Redundancy Advice
If you have recently been offered or considering applying for a redundancy Package from your employer, It is very important to educate and clearly understand all of the options available to you. The options that you choose can have a significant impact on the Tax Free Lump sums that you qualify for from both your Redundancy package and your Pension entitlements (if applicable). In most circumstances, a redundancy package is offered to employees who have accumulated many years of service with their employer. Redundancy packages and offer needs to be examined on an individual basis each package can be calculated differently – depending on their circumstances (years of service, average salary over their employment etc).
Most redundancy packages have a tax free Exemption portion with the remaining fund taxable at
the employees marginal rate (20/40%). It is important to ensure that as much funds as possible are
drawn tax free. There are 3 ways of calculating this exemption. Please see below for illustration and
explanation.
Tax Free Exemption Options
Under current Revenue rules, you have 3 options of calculating the amount that is allowed tax free
from your redundancy figures. The balance of the redundancy figure offered is liable to tax at your
normal income tax rate (20/40%). The 3 options are calculated as follows:
1. Basic Exemption:
€10,160 plus €765 for each complete year of service.
2. Increased Exemption:
€10,160 plus €765 for each complete year of service plus €10,000 minus tax free lump sum
entitlement from pension.
This option is only available if you haven’t received a tax free lump sum in the last 10 years and you
are not getting a lump sum from your defined contribution pension payment now or in the future.
3. Standard Capital Superannuation Benefit (SCSB)
Average earnings over the last 36 months multiplied by complete years of service and answer
divided by 15.
Please note that it is very important that you thoroughly go through the 3 options above and choose
the best option for you. There is no guarantee that your employer will calculate these correctly, so it
is highly advisable to get your redundancy figures double checked by an independent Financial
Advisor or institution.
Redundancy and Impact on your Pension
If you are also a member of your employers Pension scheme, how you draw down your redundancy
package can have significant impact on your Pension entitlements. The Redundancy Tax Free
Exemption option chosen (mentioned above) can either Waive or retain your right to a Pension Tax
Free Lump Sum.
The bottom line is that you want to ensure that you are getting as much funds out of both your
Redundancy package and your Pension tax free as possible. Below is an illustration of the typical
option available and the various tax-free areas to be chosen. Making the correct decision can have a
significant impact on your finances for the rest of your life.
Pension Draw-down Options
Due to legislation changes in May 2016, it may also be possible for you to get access to your pension fund once you take your redundancy package, if you choose the correct option. This is available for both defined benefit and defined contribution pensions.
This however may or may not be the best option available so it is imperative that you do some homework and number crunching prior to making your final decision.
If you would like to find out more information on the pension services that we offer and get a quotation, please contact us on:
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Diarmaid Blake and Lorna Egan
Money Maximising Advisors Limited
mmadvisors.ie
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