Early Pension Withdrawal Question

P

pen_q1975

Registered User
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10
Hello,
I want to take the lump sum from an old pension next year as I will be 50. This will mean I am debt-free apart from mortgage. Single PAYE worker (~90k) with a current pension from employer and also have another pension (~200k) from a different employer which I don't plan to touch until retirement.
I was surprised to find the old pension is now worth 115k (I was expecting about 80k) so it was a nice surprise! Tax free lump sum therefore ~28k leaving 86k to set up annuity/ARF. Snag is that I will have to drawdown 4% in 11 years and I expect to still be working so it will be taxed at 52%.

From age 50 I can put 15% of salary into pension and it will be matched by my employer. If I take the 86k out and it is taxed at 52% that leaves me with 41k. If I siphon this 41k back into current pension at 15% of salary per month, I have done rough calculations that in 3.5 years I will have recieved the 45k that I have paid in tax on the lump sum back from my employer. I can't afford to put the 15% in at the moment, I am currently putting in 8% per month.

Does this sound right? I know it depends on keeping my job etc.

e.g. say 15% is 1000 for this calculation
pension contribution monthly = 1000 + 1000 (employer) = 2000
top up of salary of 10% from 41k lump sum monthly less 40% tax relief = 600
it will take 8 years to clear the 41k taxed lump sum @600 pm
By then company will have contributed ~96k
total pension ~190k (not counting compounding)

does this make more sense than putting the taxable lump sum into an ARF?

Thanks
 
What type of pension is it? If it's a PRSA or can be moved to one then maybe a vested PRSA rather than an ARF would be an option avoiding (as far as I know) the mandatory 4% drawdown at age 61?

 
yes PRSA (I think! don't know a lot about pensions, trying to learn so I can make an informed decision)
 
Is taking some of your pension benefits so early really the best way to deal with your debts?

Maybe you should do a Money Makeover?

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Do you need the full €28K? If not then you could maybe split the PRSA so that you take and park a smaller amount.
 
I need about 20k. I can put the 8K back into pension as an AVC for 2024.

I'd rather not do a moneymakeover thanks. I want to take out the lump sum and thats that. I don't see why this is an issue. Its my money. There are loads of things I spend money on that probably others would never understand, but its my life I work hard have my own home and no human dependents!

The only question I want answered really:

does it make sence to siphon the taxed lump sum back into pension as my employer will match my 15% contribution

or
do I set up an ARF and have to withdraw 4% from age 61 taxed at 52%
 
Other posters are correct it doesn't make sense to put part of tax free lump sum back into pension .

However if you don't have free money to max out your pension now it may make sense to take a regular income from ARF and direct extra monies to pension.

Based on your age you can contribute 30% of your salary to pension. The extra money from ARF can supplement this increased contribution
 
So you're taking a tax hit of €45k (€86k-€41k) on the present day value of the previous pension to gain 'free' matching Employer contributions for the €41k over the coming few years. Straight away you're down €4k as it'll cost you €45k in Tax to gain €41k in Employer Contributions.

I'd put the balance of the €8k from the TFLS into the 2024 / 2025 pensions by increasing your 8% contribution now if the Employer will match them.
 
its the taxed part I want to siphon back in at a rate of 15% of my salary a month with a 15% employer contribution on top. Not sure if anyone understands my original post, I may not have explained it very well!
 
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