A 59 year old gentleman rang me in November 2010 looking for pension advice. He had built up a pension fund of €2,000,000 (hard to believe isn’t it) and was worried that the government would introduce additional taxation in respect of his tax tree lump sum in the budget that was due very shortly.
Our client was correct to be concerned as the Government had flagged on a number of occasions that tax free cash payments in excess of €200,000 may be the subject of additional taxation due to declining tax receipts.
As things stood, and if things had remained unaltered, our client would have been entitled to take €500,000 i.e. 25%, of his fund as a tax free cash payment so any changes to the tax code would have been extremely costly for our client.
Our client had contacted his existing broker who suggested he should leave everything alone – there was nothing to worry about.
As our client had intended retiring in April 2011 in any event (when he reached 60) we advised him to retire immediately, relinquish control of the business, and draw down his pension benefits immediately. Our client proceeded with our recommendation and received his tax free cash payment of €500,000.
Sure enough the budget was introduced in December 2010. Maximum tax free cash now allowed is €200,000. Any amount over that figure is taxed.
Lucky escape for our client.