Redundancy & Your Pension: What you need to know

Pension and Redundancy Entitlements
Once you’ve accumulated a minimum of 2 years of continuous employment, you’re entitled to statutory redundancy payments. This basic entitlement is equivalent to €600 per week times 2 weeks per year of service, subject to a maximum statutory weekly rate of €600 per week net.

Example:
5 years’ service x 2 x €600 per week = €6000.

The statutory payment is paid net and isn’t subject to PAYE, PRSI, and USC.

Understanding Redundancy and Redundancy Packages
Redundancy occurs when an employer terminates an employee’s contract due to the restructuring of the company, closure of a particular department, or other similar reasons. It often comes with a redundancy package, which typically includes a financial settlement based on the employee’s length of service, salary, and statutory entitlements. The purpose of such a package is to support the employee during the transition period and provide them with a buffer to manage their finances until they secure new employment.

Tax & Pension Implications
In addition to the statutory payment, you may receive an ex-gratia payment based on years of service at the discretion of the employer. If you’re offered this additional payment, you’ll need to understand the tax implications. The specific impact varies based on factors like age, recent earnings, and available tax exemptions. Financial advisors or tax consultants can help you navigate these considerations.

Importantly, the calculation includes the amount accrued in your employer’s pension scheme.

WARNING: Decisions taken at redundancy may have long-term tax and pension implications. You shouldn’t agree to any redundancy arrangement without discussing the financial and pension implications with a financial advisor or legal representative.

Representations / Advocates
Not all redundancy situations between employers and employees are amicable, and it can be a stressful situation.

F J Hanly & Associates can evaluate your individual situation or employer offer and represent you in understanding and negotiating the financial details. This includes illustrating the potential tax outcomes and reaching a final settlement that benefits all parties.

WARNING: You shouldn’t sign any severance agreement, redundancy arrangement, or legal declarations without consulting a financial advisor or legal representative.

An advisor at F J Hanly & Associates will clarify your minimum entitlements and net payment after tax. We’ll also examine the impact of your decision on tax-free lump sums now and from your pension later in life. We can work with your solicitor or act as authorised advocates in negotiations with your employer.

Redundancy Consultation and Independent Redundancy Advice
When an employer initiates the redundancy process, they are legally obligated to engage in a consultation with affected employees. This consultation allows for an open discussion about the proposed redundancies, alternative options, and any potential mitigation measures. It’s crucial for employees to seek independent redundancy advice during this consultation to fully understand their rights, entitlements, and potential courses of action.

Drawing Down Your Pension: Options and Considerations
Can you draw down your pension while receiving a redundancy package? The short answer is yes, but the details depend on various factors, including the type of pension scheme you have, your age, and the rules associated with accessing your pension.

• Defined Contribution Pensions: If you have a defined contribution pension, you may have the option to access your pension pot once you reach the minimum retirement age, typically 55 years. However, it’s important to consider the potential tax implications and evaluate whether drawing down your pension is the most financially prudent choice for your circumstances.
• Defined Benefit Pensions: With defined benefit pensions, the situation can be more complex. These schemes provide a guaranteed income in retirement, often based on the employee’s salary and length of service. Accessing a defined benefit pension before the scheme’s retirement age may result in reduced benefits. It’s advisable to consult an independent financial advisor who can assess your specific scheme’s rules and guide you accordingly.

Are You Facing Redundancy and Need Specific Advice?
Get independent advice on your redundancy entitlements and options. Experienced financial consultants can evaluate your employer’s redundancy offer, identify your entitlements, and determine the impact on your tax and pension status.

Redundancy due to business closure or staff reduction is governed by the Redundancy Payments Act 1967-2014. This legislation sets the minimum redundancy entitlements for employees who meet service requirements. Specific procedures must be followed by both employers and employees to comply with the law.

Get In Touch
Contact F J Hanly & Associates today for expert advice on your redundancy entitlements and options.