If you work in the public sector in Ireland, PSRA can provide truly impartial advice on Additional Voluntary Contributions (AVCs). Our clients include many teachers, lecturers, doctors and nurses who were not satisfied with the advice they received from less neutral sources. PSRA owe no allegiance to any insurance company, union or employer - we simply advise what is best for you. Our expert advisors will clearly outline the issues around AVCs if you are considering one, or how to make the most of any AVC you may already hold.
Get the right advice on AVCs - without the pressure
What is an AVC?
AVC stands for Additional Voluntary Contributions. As the name indicates, it is in addition to, or on top of, an existing pension scheme. For our clients that are typically Superannuation - the public sector pension scheme. In essence, it is a form of private savings, built up while you are working which is used to supplement your lump sum and/or income when you retire. It can take the form of a group AVC scheme or an individual PRSA AVC, both are fundamentally similar.
Benefits of an AVC
What makes an AVC different to other forms of savings is that because it is designed to save towards retirement, AVCs enjoy various tax reliefs such as;
- Tax relief on contributions.
- Tax-free growth.
- Some/all of your AVC may be tax-free at retirement.
Naturally there are rules and limits to these reliefs, however, with proper financial advice and planning, an AVC can be a very effective tool in reducing tax and improving future finances.
What makes a good AVC?
Essentially an AVC is a savings plan, typically one designed to work over long periods of time. Like any savings plan, therefore, its final value is largely determined by
- The amount invested.
- The investment returns
- The charges
PSRA advisers conduct research on your behalf, to find those AVCs with the best possible performance and charges suitable for you.
Should I have an AVC?
For some, an AVC is an appropriate choice. For others, the PCW buyback scheme and the Notional Service scheme should be examined. In some cases, none of these options will be appropriate. Indeed, many clients are advised to stop their AVCs if there is more than an optimal amount already invested. Only by getting impartial advice can you ensure you are choosing the option best suited to you.
How does the tax relief work?
AVCs and PRSA AVCs qualify for tax relief at your marginal rate of tax. In short, this means that if you pay the top rate of tax (currently 40%), that for every €100 saved for retirement, you can enjoy a €40 tax refund now. If you are a 20% rate taxpayer the refund is €20 for every €100 saved.
Limits to Tax Relief
Revenue allows generous amounts of income to be saved into pensions and enjoy tax relief. The limits increase as one approaches retirement:
Under age 30: 15% of earnings
Age 30 - 39: 20% of earnings
Age 40 - 49: 25% of earnings
Age 50 - 54: 30% of earnings
Age 55+: 35% of earnings
Age 60+: 40% of earnings
Note that this is subject to an overall limit of earnings of €115,000 per annum. Furthermore, account must be taken of contributions already made to Superannuation during the year. For those with more than one source of income, for example, medical practitioners with public and private income, additional restrictions apply. In addition, overall limits apply to ensure the total pension value does not exceed a total value of €2M. While this limit appears high, public sector workers due to receive good annual pensions are in danger of breaching it as a multiplier is applied. If the limit is breached penalties are applied. Speak to a PSRA advisor to ensure your pensions are Revenue compliant.
Transferring existing AVCs
Many PSRA clients have transferred existing AVCs into individual PRSA AVCs or Personal Retirement Bonds. There are many advantages to doing so including;
- To avail of lower charges. Management charges are extremely competitive, typically from as low as 0.75% per annum.
- To control those charges and have certainty around future charges - group scheme AVC charges can vary in line with decisions made by Trustees, not by the individual.
- To avoid fees which may be levied in future by any union appointed broker on the group scheme.
- To avail of investment fund managers, funds and investment strategies that are not available through the group AVC structure. Such choices may outperform those available on the group scheme.
- To gain control over premiums by way of a set monthly direct debit. Contributions through payroll typically fluctuate with salary.
- To gain the flexibility to move the PRSA AVC to future employments.
- To gain the freedom to choose and change the advisor/ broker on the AVC as you wish.
How to transfer
It’s very easy to transfer. Speak to PSRA advisor today to find out how simple it is to switch. For AVC fund values over €10,000, a certificate of comparison may be needed from an independent actuary. This ensures the proposed transfer is to your advantage. To transfer to our Standard PRSA AVC offering, there is no cost to you. Speak to us today to gain control of your AVC and start reducing costs.
Using AVCs to Buy back years with your employer
For those who have an amount built up in a group AVC or PRSA AVC, it is possible to transfer such monies to your employer to buy back PCW years or notional service years. Our advisors can explain the benefits and process of doing so.
Last Minute AVCs a.k.a Late AVCs
A last-minute AVC can be used by those soon approaching retirement without existing AVCs. It’s often used to maximise the amount of tax-free cash that can be drawn down after retirement. Usually, money is invested in an AVC prior to retirement and tax relief is claimed. Then after retirement, the sum invested is withdrawn tax-free.
For example, one might invest €10,000 and claim back €4,000 from Revenue through tax relief. Immediately after retirement, the initial €10,000 is then withdrawn. Provided it issued to top up tax-free lump sum received from the employer, there is no tax owed on exit.
It’s important to note this is just an example. There are restrictions on any individuals scope to avail of a last minute AVC. Fees and charges will also apply. Make sure you seek advice from PSRA in plenty of time prior to your retirement in order to plan effectively.
Options with an AVC at retirement
At retirement, AVCs will firstly be used to maximise the amount of tax-free cash that can be taken. Often this is to top up an employee’s lump sum to the equivalent of someone with 40 years’ service, despite not having full service themselves. If there are additional monies in the AVC, this is taxable but there are options as to how those monies are accessed. These typically include;
- Buy a pension or annuity.
- Take as a taxable lump sum.
- Invest in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF).
Again, there are rules and restrictions around these options. Your individual circumstances will influence which of these options may be most appropriate. If you are approaching retirement and have an AVC, speak to PSRA to understand the advantages and disadvantages to each of these options.