Lump sum enquiry

[Stitcher]

Hi
I retire from work this year aged 66+.
I worked abroad and in Ireland.
The tax free lump sums (TFLS)due on both DB schemes are well below the 200,000 tax free lump sum allowance I read about.
I have a small AVC which I think I can now take fully as a tax free lump sum as all of the sums together are still below the 200,000 threshold.

However, the avc man has said I can only take a proportion of the avc as TFLS as my maximum TFLS is actually limited by what my salary is and the 200,000 is a theoretical maximum.
Is this correct?
Any clarity on this would be much appreciated.

 

[DingDing]

I think it is also limited by 1.5 times final salary and some pensionable allowances you may have. Other posters might be able to give more details.

 

[Ruffian]

As @DingDing says, the max from any DB scheme is 1.5 times pensionable salary (and any pensionable allowances), including any lump sum taken from the AVC. For this max you need a minimum of 20 years service. There is a declining max for shorter service.
See Section 7.2: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-07.pdf

 

[LDFerguson]

It's a popular misconception about the €200,000 limit. The €200,000 limit could perhaps be described as a Tax Free Allowance.

• Maximum tax-free lump sum from a DB scheme is 1.5 x salary (with provisos as per @Ruffian above.)
• If this calculation gives you a lump sum of <€200,000 (and you haven't taken any other pension lump sums) then the lump sum is tax-free. If all lump sums you've taken from pensions in your lifetime are greater than €200,000 then you pay 20% tax on amounts between €200,000 and €500,000.

 

[Stitcher]

Thanks all for replies, am a bit more informed now.
Thanks Ruffian for the link to that document.
Another question.
I worked 18 years in my current post with DB scheme in Ireland so from the table in the document I am only entitled to approx 1.25 times final salary as tax free lump sum :-(
I did work in Ireland (5 or 6 years) before I left to work abroad so would that count towards my years service to bring me up to 1.5 times salary, even though it was not with my current employer? I did not get any pensions or lump sums from those earlier years but did get prsi stamps towards state pension.

And where does my foreign tax free lump sum fit in? It was declared to Revenue 6 years ago when foreign pension kicked in, and it was not taxed.

Thanks again for all the advice.

 

[DingDing]

Just to clarify, I had got a tax free payment from a retirement bond and this was deducted from my 1.5% final salary. This allowed me to make a modest last minute AVC. So I was similar to the OP, the tax free portion of the retirement bond encashment was deducted from my max tax-free lump sum amount.

 

[Ruffian]

I did work in Ireland (5 or 6 years) before I left to work abroad so would that count towards my years service to bring me up to 1.5 times salary, even though it was not with my current employer? I did not get any pensions or lump sums from those earlier years but did get prsi stamps towards state pension.

No. The AVC is linked specifically to your employer's pension scheme. Employment elsewhere doesn't count. An exception would be if you were referring to two different public sector employers with a common public sector pension scheme, but this does not appear to apply in your case.

And where does my foreign tax free lump sum fit in? It was declared to Revenue 6 years ago when foreign pension kicked in, and it was not taxed.

I don't know anything about this. Hopefully someone else will be along to help.

 

[Stitcher]

It seems that my foreign lump sum is OK and is considered separately, outside my current DB lump sum, see screenshot below from revenue.ie. And as long as all lump sums together do not exceed 200,000, no tax is due.
Thanks all

 

[poorrelative]

I worked 18 years in my current post with DB scheme in Ireland so from the table in the document I am only entitled to approx 1.25 times final salary as tax free lump sum :-(

and this 1.25 times assumes that you worked full-time for 18 years

 

[Stitcher]

Interesting.
I actually worked for 19.5 years but had a reduced working week for the last few years which meant i had only approx 18 full year equivalents for prsi and pension calculations.

 

[Ruffian]

i had only approx 18 full year equivalents for prsi and pension calculations.

Yes for pension calculations. But PRSI is not reduced pro rata for part time service. It is based on your pattern of service. You could get 52 contributions for 0.5 service over a year - or it could be less than this depending on how that 0.5 of time was actually served. Plenty of people work part time and get regular weekly PRSI contributions recorded.