Simple question on pensions

sunnyday1234

Hi All
If i had 300k in a pension fund at aged 65 and retired. Is it possible to take out 30K per year every year for 10 years - is that allowed ?

Spocker

No, thats not how pension funds work. You are allowed to take a maximum of 25% (someone please correct me if I'm wrong on that, as it does depend on your type of pension) and the rest is used to purchase an annuity or invest in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF)

See here for more detail: https://www.pensionsauthority.ie/en/LifeCycle/Important_life_events/Retiring/ and here https://www.citizensinformation.ie/en/money_and_tax/personal_finance/pensions/

Based on your original question, what would you do in year 11, when the money is all gone?

coylemj

sunnyday1234 wrote: »

If i had 300k in a pension fund at aged 65 and retired.

By 'retired', do you mean retired from a job which will pay you a pension?

Separate from that 300K fund, will you have a pension or guaranteed income of at least €12,700 p.a. ?

jimmy456

You could do that but its not the most efficient way to retire the fund.

Assuming the ARF option is taken as no provider would give that annuity the following could happen on retirement:

25% Lump sum of 75,000 paid to you;
63500 paid to an AMRF; and (unless you already in receipt of pension income of 12,700)
161,500 paid to an ARF.

The AMRF is restricted to a max payment of 4% per annum to you or 2,540.

You can drawdown as much as you want from the ARF. However at a rate of 30,000 per annum the fund wouldn't last that long. Bare in mind that you would have received a tax free lump sum on retirement of 75000 so maybe you could reduce the 30,000 need as well? Also are you entitled to the state pension which could reduce that 30,000 figure even further?

How long the ARF will stretch out for will depend on the level of withdrawal versus the level of risk taken. The is an extremely important decision for you and one that shouldn't be taken lightly!

sunnyday1234

Thanks. The answer is entirely theorical as i am not at retirment age , i just want to know how it works
I think that the 25% draw down at the start is tax free but you can actually draw it all down together and pay tax on it ? 
Lets just say i wanted to live well for 10 years and travel a lot and after the 10 years was up then i would have state pension and partners public sector pension , would it be within my rights to take all the money down at the start and start to spend it ?
Again, forget about year 11 etc,

Spocker

If you've saved the funds in a pension fund, then no, you can't draw it all down in the way you describe (because you get tax relief on those savings)

sunnyday1234

Spocker wrote: »

If you've saved the funds in a pension fund, then no, you can't draw it all down in the way you describe (because you get tax relief on those savings)

Avivas website says 

"[font=source_sans_proregular, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", arial, helvetica, sans-serif]You can take 25% of your pension fund as a retirement lump sum. [/font][font=source_sans_proregular, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", arial, helvetica, sans-serif]he balance can then be used for one or more of the following:"[/font]

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[font=source_sans_proregular, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", arial, helvetica, sans-serif]so yes i can draw it all down but would be taxed on it. First 200k is tax free and then 20% from between 200 and 500k [/font]

Spocker

Going by the example in your original post though, you'd be aged 65, so this would apply (again from the Aviva site)

"However, if you don't have a guaranteed pension of €12,700 per year or you’re under 75, you’ll have to invest €63,500 or the rest of your fund (if less) in an AMRF, or use the money to buy an annuity."

So if you take 25% at 65 of your 300k (75k) that leaves 225k, of which you will have to divert 63.5k, leaving 161.5k, which you will have to pay tax of at least 20% (it could be up to 40%, and PRSI/USC may also be applied) on (32.3k) leaving 129.2k.

Adding back your initial 65k tax free, gives a total of €204.2k or ~€20k/annum + whatever state pension is available to you at the time

The 63.5k would then pay out as an AMRF or annuity.

Spocker

sunnyday1234 wrote: »

so yes i can draw it all down but would be taxed on it. First 200k is tax free and then 20% from between 200 and 500k 

Where did you get this bit about 200k tax free?

sunnyday1234

Spocker wrote: »

sunnyday1234 wrote: »

so yes i can draw it all down but would be taxed on it. First 200k is tax free and then 20% from between 200 and 500k 

Where did you get this bit about 200k tax free?

aviva

[font=source_sans_probold, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", arial, helvetica, sans-serif]€200,000[/font][font=source_sans_proregular, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Oxygen, Ubuntu, Cantarell, "Fira Sans", "Droid Sans", "Helvetica Neue", arial, helvetica, sans-serif]: This is the maximum tax-free amount you can get.[/font]

Spocker

So, thats the maximum amount you can take from your fund, tax free, up to the 25% limit. In your example, your fund is 300k, so the max you can take tax free is 25%, or €75k

gwalk

you can take 25% of your fund tax free

there is a threshold on taxable lump sums of €30,000, if your fund after the tax free element is over 30k you cannot avail of the taxable cash option and you must get an ARF/AMRF/ Annuity

coylemj

gwalk wrote: »

you can take 25% of your fund tax free

there is a threshold on taxable lump sums of €30,000, if your fund after the tax free element is over 30k you cannot avail of the taxable cash option and you must get an ARF/AMRF/ Annuity

Where did you get that from?

After you've taken the maximum tax-free lump sum and assuming you have a guaranteed income of at least €12,700 p.a., you can withdraw the entire balance and pay tax on it. All of it. Or the OP could put the balance into an ARF and withdraw 10% p.a. until the fund is exhausted.

The principal reasons for not withdrawing all of it when you reach retirement age is that (1) it grows tax-free in an ARF - the fund manager pays no tax on capital gains and dividends (2) you would be paying 40% PAYE on most of the money whereas if you withdraw it over several years, you can minimize your exposure to the top rate. And if you withdraw it too early and don't need the income, you will get sod all interest if you lodge it in a depost account.

23.8 Full withdrawal of balance in retirement fund

Provided the individual has satisfied the specified income or AMRF/annuity requirements (see paragraphs 23.5 and 23.8), the balance of the retirement fund, after any amount taken as a retirement lump sum, may be paid to the individual. This amount is treated as emoluments of the individual and is taxable under Schedule E.

https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-23.pdf

sunnyday1234

coylemj wrote: »

Where did you get that from?

After you've taken the maximum tax-free lump sum and assuming you have a guaranteed income of at least €12,700 p.a., you can withdraw the entire balance and pay tax on it. All of it. Or the OP could put the balance into an ARF and withdraw 10% p.a. until the fund is exhausted.

The principal reasons for not withdrawing all of it when you reach retirement age is that (1) it grows tax-free in an ARF - the fund manager pays no tax on capital gains and dividends (2) you would be paying 40% PAYE on most of the money whereas if you withdraw it over several years, you can minimize your exposure to the top rate. And if you withdraw it too early and don't need the income, you will get sod all interest if you lodge it in a depost account.

23.8 Full withdrawal of balance in retirement fund

Provided the individual has satisfied the specified income or AMRF/annuity requirements (see paragraphs 23.5 and 23.8), the balance of the retirement fund, after any amount taken as a retirement lump sum, may be paid to the individual. This amount is treated as emoluments of the individual and is taxable under Schedule E.

https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-23.pdf

Thanks. What is the requirement of 12700 per year about ?

What happens if I don’t have that ?if I was retired but not getting the 12700 but my wife was still working - does that count ?

coylemj

sunnyday1234 wrote: »

Thanks. What is the requirement of 12700 per year about ?

It's already been mentioned by posters jimmy456, Spocker and myself...

jimmy456 wrote: »

25% Lump sum of 75,000 paid to you;
63500 paid to an AMRF; and (unless you already in receipt of pension income of 12,700)
161,500 paid to an ARF.

Spocker wrote: »

... if you don't have a guaranteed pension of €12,700 per year or you’re under 75, you’ll have to invest €63,500 or the rest of your fund (if less) in an AMRF, or use the money to buy an annuity."

If you dont have that income, the aim is to stop you blowing your retirement fund and leaving yourself penniless.

sunnyday1234 wrote: »

if I was retired but not getting the 12700 but my wife was still working - does that count ?

No, your wife's income or pension doesn't count.

sunnyday1234

ok thanks. not sure how i feel about all the rules and restrctions to same me from myself ;-)
I suppose the tax relief on contributions gives them the control to do that

Love_BBC

I just have to say information about pensions is really not good enough.

All you hear is "they're great, you need to get one" but I think everyones circumstances are different.

For example, I don't think I'll need the same income as I do when I'm working. The mortgage will be paid off and I don't think my expenditure will be as high when I'm that age.

Then you have pension providers in to work answering questions....sure how can you believe them?

They came into my work once and at no stage did they say the pension is dependent on the stock market.

iluvfatfrogs

Love_BBC wrote: »

I just have to say information about pensions is really not good enough.

All you hear is "they're great, you need to get one" but I think everyones circumstances are different.

For example, I don't think I'll need the same income as I do when I'm working. The mortgage will be paid off and I don't think my expenditure will be as high when I'm that age.

Then you have pension providers in to work answering questions....sure how can you believe them?

They came into my work once and at no stage did they say the pension is dependent on the stock market.

Show me the pension where this exists!!!

Love_BBC

iluvfatfrogs wrote: »

Show me the pension where this exists!!!

What?

Actually considering my current income of approx 45k.

Take tax/pension out of that and I'll say I get....say 30k a year?

Then take out the money I save for a house....say 15k a year.

That means I currently have an income of around 15-20k a year net. That's not far off the 12/13k state pension. Plus by the time I'm retired I won't be paying rent.

As for people saying state pension might not exist, if it doesn't, we have bigger problems.

iluvfatfrogs

Love_BBC wrote: »

What?

Actually considering my current income of approx 45k.

Take tax/pension out of that and I'll say I get....say 30k a year?

Then take out the money I save for a house....say 15k a year.

That means I currently have an income of around 15-20k a year net. That's not far off the 12/13k state pension. Plus by the time I'm retired I won't be paying rent.

As for people saying state pension might not exist, if it doesn't, we have bigger problems.

Ah i see.... we have different interpretations of the word income.

You are right about having bigger problems if there is no state pension

jimmy456

Love_BBC wrote: »

What?

Actually considering my current income of approx 45k.

Take tax/pension out of that and I'll say I get....say 30k a year?

Then take out the money I save for a house....say 15k a year.

That means I currently have an income of around 15-20k a year net. That's not far off the 12/13k state pension. Plus by the time I'm retired I won't be paying rent.

As for people saying state pension might not exist, if it doesn't, we have bigger problems.

You are right that everyones circumstances are different and have different needs. However do you want to be reliant on the state for when you stop working?

Id prefer to have some sort of savings my self just in case.

A pension is very simplistic in nature. Think about it as a savings account. The difference with the pension is that when you make a deposit to this savings account revenue gives you a tax refund at the same time. After a number of years you now wish to withdraw the funds as you have stopped working. Now on every withdrawal revenue will tax you and you get your balance. This is what a pension is. Simple?

Its made complicated by all the various pension products and companies in the industry. This complication is increased by the investment of the funds deposited to the pension. These options are literally endless!

Love_BBC

jimmy456 wrote: »

You are right that everyones circumstances are different and have different needs. However do you want to be reliant on the state for when you stop working?

Id prefer to have some sort of savings my self just in case.

A pension is very simplistic in nature. Think about it as a savings account. The difference with the pension is that when you make a deposit to this savings account revenue gives you a tax refund at the same time. After a number of years you now wish to withdraw the funds as you have stopped working. Now on every withdrawal revenue will tax you and you get your balance. This is what a pension is. Simple?

Its made complicated by all the various pension products and companies in the industry. This complication is increased by the investment of the funds deposited to the pension. These options are literally endless!

The problem I have with them is how can I trust them?
How do I know I'm not giving my money away, paying someone else?

Everything points towards the pension funds making money. Restrictions on withdrawal amounts, pension types. The only little thing going for the person paying in is the tax relief (which you pay tax on anyways when withdrawing).

A pension would be great if you could say "I paid 100k into it, it's worth 150k now - I want this back guaranteed." I haven't heard from my pension provider (through work) that this is possible. I'm also told I can't access it before retirement age.

jimmy456

You are confusing a pension with an investment. No one can guarantee what anything will be worth in the future. If they had the crystal ball they wouldn't be working in a pension company

You mention trust issues. I take it you don't lodge your wages to a bank so?

sunnyday1234

so is the restriction of how much you can take out and when restricted by the govt or the pension companies

Henry Ford III

sunnyday1234 wrote: »

so is the restriction of how much you can take out and when restricted by the govt or the pension companies

Pension rules are governed by legislation.