Options regarding cashing in pension

U

UniqueNewYork

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I was made redundant last year and I have a pension (value approx 89k), I have been advised that I can take a lump sum of approx 68k tax free, but that the remainder must be used to buy an annuity, which would only pay approx 500 per year, which is hardly worth having. I was advised that I could cash in the remainder also but would have to pay tax, PRSI, USC etc. on it but was thinking that even if I did have to pay the deductions, I may as well.

I am also wondering if it is possible to claim that tax back as I am currently unemployed so would I be able to apply my tax free allowance against the tax due on the amount, or would it be taxed as if I had been earning it while I was working?.
 
Not sure what the mechanism is where you can get 68k tax free from a pension of 89k - are you sure its not the other way around, i.e 68k is taxable and the rest (21k) is tax free ?
If you are unemployed for all or most of the year, your income tax bill will certainly be reduced significantly than if you were earning a decent salary
 
Rasputin said:
Not sure what the mechanism is where you can get 68k tax free from a pension of 89k - are you sure its not the other way around, i.e 68k is taxable and the rest (21k) is tax free ?
If you are unemployed for all or most of the year, your income tax bill will certainly be reduced significantly than if you were earning a decent salary
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Under the method of calculating tax free lump sum based on salary and years service.

The remainder is then paid out under trivial pension rules, but yes, is subject to tax, as are annuities.

And yes, you will be able to claim tax back on any overpayment of tax.


Steven
www.bluewaterfp.ie
 
Steven Barrett said:
Under the method of calculating tax free lump sum based on salary and years service.

The remainder is then paid out under trivial pension rules, but yes, is subject to tax, as are annuities.

And yes, you will be able to claim tax back on any overpayment of tax.


Steven
www.bluewaterfp.ie
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Thanks, excuse my ignorance, but I thought you could only get max 25% of any pension fund tax free, up to a total max of 200k, so still not sure how someone with a pension of 89k can get 68k tax free (i.e approx 75% tax free)
 
Rasputin said:
Thanks, excuse my ignorance, but I thought you could only get max 25% of any pension fund tax free, up to a total max of 200k, so still not sure how someone with a pension of 89k can get 68k tax free (i.e approx 75% tax free)
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Because there are two calculation models for D.C. schemes:
- 25% of the fund, or
- up to 150% of final salary depending on service years
The OP is presumably working on the latter calculation.
 
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