Receiving a redundancy lump sum is one of those moments where the financial decisions you make in the next few weeks can shape the next few decades. Get it right, and you walk away with your maximum tax-free entitlement, your pension options protected, and a clear plan for what comes next. Get it wrong, and you may pay income tax on money that should have been sheltered, lose your right to a future pension lump sum, or make a pension decision that cannot be reversed.
At Money Sense Financial Services in Killarney, our redundancy advice service guides clients through exactly this decision, quickly, clearly, and with your specific numbers. This guide explains every option, every interaction, and the questions you must answer before you sign anything.
| Just received a redundancy offer? Get expert advice before signing anything. |
First: Understand What You Are Receiving
A typical Irish redundancy package has two distinct components, which are treated very differently for tax purposes:
Statutory Redundancy Payment
This is the legal minimum, two weeks’ pay per complete year of service, plus one bonus week, with weekly pay capped at €600. This is 100% tax-free regardless of the amount. It does not count towards any lifetime tax-free cap.
Ex-Gratia / Enhanced Payment
Any amount above the statutory minimum is called an ex-gratia or enhanced redundancy payment. This is potentially taxable, but three separate Revenue exemptions can shield all or part of it from tax. The interaction between these exemptions and your pension entitlement is where most of the planning value lies, and where most mistakes are made.
The Tax Exemptions on Ex-Gratia Redundancy: Which Should You Choose?
Revenue allows you to apply whichever of the following three exemptions produces the highest tax-free amount for your ex-gratia payment. All three are subject to a combined lifetime cap of €200,000 for ex-gratia payments.
| Exemption | Formula | Best For |
| Basic Exemption | €10,160 + (€765 × complete years of service) | Shorter-service, lower-salary employees |
| Increased Exemption | Basic Exemption + €10,000 (if no prior redundancy in last 10 yrs AND you waive or do not hold pension lump sum entitlement) | Moderate service; no recent redundancy history |
| SCSB, Standard Capital Superannuation Benefit | (Average annual pay for last 36 months × years of service ÷ 15) minus any tax-free pension lump sum entitlement | Higher earners with long service, most generous in most cases |
The critical complexity: the SCSB is reduced by the value of any tax-free pension lump sum you are entitled to take from the employer’s scheme. This creates a direct trade-off between maximising your redundancy tax-free amount and protecting your future pension lump sum.
The Waiver Decision: The Most Important Choice You Will Make
If you are a member of your employer’s occupational pension scheme, you must decide whether to waive your entitlement to the tax-free pension lump sum as part of your redundancy settlement. This decision fundamentally affects your SCSB calculation.
Scenario: Keep the Pension Lump Sum
You do not sign a waiver. Your SCSB is reduced by the present value of the future tax-free pension lump sum you will receive at retirement. You receive a lower tax-free redundancy amount now, but keep your pension lump sum entitlement for later.
Scenario: Waive the Pension Lump Sum
You sign a waiver, giving up your right to a tax-free pension lump sum from this employer’s scheme. Your SCSB is not reduced, producing a higher tax-free redundancy amount now. However, you lose the pension lump sum unless you transfer your pension to a PRSA (which restores 25% of the transfer value as tax-free cash at retirement).
Critical rule: if you waive the pension lump sum from your employer’s occupational scheme, the only way to regain a tax-free pension lump sum is to transfer your pension fund into a PRSA. Other pension transfer routes, deferred benefit, PRB, do not restore the tax-free lump sum when a waiver has been signed.
This is an irreversible decision. It requires professional advice every time, the optimal choice depends on your salary, years of service, pension fund value, and personal tax position.
| About to sign a waiver? Get the calculation first, the difference can be tens of thousands. |
Can You Put Your Redundancy Lump Sum Into Your Pension?
Yes, and this is often one of the most powerful planning tools available during a redundancy. AVCs (Additional Voluntary Contributions) made before the date of termination can significantly reduce the taxable portion of your ex-gratia payment. The AVC is claimed against the employment income in the year of leaving, reducing the income against which tax is calculated.
Key rule: the AVC must be made before termination, not after. This is time-sensitive and requires immediate action once you know your redundancy date.
Example: Suppose your ex-gratia payment is €80,000 and your available tax exemption (SCSB or Basic) is €55,000. The taxable excess is €25,000 at your marginal rate, creating a tax liability of €10,000. If you make an AVC of €20,000 before your last day, you reduce the taxable income against which the excess is calculated, potentially sheltering a significant further amount. The net AVC contribution (at 40% tax relief) costs you €12,000 to put €20,000 into your pension.
Note: the AVC interacts with your pension contribution limits (age-related percentage of earnings capped at €115,000). You cannot exceed the limit. A financial advisor will calculate the maximum AVC you can make, the exact tax saving, and whether it is the right approach for your specific situation.
Should You Take the Cash or Put It Into Your Pension?
This is the question most people in redundancy ultimately ask, and the honest answer is that it depends on your age, your pension fund, your income needs, and your post-redundancy plans.
Take the Cash If:
- You need the money to cover living expenses during a period of unemployment
- You have high-interest debt that the lump sum could eliminate
- You are over 60 and can access your pension within a short timeframe anyway
- Your total tax-free entitlement covers the majority of the ex-gratia payment, leaving little taxable residue
Redirect to Pension If:
- You have significant taxable ex-gratia above your exemptions and are a higher-rate taxpayer
- You are not yet in urgent need of the cash (e.g. you have savings and will find new employment quickly)
- You have unused pension contribution capacity in the year of leaving
- You are in your 40s or 50s and want to maximise long-term retirement provision
A hybrid approach is often optimal: use the tax-free element for immediate financial security, and redirect the taxable element (via an AVC) into your pension to avoid income tax. This requires professional calculation, but the savings are material.
Your Pension Transfer Options After Redundancy
If you are a member of an occupational pension scheme, your options on leaving are set out in your Leaving Service Options documentation. Our previous pension advice service covers all of these in detail. In brief:
| Option | What It Means | Tax-Free Lump Sum Preserved? | Recommended For |
| Deferred Benefit | Leave pension in employer’s scheme until retirement age | Yes (if waiver not signed) | Younger employees, DB schemes with guaranteed benefits |
| PRB / Buy-Out Bond | Transfer to Personal Retirement Bond in your name | Yes (if waiver not signed) | Most DC scheme members, gives investment control |
| PRSA | Transfer to Personal Retirement Savings Account | Yes, 25% of transfer value even after waiver | Best if waiver was signed; also best for flexibility and early access from 50 |
| New Employer Scheme | Transfer to new employer’s pension scheme | Depends on scheme rules | If new employer offers strong matching or DB benefits |
The Interaction Between Redundancy Tax and Your Pension: The Key Rules
- Statutory redundancy is always 100% tax-free, it never interacts with pension calculations
- Only tax-free pension lump sums reduce your SCSB, if your pension lump sum would itself be taxable (e.g. because you have already used your €200,000 lifetime cap), it does not reduce SCSB
- The lifetime cap of €200,000 covers ex-gratia redundancy payments and tax-free pension lump sums combined, careful sequencing can maximise both
- AVCs must be made before the date of termination, this cannot be done retrospectively
- Waiving the pension lump sum is irreversible except by transferring to a PRSA, do not sign the waiver without advice
| Facing redundancy in Ireland? The decisions you make this week matter enormously. |
Frequently Asked Questions
Should I put my redundancy lump sum into my pension in Ireland?
If you have a taxable ex-gratia element above your available exemptions, making an AVC before your termination date can shelter that amount from income tax. The AVC must be made before you leave, not after. Whether this makes sense depends on your age, tax position, and immediate cash needs. Professional advice before your last working day is strongly recommended.
How is a redundancy lump sum taxed in Ireland?
Statutory redundancy is 100% tax-free. Ex-gratia payments above the statutory minimum are potentially taxable, but three Revenue exemptions, Basic Exemption (€10,160 + €765/yr), Increased Exemption (Basic + €10,000), and SCSB, can shelter part or all of the amount. You apply whichever gives the highest tax-free amount. All three are subject to a €200,000 lifetime cap on ex-gratia payments.
What is the income tax on redundancy in Ireland?
Statutory redundancy is exempt from income tax, USC, and PRSI. Any ex-gratia payment above your available tax exemption is taxed at your marginal income tax rate (20% or 40%), plus USC and PRSI. Careful structuring, including AVCs and correct exemption choice, minimises this liability.
Does taking a pension lump sum affect my redundancy payment in Ireland?
Yes, if you choose the SCSB exemption. The SCSB is reduced by the value of any tax-free pension lump sum you are entitled to take from the employer’s scheme. This creates a direct trade-off: take the pension lump sum now and reduce your SCSB, or waive the pension lump sum and increase your tax-free redundancy amount. The correct choice depends on your specific numbers.
What is the tax-free redundancy amount in Ireland?
The Basic Exemption is €10,160 plus €765 per complete year of service. For a 15-year employee this is €21,635. The Increased Exemption adds €10,000 (subject to conditions). The SCSB is (average pay × years ÷ 15) minus the pension lump sum offset. All three are subject to a lifetime cap of €200,000 on ex-gratia payments. Statutory redundancy is separately tax-free.
What is the SCSB relief in Ireland?
The Standard Capital Superannuation Benefit (SCSB) is a Revenue formula for calculating the tax-free portion of an ex-gratia redundancy payment: (average annual pay for last 36 months × complete years of service ÷ 15) minus any tax-free pension lump sum entitlement. It is generally the most generous exemption for higher earners with long service.
Can I contribute an AVC to my pension after redundancy?
No. AVCs to your occupational pension scheme must be made before the date of termination, they cannot be made after you have left employment. This is why it is critical to contact a financial advisor as soon as you know your redundancy date, not after you have left.
What is the AVC pension redundancy limit in Ireland?
An AVC made in the year of leaving is treated as a contribution against that year’s employment income, subject to your age-related contribution limits (15%–40% of net relevant earnings, capped at €115,000). The AVC cannot cause your total pension contributions for the year to exceed the age-related limit. A financial advisor will calculate the maximum AVC available to you.
Make the Right Decision Before It’s Too Late
The financial decisions that surround a redundancy have a time limit. AVCs must be made before you leave. The waiver decision, once signed, cannot be undone. The interaction between your redundancy tax-free amount and your pension lump sum entitlement requires calculation before you commit to anything.
Money Sense Financial Services works with clients across Kerry and Ireland to navigate redundancy with maximum tax efficiency. Our redundancy advice is fast, clear, and built around your specific numbers. Book your free consultation today, ideally before your last working day.
