redundancy and pension

gerrykeegan

Not looking for advice. Just want to know could this be correct. Person gets redundancy. They decide to put their taxable lump sum into their pension. Once they are within allowable limits. Would this be possible. Is it beneficial to them.

Mr. Incognito

Alump sum is usually tax free.

When you put it in a pension the drawdowns of the pension when it is eventually drawn down will suffer tax.

dominicbrooks

Unlikely you would pay tax on normal redundancy,unless payments are excessively high.
If you were still in negotiations with your employer about redundancy now is the time to discuss deferral to pension of some of the lump sum.If you have departed from the company you would probably have to wait to join a new company scheme and make additional voluntary contributions.
If sums of money are big engage with someone with detailed knowledge of pensions.
If you are nearing 50 give some thought to retirement options. Cash lump sums at this stage can be way more beneficial than taking an annuity later on.
What ever you do be mindful of retirement benefit options built up in your present scheme, if you have enough years of service you can take 150% of the average of 3 consecutive years in the 10 years preceeding retirement as a lump sum if you chose to retire at 50 or 25% of fund.
If you transfer to a new pension scheme with a new employer just ask the question as to whether your benefits in your previous employment are preserved.

Hope I haven't confused the matter too much for you-Best of luck

gerrykeegan

Mr. Incognito wrote: »

Alump sum is usually tax free.

When you put it in a pension the drawdowns of the pension when it is eventually drawn down will suffer tax.

Sorry I thought I was clearer. Its the taxable element of any lump sum I am talking about. The ex-gratia amount. The amount over and above statutory redundancy. This is "taxable"

The question was more can it be done and if it was done is there a downside. And I think you have answered the second part for me. It will be taxed at the end when it comes out.

Legend100

you will be taxed when it comes out but there may be a tax saving in terms of utilisation of tax credits and rate bands in the future when drawing the income (of course it is all speculation due to inflation and govt policy by the time you retire)

You should seek professional advice as there is no easy answer to give without knowing the figures involved - not just on the question at hand but on the bigger picture of future retirement plans and expected standard of living

of course such advice is way beyond the remit of this board

dominicbrooks

Tax Relief

As follows;

1. Basic Exemption - The Basic Exemption is €10160 plus €765 for each full completed years service with the employer. If it is the claimant's first claim the Basic Exemption may be increased by up to €10,000* subject to certain conditions. From 1/1/02 the increased exemption of €10,000 may be availed of by an individual every 10 years.
   
   Increased Exemption - If claimant is not a member of an occupational pension scheme or has irrevocably given up the right to receive a lump sum from the pension scheme the basic exemption at (1) above may be increased by €10,000*. If claimant is a member of an occupational pension scheme the increased exemption of €10,000* is reduced by,
   1. the amount of any tax free lump sum from the pension scheme or
   2. the present day value at date of leaving employment of any tax free lump sum which may be receivable from the pension scheme in the future.
      
      * Prior to 1/1/02 the increased exemption was 4,000.
2. Standard Capital Superannuation Benefit - This relief benefits those with high earnings and long service. It is about 1/15th of the average annual pay for the last 3 years of service to date of leaving less any tax free lump sum entitlement from the pension scheme.
3. Top Slicing Relief - Top Slicing is additional relief given to ensure that the lump sum payment is not taxed at a rate higher than the claimant's average rate of tax for the previous 3 years (5 years prior to 1 January 2005). This relief is claimed after the end of the tax year.

Back to Top
Exemptions

1. Statutory Redundancy Payments are exempt from tax.
2. Payments made on account of injury or disability.
3. Payments made when employment consists of foreign service where certain conditions are met.

Take total payment made to you,subtract Statutory portion of payment.From this deduct(10160+765*years of service).Whatever is left over is taxable.You can now judge whether the pension route is an option.