Voluntary Severance package

[Aoibheann]

A family member has been offered a voluntary severance package. He is single, mid forties, 14.61 years of service and is on a salary of €43,000. To be honest we don't understand the forms and what his best option is - should he sign the Tax/Pension Retain Form or sign the Waiver Form? If he signs the Tax/Pension Waiver Form it seems that he has to then choose either the Increased Exemption or SCSB formula and to decide to waive any right he may have to a tax free lump sum from his deferred pension. We have no idea what is the best thing for him to do. He intends to look for another job after a break of a month and has sufficient savings to get by for a while.
The VS Calculation is €74,103 and then see below..

Basic exemption	20,870
Increased exemption	30,870
SCSB	41,907	134,700
Statutory Redundancy	18,132
	Stat plus Basic	Stat plus Increased	Stat plus SCSB
Tax Exemption	39,002	49,002	60,039
Gross Lump Sum minus Tax Exemption = Taxable amount	35,101	25,101	14,064
Tax at 40% + USC at 8%	16,848	12,048	6,751
Net Lump Sum - Waive Right	57,254	62,054	67,352

Any advice would be much appreciated.

 

[Aoibheann]

A family member has been offered a voluntary severance package. He is single, mid forties, 14.61 years of service and is on a salary of €43,000. To be honest we don't understand the forms and what his best option is - should he sign the Tax/Pension Retain Form or sign the Waiver Form? If he signs the Tax/Pension Waiver Form it seems that he has to then choose either the Increased Exemption or SCSB formula and to decide to waive any right he may have to a tax free lump sum from his deferred pension. We have no idea what is the best thing for him to do. He intends to look for another job after a break of a month and has sufficient savings to get by for a while.
The VS Calculation is €74,103 and then see below..

Basic exemption	20,870
Increased exemption	30,870
SCSB	41,907	134,700
Statutory Redundancy	18,132
	Stat plus Basic	Stat plus Increased	Stat plus SCSB
Tax Exemption	39,002	49,002	60,039
Gross Lump Sum minus Tax Exemption = Taxable amount	35,101	25,101	14,064
Tax at 40% + USC at 8%	16,848	12,048	6,751
Net Lump Sum - Waive Right	57,254	62,054	67,352

Any advice would be much appreciated.

 

[Peanuts20]

Unless he really needs the money now, it may be best to retain the right.

 

[Itchy]

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

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...

www.askaboutmoney.com

According to this thread, there is a loophole to remove the waived right, by switching the pension fund to a PRSA for a fee c. €1500.

 

[Sunny]

The general rule is you should never sign the Waiver form without very good reason and you should get advice before you do. Whether you sign the waiver or not has nothing to do with whether he chooses the Increased Exemption or the SCSB. Pick whatever is financially better off for you.

The 'loophole' mentioned above works but I had huge hassle trying to use it with my last pension provider when I was made redundant. They don't like it.

 

[Aoibheann]

I'm sorry to be so dense about this. They also state his estimated pensionable earnings at leave date are €43,952 - does that have anything to do with his pension lump sum? The actual term 'pension lump sum' isn't mentioned anywhere. I need help to go though this in baby steps please. Basically I don't understand any of the calculations detailed above.

1. The VS figure of €74,103 is what he is being offered as a lump sum.
2. The 3 figures at the end of table 1 show what amount is tax exempt should he choose Stat+basic, Stat +increased or SCSB. Then at the bottom of table 2 these 3 figures are shown as Net Lump Sums - if he waives his right.
3. I am obviously being obtuse but I cannot see what the Net Lump Sums are if he doesn't waive his right. How do we work that out?
4. Also it seems that it is better for him financially to sign the Pensions Lump Sum Retainer Form.

Thanks

 

[Sunny]

They are obliged to give you the Present Value of the expected Pension lump sum so would expect it to be there. You won't be able to work them out. I would also expect them to provide calculations showing the final figure taking into account signing the waiver/not signing the waiver.

From a redundancy payment point of view, you will always be better off now by signing the waiver because you if don't sign the waiver, they reduce the SCSB amount by the present value of the tax free element of the expected tax free pension lump sum. There are a couple of circumstances where signing the waiver makes sense but generally, you should never give up your right to receive the tax free lump sum from your pension. For the sake of a few thousand extra today, you could end up waiving the right to a lot more in the future.

I presume your family member is going to be signing a severance agreement with regard to giving up all their rights under employment law in return for the severance payment. One of the most important parts of the process is that employees are entitled to independent legal and financial advice for the severance agreement to stand in the future. Most companies will pay for this advice. Is it available to your family member?

 

[Aoibheann]

Peanuts, he doesn't need the money right now.

Sunny, No, he hasn't been offered any advice from the company, paid or unpaid. The letter from HR states 'It is recommended that you take financial advice in relation to this offer. If you need anything further having taken this advice, please let me know.' So though he is recommended to take advice, we don't know where or who to go to for this advice. Any recommendations gratefully received.

The figures in the table above plus the VS amount and the Estimated Pensionable Earnings at leave date are the only other figures he has been issued with to date. The company say they are waiting on a further figure from the pensions team and will re-issue the VS Estimated Quote document.

He was emailed 3 forms - Tax/Pension Retain form, Lifetime Cap - Tax Exemption Waiver form, Tax/Pension Waiver form to sign and return by 29th April originally, now to be returned by 6th May . He is still waiting for the re-issued VS Estimated Quote document. I presume this means that he needs to see this before he signs the forms.

Just to clarify, Sunny, when you say -

'From a redundancy payment point of view, you will always be better off now by signing the waiver because you if don't sign the waiver, they reduce the SCSB amount by the present value of the tax free element of the expected tax free pension lump sum. There are a couple of circumstances where signing the waiver makes sense but generally, you should never give up your right to receive the tax free lump sum from your pension. For the sake of a few thousand extra today, you could end up waiving the right to a lot more in the future.'

you mean that if he signs the tax/pension waiver now he will get a larger sum today but he loses in the long-term, as the value of the tax free lump sum from his pension will continue to increase in value and be worth much more ultimately.

However Itchy says that 'there is a loophole to remove the waived right, by switching the pension fund to a PRSA for a fee c. €1500'.
Is this something my relative should do or is it not worth the hassle given the figures?

 

[elcato]

you mean that if he signs the tax/pension waiver now he will get a larger sum today but he loses in the long-term, as the value of the tax free lump sum from his pension will continue to increase in value and be worth much more ultimately.

I believe this is correct. I, too, was confused with the wording. Many moons ago when I was made redundant I took the default basic exemption (which was 10k at the time I think) but I rang revenue asking was I due anything as I got another job a while later. They told me that the scsb would be more benificial and to put in a request for a refund at the end of the year as they had to wait till then. I got a couple of grand back as I managed to get someone to do the maths in revenue for me. I'm not sure you'd be as lucky with getting revenue to do the heavy lifting but my point is that you will probably have to wait till the end of the year to see the scsb figures and your tax paid for the year anyway.

 

[Aoibheann]

Update.
He got an email today stating that the present day value of his pension Lump Sum at 65 is €9,575 and possible pension lump sum at 65 €24,037.
If he retains his right, his tax exemption is reduced by the present day value of his pension lump sum. Therefore his net lump VS sum is as follows: €52,659 - Basic; €57,459 - Increased; €62,770 - SCSB. His best choice is to go for the SCSB figure, I think?

 

[odyssey06]

Does the decision made for this employment have implications for other employment pensions?

I was made redundant few years back, it was only a small pension.
I think at the time I took the increased exemption and so would wave rights to a tax free lump sum from that pension on retirement?
My main pension is with current employer.

 

[Sunny]

There is no impact on other pensions and tax free entitlements from them. The waiver only applies to the affected occupational pension. Even if you sign the waiver and then consolidate it with other pensions, the pension providers will ring fence the portion of the pension that the waiver applies to.

You can take the increased exemption or the SCSB exemption without signing the waiver. Going by the figures provided and considering there is no desperate need for an extra few k now, I would use the SCSB option and do not agree to waive your rights on the pension. But again, that's just my opinion...

 

[Aoibheann]

I appreciate that, Sunny. The SCSB option and not agreeing to waive his rights does seem to be his best choice. Thanks a mil for your advice.

He also needs advice on what to do with the money. I understand that you can't name financial advisors on the forum but if someone would pm me one or two people that they could recommend, I would really appreciate it.

 

[Itchy]

The general rule is you should never sign the Waiver form without very good reason and you should get advice before you do. Whether you sign the waiver or not has nothing to do with whether he chooses the Increased Exemption or the SCSB. Pick whatever is financially better off for you.

The 'loophole' mentioned above works but I had huge hassle trying to use it with my last pension provider when I was made redundant. They don't like it.

From a redundancy payment point of view, you will always be better off now by signing the waiver because you if don't sign the waiver, they reduce the SCSB amount by the present value of the tax free element of the expected tax free pension lump sum. There are a couple of circumstances where signing the waiver makes sense but generally, you should never give up your right to receive the tax free lump sum from your pension. For the sake of a few thousand extra today, you could end up waiving the right to a lot more in the future.

There is no impact on other pensions and tax free entitlements from them. The waiver only applies to the affected occupational pension. Even if you sign the waiver and then consolidate it with other pensions, the pension providers will ring fence the portion of the pension that the waiver applies to.

I would use the SCSB option and do not agree to waive your rights on the pension. But again, that's just my opinion...

Hi Sunny, if you wouldn't mind expanding on your experience, I would appreciate it.

You seem to have availed of the transfer to a PRSA but in general don't recommend it?
If you are waiving a right to a larger future lump sum, surely it makes sense to sign the waiver and transfer? (There is no risk with the transfer, perfectly in order with Revenue).
Presumably the pension provider "doesn't like it" because you are transferring your funds to another provider for the remainder of the term, (they lose the AMC). You note it was hassle, can you expand on this? From the thread I posted, its a matter of an actuarial report on the benefits, it was made seem like a tick box?
You are saying that that a transfer to another scheme will ring fence the funds so the lump sum can't be availed of. The transfer should be to a PRSA, no? The 'loophole' is essentially that the OPS provider is not obliged to inform the new provider, and the new provider is not obliged to ask, nor are you obliged to say that you have waived any right. Have I misunderstood the process?

 

[Sue Ellen]

Hi Aoibheann,

He also needs advice on what to do with the money. I understand that you can't name financial advisors on the forum but if someone would pm me one or two people that they could recommend, I would really appreciate it.

You can get advice on getting a financial advisor and from the posts above it would appear that your relative does need the expert advice. There are some previous threads from AAM on doing so and hopefully they will help. Make sure to discuss charges before going ahead.