Waive or retain right to pension lump sum?

purplemonkey

Registered User
Messages
2
Hi there, I have accepted an offer of redundancy and have been given two options as follows:

Option A - Retain right to lump sum from pensionOption B - Waive right to lump sum from pension
Ex-gratia payment€86,973€86,973
Less tax-free exemption€72,227€84,902
Taxable Amount€14,747€2,071
Tax (40%)€5,899€828
USC (8%)€1,180€166
Total Tax Deducted€7,079€994

'Tax-free cash from pension scheme at normal retirement age' is listed as €64,170
'Present value of tax-free cash from pension scheme' is listed as €12,676

There seems to be a c. €6k net benefit to taking Option B but is the sensible thing to do to choose Option A? Is it a straightforward decision to choose Option A or does age etc. come into it when making a decision? I am late thirties with hopefully a reasonable prospect of securing similiar employment. I have been working with the company for 13 years and have not previously availed of redundancy. Is it worth getting the view of a financial advisor? Would appreciate any advice or insights you could give me.

Thanks
purplemonkey
 

Gordon Gekko

Registered User
Messages
5,870
It’s a tricky enough area, but here goes...

‘A’ gets you €80k

‘B’ gets you €86k

In order to get that extra €6k, you’re being asked to waive a tax-free payment estimated at €64k, albeit way down the line.

Most people would choose ‘A’.

There is nuance though; because you’ve less than 15 years’ service, you could choose ‘B’, take the higher payment, and then transfer your pension benefits to a PRSA. Assuming that the scheme isn’t winding-up, you’d have to pay an actuary for a nonsensical piece of work called a “Statement of Benefit Comparison” which would cost around €1,500. But once in a PRSA, your pension benefits effectively “forget” that you waived your lump sum rights and you get the second tax-free payment.

Having said that, the net benefits are marginal here, plus the rules could change, so personally I’d choose ‘A’.
 
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duffer100

Registered User
Messages
9
Gordon - In my case the the pensions scheme will be wound up as the company is closing. So I will have an option of taking a PRSA (because i have less than 15 years service) or a buyout bond. Is it only the PRSA where waiving the lump sum will be "forgotten" or is that also the case for the buyout bond?

Do you have a link where these rules are set out?
 

Steven Barrett

Registered User
Messages
4,212
It only applies to PRSAs. It's in the PRSA legislation if you can find it. But it is there and allowed. There are constantly rumours that the revenue will close this loophole, so I wouldn't delay if you are thinking of doing it.


Steven
www.bluewaterfp.ie
 
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