Query re pension offer

Jamesw2

Can anyone help. My brother was paying into a work pension plan for over 20 years. He has in the past year had a stroke and is on an invalidity pension. Meanwhile his work pension has come through (early retirement due to bad health). The current value of the pension is circa 150,000e. Nearly all options quoted to him by aviva on the drawdown of the sum state that tax wil be deducted. One option stated that he could only drwadown 25% tax free and the remainder would be taxed. I thought there was a lifetime limit of 200,000. Can anyone help. Should I talk to revenue? He doesnt want to draw down an annuity. He just wants the max sum available tax free. Advice greatfully appreciated

Liam D Ferguson

Jamesw2 wrote: »

One option stated that he could only drwadown 25% tax free and the remainder would be taxed. I thought there was a lifetime limit of 200,000.

It's 25% of the fund up to a maximum of €200,000 that will be tax-free. So in his case it's around €37,500.

Does he need the income right now from the remaining €112,500? If not, he can defer taking it if he wants.

In any event, he may not be paying tax if his total income from State and work pensions are below his tax credits.

Another point to mention is that if the work pension is an Occupational Pension Scheme, there's a second method of calculating his tax-free lump sum, based on his salary and years' of service. In some instances it can work out at more than 25% of the fund.

His employer's pension adviser should be advising him on all this. Otherwise he should get professional advice as some of the decisions around retirement are irreversible.

Kennie1

He will be able to take 25% of the 150K which is 37,500 as a taxfree lump sum.

The remaining 112,500 must be invested in either an Annuity or a Approved Minimum Retirement Fund if his guaranteed income is less than 18,000 p.a.

If his income is less that this every year and he invests in a AMRF he must maintain the orginal investment balance. From this he may withdraw any surplus at any time. All withdrawals are subject to tax, prsi and USC but if his income is low he may not be liable to tax or prsi.

He will not be able to surrender the AMRF original investment amount before his 75th birthday.

I would strongly urge him to go see a broker or pension advisor before he makes any final decision

Jamesw2

Thank you all for your replies. We will take your advice and see the broker. Am miffed at how lousy at the end of the day his pension is and how more importantly how stiffling the tax regime is surrounding pensions. They definately need reforming.

Alan152

Hi OP

If it is a company pension plan and he was in this over 20 years did they not quote the option of taking a higher tax free lump sum based on final salary and then purchase an annuity?