ARF lump sum query

O

Omega

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When I left my former employer in 2008, I paid more tax than was strictly necessary on the redundancy lump sum
in order to be able to claim a tax-free lump sum on retirement of 1.5 times salary.
This was done under the Defined Benefit plan and Revenue rules at the time.
We are now in a situation where the DB plan has been wound up by the company and I understand that my remaining (and greatly reduced)
benefits will be put into an ARF.
My question is: Does the provision which I made for taking the tax-free lump sum (i.e. paying extra tax at the time of redundancy)
now have any bearing on the size of the lump sum which may be taken from the ARF on retirement - or do separate ARF rules apply?
If it now turns out that paying that extra tax was a pointless exercise, can I claim the tax back from the Revenue?
Many Thanks.
 
I didn't think that the ARF option was available to members of a DB scheme (except for any AVC portion or if you were a proprietary director)?
 
I don't fully understand the mechanics of the operation but I think that the DB fund proceeds are being chanelled, via the company's DC scheme, into a bond and then to an ARF on retirement. That's what we have been told by the trustees.
 
Your option on redundancy was to give up your entitlement to a tax-free lump at retirement in return for a larger tax-free element in your redundancy lump sum. Evidently you chose not to avail of this.

So at retirement, you will have the normal entitlement to a tax-free lump sum. If your fund has been routed through a DC pension scheme and then on to a Buy-Out bond, then you should have two options with regard to taking a tax-free lump sum: -

(1) A tax-free lump sum calculated by reference to your salary on leaving and years of service. If you choose this method, you must use the balance of fund to purchase an annuity.

(2) A lump sum of 25% of the fund value. If you choose this method, you can choose an annuity or an A(M)RF with the residual fund.

Either way, you haven't lost out by waiving your entitlement to extra tax-free redundancy.

Liam D. Ferguson
 
Liam, thanks for the helpful comment.
At redundancy, I made a specific provision for 1.5 times salary as a TFLS at retirement.
If I now take option 2 (25% of fund + AMRF + ARF), I will get a tax-free sum considerably greater than the original provision which I made.
Does that make sense - NOT that I have a problem with it?!
 
Omega said:
Liam, thanks for the helpful comment.
At redundancy, I made a specific provision for 1.5 times salary as a TFLS at retirement.
If I now take option 2 (25% of fund + AMRF + ARF), I will get a tax-free sum considerably greater than the original provision which I made.
Does that make sense - NOT that I have a problem with it?!
Click to expand...

Yes the different rules can work in your favour like that. In this instance it works out well for you. In other situations, the older 1.5 x salary method can work out better. For example, in a situation where 1.5 x salary happens to be equal to or greater than the fund value, then the retiree can take out all their fund as a tax-free lump sum. :cool:
 
Hi LDFerguson,
I would be most grateful if you could help with some information. I lodged a lump sum of
€7500 from SSAI scheme and received a top up of €2500 from a state scheme.
I am now drawing down this AVC.
I have other pension amount which allow me to draw down this small AVC in full.
I received the following: Value of pension €10,395.72, tax free lump sum of €2589.93
Gross balance €7769.79 Less emergency tax €2473.47 less social charge €543.89.
Net balance after deduction of taxes and levies €4752.43
Total amount received 7342.36.
Could you kindly advise me where the levy of €543.89 arises. Is it USC I wonder if I am liable to these levies as most of the amount I received is my own money which was already taxed. I cannot understand it.
I understand that I can claim back some of the tax in the coming year.
I would be most grateful for any help in explaining this. Regards Browtal
 
Hi browtal, hopefully I can help.

The €543.89 looks like USC at a rate of 7% on the gross balance after your tax free lump sum, which I believe is the emergency rate of USC.
 
Hi Boaber,
I see the connection now, thanks. Am I liable to 7% on return of my own money or on the gain?
The gain being the €2,500 + €359.72, should my liability be more like €199.85?

Seems so unjust to tax the return of my own investment? I really would appreciate your help on this.

I have now read the following on the Revenue website, I would appreciate any view on the following:-
USC only payable on Lump Sum Pensions payments on the portion over €575,000
Regards Browtal
 
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This may be of interest to somebody:
My liability seems to be, tax and USC on €7769. USC in my case is
first €10,000 at 2% balance @ 4%..
I am liable to tax on my own investment as I understand I should have claimed tax relief when I invested the lump sum, which is 6 years ago. I had no knowledge of this.
Browtal
 
Hi browtal

Who told you that you should have claimed tax relief? Tax relief could not be claimed on the SSIA pensions incentive on amounts of up to €7,500.

The Government would have added €2,500 plus an additional tax credit amount to your investment, this is why you couldn't claim any more relief on it

Qualifying rules for the incentive are available here [broken link removed]
 
Hi boaber,
The lady in the tax office told me when I phoned the lowcost phoneline yesterday. I am glad you confirmed this, I dont feel so bad.

I would appreciate more information on the tax credit, so I will read your recommended web site, as my investment never exceeded the €10,000 (€2500 gov. and €7500, my investment.)
My final sum amounted to €10,359 after 7 years. I got no additional tax credit on my yearly allowance?

My investment was in cash, following the banks loss of all information regarding my lump sum for over 1 year, the financial scene had changed
and cash seemed safer.
The bank compensated me for their error with a sum of €500 added. I cant imagine where the extra €500 went to over the 7 years
as I thought cash could not depreciate, regardless of their 5% I think, yearly charge for the investment. It was such an experience with their
carelessness I am grateful to have received the €7342.36.
Thanks for your information Browtal.
 
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