Redundancy can come as a shock — emotionally and financially. Whether you’re an employee, a business owner, or someone supporting a loved one, it’s vital to understand the meaning of redundancy and the ins and outs of redundancy entitlements and how they interact with pensions. Depending on how things are handled, you could walk away with significantly more (or less) in your pocket.

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What Is Statutory Redundancy?

To qualify for statutory redundancy in Ireland:

• You must be over 16

• You must have 2 years of continuous employment

• All statutory redundancy payments are tax-free

How It’s Calculated:

• 2 weeks’ gross pay for every year of reckonable service

• Plus 1 bonus week

• Gross pay is capped at €600 per week (or €31,200 per year)

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Three Common Scenarios

1. Employer is willing to pay the redundancy.

2. Employer is unable to pay — the Social Insurance Fund may step in.

3. Employer refuses to pay — you may need to contact the Employment Appeals Tribunal.

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What Are Ex-Gratia Payments?

Ex-gratia payments are voluntary, additional payments made by an employer over and above statutory redundancy.
They can be:

• Cash

• Non-cash items (e.g. company car, stock)

These payments are taxable, but there are three different ways to reduce that tax.

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Tax Relief Options on Ex-Gratia Payments

1. Basic Exemption
You’re entitled to:
€10,160 plus €765 for each full year of service

2. Increased Exemption
An extra €10,000 may be claimed if:

• You haven’t received any termination payments in the past 10 years

• You’re not a member of an occupational pension scheme
  OR

• You waive your right to a tax-free lump sum from your pension scheme

3. SCSB (Standard Capital Superannuation Benefit)
Best suited for:

• Long-service employees

• High earners

• Modest or no pension lump sums

SCSB Formula:
SCSB = (Average earnings over last 3 years × Years of service) ÷ 15 – NPV of pension lump sum
Average earnings include salary, bonuses, overtime, and benefits-in-kind.
Only full years of service are included. If you waive the lump sum from your pension, the NPV is €0, increasing your SCSB result.

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What is the NPV of a Lump Sum?

NPV (Net Present Value) is the current value of the future tax-free lump sum you’d receive at retirement from your pension scheme.

To calculate:

1. Find Revenue max lump sum (use the higher of two formulas):

   • 1.5 × Final Salary × (Actual Service ÷ Potential Service)

   • 3/80 × Final Salary × Actual Service

2. Roll it forward to retirement (e.g. 1.5% growth annually)

3. Discount back to today (e.g. 6% discount rate)

4. Compare with 25% of pension fund and use the lower figure

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Example: Mary

• Age: 48

• Final salary: €40,000

• 20 years of service

• Pension fund: €200,000

• Retirement age: 60

Revenue Lump Sum:

• Uplifted: (20 ÷ 32) × 1.5 × €40,000 = €37,500

• Alternative: 20 × 3/80 × €40,000 = €30,000
  Use higher: €37,500

Roll forward:
€37,500 × 1.015¹² = €44,835

Discount back:
€44,835 ÷ 1.06¹² = €22,281
25% of fund = €50,000
Use lower: €22,281

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Comparing Mary’s Tax-Free Options

• Basic Exemption: €10,160 + (€765 × 20) = €25,460

• Increased Exemption: €25,460 + €10,000 – €22,281 = €13,179

• SCSB (No Waiver): (1/15 × €40,000 × 20) – €22,281 = €31,052

• SCSB (With Waiver): (1/15 × €40,000 × 20) – €0 = €53,333

Waiving gives Mary the highest tax-free amount.

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Should you waive the Tax-Free Lump Sum?

Waiving your pension lump sum is a big decision. You’ll get a larger tax-free redundancy payment now but give up a retirement lump sum later.

It’s a good idea if:

• You need more cash immediately

• You’re younger and have time to rebuild a lump sum

• Your lump sum is small

Not a good idea if:

• You’re older and may not have time to rebuild lump sum

• Your retirement lump sum is substantial

• You want to preserve retirement income

More Key Points:

• You must waive all occupational pension schemes (OPS), not just one

• The waiver follows you, even if you transfer the pension

• You cannot partially waive

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Final Notes

• Statutory redundancy is always tax-free

• Ex-gratia payments can be structured for tax efficiency

• Waiving your lump sum can significantly increase your tax-free pay out — but is not always the right move

• Lifetime tax-free cap on ex-gratia redundancy is €200,000

• AVCs (Additional Voluntary Contributions) must be made before termination — not after

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In Summary

Redundancy doesn’t have to be financially devastating — especially if you plan ahead. Understanding how redundance and pension tax reliefs interact could save you thousands.

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