Let’s take the fictional scenario of Larry, 60. Senior private-sector executive, spent the last decade in technical leadership, and a defined contribution pension worth €1.4 million. Larry doesn’t exist. I made him up. But the numbers, and the decision he’s facing, are very real for a lot of people at exactly his stage.

He’s reached the age where he can access his pension. He doesn’t have to. Nothing forces him to touch it at 60. And that’s precisely what makes this decision harder than it looks: when nobody is making you decide, you actually have to decide.

The specific question is whether to take his 25% tax-free lump sum now, at 60, or leave the whole fund invested and revisit the question at 65. This sits inside the broader question of when to take your pension in Ireland, but the lump sum decision alone is worth pulling apart on its own. It looks like a small, mechanical choice. It isn’t. It’s a case of weighing tax certainty today against growth and flexibility tomorrow, and there’s a real cost hiding on both sides of it.

The Two Paths

Path one: crystallise now, at 60. Larry takes his 25% tax-free lump sum, moves the balance into an ARF, and starts managing it as retirement income from today.

Path two: wait. Larry leaves the pension untouched, fully invested, and revisits the decision at 65, or whenever suits him. Nothing is drawn, nothing is crystallised, nothing is taxed, because nothing has happened yet.

Both are entirely legitimate. Neither is the “correct” default. What matters is what each path actually costs and delivers, in real numbers.

What Taking It Now Actually Delivers

On a €1.4 million fund, 25% is €350,000. Under current Revenue rules, the first €200,000 of that is tax-free, a lifetime limit that applies across every pension Larry will ever crystallise, not per scheme. The remaining €150,000 falls into the 20% band. That’s €30,000 in tax, computed and confirmed, leaving Larry with a net lump sum of €320,000.

The remaining €1,050,000 moves into an ARF. Because he’s 60, he’s not yet subject to Revenue’s imputed distribution, that only starts at 61, so for this first year there’s no obligation to draw an income from it at all. From 61, the minimum mandatory withdrawal on a €1,050,000 ARF is 4%, which is €42,000 a year, taxed whether he draws it or not.

We’ve looked before at whether to take your tax-free lump sum at all, and the same logic applies to the timing question. The appeal here is straightforward: certainty. Larry knows exactly what he’s got, in cash, today. He can clear a mortgage, help a child onto the property ladder, or simply hold it as a buffer. And he’s crystallised his benefit at today’s fund value, which matters more than most people realise, more on that shortly.

What Waiting Actually Buys You

If Larry leaves the fund untouched, nothing is taxed, because nothing has been drawn. The full €1.4 million stays invested and keeps compounding. If it grows at, say, 5% to 6% a year (an illustrative range only, nobody actually knows what markets will do over five years) it would sit somewhere between €1.79 million and €1.87 million by 65.

At that point, a 25% lump sum would be roughly €447,000 to €468,000. The first €200,000 is still tax-free. The next slice, up to €500,000, is still taxed at 20%. So the tax bill lands somewhere between €49,000 and €54,000, leaving a net lump sum of roughly €397,000 to €415,000. Against €320,000 today, that is somewhere between €77,000 and €95,000 of additional net lump sum, for five years of a market nobody can forecast.

The other benefit of waiting is one people consistently undervalue: between 60 and whenever he actually crystallises, Larry is under no obligation to draw anything from an uncrystallised pension. No imputed distribution applies until benefits are actually taken. If he doesn’t need the income yet, and has other resources to bridge the gap, every year he waits is a year of genuinely tax-free compounding with zero mandatory drawdown.

The Risk Nobody Mentions: Waiting Isn’t Free

Here’s the piece that gets left out of most of these conversations. Waiting has a cost too, and it isn’t just “markets might fall.”

Crystallising at 60 locks in Larry’s Benefit Crystallisation Event at €1.4 million, comfortably under the Standard Fund Threshold of €2.2 million for 2026. The instinct at this point is to say that waiting walks the fund closer to that threshold. Under the current schedule, it doesn’t.

The SFT is no longer static. Finance Act 2024 raises it by €200,000 a year, from €2.2 million in 2026 to €2.4 million, €2.6 million and €2.8 million by 2029, before it moves to indexation. That is compound growth of roughly 8.4% a year in the threshold itself. A fund needs to grow faster than that simply to hold its position, never mind close the gap. Larry’s €1.4 million growing at 6% sits at 63.6% of the threshold in 2026, and 59.6% of it by 2029. The headroom widens from €800,000 to over €1.1 million.

Which doesn’t make the SFT irrelevant. It makes it specific. If your fund is already close to the line, a chargeable excess of 40% on the amount above it is the most expensive item on your list, and the 20% standard-rate tax already paid on the lump sum is credited against that charge. We've written separately about generating income around the Standard Fund Threshold for anyone whose numbers sit closer to that line than Larry's.

There is a distinction worth drawing here too. Where a chargeable excess arises purely because a fund has grown, it is, in effect, tax on gains. Nobody wants to pay it, but it isn’t always the catastrophe it gets presented as. It is a different story entirely if you’re still contributing and heading over the threshold, because the tax relief you’re getting on the way in is potentially all going to be taxed away again on the way out. Same charge, very different meaning.

There’s also a sequencing question. Whatever Larry eventually crystallises gets sold at whatever the market happens to be doing on that day. Waiting doesn’t remove that risk, it just moves it further down the road, to a date he hasn’t chosen yet either.

The Personal Factors That Actually Decide It

The tax maths matters, but in our experience it’s rarely what actually decides this for someone in Larry’s position. A few questions do more of the work:

Does he need the cash now, or is this money he’d genuinely just leave sitting in the ARF regardless? If he has other savings, deposits, or income that can bridge him to 65 or beyond, there’s no obvious reason to crystallise early purely for the sake of it. Is he still earning? If Larry is still drawing a salary, adding a tax-free lump sum on top doesn’t change his tax band, but drawing ARF income on top of salary would push a meaningful chunk of it into the higher rate, which is a strong argument for taking the tax-free element now while leaving the taxable ARF income untouched until salary stops. And how does he feel about flexibility versus certainty? Some people want the number banked. Others are entirely comfortable leaving it invested and revisiting the question later. Neither instinct is wrong, but it’s worth being honest with yourself about which one you actually are, rather than assuming the “smart” answer is whichever one sounds more sophisticated.

One counterintuitive point on the tax band question. Higher-rate tax isn’t something to be avoided at all costs. For someone still contributing, paying a euro of higher-rate tax can open up significant relief on the way in, and that is a calculation worth doing properly rather than an outcome to be dodged on instinct. The point isn’t to avoid the higher band. It is to choose deliberately which mechanism, lump sum or ARF income, you use to get the money you actually need.

Three Mistakes That Decide Most of These Cases

The maths above is the easy part. In practice, three things decide most of these decisions, and all three are avoidable.

The first is treating 60 or 65 as a deadline. It isn’t a deadline, it isn’t a threshold, and it isn’t a default. Nothing about reaching either age obliges you to crystallise anything. Plenty of people do it purely because it felt like the done thing, or because a withdrawal form arrived and it seemed like work that had to be done. Ask what your options actually are before the form gets signed.

The second is assuming that waiting is automatically the smarter, more sophisticated move. It might well be the right answer, but not because it sounds more considered. A bird in the hand has its merits. Standard Fund Threshold exposure, future fund values, income tax, and passing up years of tax-efficient drawdown all cut the other way.

The third is the one that decides more of these cases than anything else: not being honest about whether you’re still earning. If income is still coming in, drawing ARF income on top of it lands a meaningful chunk in the higher band, because it stacks. Taking the tax-free portion of the lump sum instead doesn’t touch your bands at all, because it isn’t income. It’s not a clever trick. It’s a case of matching the mechanism to the situation.

What Larry Actually Did

In this scenario, Larry had left the employment that built the pension but was still earning, with a couple of consultancy days a month and a board seat. He had no pressing need for a lump sum and a reasonable cash buffer outside his pension. He chose a version of both paths: he crystallised at 60, took the €200,000 tax-free portion, and left the taxed 20% slice, along with the rest of the fund, invested in the ARF rather than drawing it as income. That banked the certainty of today’s tax-free allowance without pulling forward any taxable income he didn’t yet need, and it locked in a Benefit Crystallisation Event comfortably under the Standard Fund Threshold while he was still well below it.

It’s not the only sensible answer. Someone with no other resources and a pressing need for cash might reasonably take the full lump sum and start drawing income immediately. Someone entirely comfortable waiting, with a strong buffer and a fund well clear of the SFT, might leave the whole thing untouched until 65. Ultimately, it’s a case of matching the decision to the actual picture, not to a rule of thumb.

Final Thoughts

Taking your tax-free lump sum at 60 isn’t a formality, and waiting isn’t automatically the more sophisticated choice either. Crystallising now buys certainty and locks in today’s fund value. Waiting buys continued tax-free compounding and no mandatory drawdown, at the cost of an unknown market on an unknown future date. And if your fund is large enough to be within reach of the Standard Fund Threshold, the direction that threshold is travelling becomes part of the calculation too.

There’s no universal right answer here. There’s only the answer that fits your income need, your other resources, your employment status, and how you actually feel about certainty versus flexibility.

I hope this helps.

Paddy Delaney QFA RPA APA

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