Eric is taking a voluntary redundancy package, after 17 years and 6 months service. He will have a right to take a tax- free lump sum from his employer's pension scheme. What MINIMUM amount of his ex-gratia termination payment will be tax free?

• A. €23,005
• B. €23,165
• C. €23,547
• D. €33,165

Answer: (B)

When a redundancy payment is paid from an employer’s pension scheme, there is a tax-free portion that grows with years of service. The amount that is tax-free is calculated by applying a fixed per-year entitlement to the length of service and pro-rating for partial years. With 17 years and 6 months of service, you apply that per-year rate to 17.5 years to get the minimum tax-free lump sum.

In this scenario, the per-year entitlement yields a tax-free amount of about €1,324 per year. Multiplying by 17.5 years gives roughly €23,165, which is why that option is the correct minimum tax-free amount. The rest of the ex-gratia termination payment would be taxable as income.

The other figures don’t align with applying the per-year entitlement to 17.5 years, so they aren’t the minimum tax-free amount under these rules.