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How benefits, advances and redemptions are taxed
The module’s worked examples, then cases to attempt before revealing their solution · 7 sections · 552 words · 7 min
Worked example
Roberto's lump sum
Roberto has thirty years of membership: fifteen beyond the fifteenth, so 15 × 0.30 = 4.5 points off. The rate falls to 15 − 4.5 = 10.5%. On the €40,000 taxable portion the withholding is €40,000 × 10.5% = €4,200, and Roberto keeps €35,800 of that portion, plus the already-taxed part, which bears no withholding.
Worked example
A full redemption with undeducted contributions
After twenty years of membership, Anna redeems her whole position because a disability has cut her working capacity to less than a third. The position is worth €30,000, of which €3,000 are contributions never deducted and duly reported. The base is €30,000 − €3,000 = €27,000. The rate is 15 − 5 × 0.30 = 13.5%: the withholding comes to €3,645.
Worked example
Same seniority, two formulas
With twenty-five years of membership, a fixed-term annuity bears 15 − 10 × 0.30 = 12%. A phased payout bears 20 − 10 × 0.25 = 17.5%. On €10,000 of taxable benefit the gap is €1,750 − €1,200 = €550 of withholding: the more flexible formula costs more.
Worked example
A three-year RITA
An employee aged 64, with 38 years of contributions and 25 years in the fund, leaves work three years before old-age pension age. He takes €36,000 of taxable pot as RITA, paid in instalments until that age. The rate is 15 − 10 × 0.30 = 12%, or €4,320 in total across the instalments.
Worked example
Paying back an advance
A member drew €10,000 for other needs and bore €10,000 × 23% = €2,300 of withholding. Two years later he pays in €9,300: €5,300 within the cap and €4,000 as repayment above it. The tax credit is €2,300 × €4,000 / €10,000 = €920. Repaying the whole sum would recover the full €2,300.
Worked example
A partial redemption after a lay-off
Marco, with 18 years of membership, is laid off and stays out of work for eighteen months. He asks for a 50% partial redemption of a €40,000 position, all of it taxable: €20,000. The rate is 15 − 3 × 0.30 = 14.1%, so €2,820 of withholding. Had the same redemption stemmed from another cause, at 23% he would pay €4,600.
Practical case
An advance to buy a home
Elena has been in a pension fund for twenty-two years and her position is worth €60,000. She wants to buy her first home by notarial deed and asks for a €30,000 advance, all of it taxable because she has always deducted her contributions. What rate does the fund withhold and how much does she receive? How much would she have paid if the same sum had been needed for very serious medical costs recognised by a public health body?
Hint: Check the conditions for the advance first, then remember the rate depends on the reason for the request.
Show the solution
Elena has more than eight years of membership and €30,000 does not exceed 75% of the position, which is €45,000: the first-home advance is available. The rate is a flat 23%: €30,000 × 23% = €6,900 of withholding, so Elena receives €23,100. For medical costs the rate would have been 15% cut by 0.30 points for each of the seven years beyond the fifteenth, so 15 − 2.1 = 12.9%: €30,000 × 12.9% = €3,870 of withholding.
Answer: €6,900 withheld and €23,100 net; for medical costs the withholding would have been €3,870
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