Pension with previous employer options from 50

micks_address · 30-05-2024 9:20pm #1

Hi folks,

If you have a pension with a previous employer. Say a fund has a theoretical value of 75k when you hit 50 and you are working at another company with another separate pension.

If you want to access the pension with previous employer you can take max 25% as tax free lump sum? Is there a tax efficient way to access the balance? If you wanted to use it to clear mortgage etc.. can you withdraw it all but have to pay 20% exit tax on 75 percent of it? Or do you have to buy an annuity with the balance?

Cheers,

Mick

Henry Ford III · 31-05-2024 9:21am

I'll answer that in a fundamental kind of way. Pensions are for retirement, for replacing income when you aren't actively working any more.

Mortgages are for paying down as part of your working life, or for redeeming early if you have cash that's earning less than the mortgage interest.

That €75k is quite capable of growing significantly (tax free growth) until it's really needed (depending on where it's invested), and that growth is likely be higher than the net cost of your mortgage.

So in that instance if paying a monthly mortgage can be done out of ongoing income then it makes sense to continue to do that.

p.s. Your benefits will depend on the type of pension it is and the scheme rules. Best bet is to obtain options from the administrator. In general the 75% after the lump sum will be taxable either immediately or deferred. It's designed to provide after retirement income after all.

micks_address · 31-05-2024 9:30am

https://www.boards.ie/discussion/comment/122205158#Comment_122205158

thank you - I'm interested in the options and was just curious about the tax implications. Definitely will chat to an advisor before making any calls. So in reality if its 25% tax free - then rough maths its 18750 tax free and the balance would be taxed at 20%? so after the lump sum it would be approx 56,250 minus 20% = 45k? so in theory you'd end up with 63750 after tax including the tax free lump sum? Would it be an option to take the tax free lump sum and then defer the rest till say 65 and buy an annuity from that?

Henry Ford III · 31-05-2024 9:43am

https://www.boards.ie/discussion/comment/122205214#Comment_122205214

You can't take retirement benefits in part. You either take them in full, or not. Annuities aren't mandatory either. ARF might be a better idea?

As I said earlier contact the scheme admin and ask them for options.

micks_address · 31-05-2024 9:47am

https://www.boards.ie/discussion/comment/122205288#Comment_122205288

Thanks its a few years out anyway so time to think about it. The scheme admin should be able to provide options without having to pay an 'advice' fee to the company managing it? Do you talk to the Pension fund scheme admin (previous employer) or the managing company? in this case the managing company is willis towers watson… do i talk to them first?

SharkMX · 31-05-2024 10:17am

If you have two pension funds you could take the tax free lump sum from one and leave the other one fore a few years.

micks_address · 31-05-2024 10:19am

https://www.boards.ie/discussion/comment/122205440#Comment_122205440

the intention if they don't fire me :) is to keep working with my current company till 65.. second pension is with them.. i wouldnt be looking to touch that..