Congratulations on your upcoming retirement.
Tax Free Lumpsum:
This is the easy part – Whether you have a Personal Pension, an Executive Pension or a PRSA you can take 25% of your full Pension Fund(s) as a Tax Free Lumpsum.
If you are a member of an Executive or Company Pension Scheme you will have an additional option of taking a Tax Free Lumpsum based on your years of service and final salary. If you have at least 20 years’ service completed, you could take 150% of your final salary as a Tax Free Lumpsum. If you choose this option, any balance remaining must be used to purchase a pension. So this option is really only suitable if you can take the entire fund tax free or if you have a small balance left over.
After you have taken your Tax Free Lumpsum you need to decide what to do with the balance. Please note the remaining balance is subject to income tax (if applicable) USC and PRSI (up to age 66). There are 2 main options for the balance. Please read on to learn more.
Purchase a Pension/Annuity – this is where you give over your balance to an insurance company who in turn provide you with a guaranteed income for the rest of your life. The amount you receive depends on your age, your health, interest rates prevailing at the time and life expectancy. This option is suitable for someone who likes to know what amount they will receive each month.
Guaranteed income for as long as you live
Dying too soon after draw down – pension dies with you (can be payable to a spouse upon death)
Continue to invest your money in a post-retirement product called an ARF (Approved Retirement Fund)
You decide how much to withdraw from your ARF each year, subject to minimum withdrawal amounts of 4% of the fund value each year increasing to a minimum of 5% of the fund value from age 70 onwards.
You control where your money is invested and how much you need to withdraw every year, subject to the minimum withdrawals
If you die, any balance not yet used is paid to your estate
Living too long and/or depleting the fund too early.
Take a Taxable Lumpsum –you can take the full balance as one lumpsum however you will be taxed on this in the year in which it is taken so it’s not advisable, from a tax perspective, if it’s a large lumpsum. Please seek financial advice.
If you are planning to retire before the State Contributory Pension kicks in, you should consider how you would finance the gap years.
Please seek Financial Advice when deciding on your retirement benefits.
Need Some Guidance?
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Tel: (059) 913 3800