Page 16 - Group Insurance and Retirement Benefit IC 83 E- Book

for a person‘s pension needs in relation to that part of salary, and only the balance of the

intended overall pension needs to be provided under the occupational pension scheme.

In most pension schemes, the answer is ―yes‖. The term commutation is used to indicate
the right, which members usually have under pension scheme rules, to exchange part of

their pension for a lump sum. This lump sum is payable tax free (unlike the part of your
pension that you exchange for it).The lump sum paid by any pension scheme will usually

be based on the final pensionable salary and pension able service of a member and the

maximum allowed by the Revenue Commissioners is 12times final pay. Exactly what is
payable as a tax free lump sum depends upon the rules of your own scheme. One way or

the other, the maximum benefit cannot be paid to anyone who has less than 20 years‘

service at normal retirement age.

The Revenue Commissioners require smaller amounts to apply to shorter service, and to
early retirement. The rate at which the lump sum is then converted into equivalent

pension will also vary from scheme to scheme. The most common formula in Ireland is
probably €900 cash = €100 annual pension, but it will vary from scheme to scheme. In

many cases, the exchange rate for women may be higher than that for men, reflecting

their longer life expectancy.

In public sector schemes, lump sums are not given by commutation, but are provided bas
a separate addition to each member‘s pension entitlement. In a very few pension

schemes, the option to receive a lump sum is not given under the scheme rules.

How are pension scheme benefits taxed?

In Ireland, schemes that have ―exempt‖ approval from the Revenue Commissioners don‘t

pay tax on their investment income. Most schemes are treated in this way. When benefits

come to be paid, however, they may be taxable.