Pension questions

[alissa]

Following on from this I have a question about when you can access a pension lump sum.

I have an Irish life pension which I pay into each month and my employer adds contributions...

1. Is this referred to a PRSA? I keep seeing references to occupational and PRSA pensions and I'm not clear on the difference...
2. At what point can I access the lump sum? On the Irish Life documents my retirement age is listed as 65, I've seen references to accessing pension lump sums at 60 y/o and also at 50 y/o, and I've also seen references to accessing 25% at some point?
3. As it stands, how much income tax do you pay when you draw down a lump sum? Is it income tax only, or also USC and PRSI? I believe there is a tax free lump sum of 25% ?
4. In the event of death before retirement, does the lump sum go directly to the inheritor?

Thanks in advance!

 

[cece_lee16]

@alissa If a pension is tied to your employment it is an occupational pension scheme.

A PRSA is tied to you and is 'mobile', will move with you throughout your working life.

Some occupations have retirement ages of 50 or 55, but outside of those occupations the earliest you can retire and access your benefits is 60. Most schemes in operation will have a set retirement age of 65.

How you access your benefits is set out in the rules of the scheme. The rules also include how your benefits are calculated, lump sum, pension, ARF option (if applicable) etc.

Any questions you have about your pension should be addressed to the administrators of the scheme, first port of call on Monday should be HR they will point you to the correct people to contact in relation to your pension.

In the event of ill health early retirement the scheme rules will set out how your benefits are to be calculated.

All benefits related to the same employment must be taken at the same time, so it is (currently) not possible to take parts of your fund prior to retirement.

In the event of redundancy where you no longer work for the employer the pension benefits were accrued with, you can access your benefits related to that job after the age of 50.

It may be possible to transfer your accrued fund to a new employer (both sets of administrators have to agree to this transfer, and usually do)

Hope this helps

 

[eziel]

@cece_lee16 Really good explanation but small correction the after 50 option isn't only available in the event of redundancy.

When you leave a job, for any reason, you have the option to transfer your pension to a buy out bond. Most offer the option to withdraw the tax free lumpsum of 25% up to a max of 200k at 50

The tax free lumpsum is a total lifetime allowance and there are some conditions. However depending on your pension balance after the 200k tax free there is an option to take the next 300 as a lumpsum at 20% tax.

https://www.pensionsauthority.ie/en/lifecycle/tax/tax_on_lump_sums_at_retirement/

 

[cece_lee16]

@eziel Apologies, I mentioned after 50 in case of redundancy as OP was querying about accessing benefits early.

 

[eziel]

@cece_lee16 NP, you gave a great answer.There is so much to keep track of and so many conditional things it's hard to figure out how much detail to include in 1 comment

 

[alissa]

@cece_lee16 thanks!

 

[siphosethu]

@alissa

thanks!

You're welcome!

 

[cece_lee16]

@alissa You're welcome!!

 

[noose]

@alissa If you still work for your current employer you won’t be able to access your pension until you retire. If you move employer in the meantime and leave your pension from your current employer where it is I think you can access this from 50. You can drawdown 25% of your pension in a tax free lump sum. The rest will be taxed as income as you draw it similar to how your current wages are so the amount of tax you pay on it will depend on how much you drawdown and any other income you have at the time.

 

[alissa]

@noose

You can drawdown 25% of your pension in a tax free lump sum

I presume this is at retirement, i.e at age 65? There is no way of accessing it before then?

 

[noose]

@alissa I’m not sure to be honest mate. You may be able to take it from 50 assuming you have spectate pensions as above. You limit of 200k is a lifetime limit even if you draw lump sums down at different times

 

[willumg]

@noose Why bother answering if you don't know the answer

 

[noose]

@willumg Shut your mouth you little fool he asked a number of questions I just didn’t know the answer to one particular element

 

[xdxaxvxex]

@alissa If the pension is tied to your employment and your employer is paying contributions it's not likely it's a PRSA. You have to get an annual benefit statement for it regardless and it will state on the document if it's a pension scheme or PRSA.

If you have less than 2 years pensionable service in the pension scheme and leave the company you can get a refund of your contributions minus taxes (treated like any income). Unless the scheme has full vesting. Otherwise you can retire the pension from age 50. But only if you've left employment.

Depending on your years of service, salary, any other pensions you have and benefit value your options change. You may be able to:
- Take it all as a tax-free lump sum. (If fund is within your tax-free lump sum entitlement)
- Take 25% or more tax-free and the rest as taxable (like any salary)
- Take 25% as a tax-free lump sum & put the rest in an ARF (have to take 4% drawdown each year & money is still invested)
- Take up to 1.5 times your salary (calculated on years of service & salary & reduced if taking early retirement) as a tax-free lump sum & the rest as taxable (if less than €30k after the lump sum)
- Take up to 1.5 times your salary & put the rest in an Annuity (provider offers you a certain amount annually for the rest of your life in exchange for the rest of your benefit)

 

[xdxaxvxex]

If you die before retirement your benefit is paid to your estate. The Trustees of the scheme decide on how your death in service benefit is paid, but they look at your wishes form if you complete it, marriage, dependents, wills etc to decide. Actual benefits take longer to pay out as they have to go to the estate.

 

[bryness44]

@alissa How much are you guys making from your schemes ? Mine is fucking shit

 

[willumg]

@bryness44 Pretty much impossible not to have made money the past 3 years. What fund are you in?

 

[bryness44]

@willumg Irish Life

 

[startupchristian]

@bryness44 They have multiple funds. Which one are you in?
You should be 100% in equities until approaching retirement.

 

[bryness44]

@startupchristian It was called Irish Life Active Managed Fund and did -1% 2020-21. I pulled out my funds and split them over the only other two Irish Life funds available to me that were not cash only funds

Realistically I’d rather manage my own pension but company won’t match my contributions