Pension awarded following divorce

Hi

My ex was paying into a pension fund - not for very long -as today it is worth about €8,000. i was awarded the full benefit of that pension in my recent divorce. Will I be taxed on it if I take it as a lump sum?

Thanks

What age are you?
What kind of pension is it?

If you are at an age at which you can draw benefits from this pension then I would expect that the normal rules apply. I e. You can take a 25% tax free lump sum (subject to a lifetime limit of €200K on cumulative pension tax free lump sums) and then draw down the remaining €6K in pension income which will be assessable for income tax, USC and PRSI (unless you're 66+) as normal.

I don't believe that you can take the full €8K in one go and maybe pay tax on the 6K non tax free lump sum amount but there may be special rules for small (aka "trivial") pension pots such as this.

Edit: e.g. this:
If the trivial pension treatment is an option here then I believe that you could take the following:

1. €2K tax free lump sum
2. €6K balance subject to 10% tax = €5.4K net
3. So €7.4K net total

Thank you Clubman. I really hooe you are right. Is the 10% tax rate general, or is a beneficiaries income taken into account?

As far as I understand the 10% is the full extent of the taxation of the balance after tax free lump sum in the case of a trivial pension scenario. Or maybe it's applied to the full amount and there is no TFLS? I haven't read the explanatory documents from Revenue and others that are linked from the thread the I cited above. If in doubt get independent advice. Also check Askaboutmoney for previous threads on trivial pension funds.

It may also depend on what other pension cover you may have and, as I mentioned earlier, your age and the rules of the scheme as to when it can be accessed.

Candy Crush said:

My ex was paying into a pension fund - not for very long -as today it is worth about €8,000. i was awarded the full benefit of that pension in my recent divorce. Will I be taxed on it if I take it as a lump sum?

Click to expand...

It may be possible to access it tax free but more information would be needed to determine that.

I presume by "pension fund" you are referring to a Defined Contribution ("DC") pension that presently has a fund value of €8,000 rather than a Defined Benefit pension that will pay €8k per annum, and that it is 'earmarked' for you at present (i.e. you did not take a transfer value).

If it is a DC pension and it is an Occupational Pension Scheme that has been earmarked for you as a 100% PAO, then depending on the salary and service of your ex and the 'relevant period' specified in the PAO, it may be possible to take it as a tax free lump sum.

Regulations provide that the part of the lump sum benefit at retirement, under the salary/service option, to be provided to the beneficiary of the PAO is: L x M∕N x P

where:
L = The member’s lump sum under the salary/service option, based on the rules of the scheme at the date of the decree. In the case of a defined contribution occupational pension scheme, this is in effect the Revenue maximum approvable lump sum.

M = The period of retirement benefit service, which the member has completed within the relevant period specified in the PAO.

N = The period of retirement benefit service, which the member has completed to the date of termination of service/retirement.

P = The relevant % specified in the PAO.

For instance, if your ex was on €75k and had 3 years service, L would be: €75k (salary) x 3 (service) x 3/80 (lump sum multiplier) = €8,437.

Assuming the M / N ratio is favourable and the specified % under the PAO is 100%, this could allow a fund of €8k to be taken as a lump sum and if you have enough of your individual €200k tax free limit available to you, it could all be taken tax free.

The query would be worth referring on to the pension trustees (if applicable) or pension administrator, as they would have all the info needed.

ClubMan said:

you are at an age at which you can draw benefits

Click to expand...

If the member spouse is at the correct age, not OP.

My ex husband is 69 & I’m 64. My salary is approx 50,000k per annum. He has not contributed to this pension for over 18 years. I am recorded a a trustee of the pension. And I’m pretty sure it was a defined contribution pension.

The pension provider will confirm that this is eligible for salary/service rules. I'd say you'll have no tax to pay based on the value.