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Options on retirement

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  • 16-05-2006 10:19am
    #1
    tinkerbell
    Registered Users Posts: 6,423 ✭✭✭


    Hi everyone,

    I've to write up a letter about retirement options but I'm kinda confusing myself by reading up too much about it!

    So I'd really appreciate it if someone could help me :)

    Employees - out of their compulsory contributions, they can get tax-free cash (1.5 x Final Salary) and they must purchase an annuity with the rest.

    Out of their AVCs, they can put it towards a larger annuity, buy an ARF, draw out all the money and have it taxed as income. Where does tax-free cash come in here?

    5% directors - they can treat both compulsory and AVCs as "AVCs", i.e. they can put all their money into an ARF if they so choose (incl the tax-free cash option which is 25%).

    New finance bill 2006 changes:
    Limit on the pension fund that is tax efficient - it is now €5m, there was never a cap before? Anything above this is taxed at 42%, so if it's €6m, then €1m gets taxed. Then you can take your tax-free cash, which is 25% of the fund or 1.5 x Final Salary (whichever is higher). This is subject to a max of €1.25m. There was no max before?

    Finally, you are taxed on 3% of your ARF fund regardless of whether or not you draw money from it? If you draw 0% income, you are taxed on 3% of the fund at a rate of 20% or 42% (depending on your PAYE status?). If you draw 2% income, you are taxed on the 2% at your PAYE rate + PRSI, then 1% at PAYE. If you draw 4%, you are taxed on 4% at PAYE rate + PRSI, etc. This 3% only came in this year.

    Is that right? Or have I got it totally all wrong? Thanks a million everyone, really appreciate it.


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