Thanks for the clarification @Colm Fagan.
De-risking Assets Before Pension Draw Down
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VInterested
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General question when thinking of managing different pots; if you have several occupational pensions (because you have left a company and started in a different one during your working life) can you take the 25% cash free lump sum from one of them and not the others and before you move the rest into an ARF/annuity at retirement age? or do you need to take the same % from all your different pensions?
So, you can take the 25% of one occupational pension if you are over 50 years old and if you have already left the company.
Does this also applies when retiring in that you chose the % you want to have as cash free lump sum from each occupational pension you may have?
So, you can take the 25% of one occupational pension if you are over 50 years old and if you have already left the company.
Does this also applies when retiring in that you chose the % you want to have as cash free lump sum from each occupational pension you may have?
You don't have to take any tax free lump sum but it rarely makes sense not to take 25% up to the maximum tax free cumulative lump sum limit. Maybe there are edge cases where it might make sense but they would probably be rare. E.g. one scenario might be to leave the money invested to grow tax free in a case where the amount ultimately drawn down will be tax free within the individual's tax credits.
VInterested
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You can 'retire' each separate pension when it suits you. For example:
'Pension 1' a Personal Retirement Bond (PRB) from old employment1- €100K
'Pension 2' a PRB from old employment2- €100K
'Pension 3'- occupational pension from current employer- €100K
You can choice which of the 'pensions' you want to retire, take your tax free lump sum and move the remainder to an ARF, leaving the other 2 as they are. You can then 'retire' the other 2, when it suits you, taking more tax free lump sums (up to the max €200K) and putting the remainder into your ARF.
At least that is my understanding and one of the benefits of having different 'pensions', offering more flexibility.
Also important to make sure the charges on all 'pensions' are competitive and you are in the right fund(s) for your risk appetite.
Yes, but why would you forgo the full 25% tax free lump sum each time (up to the cumulative limit of €200K right now - or maybe even on the way up to €500K with the amount over €200K subject to 20% tax) unless you knew that any future drawdowns were going to be tax free?
VInterested
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It was only an hypothetical question. TRS30 is talking about PRB which info can be applied to the occupational pension too. When you have occupational pensions you are limited to whatever plans and rules are set up for you in each company and you do not have the same flexibility as for ARFs or PRBs. You are also limited in when you have to convert your pot into a PRB or an ARF as it will depend on the retirement age as per the contact you have with each company.
You may want to have 100% of your pot invested in equities in one of your occupational pension coz its performing well or you like the options you can chose from but not in a second company that you believe it might be better to take a more conservative approach. Or you may have a bigger pot in one company so the % in equities would be more significant than for the other occupational pension you may have. So the risk you take is also bigger. I only wanted to know if in the case you retire from all companies at the same time, lets say at 65 years old, you can use a different % for your tax free lump sum in each company which it appears you can.
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As far as I know, you can access pension pots from previous employment anytime from 50 onwards. You can not just take the lump sum, you have to put the remainder into an ARF (or buy an annuity?)
Edit: this might only be applicable to PRBs however I don't believe there is anything to stop you transfers an occupational pension from a previous employer to a PRB.
VInterested
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yes this is correct. You can end your occupational pension if you have left the job and you are over 50. You then can take up to 25% free lump sum and you must place the rest into an ARF, PRSA, PRB (or an annuity).
Edit: sorry fwhen you draw your occ pension you can then ake your free lump sum n the rest as u said ARF or an annuity@
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CharlieMac
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Is that how it works, if you wanted to take your whole AVC fund as cash you pay 20% income tax on the amount in excess of your tax free lump sum that is less than 500k?
I read a post recently that seemed to imply something else.
What if in the year you cash in your AVC fund you also had income from other sources that put you in to the 40% tax bracket?
Sorry, 25% is still the limit on the tax free lump sum but if 25% is more than €200K then anything between €200K and €500K is taxed at 20%. I think I gave the wrong impression there.
Lump sums - pensionsauthority
Virtually all pension arrangements allow you to take a tax-free lump sum within certain limits at retirement. Most people avail of this option. You may also be able to take an additional lump sum which is taxable. Different rules apply to the amount of cash you can take out of a pension...
pensionsauthority.ie
Taxation of retirement lump-sums
This page outlines the taxation of an excess lump-sum
www.revenue.ie
PRB cannot accept post retirement funds
No. The pension lump sum is either 25% or based on your salary and length of service up to a maximum of 150% of your salary. Of all your pension lump sums, the first 200k is tax free, the next 300k taxed at 20% and any balance is taxed as PAYE income.
VInterested
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Yes. my mistake. Ive retified than entry!
CharlieMac
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Some people are lucky enough to have substantial sources of income at retirement (rent, dividends etc..) in addition to their pension fund(s).
I just think it's funny you can take out circa 300k from your pension fund at retirement and only pay 20% tax on it... and that's after getting up to 200k tax free.
Surely anything above the TFLS should be taxed at your marginal rate in the same way as when you draw income from an ARF.
CharlieMac
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[S Class] "Any extra lump sum taken from your PRSA or AVCs, after you have maximized your tax free amount, will be taxed at your marginal rate for the tax year that the extra amount is taken."
[Dave Vanian] "The excess can be used to supplement the pension, through an annuity or an Approved Retirement Fund, or can be withdrawn at retirement, taxed as if it was earned income."
Maybe my question was misunderstood but these two posts in another thread have clarified things differently from what was said here.
You don't necessarily pay 20% income tax on a lump sum in excess of your tax free lump sum. You might have to pay 40% income tax if you are already in that tax bracket because of income you earned from other sources in the same year you took the lump sum.
Happy to be corrected.
[Dave Vanian] "The excess can be used to supplement the pension, through an annuity or an Approved Retirement Fund, or can be withdrawn at retirement, taxed as if it was earned income."
Maybe my question was misunderstood but these two posts in another thread have clarified things differently from what was said here.
You don't necessarily pay 20% income tax on a lump sum in excess of your tax free lump sum. You might have to pay 40% income tax if you are already in that tax bracket because of income you earned from other sources in the same year you took the lump sum.
Happy to be corrected.
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www.askaboutmoney.com
If you take 25% from your pension(s) and the cumulative amount is <= €200K then it's tax free. If it's more than that then any amount between €200K and €500K is subject to 20% tax, and anything over €500K is subject to 40% tax.
Taxation of retirement lump-sums
This page outlines the taxation of an excess lump-sum
www.revenue.ie
Setforlife
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That’s not correct, those posts look related to public service pensions and using avc to max your lump sum at 1.5 times salary. After that you aren’t allowed any lump sum so additional income is all via an arf and taxed at marginal rate.
If your lump sum is taken as 25% off your pension and you happen to have over 800k up to 2million in your pension then you can take up to 500K as your lump sum, whatever 25% is. 200k not taxed then other 300k taxed at 20%. This is the reason 2million is often used as a nominal pension target. After 500k, any extra lump sum is taxed at your marginal rate.
CharlieMac
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Yes that was my mistake. Thanks both for clarifying. In my PS mindset the TFLS is capped at 200k and I couldn't imagine anyone entitled to a lump sum as huge as 500k!
Actually, slightly more than €2M and rising with increases in the Standard Fund Threshold over the next few years...
Standard Fund Threshold Calculations
Hoping someone knowledgeable can help me out with the calculation of the SFT €2M rule. I have a DC pension fund and a small DB pension with a couple of AVCs associated with it. I am divorced and under the divorce terms a Pension Adjustment Order was implemented by my main DC fund so they have...
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