Calculating final salary and TFLS

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carmel65

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Looking to check a few details regarding the calculation of the tax free lump sum. I know this is a very complex area, so before, I actually do anything I have every intention of getting professional advice. So on this occassion I am just trying to get a ballpark figure and clarify some of my options.

I am 56 and not working. I am lucky and have two occupational pension from previous employers.

The first one is a defined benefit scheme, 20 year,3 months service, payable when I am 60. I also have an AVC with this scheme, which I intend to use to pay my tfls, so I have no plans to reduce the defined benefit pension.

The second one is a defined contrbution scheme, 6.5 years service, currently invested in a Buy-out-Bond.

In terms of calculating a final salary, the first scheme has a last salary on file which they have dynamised to calculate a tfls. The second scheme have used a different salary, thus arrived at a different tfls.

My questions are, can I retire from one scheme without retiring from the other? e.g. can I take the tfls now from the second scheme and wait until I am sixty for the defined benefit?

In terms of the calculation of final salary, does this happen twice each independently from the other?

There appears to be options regarding which figures are used in the calculation as 'salary' e.g. as I understand it, I can use the highest average salary for three (consecutive or any?) years in the ten years before my leaving date? Which leaving date?

Also, there are other complications (hence the need for professional advice). In my last year of work my salary was reduced in the last six months as I was ill. Also in the two years before that I was working a 4 day week.

What information do I need to provide for these calculation, e.g. will P60s do? I have some letters of appointment, salary reviews etc, but not all.

I am trying to decide whether I could get any benefits now or to wait until I am 60 and I also want to collate the information I require for a professional review.

many thanks
 
Yes you can retire from the DC scheme and wait until 60 with DB Scheme. Unlikely you would be allowed to retire early from DB scheme.

From the DC scheme you can take either 25% of the fund as tax free cash with balance into an ARF or AMRF (only if your income is greater than 12700 can you put into the ARF though), if you take the formula tax free amount you will be forced to purchase an annuity. If you go the AMRF route you can always convert to an ARF once you hit the income threshold which may be at 60 or STate pension Age.


The definition of final remuneration used to calculate TFLS is the maximum of three formula , formula 2 May suit for your purposes. P60s and a record of your own pension contributions for those periods should be enough - you need gross earnings info. If you also had that broken down into basic plus other earnings would be helpful.

Final Remuneration may be computed on one of the following bases, viz:

  1. (i) (a) Basic remuneration over any twelve month period of the five years preceding the relevant date (i.e. the date of retirement, leaving service or death, as the case may be),

    PLUS

    (b) the average of any fluctuating emoluments over three or more consecutive years ending on the last day used in (a) above.

  2. (ii) The average of the total emoluments for any three or more consecutive years ending not earlier than 10 years before the relevant date.

  3. (iii) The rate of basic pay at the relevant date or at any date within the year ending on that date plus the average of any fluctuating emoluments calculated as in (i) above.
Provided that-

(i) Basis (iii) cannot be used where within three years before the relevant date an employee:

  1. (a) Was promoted or received a special increase in basic pay, and

  2. (b) The total increase over the relevant three year period is greater than it would have been if the remuneration on the day of commencement of the period had been increased proportionately to the increase in the Consumer Price Index, or to increase applicable to the employment under a National Wage Agreement, during the same three year period.

    However, it is possible to agree beforehand with Revenue that such increases, if given on a recognised scale applicable to defined groups of arm’s-length employees, will not prevent the availability of basis (iii).
    1. (ii) Whenever final remuneration is calculated by reference to a year or years other than the 12 months ending with the relevant date, each such year's remuneration may be increased in proportion to the increase in the cost of living from the last day of that year up to the relevant date referred to as "dynamised" final remuneration. This also applies to fluctuating emoluments so that fluctuating emoluments of a year other than the twelve months ending with the relevant date may be increased as detailed above.



    This assumes you were not a 20% director.
 
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Thanks Donnie, that is very useful, I can now get gather the information I need to calculate these figures.
 
I have now gathered most of the details I need for this.
Just a couple of points to clarify.

I am not a director and assuming I take my defined benefit pension in full at age 60. I have the AVC policy and the Buy Out Bond to fund my tfls, is this correct?

My initial look at the figures suggest that the tfls will be more than both of these policies put together.

So, does this mean, to maximise my tfls, I need to retire from both schemes at the same time? Or can I get some of my tfls now and wait for the balance until I am 60?
 
You need to calculate the tfls separately for each employment/pension.based on service plus salary info based at date of exit from the employment. The tfls can be increased by inflation.

You have to take the Avc at same time as main DB bdnefits. You can take retirement from the DC scheme now and DB Later. They will just check your total lump sums don't exceed 200k and overall limits on the second retirement
 
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