A last minute AVC for a teacher nearing retirement?

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acequion

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I'm a bit confused because I've got some conflicting retirement planning advice. As a secondary teacher, I'm public service. I'm very close to retirement, most likely one more school year to go. Because I've stayed on in the job longer than I thought I would [over 60 now]and I'm buying back 10 years in Notional Service, I'll will have close to the maximum service, probably something like 38.5 years. I have a small sum in an AVC/PRSA from Zurich that I stopped last year and will be able to use some of that tax free to top up my lump sum, but there will be a sum left over. I have reached that lucky stage in life where I don't need all my income so I always have a lot of money left over in my current account, plus some savings. Today I had a free consultation with a Cornmarket rep who was really pushing me towards starting another AVC, plus a backdated one for last year by lump sum, with a view to transferring it into an ARF on retirement. Last year I got impartial money advice and was told to stop the Zurich AVC and not to take out another one, that drawing from and investing savings and some of my lump sum would be a better way to boost income post retirement. The logic was that the charges associated with AVCs don't make them so cost effective.

Two conflicting viewpoints and I'm caught in the middle. I don't think I'd bother with a backdated lump sum AVC as I'd pay an additional 4% on that to Irish Life, but I'm tempted to start a new pay slip AVC because it seems a more cost efficient way to save money rather than have it sitting in the current account. I would get 40% tax relief on contributions, transfer to an ARF on retirement from where I'd pay 20% on whatever amounts I'd draw out. I'm aware that Cornmarket charge almost €600 to set up the AVC but that too is tax deductible. Sounds an ok deal where I would gain more than I'd lose, but am I missing something?

Really not sure what to do, Cornmarket obviously have a vested interest in their "free" financial advice and the rep was pushing me to invest big amounts in the AVC about which I'm skeptical. So any impartial suggestions would be most appreciated. Thanks a lot.
 
Topping up your AVC would be tax effective if:
- you could get all the additional fund back tax free as part of maximising yor retirement lump sum ( not an option for you you suggest), or
- the additional income drawdown from the ARF would be taxed at a lower rate than the tax relief granted on the contributions (possibly in your case)
But before being persuaded by a salesperson you need to clarify exactly:
- what will be your income in retirement (pension + any other income)
- are you single or taxed as a couple
- what will be your MARGINAL tax rate in retirement
 
Thanks so much Conan for that very helpful reply. To answer your questions, because I stayed in the job longer than anticipated I'll only need a tiny top up from AVC funds to my lumpsum. So there will be a fair bit of the AVC fund left over. The draw down from an ARF after retirement would be at the lower rate of tax, 20% I think, that's what the Cornmarket guy told me. My income on retirement will be about 33 or 34K so again it seems I'll be in the lower tax bracket and I'm single.

So what do you think? Basically my options are:
a] start a pay slip AVC now to top up the funds in the existing AVC or
b] leave my savings lying dormant in the bank and go about investing them on retirement.

I have heard that that the tax rates on investment gains are quite punitive.

How about keeping my money in savings and investing in an ARF once I retire, ie skip the AVC, can that be done? Is it a good option?

Thanks so much for the help, really appreciate it.
 
I presume you are pre 95. Have you any A class Prsi contributions?
You might have a few years of A class pre establishment.
Check your Prsi record and establish how many A class contributions you have.
These could be listed as ORD on your record. What is important are the ones listed as 'paid reckonable contributions'.
If you have at least 260 of these contributions you can qualify for a 'pro rata' contributory pension. If you are short of the 260 contributions, you can gain extra reckonable contributions from an ARF until age 66. Even if you already have the minimum of 260 paid reckonable contributions, any extra contributions will increase the amount of the pro rata pension.
Also the Prsi contributions from an ARF will allow you to qualify for Treatment benefits after approximately 3 years. If you qualify for Treatment benefits between age 60 and 65 you then keep this entitlement for life.
Because of this it is worthwhile having an ARF.
I am not sure what you mean about skipping the AVC.
Do not put savings directly into an ARF as you will not get tax relief, but will pay income tax on the withdrawals from the ARF.
Only fund the ARF from the money in your AVCs.

I would avoid Cornmarket as their charges are high.
You would probably be better off putting your AVCs into the Zurich AVC PRSA or even better, open a new AVC PRSA with an execution only broker and minimise the fees.
 
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Thanks so much bstop, that's brilliant advice. I'm actually A1 PRSI as I didn't get into the job until later, so am post '95.

I did have a Zurich PRSA and I was advised to stop it as I had more than enough in it to top up the lump sum with a fair bit left over. So could that AVC account be reopened or would I have to open a new one? Thanks again.
 
You can pay into your existing PRSA. The PRSA only closes when you take retirement options from it.
 
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