Waiver right to tax free lump sum on retirement

Discussion in 'Tax' started by Bubbles88, 5 Feb 2019.

  1. Bubbles88

    Bubbles88 New Member

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    2
    Hi

    Being made redundant and faced with the options:
    Option A - lower lump sum
    Option B - increase lump sum by 6k by waivering 36k from pension lump sum on retirement.

    Seems like a very small gain for waivering 36k on retirement? Or does it make sense if your younger as there’s another say 30 years to make it back up ?
     
  2. NoRegretsCoyote

    NoRegretsCoyote Frequent Poster

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    How old are you?

    What is your retirement age?

    Is the lump sum linked to inflation?


    Without these details it's impossible to know.
     
  3. Bubbles88

    Bubbles88 New Member

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    I am 30 , retirement age 65? So a long way away
    And no idea about the inflation piece ?
     
  4. noproblem

    noproblem Frequent Poster

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    1,400
    As an old saying goes, "A bird in the hand is worth 2 in the bush". If i've to explain that then there's no more for me to say.:)
     
  5. Monbretia

    Monbretia Frequent Poster

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    Funny you should say that noproblem as that's exactly the line I went with in this similar position 10 yrs ago :)

    I took the view that who knows whether or not the 'tax free' element would be still in place by the time pension rolled around so I went with the higher tax free element of redundancy payout.
     
  6. misemoi

    misemoi Frequent Poster

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    Me too, I waived a portion. It was a relatively small amount to waive so I took the view that by the time I retire who knows what the lump sum situation would be.
     
  7. NoRegretsCoyote

    NoRegretsCoyote Frequent Poster

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    You would want an after-tax rate of return of 5.25% for 35 years for €6k to turn into €36k. That's a rate of return that's pretty good.

    Maybe you need the money in the short term and can do better with it.




    You also need to find out if the €36k is index linked. If it is then it's worth even more to leave it where it is.
     
  8. Monbretia

    Monbretia Frequent Poster

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    Is there some guarantee in place that these tax free lump sums on retirement will still be there? I mean is it written somewhere into the conditions or something, you'd hate to count on it and have it be done away with at some stage!
     
  9. DBL2018

    DBL2018 Registered User

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    7

    Not quite as to get the tax-free amount you are taking from your pension fund or converting DB pension to get it.

    All you are doing is giving up the option to take the 36k as a tax-free lump sum. If you waive the right then you get the 36k taxed ( or as annuity).
     
    Monbretia likes this.
  10. dublin67

    dublin67 Frequent Poster

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    Personally at your age I've waive my entitlement and take the benefit now. When you retire in 35 years time the world will be a different place and, as already mentioned, the pension rules could have changed considerably. You are only waiving your entitlement to a lump sum in respect of this employment. You still have another 35 years to max out your pension tax free lump sum in another employment.

    On a practical basis I've seen people sign a waiver and the document goes somewhere - will that document still exist in 35 years time and be available - who will know?
     
  11. Feemar5

    Feemar5 Frequent Poster

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    133
    Unless your are stuck for the €6K I wouldn't take it - CPI inflation calculator says six thousand in 1988 would be worth €11,250 in 2018 so unless things really change it seems a small amount to get in exchange for the €36K. However, who knows what will happen in the future - maybe a bird in the hand is worth taking.