Hello everybody. I was recently made redundant and am now reviewing my finances. I’m 56 years old and paid into a Defined Contribution occupational pension with the same employer for 24 years.
I’m deciding what to do with that pension but I’m not entirely clear about calculation of the tax free lump sum which I can take. I understand that I can take 25% of the current pension fund value tax free and then use the remainder to purchase an ARF or annuity (or just take it as cash, in which case it would be treated as taxable income at the higher rate). 25% is well below the €200k upper limit, so that doesn’t apply in my case.
Looking around, I also see references to 1.5 times final annual earnings as an option for the lump sum. Since I’ve not yet reached the NRA of 65, it seems that this 1.5 factor might be reduced pro-rata, using “Actual years of service”/”Years of service if working to NRA”. Even with this derating factor, the resultant lump sum would still be more than 25% of the current pension fund and I would opt for this if possible. But perhaps I can only avail of whichever is lower.
So I have a couple of questions and would be grateful for any clarification.
Is my understanding correct and am I free to choose either option, i.e. 25% of current fund vs. 1.5 times final earnings? Or am I limited to whichever turns out to be lower?
Does “final earnings” refer only to base salary or all income from that employment, including bonuses and shares? This would make a significant difference if I can avail of the option for 1.5 times final earnings.
Thanks!
I’m deciding what to do with that pension but I’m not entirely clear about calculation of the tax free lump sum which I can take. I understand that I can take 25% of the current pension fund value tax free and then use the remainder to purchase an ARF or annuity (or just take it as cash, in which case it would be treated as taxable income at the higher rate). 25% is well below the €200k upper limit, so that doesn’t apply in my case.
Looking around, I also see references to 1.5 times final annual earnings as an option for the lump sum. Since I’ve not yet reached the NRA of 65, it seems that this 1.5 factor might be reduced pro-rata, using “Actual years of service”/”Years of service if working to NRA”. Even with this derating factor, the resultant lump sum would still be more than 25% of the current pension fund and I would opt for this if possible. But perhaps I can only avail of whichever is lower.
So I have a couple of questions and would be grateful for any clarification.
Is my understanding correct and am I free to choose either option, i.e. 25% of current fund vs. 1.5 times final earnings? Or am I limited to whichever turns out to be lower?
Does “final earnings” refer only to base salary or all income from that employment, including bonuses and shares? This would make a significant difference if I can avail of the option for 1.5 times final earnings.
Thanks!