N
newcarneeded
Guest
I'm studying for accounting exams and have a pensions question which i hope one of the learned frequent posters would be able to answer! It's the tax paper but my question is geared at the pension options to a proprietary director.
Scenario:
A Proprietary director (100% shareholding with 25 years service in that capacity). As part of tax planning he wishes to plan for his retirement and set up a corporate pension scheme.
At retirement he has accumulated a fund of €300k and his average salary in 3 consecutive years of the 10 years preceding retirement was €134k.
Broadly I believe that there are now two options open to him with the proceeds of the fund.
Options for accumulated pension fund:
Option 1: 1.5 times salary
Subject to having 20 years service he can take up to 1.5 times his salary as a tax free lump sum (calculated on an average of any 3 years in the last 10 years prior to retirement.) With the balance of the fund he can buy an annuity. As the annuity will die with him or his spouse it is lost to his estate and for that reason he can choose to go down the AMRF/ARF route in option 2.
Under option 1 the director could take €200k as his tax free lump sum. The balance of €100k can be used to buy an annuity.
Option 2: AMRF/ARF
Alternatively the director can take up to 25% of the fund on retirement tax free and use the balance to put €63.5k into an AMRF with remainder into ARF, or if he has a guaranteed pension of €12.7k per annum there's no requirement for an AMRF and can put the full balance including the €63.5k after the 25% lump sum into an ARF.
Under option 2 his maximum tax free lump sum is €75k. He is also required to have a €12.7k minimum guaranteed income until age 75.
Questions:
Q1: My notes appear to suggest that there is no minimum annual pension income requirement under option 1, wheras there is a minimum annual pension income requirement of €12.7k for the ARF/AMRF route. Is this correct or under the 1.5times salary/lump sum annuity route of option 1 must the director also be able to show he has a €12.7k guaranteed income per annum before he can take a lump sum?
Q2: My notes appear to suggest that he can take up to 1.5 times salary (3 consecutive in 10 rule) irrespective of what percentage this is of the total accumulated fund. In the example above if he takes 1.5 times or €200k of the €300k fund this is 66%, wheras under the ARF/AMRF route he can only take up to 25% of the fund. Is the 1.5 times salary rule in option 1 subject to any maximum % of the total fund at retirement?
Q3. The notes seem to suggest that under the option 1, 1.5 times rule there is no ceiling as to what percentage of his pension pot this consumes nor is there any minimum annual pension income requirement. Taking this at it's limit, if his accumulated pension fund was only €200k he could then take it as a lump sum in it's entirety and have nothing left to purchase an annuity. Is this correct?
Scenario:
A Proprietary director (100% shareholding with 25 years service in that capacity). As part of tax planning he wishes to plan for his retirement and set up a corporate pension scheme.
At retirement he has accumulated a fund of €300k and his average salary in 3 consecutive years of the 10 years preceding retirement was €134k.
Broadly I believe that there are now two options open to him with the proceeds of the fund.
Options for accumulated pension fund:
Option 1: 1.5 times salary
Subject to having 20 years service he can take up to 1.5 times his salary as a tax free lump sum (calculated on an average of any 3 years in the last 10 years prior to retirement.) With the balance of the fund he can buy an annuity. As the annuity will die with him or his spouse it is lost to his estate and for that reason he can choose to go down the AMRF/ARF route in option 2.
Under option 1 the director could take €200k as his tax free lump sum. The balance of €100k can be used to buy an annuity.
Option 2: AMRF/ARF
Alternatively the director can take up to 25% of the fund on retirement tax free and use the balance to put €63.5k into an AMRF with remainder into ARF, or if he has a guaranteed pension of €12.7k per annum there's no requirement for an AMRF and can put the full balance including the €63.5k after the 25% lump sum into an ARF.
Under option 2 his maximum tax free lump sum is €75k. He is also required to have a €12.7k minimum guaranteed income until age 75.
Questions:
Q1: My notes appear to suggest that there is no minimum annual pension income requirement under option 1, wheras there is a minimum annual pension income requirement of €12.7k for the ARF/AMRF route. Is this correct or under the 1.5times salary/lump sum annuity route of option 1 must the director also be able to show he has a €12.7k guaranteed income per annum before he can take a lump sum?
Q2: My notes appear to suggest that he can take up to 1.5 times salary (3 consecutive in 10 rule) irrespective of what percentage this is of the total accumulated fund. In the example above if he takes 1.5 times or €200k of the €300k fund this is 66%, wheras under the ARF/AMRF route he can only take up to 25% of the fund. Is the 1.5 times salary rule in option 1 subject to any maximum % of the total fund at retirement?
Q3. The notes seem to suggest that under the option 1, 1.5 times rule there is no ceiling as to what percentage of his pension pot this consumes nor is there any minimum annual pension income requirement. Taking this at it's limit, if his accumulated pension fund was only €200k he could then take it as a lump sum in it's entirety and have nothing left to purchase an annuity. Is this correct?