Should I make use of the SCSB relief for my redundancy payment

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newirishman

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A friend of mine (47 years) is being made redundant at end of year. 16.3 yrs of service, 5 weeks (2 statutory + 3 weeks voluntary) redundancy payment.
There is also a company pension (DC), with a current value of around 240K. Projected (I know!) max lump sum payment at retirement (normal retirement date: 2040) around 190K, so under the current 200K tax free threshold.

The rough numbers are:
- total redundancy payout value: 150K of which are
- taxable after standard exemption: 55.8K
- taxable when including SCSB relief: 27.5K
So with a 52% taxation rate, we are talking about a net payout difference of around 13.5K
(The numbers are correct, and confirmed by payroll and tax people (KPMG) - the company has been doing redundancies now for a while)

We are wondering now:
1) is it better to make use of the additional SCSB relief now and lose the tax-free lump sum at retirement benefit (so get 13K more payment) or
2) don't use the SCSB relief and keep the tax-free lump-sum benefit for retirement

My friend doesn't need the additional 13K at this point, so the money would end up on some savings account / investment / next pension / etc. for the foreseeable future.

Furthermore, my friend will continue to work and continue to contribute to a pensions scheme (maybe will take a 3 month break before starting new job).
Also, it is likely that he will not stay in Ireland beyond 2030, so will certainly not retire whilst living or being tax resident in Ireland.

So what do now?
I guess the big question is the tax situation in 2040, as well as if any tax-free benefits will also be in place if he lives in a different country.

Appreciate any thoughts.
 
increased/standard exemption and SCSB are three different calculations. Waiving right to tax free lump sum is something else.
they can ask for the SCSB calc with and without the waiving of the tax free lump sum. You don’t waive SCSB relief.
 
DBL2018 said:
increased/standard exemption and SCSB are three different calculations. Waiving right to tax free lump sum is something else.
they can ask for the SCSB calc with and without the waiving of the tax free lump sum. You don’t waive SCSB relief.
Click to expand...
Fine, thanks for more accurately describing the technicalities. The wording on the Revenue side is not really straightforward.

Your response does not a such provide input to the question though: waive the tax free lump sum now or not?
 
Take the higher payment and transfer the pension to a PRSA and the waived right disappears. They can then get the tax free lump sum from their pension in the future as well as the enhanced payment now.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Steven Barrett said:
Take the higher payment and transfer the pension to a PRSA and the waived right disappears. They can then get the tax free lump sum from their pension in the future as well as the enhanced payment now.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
Click to expand...

Hi Steven, are there any downsides to waiving the rights and transferring to a PRSA after the fact? Such as the PRSA provider being the same as the Occupational Scheme provider. Seems like a loophole!

What circumstances would you not waive the lump sum (assuming >10 years to retirement)?

Thanks,
 
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Itchy said:
Hi Steven, are there any downsides to waiving the rights and transferring to a PRSA after the fact? Such as the PRSA provider being the same as the Occupational Scheme provider. Seems like a loophole!

What circumstances would you not waive the lump sum (assuming >10 years to retirement)?

Thanks,
Click to expand...
It is a loophole. And until the Revenue close it, there is no issue in using it. You may have to have a cert of comparison carried out. This costs €1,230 but getting a future tax free lump sum will make it worth it.

you always have to look at the figures and make the decision based on what they are. Also, personal circumstances may have a baring. I do not have a list of circumstances when you do or don't.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Steven Barrett said:
It is a loophole. And until the Revenue close it, there is no issue in using it. You may have to have a cert of comparison carried out. This costs €1,230 but getting a future tax free lump sum will make it worth it.

you always have to look at the figures and make the decision based on what they are. Also, personal circumstances may have a baring. I do not have a list of circumstances when you do or don't.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
Click to expand...

Appreciate that, thanks for the input. In my wife's case. I think the NPV of the Lump Sum exceeds the SCSB calc. So it would make sense to waive and transfer, less a potential fee (she has >20Y to retirement).
 
Can you retire a PRSA at age 50, get 25% tax free lump sum and then the rest in an ARF too?
 
Just wondering is this loop hole still open or has it been closed by Revenue ? Any sign of it being closed soon ?

Do you have to transfer your DC occupational pension to a PRSA at the time of the redundancy or can you do it anytime afterwards and still purge the waived right ?

When you retire a PRSA and take the 25% TFLS does the balance have to be put in an ARF / Annuity or does the PRSA simply become a vested PRSA with deemed drawdowns if age >61?
 
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Flybytheseat said:
Just wondering is this loop hole still open or has it been closed by Revenue ? Any sign of it being closed soon ?

Do you have to transfer your DC occupational pension to a PRSA at the time of the redundancy or can you do it anytime afterwards and still purge the waived right ?

When you retire a PRSA and take the 25% TFLS does the balance have to be put in an ARF / Annuity or does the PRSA simply become a vested PRSA with deemed drawdowns if age >61?
Click to expand...
....and does this loophole only apply to DC pensions....presumably a public sector DB pension cannot be transferred to a PRSA after it has been waived?
 
Hi All
Would also like to know this..
"Do you have to transfer your DC occupational pension to a PRSA at the time of the redundancy or can you do it anytime afterwards and still purge the waived right ?"

I took SCSB circa 2009 and my company pension was transferred into a retirement bond at that point. Can I transfer into a PRSA now to get the benefit of the 20% TFLS or is it too late?

Thanks
Blarney
 
Flybytheseat said:
Do you have to transfer your DC occupational pension to a PRSA at the time of the redundancy or can you do it anytime afterwards and still purge the waived right ?
Click to expand...

You can do it any time you like.

Flybytheseat said:
When you retire a PRSA and take the 25% TFLS does the balance have to be put in an ARF / Annuity or does the PRSA simply become a vested PRSA with deemed drawdowns if age >61?
Click to expand...

That's a choice you can make at the time - you can choose any of the options you outline.

poorrelative said:
....and does this loophole only apply to DC pensions....
Click to expand...

Yes.

Blarney said:
I took SCSB circa 2009 and my company pension was transferred into a retirement bond at that point. Can I transfer into a PRSA now
Click to expand...

No. You can only transfer from the pension scheme into a PRSA. You cannot transfer from a Personal Retirement Bond / Buy Out Bond into a PRSA.
 
Blarney said:
I took SCSB circa 2009 and my company pension was transferred into a retirement bond at that point. Can I transfer into a PRSA now
Click to expand...
No. You can only transfer from the pension scheme into a PRSA. You cannot transfer from a Personal Retirement Bond / Buy Out Bond into a PRSA.

Appreciate your reply. Thanks Dave
 
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