Ex gratia payment, SCSB and NPV of Pension

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EathanG

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Ill try and keep it short.

when receiving an ex gratia redundancy payment and are using the SCSB for the exemption you have the option to waive or retain the right to a 200K tax free payment from the pension scheme at retirement.

Questions:

1, Is it the same EUR200K life time amount? (what i mean is , this is a life time amount, whether its used for termination ex gratia payment or pension lump sum on retirement etc)

2, if the NPV of a pension is for example 30K then you reduce the SCSB by this number if you wish to retain the right of a tax free lump sum at retirement, however can you not use 30K of the 200K today, meaning your waiving 30K worth of the 200K tax free element today, and keep the 170K to take a max 170K tax free lump at retirement.

3, Does the decision on whether to waive or retain the right not also need to factor in the pension value today and what it could be in the future. What i mean is if a ex gratia payment today is 70K for example, but the pension is showing NPV at 10K, whos to say what the pension value could be in 25 yrs time. Once you leave the employer that pension fund is now closed and you are solely relying on pension investment return, but if the pot is small to start with it may not have a significant value in 25 yrs time.

Any help would be gladly appreciated.

Eathan
 
At retirement age you get to retain 25% of your pension as a tax free lump sum (I don't know where you got 200k from but maybe that's a max figure). Waiving this is yes or no. It can't be partial so point 2 is no.
NVP is got by a formula which the pension company use to get today's value of 25% of your current work pension. In general you would be advised not to waiver your right to the 25% at retirement because as you say it should be way more than todays value.
 
The 200k is the life time amount you can take tax free, is a maximum.
If you know you know
 
If I'm understanding your query correctly, there are 2 ( always confusing ) issues around the €200k.
You can get up to a max of €200k tax free redundancy using the various exemptions like scsb.
You also have a maximum €200k tax free from a pension in addition to that.

The PV of the TFLS is calculated using formula based on the scheme rules of years of service. For example, 3/80 x years of service x final salary ( which would give the revenue maximum TFLS of 1.5 times salary after 40 years) , discounted back at around 6% pa from normal retirement age to the date of leaving. It does not consider the 25% rule at all. So fund value not relevant.
 
If you wave the right to the 25% tax free lump sum now. Does this include all pension schemes you have paid into. Suppose I'm asking, if I use the scsb calculation on redundancy and wave the right to the 25% on retirement and join a new scheme , can I think take 25% tax free lump sum on retirement from the new pension scheme.
 
MaureenP said:
If you wave the right to the 25% tax free lump sum now. Does this include all pension schemes you have paid into. Suppose I'm asking, if I use the scsb calculation on redundancy and wave the right to the 25% on retirement and join a new scheme , can I think take 25% tax free lump sum on retirement from the new pension scheme.
Click to expand...

Only applies to the scheme from the company you are being made redundant from. Even if you were to transfer the pension into another pension, they will ringfence it so that the waiver only applies to that portion. No other pensions are impacted.
 
I'm trying to calculate my own 'current tax free value' using this formula I've seen online;

SCSB

Calculating NPV of lump sum

  • Mary is 53 and being made redundant
  • Her final salary is €40,000*
  • She is a member of her employer’s DC OPS
  • She has 20 years past service and her NRA is 65
  • TFLS on leaving = 20/32 x (1.5 x €40,000) = €37,500
  • TFLS at NRA = €44,800 (indexed at 1.5%)
  • TFLS discounted back to present date = €22,300 (6% discount rate)
  • This is the figure for SCSB
Click to expand...

Bullet point 5 - the 20/32 - I presume the 20 is years of service - but where has that 32 come from? Is it specific to Mary, or part of the standard calculation?

Bullet point 6 - how did they get to 44,800?
 
Lisboa said:
where has that 32 come from?
Click to expand...

It represents the years of service Mary would have accrued had she retired at the NRA of 65.

Mary could have received a lump sum of 1.5x remuneration at 65 but as she went early, the 1.5 is pro-rated by years of actual service divided by total service to NRA had she remained in the employment.

Lisboa said:
how did they get to 44,800?
Click to expand...

€37,500 x (1 + 0.015)^(years to NRA, i.e. 12)
 
Thanks very much, that helps a lot.

Earlier in this thread, a different method is used as an example;
JoeRoberts said:
The PV of the TFLS is calculated using formula based on the scheme rules of years of service. For example, 3/80 x years of service x final salary ( which would give the revenue maximum TFLS of 1.5 times salary after 40 years) , discounted back at around 6% pa from normal retirement age to the date of leaving. It does not consider the 25% rule at all. So fund value not relevant.
Click to expand...
Using this for Mary, I get to 14,909.08, which is a fairly large difference compared to her earlier 22,300.

Is this just a case of each pension provider using their own formula?
 
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