments to my salary. I had started the AVC with a view to taking a tax free lump sum from this fund and also the max pension of 40/60 from DB scheme.I had done this on advice of the promoters of the AVC scheme. I am now concerned that if I take the maximum pension this would prevent me from taking any tax free lump sum. Would I have an option to transfer the AVC fund to an ARF and if I then took the reduced DB pension and lump sum from DB scheme I could use ARF to fund difference ?
 
I had started the AVC with a view to taking a tax free lump sum from this fund and also the max pension of 40/60 from DB scheme.I had done this on advice of the promoters of the AVC scheme
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The max pension allowed by revenue is 40/60. If you take a lump sum your pension is reduced by a certain amount seen figures from 9 to 13 to 1 (for every 9 euro taken as a lump sum your pension is reduced by 1 euro

If your salary is 60,000
Pension 40/60 40,000

if you take a lump sum of 1.5 times salary 90,000
Annual pension is reduced by 9,000 to 31,000 (assuming 10 to 1 ratio)

I had done this on advice of the promoters of the AVC scheme
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I don't think this is correct. Ask the promoter what is the position bearing in mind the max pension allowed by revenue is 40/60 incl lump sum and commuting part of your pension. I would be very interested to hear his reply. Ask for proof, quote from revenue or pensions board.

I am now concerned that if I take the maximum pension this would prevent me from taking any tax free lump sum.
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I would be to. That is my point.

Would I have an option to transfer the AVC fund to an ARF and if I then took the reduced DB pension and lump sum from DB scheme I could use ARF to fund difference ?
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AFAIA No, the pension fund normally buys a ARF which includes the employers share and the employees share - AVC's in your case. Since your employer is providing enough to buy a pension worth 40/60 less 1.5 times salary if taken, any amount provided by you by AVC means in effect that your employer pays less
 
I will put these queries in writing to both the DB benefit administrators and AVC co and see what their take on it is. In the meantime I would be better to cease payments to AVC as this may not provide any benefits. I wonder could I transfer the current value of the AVC to the DB scheme to purchase additional years service which I was going to do anyway ?
 
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