25% tax free pension lump sum and withdrawals

[Ndiddy]

Old Company Defined Contribution Plan A: 100k
Current Company DC Plan B:200k

1) Does Revenue consider the 25% Lump sum withdrawal on a total fund basis or per plan? Can you take 25% of your total funds (75k) out of plan A or do you have to take 25% out of each plan?

2) If you want to take 25% out of each plan tax free, do you have to do this at one time or can you stagger your lump sum from each plan? Basically is there an advantage to keep old company plans have an option to make 25% tax free withdrawals on each account at different times.

Thanks

 

[LDFerguson]

I'm assuming that these are two Occupational Pension Schemes relating to two entirely different employments.

1) Does Revenue consider the 25% Lump sum withdrawal on a total fund basis or per plan? Can you take 25% of your total funds (75k) out of plan A or do you have to take 25% out of each plan?

You must take the lump sums out of each pension scheme. If they're two unrelated pension schemes, there's no ability to combine the funds for calculation purposes.

On an Occupational Pension Scheme, there's also another method of calculation of the lump sum, based on salary and years of service. It might or might not be greater than 25% of the fund. Your scheme administrator will be able to calculate your lump sum using that method.

2) If you want to take 25% out of each plan tax free, do you have to do this at one time or can you stagger your lump sum from each plan? Basically is there an advantage to keep old company plans have an option to make 25% tax free withdrawals on each account at different times.

Assuming that the two pension schemes relate to two different employments you can take the benefits a two different times.

Regards,

Liam
www.ferga.com

 

[Ndiddy]

Thanks Liam.
Yes, the example above was for 2 different defined contribution schemes for 2 different employers.

Benefits can be taken at 2 different times, so you could take a 25% tax free lump sum from Plan B when you retire and then take 25% tax free from Plan B 5 years later?

Is so....unless your old plan was more expensive than your new one, this makes a case for keeping the 2 plans separate instead of combining the 2?

 

[Steven Barrett]

If you combine them, the old scheme becomes part of the current scheme and is subject to its rules. You will not have the option of maturing it early or at a different time. Also, if you died pre-retirement, the benefits under old pension schemes are paid out as a lump sum. For current schemes, the lump sum is limited to 4 times salary and the remainder must be used to purchase an annuity (no idea why this rule is in place, it only applies to active company paid pensions and none others).


Steven
www.bluewaterfp.ie