Cash Lump Sum

You have some options as to how you will take your cash lump sum. This depends on what ype of pension savings arrangement you  have. Please read through these options below to see what is appropriate for you.

The following Option 1 applies to Defined Benefits and Defined Contribution Plans:

You can find explanations of ARFs in other sections of our Frequently Asked Questions.

*Scroll down on this page for the likely tax treatment of lump sums.
 

The following Option 2 applies to Defined Contribution Plans and PRSAs (Personal Retirement Savings Accounts)

*Scroll down on this page for the likely tax treatment of lump sums.
If you have a Personal Retirement Bond (PRB) your cash lump sum option depends on the type of pension savings arrangement you are transferring from. If you are transferring from a Defined Contribution arrangement the date your transfer occurred will affect the options available. If your PRB was set up before 7 February 2011 then you may only avail of option 1. If your PRB was set up after the 7 February 2011 then you may be able to avail of either option 1 or option 2.

 If you are transferring from a DB arrangement, then option 1 will be available to you.

Likely tax treatment

Some of your cash lump some may be taken tax free at retirement, up to certain limits. The likely tax outcomes we outline here for your cash lump sum are suitable for the following arrangements:

• Defined Contribution (DC)
• Personal Retirement Bond (PRB)
• Personal Retirement Savings Account (PRSA)
• Defined Benefit (DB) arrangement

* The Standard Fund Threshold allowable for tax relief purposes will reduce from €2.3m to €2.0m in January 2014 (as proposed by the Finance Bill 2014) This maximum amount includes any pension benefits already taken together with pension benefits yet to be taken. Any fund in excess of this amount will be liable to a once off income tax charge at the top rate of tax (currently 41%) when it is drawn down on retirement. A personal fund threshold might be higher if you have agreed this with Revenue in the past.

Figures are correct as at May 2022.

• If a single life pension was purchased for you and there was a guaranteed payment period which ended prior to your death, your pension simply ends when you die.
• If a joint life pension was purchased for you and you predecease the dependant the joint life pension was purchased for the relevant pension amount will then be paid to your dependant for the rest of their life when you die.
• If a single life investment protection pension was purchased and you have received gross pension payments totalling less than the purchase price paid for your pension, the balance will be paid to your estate when you die. You will need to discuss the taxation implications of this with your financial adviser as the tax treatment of any balance remaining differs depending on who receives the amount remaining after you die.

If you are trying to figure out how best to arrange your pension based on what will happen to your pension when you die, you should talk to your financial adviser.

You can decide to use the money that you have built up in your pension fund to provide a pension income (also called annuity ) for you only, or a pension income which will be paid first to  you and then will become payable to your  spouse/registered civil partner or  dependants if you predecease them.

Making these provision means that you will receive a lower monthly pension than if you only make provision for yourself. The reduction in your pension is related to the level of benefits chosen for your financial dependants and to a lesser extent the age gap between you and your financial dependants.

If you invest in an Approved Retirement Fund (ARF) then on your death the ARF will form part of your estate. The taxation treatment of any fund passed to your estate will depend on who inherits the fund. 
 

Remember that any death benefits (usually called death in service benefits) which you were covered for before retirement under your occupational pension scheme will automatically cease when you leave service. They may also cease when you reach your normal pension date even if you continue working past your normal pension date.

It may be possible for your death in service benefits to remain in force if you continue working after your normal pension date subject to satisfactory medical evidence.  

If you employer does allow you to continue working past your normal retirement age you have a number of options in relation to your pension:

• Take all your pension benefits at normal retirement age.
• Take your maximum cash lump sum and leave any remaining amount in the scheme until you retire. 
• Do not take any pension benefits and continue to make pension contributions to scheme if you so wish. The pension benefits can then be taken in full when you retire.

Note –

• Pension benefits must be taken no later than age 70 regardless of whether your employer allows you to continue to work beyond that age.
• If your pension scheme allows you to take benefits after age 50 and before your normal retirement age you cannot make any further contributions or continue in the employment to which the scheme related.

You can take your pension benefits from a previous employment and continue to work once you satisfy the following criteria:

• You are over age 50.
• You no longer work for the employer that the pension benefits relate to.
• The trustees of the pension scheme allow you to take the pension benefits (if you are taking them before your normal retirement age).

The State Pension (Contributory)

The age at which the State Pension becomes available will rise over the next few years.