Which redundancy option is the most sensible here?

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Blackrock1

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Hi all,

My sister is being made redundant (its a serendipitous event as she intended leaving the work place for a period anyway).

She has 17 years service and is 40.

Total payment is €139k, comprising stat €21.3k, Ex gratia €104.8k and PILON €12.9k.

She has two options re SCSB relief, either to retain tax free lump sum from her pension or not.

The NPV of her lump sum at retirement is calculated at 21k.

So her option is to have allowable tax relief at 86k and retain the tax free lump sum or 107k and waive it.

I presume she should retain the tax relief?

Any other info i am missing please let me know.
 
Actually now that I think about this what she should do is retain the tax relief and make an avc to her pension to reduce her tax bill to as close to nil as she can.
 
Unless she has urgent need for the extra cash now, retaining the tax relief later is usually recommended.

The amount she can put towards an AVC in her final payslip should be coming out of taxable income (and not the tax free part of the redundancy or the statutory tax free bit) to maximise relief at 40%. Something like [ex gratia]+[PILON]-[SCSB]=taxable * 25% (age related limit).

She should definitely make any AVC before leaving employment, as if she tries to do it after leaving this job and before starting another, Revenue may deem any contribution to be out of the tax free lump sum, with no tax relief allowed.
 
ginslia said:
Unless she has urgent need for the extra cash now, retaining the tax relief later is usually recommended.

The amount she can put towards an AVC in her final payslip should be coming out of taxable income (and not the tax free part of the redundancy or the statutory tax free bit) to maximise relief at 40%. Something like [ex gratia]+[PILON]-[SCSB]=taxable * 25% (age related limit).

She should definitely make any AVC before leaving employment, as if she tries to do it after leaving this job and before starting another, Revenue may deem any contribution to be out of the tax free lump sum, with no tax relief allowed.
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so you can make a 25% AVC for the taxable portion of the redundancy? I thought it was only on earned income?
 
Ndiddy said:
so you can make a 25% AVC for the taxable portion of the redundancy? I thought it was only on earned income?
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I thought so too. At least that's what I was advised myself a few years ago. (If that's wrong, I'll have a bone to pick!)

However, you can also make a retrospective AVC contribution for the previous tax year as well, subject to the age-related limits, assuming you have the headroom.
 
You can't make the Avc after you have left the employment. Take a credit union loan to do so before your leave date to achieve this. It will be allowable against any taxable income only
 
so if you already pay into AVC at maximum tax relief for age, the taxable element of a redundancy package effectively counts as more salary? just as long as you contribute the AVC before you leave work?

For example if a person is 40, 40k salary, contributes 25% AVC through payroll and lets say has 60K in the taxable part of redundancy package-

They should make a single lump AVC contribution of 15k( if they have the cash) before their leaving date and they can get relief on that refunded by Revenue?
 
Yes as long as you keep within the contributions limits for your age bracket. You could actually arrange it to be included in your final payslip to avoid waiting for a refund
 
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