The rules of most Occupational Pension Schemes allow a retiring member to avail of a Lump Sum based on their final salary and length of service with that employment.
This lump sum is usually tax free, but is subject to a cap of €200,000. The Revenue’s uplifted scale for lump sum benefits allows for a Lump Sum of 1.5 times Final Salary at Normal Retirement Age, if the member has completed at least 20 years paid service at Normal Retirement Age.
Therefore, subject to scheme rules, if a member’s pension fund value at Normal Retirement Age falls within the uplifted scale limits, based on Final Salary and service calculation, then the full value of the pension fund can be paid tax free, subject to the cap of €200,000. The following three examples help illustrate how you can plan for this option.
Example 1
Paul retires at his Normal Retirement age 65, with a final remuneration of €50,000. The value of his Occupational Pension Scheme is €75,000.
Paul has no other pensions and has worked for this company for the last 20 years. Subject to scheme rules, Paul can avail of the entire fund of €75,000 tax free.
Example 2
Aidan retires at a Normal Retirement Age of 65 with a final salary of €100,000 and his occupational pension scheme is worth €140,000.
Aidan has no other pensions and has worked for his employer for the last 20 years. Subject to the rules of the scheme, Aidan can take the entire fund tax free as it is within the 1.5 times final remuneration limit and within the tax free cash cap of €200,000.
Example 3
Mark is a 49-year-old Company Director and has 10 years salaried service completed with his company. His current salary is €70,000 and he expects it to be at least that over the next 10 years.
Mark has no pensions and doesn’t need further income in his retirement as he has plenty of private assets producing income.
Mark decides to get his company to contribute €800 monthly to an Executive Pension to target a fund of €105,000 (1.5 x €70,000) at a Normal Retirement Age of 60. If the assumptions are borne out,
Mark will be able to take all of the fund tax free at Normal Retirement Age 60. Mark reviews his funding annually to ensure his plan for Tax Free Cash stays on track.
At Peavoy Financial Planning we work with both employees and company director’s helping them put a structured plan’s in place for retirement.
If you would like us to review your current situation, do get in contact with me me here at Peavoy Financial Planning and we will work through a targeted plan with you. I can be contacted on 087-2902206 or alternatively by email on “>david@peavoyfinancial.ie
David Peavoy BA, QFA, LIAP is the Owner of Peavoy Financial Planning whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portlaoise, Co Laois.
David Peavoy T/A Peavoy Financial Planning is regulated by the Central Bank of Ireland
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