8 DRAWDOWN OF PENSION BENEFITS

Tax paid at the standard rate on a lump sum is creditable against the tax due on the excess over an individual’s SFT/PFT (see section 10 below).

Annuity pension

Under a public sector scheme, the annual pension is calculated by reference to salary and length of service. The maximum level is 50pc of salary.

For occupational pension schemes, a pension of up to 1/60th of final remuneration for each year of service (usually up to a maximum of 40 years) can be provided. This is reduced to take account of any lump sum received.

AVCs can be used to purchase additional pension, within the maximum limits.

A pension is taxable through the PAYE system at the individual’s marginal rates, ie up to 48pc (being income tax and USC). PRSI does not apply to pensions.

Taxable cash

Provided either the minimum pension or AMRF condition is satisfied (see below), the balance of the following private sector schemes can be taken as taxable cash as an alternative to purchasing a pension:

• Defined benefit occupational scheme for directors with more than a 5pc shareholding in the company; • Defined contribution occupational scheme; • RAC; and • PRSA. Cash is taxable through PAYE at the individual’s marginal rates, ie up to 52pc if under age 66 and up to 48pc if over age 66.

Transfer to ARF / AMRF

An individual who wishes to take the balance as taxable cash or as an ARF transfer before reaching 75 years of age must have a minimum annual guaranteed pension income of €12,700. Where this cannot be demonstrated, an amount of €63,500 must be transferred to an AMRF or used to purchase an annuity pension.

Once the minimum annual pension or AMRF condition is satisfied, the balance of all private sector pension schemes (mentioned under the heading “taxable cash” above) can be transferred to an ARF. An ARF is your personal property. The residual value at death goes to your estate.

The transfer to an AMRF/ARF is not taxable in itself. Withdrawals from these funds are taxable in the same manner as taxable cash.

In the case of an ARF, there are deemed minimum annual withdrawals from age 60 as set out below:

Withdrawals and deemed withdrawals from an ARF are taxable under the PAYE system.

In the case of an AMRF, it is possible to withdraw up to 4pc of the fund every year, subject to tax under the PAYE system.

An AMRF becomes an ARF at the earlier of reaching age 75, receiving an annual pension of €12,700 or death.

Spouse and dependants pension

Some schemes provide for a spouse and dependants pension. This will depend on the individual scheme rules and the choices made at retirement.