Single pension scheme member tax free lump sum query

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Maryplanning

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Good evening
I would appreciate some help in trying to work out how much I would be allowed as a tax free lump sum on retirement.
I am a member of the single pension scheme, and will have 15 years of service at 66 years of age at retirement. I have 6 years left to work, I opened an AVC about 4 years ago with corn market cautious fund, and put a small amount in each month.

There seems to be so many rules about length of service and lumps sums allowed tax free. I have read through some posts, and tried some of the calculations, but am confusing myself now.

I am not sure how to work out the tax free lump sum I can have at retirement, and would like to increase the amount going into the AVC, finding out the max tax free lump sum would be very useful. My final salary will be between 67000-70000 and I am a single female as this information seems to be needed for the computation from my understanding. Any advice would be much appreciated, thanks.
 
The max lump-sum, I will check, or somebody else will answer.

The max amount of any pension lump-sum that can be free of tax is 200k.
 
Thanks Protocol and Clubman
I will have a read over this, I won't reach the 200,000 mark. For the lump sum tax free when I reach retirement do I add the lump sum value in the Single scheme with the value in the AVC to get the total lump value I have built up?

Just another question on the AVC for the uneducated, when I reach retirement can I take the value built up out in a lump sum, this is not tied in anyway that I would have to take it as a monthly pension?
 
Your single pension scheme benefit statement tells you how much lump sum and also how much annual pension you have built up. When you retire if the lump sum on your benefit statement added to the entire value of your AVC fund is less than 200k.... Then yes, you could take out all of that AVC fund as a tax free lump sum, no you would not have to take it as a pension paid monthly or whatever that would be subject to income tax.

It might be worth looking at the fund your AVCs are investing in? Do you know how much that "cautious" fund is growing by each year and what the charges are? If you can afford to certainly you should be contributing the max allowed for your age in to AVCs.
 
Maryplanning said:
Just another question on the AVC for the uneducated, when I reach retirement can I take the value built up out in a lump sum, this is not tied in anyway that I would have to take it as a monthly pension?
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You can choose various ways to take your AVCs.
Firstly you can take extra tax free lump sum to maximise this up to the revenue allowed limit.
This revenue maximum limit is calculated using your maximum final remuneration, (There are three different ways this can be calculated) and your number of years service multiplied by a factor.

Then you can choose a combination of any, or all of the following with the remainder.

ARF, annuity and taxable lump sum.
ARF drawdowns can be taken monthly or yearly up to a level of your choice.

You can immediately withdraw all your AVCs at your retirement date as a combination of tax free and taxable lump sums.
 
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As the OP anticipates a final salary of approx 70k then...

If the occupational lump sum added to the amount in the AVC fund is <= 1.5 times final salary then the whole fund can be withdrawn as a tax free lump sum?
 
The OP will only have 15 years service at retirement.
Their maximum revenue allowed tax free lump sum, for this employment, will be 72/80 of their highest calculated final remuneration.

@Maryplanning If for example your final remuneration was 70k.
Your maximum revenue allowable tax free lump sum from this employment would be 63k.

You then subtract your actual pension scheme awarded tax free lump sum from this and the remainder is your scope for extra tax free lump sum from your AVCs.


Methods of calculating final remuneration
 

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Maryplanning said:
There seems to be so many rules about length of service and lumps sums allowed tax free.
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See the table on page 4 of the below publication, which aligns with the previous advice posted and presumably shows you what you might be able to take if for some reason you go earlier.


I don't really know the scheme you're talking about but I understand it's a DB public sector scheme.

When it comes to a DC scheme (which perhaps you have from a previous employment), many people go for an ARF, and in that case the lump sum is 25% of the pot regardless of years of service, but also subject to the 200k lifetime tax free lump sum limit (from all pensions combined).
 
This is an interesting topic and the query / info I am posting might be worthy of a dedicated discussion.

1. Public Service Pensions (particularly older ones) had max tax free lump sum of 1.5 * final salary but dependent on service typically 3/80 per year but if I am not mistaken this could be topped up to the max by AVC wit 20 years service.

2. When the Standard Fund Threshold (SFT) was introduced / reduced in the mid 2010's following the financial crisis there were actuarial factors published to value the Defined benefit public service to aid comparison to a more conventional private sector Defined contribution one.

3. Revenue rules restricted the Tax Free lump sum to 25% of the SFT (previously 2 Million so 500 Thousand) with the latest alteration being the SFT will increase to 2.8 million over the next years but:

4. The max Tax free lump sum is limited to 200 Thousand with the balance up to 500 Thousand being taxed at the standard rate (currently 20%)

5. The rules can be changed at anytime, albeit previous reductions allowed people to apply for a personal exemption based on the value of their funds around the time of the change, if they were aware.

6. The public service actuarial factor for valuing public service pensions prior to 2014? was 5% or multiply annual payment by a factor of 20 to get notinal fund value. Post 2014 it has a variable age at retirement related value.

now for the interesting questions / request for information - if this thread gains traction I will endeavor to post links / upload relevant docs.

What is the situation when someone has a blended work and pension history? i.e. some public service pension and some private sector / PRSA / AVC.

a. Does the Public sector actuarial valuation factor just relate to the payable pension and exclude the tax free lump sum as would appear to be the case as it references the annual payment? (My understanding is that originally public service pensions were be a 2/3 gross income replacement with the reduction to 50% being to balance out the 150% allowable tax free lump sum)

b. If correct in above assumption is the SFT value the defined benefit + any lump sum?

c. As the legislation refers to lifetime limits and encashment events is the SFT calculation applied at the absolute rate of the pension and tax free lump sum taken at the date of claiming the benefit? For simplified sums, assuming a pension paid out end of 2013, of then 40K per annum with a Tax Free lump sum 100K would that equate to a valuation of 900K (( 40K per Annum * 20) + 100K))?

d. Assume that the person has continued working since leaving the public service and is in either a defined contribution or PRSA, is due to retire and the value of the new fund is 700K what is the situation here total fund values 1600K so 25% = 400K. Is the 400K treated as 300K i.e. 400 less the 100K payout in 2013 so another 100K tax free (to 200K) limit with the balance (200K) at 20% as less than 500K?

e. Difficult to come up with a good example but assuming that the the total life time funds value is less than the current 2 million (2.8 by 2023) but over 800K is the balance of the 200/ 500K tax free / taxed at standard rate limited by the overall 25% revenue rule or is it optional to take a reduced tax lump sum over 25% of the total fund value up to the 500K treashold?
 
skenn0 said:
Public Service Pensions (particularly older ones) had max tax free lump sum of 1.5 * final salary
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There's a subtle error here; it's a max pension lump sum rather than a tax free lump sum
skenn0 said:
is the SFT value the defined benefit + any lump sum?
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Yes
skenn0 said:
the 400K treated as 300K i.e. 400 less the 100K payout
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Yes
skenn0 said:
is it optional to take a reduced tax lump sum over 25% of the total fund value up to the 500K treashold?
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If the pension lump sums taken (either 1.5x or 25%), is less than €500k, the person is unable to use the balance of that tax-free/20% tax allowance
 
Sorry for the delay in replying, Thank you all for the information. I will have a good read through the replies and hopefully, I will understand the way forward. I don't have the ability to like each reply, thank you for you time.
 
Fortune said:
There's a subtle error here; it's a max pension lump sum rather than a tax free lump sum
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@Fortune - thanks, I guess this is at the heart of the question. In the case of blended employment it would appear that the "notional" value of the public service pension as calculated as per the actuarial tables be combined with prior or subsequent private (PRSA) or Defined Contribution plans as would be necessary to calculate the overall Standard Fund Value vs the SFT in force at the time of a subsequent encashment event, otherwise it would have made no logical sense in having calculated and published said actuarial factors.

Based on this logic and the changes in value of the SFT and associated tax free and standard rate sums allowed up to the 25% of SFT or 200/500K at max, that the calculated value of the SFT at the point of a subsequent encashment event, would apply the overall revenue regulations in place at that point in time i.e. Public sector DF fund with "calculated" value of 800K including the 100K tax free lump sum encashed in say 2020 and a subsequent encashment event of private sector DC / PRSA of say an additional 200K would result in an overall SFT of 1000K which, if it occurred today would allow 200K tax free (overall so an additional 100K in this event) to be taken as Tax free and an additional 50K at the standard rate?
 
I realise on re reading this that, it was not particularly clear and has a typo.

"Difficult to come up with a good example but assuming that the the total life time funds value is less than the current 2 million (2.8 by 2023) but over 800K is the balance of the 200/ 500K tax free / taxed at standard rate limited by the overall 25% revenue rule or is it optional to take a reduced tax lump sum over 25% of the total fund value up to the 500K treashold?"

As outline in the previous post - with a total "now" STF including the "notional" valuation of the prior, public service pension of 800K including the 100K taken tax free, what is the situation:

Is this treated as, effectively a new pension but subject to all overall guidance - worst case

i.e.

25% of the additional 200K so 50K available Tax free. the 150K balance treated at marginal rate / retained in an ARF etc and drawdowns, whether actual or deemed taxed at marginal rate and also subject to USC and potentially PRSI (age dependent)?

or better case

25% of full STF value (1000K), up to the limit of 200K so 100K tax free and an additional 50K at the standard rate, leaving 50K of the additional 200K either at 40% higher rate or retained in an ARF etc. and drawdowns, whether actual or deemed taxed at marginal rate and also subject to USC and potentially PRSI (age dependent)?

or best case

25% of full STF value (1000K), up to the limit of 200K so 100K tax free and the balance, 100K at the standard rate as the total of lump sums (prior 100K, Current 100K tax free and balance 100K at standard rate) total 300K less than the overall 500K lump sum limits?
 
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