Apologies for the simple example...
If someone is on €80k a year and has 20 years’ service, ordinarily the lump sum will be €60k.
If he/she puts €60k into an AVC fund, is it then possible to get that tax-free as part of a €120k lump sum?
And when is it paid, at retirement or at NRA? The latter presumably, unless the person takes early retirement (and suffers some form of actuarial reduction)?
Thanks Conan. I’m confused; on retirement or at Normal Retirement Age?
e.g. does a departing 50 year old on €80k a year and with €60k worth of AVCs get his/her €120k immediately, or does he/she have to wait 10 years until NRA?
I thought all that Cost Neutral Retirement stuff would kick in.
If tax free lump sum is €120k (150% of final salary), how will the remainder AVCs be taxed if taken as out a lump sum too? I know it’s tax free till €200k and then 20% to €500k. But in this instance, is it the next €300k (121-421)at 20% or is it €121-500 at 20%? If I am going to be a 40% tax payer when I retire, it might still be worthwhile to take lump sum at 20% tax? I am still trying to figure out how much AVCs to contribute going forward.
e.g. does a departing 50 year old on €80k a year and with €60k worth of AVCs get his/her €120k immediately, or does he/she have to wait 10 years until NRA?
I thought all that Cost Neutral Retirement stuff would kick in
In the Public Service, at least, the departing 50 year old would not get €120K if taking cost neutral early retirement. Even if he/she had more than €60k in the AVC fund to "compensate" for the actuarially reduced PS lump sum, it still would not work. The 150% of final salary tax free is reduced as well if taking cost neutral early retirement. I don't recall off hand what the reduced percentage (per year) is. I assume that if the retiring 50 year old opted for a preserved pension they would get the €120k at 60 - although charges may somewhat deplete the AVC fund in the meantime.
A pre 2004 PS can (not must) retire from 60 without actuarial reduction. Your example could only apply in the PS to a pre 2004 entrant. For post - 2004, cost neutral retirement is only available from 55 with NRA at 65. There are exceptions (eg Gardai).
I assume similar would apply to a DB scheme in the private sector - if the scheme allowed cost neutral early retirement.
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