As you approach your Retiring Age, the Pensions Team will send you an options letter setting out the benefits available to you on retirement. The pension you receive at retirement is paid monthly in arrears for the rest of your life.
Options at retirement
At retirement you have the option to exchange part of your Scheme pension for a cash lump sum. Lump sums up to €200,000 are currently paid tax-free. For larger lump sums, the excess over €200,000 will be subject to tax at the standard rate, but any amount over €500,000 will be taxed at the higher rate. If you do decide to take a lump sum, any pensions payable on your death will not be affected.
The amount of pension you give up depends on the amount of lump sum you wish to take and your age at retirement. If you need advice about how much lump sum to take or how to invest it, please contact an independent financial adviser.
Additional Voluntary Contributions (AVCs)
If you paid AVCs whilst an active member of the Scheme, your AVC fund will be available to supplement your benefits from the Scheme, subject to the Revenue Limits on maximum benefits.
How you choose to use your AVC fund will depend on your personal circumstances. You may use your AVC fund in one or more of the following ways:
a) Purchase additional pension for you and/or your Dependants. This is done by the purchase of an annuity from an insurance company. In effect, you exchange the value of your AVC fund for a guarantee of a regular income for the rest of your life.
b) Increase or provide your cash lump sum. Depending on your service with the Company, you are entitled to take a cash lump sum of up to one and a half times your final remuneration. Lump sums up to €200,000 are currently paid tax-free. For larger lump sums, the excess over €200,000 will be subject to tax at the standard rate, but any amount over €500,000 will be taxed at the higher rate.
c) Invest in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF).*
d) Take a taxable cash lump sum. Once you have taken your full cash lump sum entitlement as described in option b), you can also take a further cash lump sum. However this amount will be subject to deduction of income tax at your highest rate.
*In order to be eligible to invest in an ARF or take a taxable cash lump sum, you must have a guaranteed minimum income of €18,000 pa from pensions or annuities. This figure may include your State retirement pension but only if it is already in payment. If your total income does not meet this minimum requirement, you may still be able to invest in an ARF if you invest €119,756 in an Approved Minimum Retirement Fund. While you cannot withdraw any of the amount that has been set aside in the AMRF until you reach age 75, you may withdraw any income this fund generates.
Full details of these options will be available as you near retirement.
What is an approved retirement fund (ARF)?
An ARF is a type of fund operated by certain authorised investment managers, which allows you to choose between the various investment options and gives you complete control over when and how you draw down funds.
ARFs give you the opportunity to continue to invest your Retirement Account in a tax-efficient way after you retire, with the added flexibility to withdraw cash as required. Qualifying fund managers offer a choice of ARF investments ranging from bank deposit accounts to unit linked funds.
The investment return on an ARF is exempt from tax for as long as it remains within the fund. You can withdraw cash from an ARF whenever you wish, subject to the terms offered by the fund manager. Withdrawals are subject to income tax and PRSI, which will be deducted at source by the fund manager.
Each year there will be an imputed 5% distribution from an ARF irrespective of whether or not an actual distribution occurs. This will be taxed at your marginal rate. If actual distributions are made, those will count towards the imputed distributions. This provision does not apply to Approved Minimum Retirement Funds (AMRFs).
An ARF can be left as an inheritance on your death, subject to certain tax limitations, depending on your relationship with the person who inherits the ARF.
Payment of your pension
Pension benefits are paid into a bank or building society account on the second last working day of every month. Just before you retire, you will be asked to provide us with details of the account where you would like your pension paid.
You may also wish to change any direct debit or standing order instructions so that they fit in with the date on which your pension is paid.
Pensions, including spouse’s pensions and children’s pensions, are liable to tax under the PAYE system. Tax payable on State pension or benefit will also be deducted from your Scheme pension, since the tax authorities take your income from the State into account when calculating tax-free allowances.
Cash lump sums paid on death are not liable to Income Tax but may be liable to Capital Acquisition Tax.