Should I retire my DC fund early so that future growth does not count towards my SFT?

L

LarryT

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I am just about to leave an employment and am considering what to do with my DC pension pot of €300k. I have 13 years left to retirement during which time this DC pot will hopefully nearly double in value. However, this will mean that nearly €600k will count towards my SFT at age 65.

Are there any downsides to retiring it now and moving the €300k to an ARF so that future growth does not use up more of my SFT?
 
I'm going to assume that you have reason to believe that you will have pensions valued at over €1.5M from other sources by the time you retire. Otherwise the SFT is irrelevant to you.

Off the top of my head I can think of a few considerations. (1) From the year in which you turn 61, you'll be obliged to withdraw at least 4% per year from your ARF and pay tax on it. Or alternatively just pay the tax on a notional withdrawal which would be hard to justify. If you're still working at that time you'll get hammered for tax on these withdrawals. But if your overall fund is in the millions, this may be less of a consideration for you. (2) Moving the full €300,000 to an ARF now extinguishes your right to a tax-free lump sum from it later. Maybe you should instead take the tax-free lump sum now and move the balance to an ARF.

If you're likely to exceed the SFT at retirement then I think you should take professional advice before making any moves, as this is a complex area involving large sums of money.
 
Thanks Dave

I have other pensions and with investment growth the aggregate could exceed the SFT, hence my question. My working assumption is that if I retire the DC fund, I can take 25% tax-free now and invest the remaining €225 in an ARF, whereby any growth will not count towards the threshold reducing my future tax liability.
 
LarryT said:
Thanks Dave

I have other pensions and with investment growth the aggregate could exceed the SFT, hence my question. My working assumption is that if I retire the DC fund, I can take 25% tax-free now and invest the remaining €225 in an ARF, whereby any growth will not count towards the threshold reducing my future tax liability.
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Yes that's correct.
 
Moving to an ARF blocks-off your ability to transfer your pension overseas, plus it triggers mandatory withdrawals from age 61, plus it prevents you from leaving your fund to grow untouched in a PRSA until age 75.

But to me it seems to make sense where:

- You intend remaining in Ireland
- You’re going to breach the pension threshold
- You have debt which the tax-free lump sum can be used to pay down
 
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