Calculating maximum AVC contribution to avoid overfunding - Single scheme member

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causalman

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Hi all,

I'm attempting to calculate the maximum AVC contribution I could make per year per Chapter 5 of the Revenue Pension Manual to mitigate risk of overfunding. I'm slightly confused as to what capitalisation factor (Table 1) and scheme factor (table 5) I should apply in the calculations.

I am male, single, 34 years old. I'm a member of the Single Public Service Pension scheme with 3.5 years service to date. I'm at the top of my salary scale and expect to remain at this point for the majority/rest of my career. I have a small deferred benefit from a previous private sector employment.

Conservatively, I think I can assume the pension benefit from my public pension scheme to be (0.5*current salary - state contributory pension) and max lump sum to be 1.5*current salary. (I understand the actual pension and lump sum at retirement I receive will be slightly less than this but the calculation is complicated.)

As I am currently unmarried, do I have to use the "Male no spouse or civil partner" capitalisation factor in table 1? Or should I use the "Male with spouse or civil partner" capitalisation factor as the Single Scheme has a 50% spouse's pension?

Similarly, what scheme factor should I use in table 5? I understand the factors in the "Earnings Index" column apply but should I use the scheme factors for "Male - 50% spouse or civil partner" or "Male - 0% spouse or civil partner"?

It would seem odd to apply the "Male no spouse or civil partner" capitalisation factor but the "Male - 50% spouse or civil partner" scheme factors?

Thanks for any input!

PS Table 5 does not extend past NRA 65 but I assume I can extrapolate to NRA 68 based on the figures
 
I don’t understand.

The maximum AVC for your age is:

(20% x Earnings) - Regular Contributions

I’m assuming that you earn less than €115,000.

Just look at your payslip, work out what you’re already contributing, and go from there.
 
Thanks Gordon. I earn less than €115,000.

I agree that's the maximum tax-relieved AVC contribution I can make.

However, I think I may be at risk of exceeding the Revenue fund limit (2/3*Final salary*Capitalisation Factor) at Normal Retirement Age if I contribute that amount regularly each year.
 
If you are in the Public Service, they generally have a “chosen” AVC provider (eg Cornmarket). They should be able to work out your max AVC (without the risk of overfunding).
Worth remembering that you can (under Revenue limits) fund for the equivalent of 2/3rds plus the State Pension. So assuming you are an A PRSI and your main scheme is integrated with the State Pension (ie 50% less the State Pension), then you should have good scope for AVCs (though questionable whether you could go as far as 20%/25%/30%/35%/40% of salary).You might start off at 20% but keep it under review as you become eligible for the next band.
 
That was the retirement benefits, AVC simply a way to bridge the gap in the lump sum shortfall,, say you are entitled to a lump sum of 100K but you only qualify for 50 and your AVC is 70 then 50 of that goes to lump sum and the 20 towards ARF, taxable amount etc....
 
Marco 1972 said:
That was the retirement benefits, AVC simply a way to bridge the gap in the lump sum shortfall,, say you are entitled to a lump sum of 100K but you only qualify for 50 and your AVC is 70 then 50 of that goes to lump sum and the 20 towards ARF, taxable amount etc....
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Okay, but the original question is about overfunding. If you overfund you cannot transfer any excess into an ARF.
 
what are the options then, withdrawal at the relevant tax rate ? rolling into another fund?

Also in an ARF is it the capital or interest from it that is drawn down....
 
My understanding is that if the value of your main scheme benefits plus AVC fund exceed the revenue funding limit the excess goes the trustee of the main scheme. Therefore there is a potential for wasted AVC contributions.
 
causalman said:
My understanding is that if the value of your main scheme benefits plus AVC fund exceed the revenue funding limit the excess goes the trustee of the main scheme. Therefore there is a potential for wasted AVC contributions.
Click to expand...

Any source to back up your understanding?
 
Chapter 5 of the Revenue pension manual - section 5.7 states:

Tax relief in respect of contributions in any one tax year is subject to the limits for employee contributions, as detailed in Chapter 3. Relief for employer contributions under section 774 TCA is discussed in Chapter 4 . The limits on tax relieved pension funds also apply, as discussed in Chapter 25. Care must be taken to ensure that overfunding does not occur, as surplus funds may have to be refunded to the employer and taxed as a trading receipt. Details of maximum retirement benefits are contained in Chapter 6.
 
Marco 1972 said:
Also in an ARF is it the capital or interest from it that is drawn down....
Click to expand...

Withdrawals from an ARF are taken from the fund as a whole. If your ARF is split into a number of different funds internally, e.g. 50% Super Managed Fund and 50% Hyper Managed Fund, it is sometimes possible to specify that you only want your withdrawals to come from one of your choices. But not all ARF providers can facilitate that.
 
You won't be overfunded. You are in the single public service scheme which uses a career average less the State contributory pension. Revenue maximums is final salary full stop. That's a massive difference that you can fund for. I wouldn't get hung up on being over funded, there is little chance of that happening.

Marco 1972 said:
Any excess in the AVC can be rolled into an ARF or equivalent...
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No they don't. His pension will be worth more than he's allowed have. If you could just roll it over into an ARF, what's the point in having limits if they can just be ignored.

causalman said:
My understanding is that if the value of your main scheme benefits plus AVC fund exceed the revenue funding limit the excess goes the trustee of the main scheme. Therefore there is a potential for wasted AVC contributions.
Click to expand...
That's using the assumption that the employer made the contributions. The Revenue won't take the your AVCs and give it to the state. They will unwind the value of your contribution that makes you overfunded, refund it to you and tax it as income. But you won't be overfunded.

And at 34 years of age, there is plenty of opportunity to skip contributions in the future to bring your pension back in line...if your AVCs perform amazingly well.


Steven
www.bluewaterfp.ie
 
causalman said:
My understanding is that if the value of your main scheme benefits plus AVC fund exceed the revenue funding limit the excess goes the trustee of the main scheme. Therefore there is a potential for wasted AVC contributions.
Click to expand...
Steven Barrett said:
That's using the assumption that the employer made the contributions. The Revenue won't take the your AVCs and give it to the state. They will unwind the value of your contribution that makes you overfunded, refund it to you and tax it as income. But you won't be overfunded.
Click to expand...
Thanks for clarifying this Steven.

Steven Barrett said:
And at 34 years of age, there is plenty of opportunity to skip contributions in the future to bring your pension back in line...if your AVCs perform amazingly well.
Click to expand...
I agree; this is a pragmatic way forward.

Thanks all for your input.
 
An important point of information for anyone reading this: "death in service" and "death after retirement" are two completely different things. Death in service refers only to what happens if you die while still in the employment. Death after retirement refers to what happens when you die after retirement. Two completely different sets of rules and procedures.
 
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