Pension Tax Free Lump Sum

[Starting Out]

Hello,

When calculating "Final Remuneration" for understanding your lump sum amount, what is the official source for this? Is it a certain box on a P60 or some other location?

Thanks Starting Out

 

[Conan]

The starting point is the rules of the particular Scheme of which you are a member. It should define Final Remuneration. There could be any number of definitions, such as:
- final year's salary
- final years remuneration (incl bonuses, BIK etc)
- average of last 3 years salary
- average of last 3 years remuneration

Important to remember that whilst the Scheme (if a DB Scheme) may use use a particular definition for the calculation of your Scheme Lump Sum, you might be able to get a higher lump sum by using one of the higher Revenue definitions and where you have an AVC fund which could be added to the Scheme amount.
It's always worth trying to maximise the Lump Sum since any amount up to €200,000 is tax free (whereas any residual pension income is potentially taxable).

 

[ricta]

as far as I am aware, it is Gross Salary, i.e. the amount of salary subject to USC, on your P60. This is greater than Taxable salary on your P60, which has your, non-taxable, pension contributions deducted from it. As stated above it should, and in my case does on the P60, include BIK, Bonuses etc..

Your pension Administrator, when calculating your lump sum, will most like just use the last salary figure given to them by your employer. They will not try and maximise it for you by applying the Revenue Rules, allowing previous years to be referenced, that might give you a better figure. If you had years in the previous 13 years where you had higher earnings, perhaps overtime or bonuses or before salary cuts, you, or an advisor need to go through your P60's and check if they might be more beneficial.

This is my situation, and can increase my lump sum by 10,000 by using the average of 3 previous consecutive years ending inside the last 10 years.

To paraphrase Revenue Rules, Final remuneration or total emoluments can be calulated on:

1. Basic remuneration over any 12 month period in the 5 years preceding the date of leaving/early retirement

plus the average of any fluctuating emoluments* over 3 or more consecutive years ending onthe last day in (1) above

OR

2. The average of the total emoluments for any 3 or more consecutive years ending not earlier than 10 years before the relevant date

OR

3. The rate of basic pay at the relevant date or at any date within the year ending on that date plus the average of any fluctuating emoluments as in (1) above