DB, tax free lumpsum, what happens if I lose car and bonus in years before retire?

The issues raised in this thread are of interest to me.

Details:
DB scheme
Potential 40 years service
Company car and 5K bonus per year.
Age 43

As I understand it I can pay ACV contributions up to 25% of my total remuneration (including the value of the BIK on the car and the bonus)

The maximum my total pension can be is 2/3 of my final remuneration (including car bik and bonus)

And

Max lump sum can be 1.5 times my final remuneration (including car bik and bonus).

What happens if in the years leading up to my retirement I lose the car and the bonus for some reason?

As I understand it my final remuneration will reduced and so will the max limits that I am entitled to. My AVC funds will bring me over the “new” revenue limits that apply. The will be new as they are based on my reduced final remuneration.

Thanks

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before reti

Hi
I spoke to the sales rep from the company providing my union AVC options. ( I know he is not an independent advisor, that’s why I am looking from additional input). According to him even if I reached the revenue limits in relation to pension pay out based on my defined benefit pension, the full AVC fund can be transferred to an ARF and funds drawn down as required. All such drawdowns will be subject standard PAYE tax at that stage. No other tax liability applies to this situation.


Also the final remuneration amount is actually based on the average of any three of the previous ten years, not just the last year.

Can anyone confirm that my understanding is correct.

Thanks

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Hi Robo

No - you cannot fund over the rev max (whether it goes to ARF or not is irrelevant).

Please also note final remuneration is based on highest earnings over any three years in the ten years before NRD - so that might help you.

The revmax is 2/3rds of final salary (three year average as above) and the tax-free-cash is not in addition - the 2/3rds is the max and the tax-free-cash must come out of this.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before reti

Thanks CapitalCCC. My concern is that I can not be certain that at retirement age (or event in the 10 years prior to that) I will still have a company car or my bonus. If that were to be the case, and my AVC fund then brought me over the revenue limits, what happens to my AVC fund.

Thanks again for your help.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

It would be taxed as income - in practise what would usually happen is that as soon as you lose the car/bonus you would start paying 0% AVC (i.e. no AVC) and the impact of this would be to reduce the size of your AVC fund and you should not end up with this problem.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before reti

Thanks
If it were to be taxed as income, all I am really doing is deferring the tax bill. The advantage as I see it is that my contributions will be bigger (or cost me less). Therefore the fund will grow bigger and the after tax lump will be bigger. This is in comparison to just investing any ACV contribution in investments directly.


I am considering making AVC contributions for 2 or 3 years and stopping making contributions until I am 7 years from retirement. At that stage I will have more certainty as to my final remuneration will be in terms of calculating revenue limits.

Any commnets.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Main disadvantage is all taxed at higher rate at retirement (no real difference for a high earner).

Possibility of penalties if blatant overfunding going on.

Your plan to stop and review situation sounds good.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

I'm not an expert in this field, but I understand that potential over-funding may be negated, to some extent, by the purchase of additional spouse's pension from a life insurance company - or the indexation of either the main persion or the spouse's, if applicable. It might be worth looking into.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Yes - but remember a Spouse Pension cannot exceed 100% of the member pension and the indexation max is MAX(3%, CPI) per year

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Sure - but my point was that there may not be any provision for either indexation or a spouse's pension (or it may be something like 50% of the main one), so any potential "over-funding" could theoretically be used to purchase these provisions. It would depend on the scheme rules, etc.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before reti

Thanks for all your feedback.
My DB scheme has a related Spouses and children’s contributory pension scheme. The benefits are half my pension for my wife if I die first. If I understand it correctly, my final AVC fund could be used to invest in an ARF which could bring my wife’s pension up to the size of the original pension prior to my death. The total actual amount extra paid out, will depend on the size of the AVC fund and the performance of the ARF. Am I correct,

What happens if my wife dies before me.

Thanks

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Your AVC fund could go to an ARF and do whatever it wants to do there OR you could use it to buy a spouse pension & pension indexation...within the maximum limits specified earlier in the thread.

If your wife predeceases you then you will be OVER FUNDING so be wary of that.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before reti

Thanks for all the info CapitalCCC. I intend to make very small contributions for the next few years and then review the situation.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

I'm confused.Please tell me what happens to avc fund if employee is entitled to max DB pension with 40 years service at nra 65.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Please read the thread upport.

If that does not answer your question - then please specify in more detail what your question is.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

I'm confused.Please tell me what happens to avc fund if employee is entitled to max DB pension with 40 years service at nra 65.

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Most DB schemes in the private sector only give you 2/3 of final salary which does not include notional salary BIK etc. The state pension is also deducted in full if you have 40 years service. Revenue allow you 2/3 of final salary (P60 Balancing statement etc) You can fund both of the above with ACV's. If you overfund, afaia you are effectivelly subsidising the pension scheme.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

Even in a DB arrangement - AVC is usually on a DC basis - so there should not be any cross-subsidising taking place.

Re: DB, tax free lumpsum, what happens if I loose car and bounus in years before retire?

asdfg said:

Most DB schemes in the private sector only give you 2/3 of final salary which does not include notional salary BIK etc. The state pension is also deducted in full if you have 40 years service. Revenue allow you 2/3 of final salary (P60 Balancing statement etc) You can fund both of the above with ACV's. If you overfund, afaia you are effectivelly subsidising the pension scheme.

Click to expand...

Thank you 'asdfg'.
If the DB scheme was in the public sector would your opinion be as above?

The Rev Max 2/3 is before a tax-free lump-sum is taken.

In public sector the "RevMax" is 40/80 pension and 120/80 lump-sum.

This is deemed the same as a "2/3" pension.

A public sector scheme does not have trustees - its rules are governed by legislation and the appropriate minister.