AVCs for Public Servants

Brian_M

Registered User
Messages
16
Hello All,

I am looking for some advice on AVC's.

I am a member of a public sector pension scheme and was considering taking out a PRSA AVC to allow the possibility of early retirement maybe at age 55. I have been talking to the union sponsored schemes (very high charges) and also to independent PRSA providers and getting some conflicting advice.

I am currently 43 but have 26 years service and would potentially have 40 years at age 57. Am I correct in my assumption that the total benefits one can take from all sources is 1.5 times final salary for lump sum and 50% of final salary for a pension. One firm tells me that at retirement you can fund any shortfall in your lump sum from your AVC's and put the rest in an ARF which you can draw down in any manner you decide. I am wondering if this is true and what the situation would be if I subsequently did not decide to take early retirement ie. In what way can I use the AVC fund. Basically the advice I am getting from this person is that I should pay as much as I can up to the allowable limit of 25% and avail of the tax relief and then on retirement put the funds in an ARF.

I am just wondering if things are so simple.
 
Re: AVC's for Public Servants

The starting point is that you can only invest AVCs if the benefits you will get on retirement are short of the Revenue maximum benefits.
Based on your potential service -40 years- you do not have the facility to buy "added years" or contribute AVCs.
The next question is whether, based on full service, your benefits are otherwise at the maximum. Since you will be entitled to a tax-free lump sum of 150% of salary plus a pension of 50% of salary (in total this is equivalent to a total pension of 2/3rds salary), this is the maximum benefit. In addition, since your pension is fully indexed in retirement, there is no scope here.
Your only scope for AVCs would be:
  • If the salary used to calculate your benefits did not include certain taxable income (e.g. bonuses etc) or if the salary was averaged over say the last 3 years (as opposed to the final 12 months). This latter situation leaves marginal scope foe AVCs.
  • To increase the Spouses pension from 50% of your pension to 100% of your pension. This leaves a little scope for AVCs.
Yes, if you have an AVC you can invest this element into an ARF on retirement (as opposed to buying an annuity). And yes you could use the AVC fund to increase your tax-free lump sum, IF your tax-free lump sum is less than the maximum.

Looking at the details you provided, I see little scope for AVCs (since your benefits seem close to the maximum) and certainly not 25% of salary.
 
Re: AVC's for Public Servants

Conan,

Thanks for your reply.

So am I correct in thinking that even if I make a consious decision now to retire at 55 and only receive 73% of my potential pension and 85% of my potential lump sum (as would be the case) I wouldn't have any scope for AVC's as potentially I would recieve maximum benefit if I worked on to 60.
 
Re: AVC's for Public Servants

Hi Brian,

Are you in reciept of any 'non-superannuationable' income such as bonus, overtime, allowances or 'on call' payments? If so there may be some scope for efficent AVC contributions.

I know there are some public service employees who are on relatively low basic(superannuationable) wages but get bonus, ot etc.

aj
 
Re: AVC's for Public Servants

Brian M.
You are correct. It is not possible to fund additional benefits in anticipation of early retirement. You can only invest AVCs if your benefits at normal retirement age fall short of the Revenue maximum.
 
Re: AVC's for Public Servants

Thanks for the post ajapale.

No I only have a basic salary.
I don't get bonus payments or overtime
 
Re: AVC's for Public Servants

Thanks Conan.

As I suspected.
One provider talks in their brochure about a relaxation of Revenue rules on this issue allowing up to 53.30/80 as opposed to 40/80 by way of pension limits but I can see no reference to this in the Revenue's own documentation.
 
Re: AVC's for Public Servants

Brian M.
With respect to Conan, I think he is wrong. I am in a similar situation to you and have checked this with a couple of pension advisors. As the maximum pension allowed by Revenue is 66% of Final Salary, there is scope since September 2003 to take out an AVC to top up either the lump sum(not in your/my case as 150% is the max) or the pension at retirement age. If, like me, your minimum retirement age is 60, then that is the earliest you can access the AVC Pension. So, you can, indeed, take out a PRSA-AVC, benefitting from the tax relief, up to revenue limits(25% of salary between 40 and 50). As you are probably paying 6.5% superann/S&C, you have scope for a further 18.5% of final salary. You could take the actuarially reduced public service pension at age 50+ but you would have to wait until 60 for the AVC pension to be accessed.

Conan - how do you calculate 50% of final salary as equal to 66% pension? Is this an approximation of net take home pay? If so, I don't think that is accurate. I apologise if I am wrong.

Brian - go get independent pension advice. The union can recommend a company. Good luck.

Slim
 
Re: AVC's for Public Servants

Slim,

Thanks for the post.
Do you know what caused the change in September 2003 ?
Was there a change in revenue rules at that time possibly.
Some firms even say you can access the AVC fund from age 50.
Here's a link you might be interested in

[broken link removed]


Brian M
 
Re: AVC's for Public Servants

Brian M,

The government introduced PRSAs in 2003 and they became available to members of occupational pension schemes who may wish to make up for less than max service or top up the pension. The age at which you may access the scheme is dictated by your own terms of employment, i.e some nurses may retire at 55 on full pension if they have the service. So they could access their PRSA at that stage. As a public servant in Admin, I can only access the PRSA at age 60+. "New entrants" will have to wait until age 65 to access theirs.

Slim
 
Re: AVC's for Public Servants

Slim,

Thanks for the post.
I'm in the same situation as you.
Have a look at the link which I posted above and let me know what you think.

Brian_M
 
Re: AVC's for Public Servants

All public service employees can make AVC payments to increase spouse and childrens pension to 2/3 of their salary. In practice this means that they can make full use of the allowable % of their wages for income tax relief.

They can also set up a stand alone PRSA to make their contributions.

If any public sector employees want to set up a stand alone PRSA they should contact Eagle Star for information. I have found that they are the only people with expertise it this area. I set up my Eagle Star PRSA through a broker who posts to this forum and got a better bid offer spread i.e 3.5% instead of the 5% offered direct by the company.
 
Re: AVC's for Public Servants

This is the way I understand the issue:

  • the max pension a public servant will get is 50% of pay. The new rules means you can supplement this with an AVC/ARF up to 66%.
  • Other than the above, the real gain is that you are paying in at the 42% tax rate, but drawing down at the far end at only 20%, a gain of 22% (at present rates).
Are these two assumptions correct?
 
Re: AVC's for Public Servants

Hi Podge

I think you are correct on both statements. Also, you may supplement your pension or lump sum if you do not have enough service for maximum. In addition, your tax treatment is dependant on your overall income and you may not be liable for tax at all, depends on the revenue limits (I think it is €34,000 for married couples, one of whom must be over 65, in 2006).

Slim
 
Re: AVC's for Public Servants

Podge,
Not sure I agree.
The Public Service pension is 50% BUT you also get a tax-free lump sum of 150% of Salary. In total pension terms this traditionally equates to 66% of Salary. You cannot fund for a pension of 2/3rds plus tax-free lump sum.
If you are entitled to the maximum pension and lump sum (40 years service), then your scope for AVCs is limited to:
  • If you have income that is not pensioned e.g overtime, bonuses etc
  • You can increase the Spouses pension from 50% of 50% to 100% of 50%.
 
Re: AVC's for Public Servants

There is plenty of scope to make avcs and in practise the only limiting factor is the age allowed % of pay. This is explained in Eagle Stars standalone PRSA leaflet.
 
Re: AVC's for Public Servants

In total pension terms this traditionally equates to 66% of Salary. You cannot fund for a pension of 2/3rds plus tax-free lump sum.

My information is that anyone can fund a pension to provide a pension of 66% of final salary plus a lump sum of up to 150% of final salary. Can anyone say that this is right or wrong? This is a hugely important point for me!

Slim
 
Re: AVC's for Public Servants

Ive moved post concerning AVC's and the Defence Forces Scheme to a new thread here. The Defence Forces Scheme is rather unique and might detract from the substantive issue being discussed in this thread. AVC's and Public Servants.
 
Re: AVC's for Public Servants

Slim,
The position is very very clear.
You cannot have a pension of 2/3rds Salary PLUS a tax-free lump sum of 150% of Salary.
Public and Private Sector schemes often configure their benefit structure differently:
  • Public Sector: max pension of 50% of Salary (1/80th for each year of service) PLUS a tax-free lump sum of up to 150% of Salary (3/80ths for each year of service)
  • Private Sector: max pension of 2/3rds of salary (1/60th for each year of service) with the facility to commute part of this pension for a tax-free lump sum of up to 150% of Salary.
In total pension terms both are of equivalent value, other than the Public Sector pension is generally indexed in payment in line with salary for the grade (something that is not available to mere Private Sector employees).

If you are in the Public Sector scheme, you can only contribute AVCs if your benefits are less than the maximum. this can arise either because you will have less than 40 years service, because your pension is intergrated with the Social welfare pension (for more recently appointed Civil Servants) or because you have income (overtime etc) that is not pensioned.
 
Re: AVC's for Public Servants

Conan said:
If you are in the Public Sector scheme, you can only contribute AVCs if your benefits are less than the maximum. this can arise either because you will have less than 40 years service, because your pension is intergrated with the Social welfare pension (for more recently appointed Civil Servants) or because you have income (overtime etc) that is not pensioned.
why could someone who is a new public servant (so integrated with social welfare pension) but who might have the full 40 years done have the right to make AVCs?
 
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