Key Post My pension pot has reached €800k - should I stop contributing ?

No, if you’ve fund of €1.6m, for example, you can take 25%, €400k, as a lump sum - €200k tax-free, €200k taxed @20%.

Where’s the qualification?
The 1.6m fund is the qualification. I know lots of people including me who until recently thought ig i had 500k in dc fund, I could take 200k tax free and next 300k at20%, lots of close to retirement people at my work thought that. They have db pension and dc fund from avcs. They are just using the avcs for the lump sum.
 
I know lots of people including me who until recently thought ig i had 500k in dc fund, I could take 200k tax free and next 300k at20%
Bear in mind that the €200k tax-free lump sum is aggregated across all pensions, DC and DB. Any lump sum payments over that aggregate amount are taxed @20%.
 
Bear in mind that the €200k tax-free lump sum is aggregated across all pensions, DC and DB. Any lump sum payments over that aggregate amount are taxed @20%.
This is where the confusion comes in. We have db pension and dc fund that our employer contributes 3% to aswell. How is db valued and can I use total value of both funds to take my lump sum % from?
 
Ah, I see the confusion.

Seems strange to me that anybody would think that.
I also thought this in the past and put it down to the loose way it is sometimes described on websites.

Revenue themselves spell it out more carefully:
 
Are you entitled to a lump sum from the DB pension and, if so, what’s the entitlement?
I don't know know, lack of info or knowledge from even pension trustees is startling. All the older lads day pump into avcs to take lump sum and not touch db commutation for lump sum.
 
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I don't know know, lack of info or knowledge from even pension trustees is startling.
Right!

Well, let’s say that you are entitled to a €100k lump sum from the DB scheme and have €800k in the DC scheme.

You can take a €200k lump sum from the DC scheme, €100k tax-free and €100k taxed @20%.
 
Right!

Well, let’s say that you are entitled to a €100k lump sum from the DB scheme and have €800k in the DC scheme.

You can take a €200k lump sum from the DC scheme, €100k tax-free and €100k taxed @20%.
Cheers for info I will ask a few more questions of the trustees.i don't want to lower my db commutation however. I know on my statement it has 2 options, one with lump sum 137k I think and lower income and other option non lump sum and higher weekly income.
1.5times final salary we are entitled to for lump sum.
 
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Apologies about resurrecting old thread but is point 3 on taxable lump sum correct? I thought your lump sum would have to qualify to get 200k tax free and next 300k at 20%, I.e a salary of 333k needed to qualify for whats suggested in point 3.
Point 3 is correct. 25% of the fund can be taken as a lump sum. There is an alternative option that calculated the lump sun based on salary and service.
 
Right!

Well, let’s say that you are entitled to a €100k lump sum from the DB scheme and have €800k in the DC scheme.

You can take a €200k lump sum from the DC scheme, €100k tax-free and €100k taxed @20%.
That's not quite right. The entitlement to a pension lump sum is on a per employment basis, not a per scheme basis. The entitlement is calculated across the two schemes. In this case, assuming the entitlement was calculated to be €300k, you could take the full 300 from the DC scheme.
 
Oh really, how would I get value of my db scheme? If I could say take 25% of total funds of db and dc scheme, I may be able get 200k tax free and good bit over that taxed at 20%. I just thought my option was 1.5 times final salary as my lump sum and take it from dc scheme.
 
Apologies to be annoying but I'm nearly out of questions as forum has been v helpful. Can I combine value of db and dc pension to calculate lumpsum, take 25% and take it all from dc fund to protect my full db commutation?
 
No, if you’ve fund of €1.6m, for example, you can take 25%, €400k, as a lump sum - €200k tax-free, €200k taxed @20%.

Where’s the qualification?
The question was dealing with a fund of €800k, not €1.6m
 
Apologies to be annoying but I'm nearly out of questions as forum has been v helpful. Can I combine value of db and dc pension to calculate lumpsum, take 25% and take it all from dc fund to protect my full db commutation?
My understanding regarding your situation is,
Not public sector.
You have a DB scheme and a DC AVC supplementary with same employment.

You can take lump sum based on salary and service of up to 150% final salary if min 20 years service to a max of 200k tax free.

Usually best to take that cash from the DC AVC and preserve the DB pension (no commutation if you can avoid it).

Use any residue in the DC AVC to buy an ARF or Annuity.


If your main scheme in the employment is DB then the 25% doesn’t factor into it at all.
Unless
You have been in a DB scheme and it has been frozen with no further accrual and replaced by a DC scheme.
In such a case, Revenue will allow by concession the option to take benefits in more than one manner from benefits attached to the same employment.
Which doesn’t seem to be the case in your situation.

I don’t work in financial services and very much open to correction.
 
Cheers, that's great info and yes thats my situation exactly. I'll have take 150% salary so.
 

when you say "Usually best to take that cash from the DC AVC and preserve the DB pension (no commutation if you can avoid it)."
I don't understand this.

Why not take the lump sum from your DB scheme and preserve your DC fund seeing that your DB scheme will die with you whereas your DC fund will pass to your estate?

My DB pension is calculated at 28k at retirement age. I have 300k also in DC funds.
Now, at 58yrs, from DB scheme I can retire on 21k/yr or take 120k TFLS and receive 14k/year. So, if I go this route I'll be down 7k/yr gross after getting 120k tax free. It'll take over 17 years to break even...I'll be 75! In the meantime I'll have my DC fund to draw upon (ARF etc.) preserving it's value less any drawings.

I need help in understanding why it would be better to take the TFLS from DC vs DB scheme.
 
My understanding is that the commutation rate is normally around 9:1
Meaning you forfeit 1 euro of annual pension per 9 euro of lump sum taken.
Would love to hear any confirmation or correction here.

One benefit of having AVC’s can be to avoid this commutation. DB schemes with their guaranteed benefit in retirement are considered to be particularly good value by many.
If a scheme member has a spouse/civil partner the potential benefits have a greater period of benefit as it’s normally a 50% payment for a members surviving spouse.
Granted, 100% of an ARF may be transferred to a surviving partner. Subsequently on to children subject to tax.
If you retain the DC AVC and buy an annuity, you may get a guaranteed period of payment but will it give better value than the DB forfeited ? I don’t know. Suspect not.

I take your point that as with all aspects of personal finance there’s no one size fits all and due advice and consideration needs to be taken. Including other pensions and assets you and your partner may have.

I used the word ‘usually’ as I perceived taking the lump sum from AVC as being what was the norm. I’m delighted you’ve challenged it.

I’m here to improve my knowledge and understanding by taking note of what those more knowledgeable have to say and will be watching this space too.

Thanks.