Pension Statement

newhouse87

Hi, Just studying my pension statement for first-time after a colleague was asking me questions about it. Essentially i have figue I'm entitled to p.a when i retire on it, i take it that does not include the state pension i will also receive? That figure is not taxed either? Finally are my avcs tax free up to 200k and i only pay 20% from 200-500k? Thanks for any info.

Geuze

Are you a member of an occupational pension scheme?

If so, is it a DB or DC scheme?

newhouse87

https://www.boards.ie/discussion/comment/121709156#Comment_121709156

Its a care scheme with a multinational, was db for 2 years but company changed it to this care thing. So think its dc now. It gives p.a amount i can expect at retirement but would this normally include state pension in that amount, think the figure given has 1.5times state pension minused from gross figure in line above?.

Also putting in alot into avcs so hoping its 20% tax from 200-500k so lump sum i could take would be 440k from 500k in pot if that was the situation.

Henry Ford III

Who are the scheme advisors? Surely they'd be in a better position to advise?

newhouse87

You would think that. With regards avcs. Can I take 200 tax free and 20% tax on next 300k? Or does my actual pension implicate my avcs?

newhouse87

Just a followup, on avcs is it you can only take 25% of the fund tax free which totally changes my perspective if true. I was under impression from reading revenues site up to 200k tax free and 20% tax up to 500k but they are the total figures so i would need essentially 800k in avs to take 200k tax free? Really is not well laid out the guidelines anywhere. Also didn't know until an hour ago i will pay income tax on my occupational pension.

Jim2007

The only EEA country I'm aware that give you a free pass on income taxes in retirement is Portugal and even there it is limited to 10 years.

coylemj

Also didn't know until an hour ago i will pay income tax on my occupational pension.

And USC.

Happyhouse22

https://www.boards.ie/discussion/comment/121714015#Comment_121714015

What are you expecting total pension pot to be? You can’t really think of AVCs separately, the amount you can take tax free (25%) will be calculated from both.

will pay income tax but unless the numbers are very big this probably won’t be that much

newhouse87

Does anybody know way avcs lump sums are taxed if its only lumpsum im taking from my pensions. Seeing conflicting info.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121716496#Comment_121716496

AVC lump sum is taxed in exactly the same manner as any pension lump sum.

Your CARE scheme is DB. Whether or not the figure shown is inclusive of state pension will depend on your particular scheme's rules. It will be explained in the statement.

BTW, state pension is taxable.

newhouse87

https://www.boards.ie/discussion/comment/121717569#Comment_121717569

Is it 200k tax free then20% to 500k or is it max 25% of avc fund is tax free?

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719155#Comment_121719155

First €200k of all pension lump sums is tax free, next €300 is taxed at 20%, anything over that is taxed as income. That includes lump sums taken from AVCs.

The AVC pension lump sum is calculated on the same basis as the main scheme. That can be either based on your salary and length of service, or can be 25% of the fund value.

newhouse87

https://www.boards.ie/discussion/comment/121719272#Comment_121719272

So to take 200k tax free from my avcs I'd need to have 800k in the fund? Say Im in situation of 160k salary, I could take 200k from my avcs as it would be 1.5 times salary then rest of avcs say 300k would be taxed at 20%

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719543#Comment_121719543

No.

If you have worked at least 20 years with this employer and you are leaving at the retirement age of the scheme (which can be any age between 60 and 70 and is set by the trustees), then you could take 150% of salary across the main scheme and AVC. The lump sum would be €240k, with €8k tax payable. That lump sum would be taken from either the main scheme or AVC, or a combination of the two.

The rest of your AVCs (if any) could be used to buy an annuity, buy an ARF or tax a lump sum charged as income under PAYE.

newhouse87

https://www.boards.ie/discussion/comment/121719574#Comment_121719574

Sorry I'm a bit slow this morning. Would the remainder of the avcs not be taxed at 20% up to 500k. That was my hope, if not ill scale back the avcs.

poppers

https://www.boards.ie/discussion/comment/121719606#Comment_121719606

Not trying to be smart but if your talking about half a million quid here. Would you not pay a qualified finical/tax advisor few hundred quid and get all the correct answers to you question instead of relying on some anonymous advise on a internet forum.

newhouse87

https://www.boards.ie/discussion/comment/121719628#Comment_121719628

If a person here knows why not ask? It's a discussion forum.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719606#Comment_121719606

Your main scheme seems to be a DB scheme. It's usually poor value to take a lump sum from a DB scheme, so the usual recommendation is to take the lump sum from the AVC. In that case, and assuming your lump sum is €240k, your AVC could be 200k@0% and 40k@20%.

You need to get proper advice from someone who has all the details of your finances and pension.

newhouse87

https://www.boards.ie/discussion/comment/121719636#Comment_121719636

Yeah cheers for info. I won't be taking any lump sum from pension just avcs. So anything after I take my max lump sum is taxed at the highest rate? Oh I get it I can't take rest as cash I have to take arf or similar.

poppers

https://www.boards.ie/discussion/comment/121719635#Comment_121719635

i'm sure some one in your local pub knows aswell but would you take that as gospel,

here is a link to revenue they have the all the answers

https://www.revenue.ie/en/jobs-and-pensions/pension/private/retirement-lump-sums.aspx#:~:text=Taxation%20of%20pensions&text=You%20can%20receive%20a%20tax,marginal%20tax%20rate%20(40%25).

newhouse87

The revenue site is not as clear as you think, hence why I'm asking here.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719635#Comment_121719635

Because you don't seem to be grasping the basics, and may make a costly mistake because you're taking less care with €500k - €1m in pension funds than you would when buying a €40k car.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719644#Comment_121719644

You can take the rest of it as a lump sum, but it would be expensive from a tax point of view. Using an ARF and taking tax efficient withdrawals over time would seem more prudent.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121719669#Comment_121719669

Revenue pensions manual is quite clear. Chapter 7 on lump sums and chapter 27 on taxation if lump sums.

https://www.revenue.ie/en/tax-professionals/tdm/pensions/index.aspx

poppers

https://www.boards.ie/discussion/comment/121719669#Comment_121719669

From what i was told when i set up my pension you can take max of 25% lump sum of the final pot tax free. (up to a limit of 200K, from 200-500 is taxed at 20% anything above this is taxed at marginal rate.) the other 75% is used to fund your annual pension payments.

Dont take this as gospel and as Jay says above go get proper finical advice.

Jim2007

https://www.boards.ie/discussion/comment/121719669#Comment_121719669

The Revenue site is crystal clear on this and is one of the primary source for the application of the tax laws in the country. Your problem is the you lack the basic knowledge of pensions and taxation to be able to understand it in it's entirety. Now from what you have said it looks like you may have a significant amount at stake here and you'd be very well advised to seek comprehensive professional advice on your retirement plans.

There are two problems when it comes to individuals make pension decisions - the first is the consequence of their decision may not be known for several years and the second is that it very unlikely the decision can be reversed when it is discovered.

newhouse87

It was the bit about the level of tax after my lump sum I was not getting. I get it now that any money after my lump sum will be taxed at my marginal rate. I have talked to lot lads at work and they also thought any money left after lump sum over 200k was taxed at 20% up to 500k and now I know that is not the case.

newhouse87

https://www.boards.ie/discussion/comment/121719686#Comment_121719686

Well since its my marginal rate that would not make sense to take it. My mistake was thinking it was 20% on my avcs pot after my lump sum up to 500k.

newhouse87

Alex retired on 31 January 2023 and is paid a retirement lump sum of €800,000. This

is the first such lump sum they have received. They are chargeable to tax as follows:

 the first €200,000 is exempt,

 the next €300,000 is taxed under Case IV of Schedule D at the standard rate

in force in 2023 (20% - tax due on this portion of the lump sum = €60,000),

and

 the balance, i.e. €300,000, is taxed under Schedule E at their marginal rate in

2023 – assuming their marginal rate was the higher rate of 40%, the tax due

on this portion of the lump sum is €120,000.

 Total tax due on the lump sum: €60,000 + €120,000 = €180,000.

If Alex receives any future retirement lump sum, it will be subject to tax under

Schedule E at their marginal rate in the year it is paid.

Above from revenue, I was right originally it seems. If I have 500k in my avcs pot, 200k taxfree and next 300k taxed at 20%. No need to scale back contributions so as 20% better then paying 40% If I didn't contribute. Them links are crystal clear, I had not seen them before. No need for financial adviser after all.

Danny Drier

https://www.boards.ie/discussion/comment/121719606#Comment_121719606

Slow is right tbf

Geuze

https://www.boards.ie/discussion/comment/121714015#Comment_121714015

All income is taxable. Simple rule.

(Did you actually think pensioners don't pay income tax?)

The J Stands for Jay

https://www.boards.ie/discussion/comment/121720502#Comment_121720502

No, you are not right because you are confusing a 'pension lump sum' with the balance of the pension fund after the 'pension lump sum' has been taken.

Without giving details of your main scheme benefits, no-one here could possibly say what the tax on you AVC might be. You need to get advice.

newhouse87

https://www.boards.ie/discussion/comment/121728181#Comment_121728181

I'm only talking about avcs. My pension care scheme I'm leaving to just weekly income, I will not be taking any lump sum from it. My badly phrased question was all about if I have 500k in my avc pot and I'm not taking any money from any other fund.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121728530#Comment_121728530

Without knowing the amount of your DB pension, no-one can say what tax you might pay on your AVC.

newhouse87

https://www.boards.ie/discussion/comment/121728590#Comment_121728590

OK I do need advice so. Thought by looking at them examples and not taking any lump sum from my pension only my avcs it was clear, 1.5 times my salary up to 200k tax free from avc pot and 20% on any cash left in avcs up to 500k. I didn't think my occupational pension mattered with regards my tax on avcs if I wasn't taking any lump sum from the occupational pension. The revenue example,e is not 100% clear as it mentions nothing about that guys occupational pension hence mine and others confusion.

Them revenue examples should have notes on them pointing out if this and that is applicable including as you pointed about occupational pensions. Them ex amples are meaninglessness as is.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121728624#Comment_121728624

The examples are clear, they all refer to pensions relating to an employment. Your AVC and DB scheme relate to the same employment and have to be dealt with as one, albeit with the AVC having a slight extra bit a flexibility around ARF/lump sum options.

newhouse87

https://www.boards.ie/discussion/comment/121728785#Comment_121728785

Fair enough,thought when taking lump sum from just avcs, the occupational pension didn't come into the tax of avcs. I'll get advice this year at some stage so.

newhouse87

Talking to trustee of our pension, i can take 1.5times of average of my best 3 years in last 10 at retirement(shift rate included) lump sum tax free up to 200k from avcs as he recommended, remaining amount in avcs taxed 20% up to 500k as i originally thought and now confirmed.

My actual pension includes shift rate which i wasn't sure about also as i rea on boards pensions don't include shift allowance.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121734204#Comment_121734204

Your understanding is only correct if your salary is €333k.

newhouse87

https://www.boards.ie/discussion/comment/121734360#Comment_121734360

salary 160k so 1.5 times that 240k so 200 tax free and 40k at 20%?

The J Stands for Jay

https://www.boards.ie/discussion/comment/121734446#Comment_121734446

That's it. Balance to an ARF, an annuity of taxed as income.

newhouse87

https://www.boards.ie/discussion/comment/121734610#Comment_121734610

Id prob just tax remainder at 20%, doubt id have over 500k in it. I will talk to financial advisor closer retirement age aswell as suggested.Cheers for advice.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121734648#Comment_121734648

You can't tax the remainder at 20%. You can only get €200k tax free and €40k @20% tax.

newhouse87

https://www.boards.ie/discussion/comment/121735073#Comment_121735073

Oh the trustee said different. He said anything left after the 200klump sum in avc pot is taxed at 20% up to 500k.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121735113#Comment_121735113

Either the trustee is wrong or you misheard.

newhouse87

https://www.boards.ie/discussion/comment/121735140#Comment_121735140

I def didn't mishear, me another lad asked him twice and he said that. He said its a no brainer to do avcs as even when paying tax on 200-500k its 20% and you are saving the 20% you would have paid if paying income tax of 40%. TBH anywhere im reading now seems to suggest any money left in avc pot after the 200k tax free is taxed at 20% for next 300k.

So say i have 400k in avc pot, 200k tax free from my 1.5salary lump sum, what is the last 200k taxed at?

FastFullBack

This is one very confusing thread. I always thought AVC's were just "Additional Voluntary Contributions" as the name suggests, so they are contributions above and beyond the standard contributions % you and your employer make in a DC pension. AVC's in my mind, have nothing to do with drawing down a pension. Once you make your AVC it just goes into your pension pot and just grows, tax-free, along with the rest of your pension pot. AVC's and standard contributions are not held separately in your pension.

When you come you draw down your pension, you have the option to do a lump sum draw down. Max 25% with first 200K tax free and next 200K-500K taxed at 20%. Remaining 75% of your pension pot is then used as an income and draw down on that is subject to standard income tax. There is nothing in pension drawdown that relates to AVC's. This is my understanding of DC pensions, unless I'm wrong. Maybe AVC's on drawdown are something to do with a DB pension?

newhouse87

https://www.boards.ie/discussion/comment/121735243#Comment_121735243

Im off similar understanding but in addition instead of 25% from all pension funds i could also use 1.5time salary as my lump sum tax free up to 200k and take from my avc pot and leave my weekly pension aspect alone. The remaining money for instance another 200k in my avc pot i thought was then taxed at 20% as its below 500k in total i have now taken. Im in a care pension scheme. I get 2 statements each year, 1 with my avc balance and another telling me my weekly p.a pension i can expect at retirement.

FastFullBack

https://www.boards.ie/discussion/comment/121735270#Comment_121735270

OK but again you've mentioned AVC pots. In my DC pension with a large US multinational (pretty standard pension) there is no such thing as AVC pot. There is just one pension pot with all contributions together.

newhouse87

https://www.boards.ie/discussion/comment/121735305#Comment_121735305

Ok but i get a statement telling me what avcs i have contributed so it was from that statement i was going to take say my lump sum. In the other CARE statement i get 2 scenarios take a lump sum from the fund which lowers my weekly pension or not take a lump sum and get higher weekly pension. Trustee said today to take your lumpsum using your avcs and then weekly pension wont be reduced. Are you using mercer by any chance online?