Public Sector Pension/AVC - Tax Free Lump Sum

[ds1982]

Planning for retirement here.
Will have full 40 years service completed at retirement in the public sector.

My question is what is the max tax free lump sum I can take at retirement. Is it 1.5 times my final salary? Can any of my AVC be taken tax free?

Eg. For ease of numbers let’s say my final salary is €80k and I have an AVC with €150k.

Does this mean my tax free lump sum is €120k or do I also get to take €80k of my AVC tax free to make up the €200k tax free amount that revenue allows?

If this is the case do I also have the option then of withdrawing the final €70k of my AVC at the 20% tax rate or is an ARF or annuity my only option?

Thanks

 

[S class]

Your final lump sum is 120k.
You would probably get some extra tax free lump sum from your AVCs based on any non pensionable earnings. Overtime or allowances. After that you can withdraw all your AVCs at your marginal tax rate, or set up an ARF or Annuity.

If you are pre95 and need extra full rate prsi contributions to qualify for a partial contributory pension, an ARF could provide these up to age 70.

 

[ds1982]

Your final lump sum is 120k.
You would probably get some extra tax free lump sum from your AVCs based on any non pensionable earnings. Overtime or allowances. After that you can withdraw all your AVCs at your marginal tax rate, or set up an ARF or Annuity.

If you are pre95 and need extra full rate prsi contributions to qualify for a partial contributory pension, an ARF could provide these up to age 70.

Thanks for the response on this.

Is the below from Revenue not applicable to public sector workers? According to this I should be allowed take up to €200k tax free lump sum? I assumed (possibly incorrectly) that I could use my AVC to top up my work pension lump sum amount (€120k) to reach the €200k tax free limit?

Taxation of retirement lump-sums

You can receive a tax free lifetime limit of €200,000 on retirement lump sums from all sources. The amount between €200,001 and €500,000 is taxable at the standard rate of tax (20%). Any amount in excess of €500,000 is taxed under PAYE at the marginal tax rate (40%).

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[S class]

200k is the maximum possible tax free lump sum.The actual allowed tax free lump sum available to a PS worker is set depending on their years of service.

In your case you get 120k from your PS earnings.

If you had another source of earned income you would have the possibility of getting extra tax free lump sum of up to 80k from this other income

If your final PS pay after 40 years service was 200k. You would be entitled to a lump sum of 300k.

200k would be tax free.

The remainder would be taxed at 20%.

 

[POC]

S class, what about PS workers purchasing notional service? I’m working part time so won’t have full service. As far as I’m aware, I would get the max lump sum (1.5 times full time salary) if I buy the maximum notional service. I am currently purchasing notional service, but expect to retire without reaching maximal notional service. Can I use my AVC to bring my lump sum up to 1.5 times full time salary?

One of the attractions of purchasing notional service is to increase the lump sum.

 

[S class]

I don't know how notional service works.

The revenue maximum tax free lump sum is determined by the number of years service. Provided you have 20+ years service, the revenue allowed maximum will be 1.5 years final wages. A year worked part time would still count as a years service for revenue allowable tax free lump sum.

The revenue allowable maximum is determined by the number of years service and your final wage amount.
There are a number of different ways of determining your final wage amount.
The method that gives the highest amount is used.

This calculated tax free lump sum is the revenue maximum allowed.
The actual tax free lump sum you receive at retirement from you PS employment is subtracted from the revenue maximum allowed.

You can then use your AVCs to make up for the shortfall.

 

[POC]

Thanks.So (ignoring the Notional service) it sounds like a part time worker could use the full time salary for calculating the lump sum.

 

[AAAContributor]

A year worked part time would still count as a years service for revenue allowable tax free lump sum.

Are you sure this is the case? This Revenue guidance seems to suggest that for calculating the maximum tax free lump sum:

"Part-time service should be converted into its full-time equivalent using the formula: Years of part-time service x (Part-time working hours / Full-time working hours)"

 

[S class]

I am not 100% sure. My wife had a part time hse employment (4 hours per week). She had roughly 18 years of this employment. The full 18 years were counted and the revenue allowed number of 1/80ths were allowed. I don't have the exact number but it was correctly applied according to the revenue table for total length of employment. This was used to calculate her revenue maximum tax free lump sum and was multiplied by the best method of calculating her final salary. This determined how much extra tax free lump sum could be applied to her AVCs.

The method you quote was used by hsa to calculate her maximum PS pension tax free lump sum.

P.S. on reading your link it refers to employees with a mix of full and part time service. In my wife's case she was permanently part time. The position for semi part timers is a lot more complicated. So I am incorrect in what I previously stated, if the poster is not a permanent part time employee.

 

[AAAContributor]

So I am incorrect in what I previously stated, if the poster is not a permanent part time employee.

No. It's more to do with the salary basis.

The poster stated that they were working part-time but they asked:

Can I use my AVC to bring my lump sum up to 1.5 times full time salary?

If they use the full time salary then:

A year worked part time would still count as a years service for revenue allowable tax free lump sum.

would not be the case.

The formula outlined above would have to be used to arrive at the full time years service if calculating benefits off the full time salary.

My wife had a part time hse employment (4 hours per week). She had roughly 18 years of this employment. The full 18 years were counted and the revenue allowed number of 1/80ths were allowed.

I'd say it was the case that your wife's benefits were computed based on her actual gross wage. Then it would make sense that the figure of '18' was used.