Facing redundancy in Ireland? Discover how to maximise your tax-free redundancy benefits, smartly transfer your pension, and make informed financial decisions. This guide breaks down statutory and ex-gratia payments, tax exemptions, and strategic pension transfer options, ensuring you get the most from your redundancy package while securing your future financial wellbeing.
Redundancy & Pension Guidance in Ireland
If you’re facing redundancy, understanding your financial entitlements is crucial. Your redundancy package can significantly impact your pension and future financial security.
Our expert advisors help you navigate your options to maximise tax-free benefits and secure your long-term financial well-being.
Facing Redundancy? Make Informed Financial Decisions
Understanding Your Redundancy Entitlements
Statutory Redundancy Entitlement
- A legally mandated payment that employers must provide.
- Completely tax-free for employees.
- Calculated as:
- Two weeks’ pay per completed year of service + one additional week
- capped at €600 per week.
Ex-Gratia Redundancy Payment
- An additional, discretionary payment from your employer as a goodwill gesture.
- A portion is tax-free, but the remaining balance is taxed at your marginal rate.
MAXIMISING YOUR TAX-FREE REDUNDANCY PAYMENT
There are three methods to calculate the tax-free portion of your Ex-Gratia payment:
Basic Exemption
- Tax-free amount: €10,160 + €765 for each completed year of service. Increased Exemption (if applicable)
You might also like our post on Redundancy In Ireland: Maximising Your Tax Free Entitlement And Pension Options For Financial Security.
- Tax-free amount: €10,160 + €765 per completed year of service + €10,000
- minus any previous redundancy or pension tax-free lump sums received in the past 10 years.
⚠️ Choosing this option means waiving your right to a tax-free pension lump sum in the future.
Standard Capital Superannuation Benefit (SCSB)
- Tax-free amount formula:
- Average earnings over the last 36 months × years of service÷ 15.
This method can potentially offer a higher tax-free sum, but you must decide whether to retain or waive your tax-free pension lump sum.
SCSB Calculation Options
The SCSB calculation differs slightly if you waive or retain your pension lump sum.
Curious about your redundancy entitlements? Enquire now to get personalised advice tailored to your financial situation.
Related read: Understanding Redundancy Payment Options In Ireland.
SCSB – Waiving Pension Lump Sum (Average earnings over past 36 months × years of service) ÷ 15
Need clarity on redundancy and pensions? Book a consultation now with our financial advisors to make informed decisions.
SCSB – Retaining Pension Lump Sum (Average earnings over past 36 months × years of service) ÷ 15 minus pension tax-free lump sum
PENSION TRANSFER OPTIONS AFTER REDUNDANCY
Upon leaving employment, you have several pension transfer options. Each choice impacts your tax benefits and accessibility to funds.
Your Pension Transfer Choices:
Recommended: Prsa Pension Ireland: How Prsa Pensions Can Help You Prepare For Retirement.
- Leave it in your former employer’s scheme
- Transfer it to a new employer’s scheme (if available)
- Transfer it to a Personal Retirement Bond (PRB)
- Transfer it to a Personal Retirement Savings Account (PRSA) (for tax-free lump sum retention)
Important Considerations
If you choose an increased tax-free redundancy payment by waiving your pension lump sum, you can only regain a tax-free lump sum if you transfer your pension into a PRSA. None of the other transfer options allow for a tax-free pension lump sum.
PRSA TRANSFERS: A TAX-EFFICIENT RETIREMENT STRATEGY
Transferring your pension into a PRSA ensures you retain your tax-free lump sum entitlement (25% of the transfer value).
Accessing Your PRSA:
You might also like our post on Overseas Pension Advice Ireland: How To Maximize Your Overseas Pension Benefits While Living In Ireland.
- Standard retirement age: 60
- Early access: From age 50, provided you are fully retired (i.e., no PAYE employment income)
Planning to return to work? Retiring your PRSA before re-employment ensures:
- Immediate access to your tax-free lump sum
- The remaining 75% can be transferred into an Approved Retirement Fund (ARF)
- Flexibility to leave funds in the PRSA if immediate access isn’t required
PRSA TRANSFER REQUIREMENTS: INDEPENDENT REPORT NEEDED
Transferring from an occupational pension scheme (Defined Benefit or Defined Contribution) into a PRSA requires an Independent Statement of Comparison of Benefits Report.
Ready to navigate your redundancy options? Book a consultation now for expert advice on maximising your benefits.
Only a limited number of authorised companies in Ireland provide this report to meet Revenue requirements.
Unsure about your pension options? Enquire now to receive expert guidance and secure your financial future.
STEP-BY-STEP GUIDE: TRANSFERRING FROM A PREVIOUS EMPLOYER INTO A PRSA
- STEP 1
Complete and return your Leaving Service Options document (issued by your former employer’s pension department).
- STEP 2
Submit a PRSA application form with your chosen provider.
- STEP 3
Obtain a Statement of Comparison of Benefits Report from a regulated financial expert.
- STEP 4
If retiring your PRSA immediately, complete an ARF application (usually with the same provider).
MAKE AN INFORMED DECISION WITH EXPERT GUIDANCE
Choosing the right redundancy and pension transfer option is essential to protect your financial future. Many redundancy package calculations overlook long-term pension implications, leading to costly mistakes.
Related read: Understanding The Benefits And Risks Of Pension Transfer In Ireland.
Our expert financial advisors provide personalised guidance to help you:
- Maximise tax-free redundancy payments
- Optimise pension transfer strategies
- Ensure compliance with Revenue regulations
- Secure your long-term financial future
FAQs
1. What is statutory redundancy entitlement in Ireland?
Statutory redundancy entitlement is a legally mandated payment that employers must provide to employees who are made redundant. It is completely tax-free for employees and is calculated as two weeks’ pay per completed year of service, plus one additional week, capped at €600 per week.
2. How can I maximise my tax-free redundancy payment?
You can maximise your tax-free redundancy payment using one of three methods: the Basic Exemption, Increased Exemption (if applicable), or the Standard Capital Superannuation Benefit (SCSB). Each method calculates the tax-free amount differently, allowing you to choose the option that best suits your financial situation.
3. What is an ex-gratia redundancy payment?
An ex-gratia redundancy payment is an additional sum offered by employers as a gesture of goodwill beyond the statutory redundancy entitlement. While part of this payment may be tax-free, the remainder is taxed at your marginal rate of income tax. Recommended: Inheritance Tax Ireland – How To Reduce Your Tax Burden.
4. What pension transfer options are available after redundancy?
After redundancy, you have several pension transfer options: leaving your pension in your former employer’s scheme, transferring it to a new employer’s scheme, moving it to a Personal Retirement Bond (PRB), or transferring it to a Personal Retirement Savings Account (PRSA) to retain your tax-free lump sum entitlement.
5. How does a PRSA transfer work?
Transferring your pension to a PRSA allows you to retain your tax-free lump sum entitlement, which is 25% of the transfer value. This option is particularly advantageous if you opt for an increased tax-free redundancy payment by waiving your pension lump sum, as it ensures you can still access a tax-free lump sum in retirement.
GET IN TOUCH TODAY!
Secure your financial future with confidence. Contact our team to discuss your redundancy and pension options.
CONCLUSION
Once an employee is made redundant, your redundancy package can create implications on your pension. Business owners often overlook this and this can result in costly mistakes.Usually, to make the most out of your redundancy package, you need to make wise decisions that ensure financial security. One of the conditions we’ve seen in redundancy packages, is that your employer may give you an option to claim an increased tax-free redundancy payment, in exchange for your tax-free pension lump sum.
If your Employment Contract ends before your Normal Retirement Age (the age set by your employer when you can claim your tax-free pension lump sum), you’ll lose the right to claim that tax-free lump sum down the line unless you move your pension into a PRSA. In the case you’ve accepted this option, you will need to consider how you should transfer your pension after redundancy to avoid taxes. After leaving employment, you can transfer your pension to another employer’s scheme, or leave it where it is. However, unless you do it properly, this means you’ll lose your tax-free lump sum benefit altogether.
To make sure you’re making the right financial decisions during redundancy, consult the expert financial advisors at Money Maximising Advisors to secure your tax-free retirement. After all, it pays to get professional guidance on such massive financial implications. Reach us today to discuss your options.
