# PRSA AVC Options....



## landlord (4 Jun 2015)

I am lucky enough to have a very good defined benefit work pension plan. 
After the assistance of my company pension office I have been told there is scope for additional voluntary contributions AVCs. (Thanks Sarenco for advising me to look into this). Unfortunately my company has recently stopped doing in house AVCs due to a deficit in the fund. Although apparently this deficit is an artificial one and only due to recent strict legislative requirements. 
Perhaps these AVCs will become available again in the future for us as I gather there are advantages to company AVCs as opposed to PRSA AVCs which apparently now is my only option. 
I am 41 and am already contributing 11% of my salary. I understand I am eligible to contribute an additional 14% a year. It has been calculated that I am able to put in just over €14,000 per year according to my salary. Although potentially only for a few years if I am not to exceed the 200,000 Euro threshold. 
I am still trying to figure out exactly what my company pension scheme tax free lump sum will be on retirement and therefore how much I can invest in a PRSA AVC without exceeding the 200,000 Euro threshold. Although even if the lump sum increases with a PRSA AVC to 300,000 I guess it would still be worth it, considering the 20% tax, as opposed to just investing this money myself in stocks and shares with a stockbroker?
I have been to a couple of banks and spoke to Irish life and Zürich Life and to be honest I've been bamboozled with all the options. 
The fees for the different funds seem to be fairly standard at 1%. Are there any other costs? Is there anything specifically to be aware of when considering the funds on offer? Is it worth going through a broker or direct with Irish life or Zürich life?
Do the brokers work off commission in terms of not necessarily recommending something that would be suitable for me?
I would imagine the 200 and 300,000 Euro thresholds will be increased by the time I retire in 19 years time. Should I consider this factor now when determining how much to invest in a PRSA AVC?


----------



## Steven Barrett (4 Jun 2015)

The 1% AMC is standard. There is also a 5% premium charge i.e. 95% of your money is invested. This pays the advisors commission. You can pay a fee have this waived. They are the only two costs in PRSA structures. 

Your own scheme may have lower costs than that but a more restricted fund choice. 

With a PRSA, you can choose the funds and the provider, so you have a lot more choice. 

Use a broker? It's the same as everything else, would you prefer to do it yourself or pay someone to do it for you? The quality of the advice depends on who you go to. 

Steven
www.bluewaterfp.ie


----------



## landlord (4 Jun 2015)

SBarrett said:


> The 1% AMC is standard. There is also a 5% premium charge i.e. 95% of your money is invested. This pays the advisors commission. You can pay a fee have this waived. They are the only two costs in PRSA structures.
> 
> Your own scheme may have lower costs than that but a more restricted fund choice.
> 
> ...




 Thanks Stephen I've been to see three advisor so far and none of them have mentioned anything about their 5% premium charge !!
I had assumed their commission was paid for by the bank or the insurance company.  If I paid a flat fee roughly what would that be?


----------



## Steven Barrett (4 Jun 2015)

landlord said:


> Thanks Stephen I've been to see three advisor so far and none of them have mentioned anything about their 5% premium charge !!
> I had assumed their commission was paid for by the bank or the insurance company.  If I paid a flat fee roughly what would that be?



Of course they didn't!! 

Remember, any commission paid is paid by you. It may be in the form of a higher management fee or a lower allocation rate, but you will always pay. 

Fees vary on who you talk to and what they do for you. It's not a one size fits all. 


Steven 
www.bluewaterfp.ie


----------



## Sarenco (4 Jun 2015)

landlord said:


> Thanks Stephen I've been to see three advisor so far and none of them have mentioned anything about their 5% premium charge !!
> I had assumed their commission was paid for by the bank or the insurance company.  If I paid a flat fee roughly what would that be?


 
If you are comfortable going the DIY route, there are a number of discount brokers that offer an execution only service.  LABrokers (link below) have been recommended before on here.



If you are feeling somewhat overwhelmed by the choice of funds, you could probably do worse than choosing something like Zurich's Balanced Fund or the Irish Life Consensus Fund.  You will obviously need to do your own research but you might reasonably take the view that they would be suitable for somebody at your age.

As Steven says, it's the same as everything else, would you prefer to do it yourself or pay someone to do it for you?

Just one point of clarification, currently 25% of your overall pension pot can be drawn down as a tax free lump sum - subject to a ceiling of €200k.  You can actually grow your pension pot to €2m (known as the standard fund threshold) before you start running into tax issues.  Obviously these are the current rules and there can be no assurance that our fine legislators will not change the rules over time.


----------



## JoeRoberts (4 Jun 2015)

Not sure if it is possible to have 2 AVC funds linked to a DB scheme but if so, you could ask the company to set up an AVC scheme attached to the DB fund on a defined contribution basis.
Then the funds are held separate from the main plan. You won't be using it to buy service years, just get the fund value.


----------



## landlord (4 Jun 2015)

JoeRoberts said:


> Not sure if it is possible to have 2 AVC funds linked to a DB scheme but if so, you could ask the company to set up an AVC scheme attached to the DB fund on a defined contribution basis.
> Then the funds are held separate from the main plan. You won't be using it to buy service years, just get the fund value.



  A broker I was speaking to told me to contact my pensions office and ask this exact question.  But first ask ask if I am able to buy back years  as I will be slightly shy of the 40 years required for a full pension.


----------



## JoeRoberts (5 Jun 2015)

I presume your AVC scheme currently allows you buy back years as why else would they refuse to continue AVCs ?


----------



## landlord (5 Jun 2015)

landlord said:


> A broker I was speaking to told me to contact my pensions office and ask this exact question.  But first ask ask if I am able to buy back years  as I will be slightly shy of the 40 years required for a full pension.



I am expecting a reply to this question from my pension office after the weekend.


----------



## Steven Barrett (5 Jun 2015)

Sarenco said:


> Just one point of clarification, currently 25% of your overall pension pot can be drawn down as a tax free lump sum - subject to a ceiling of €200k.



In this case, he's in a DB scheme, so his tax free lump sum will be a percentage of final salary. 


JoeRoberts said:


> Not sure if it is possible to have 2 AVC funds linked to a DB scheme but if so, you could ask the company to set up an AVC scheme attached to the DB fund on a defined contribution basis.
> Then the funds are held separate from the main plan. You won't be using it to buy service years, just get the fund value.



When I read the OP, I thought it was odd that there was no AVC scheme as they are separate from the main scheme. I see now that he's trying to buy back years. 

A warning on buying back years in DB schemes. If the scheme gets into difficulty in future years, the trustees can now reduce pensions in payment. if you buy back years, which you fund 100% yourself, you are buying back into the scheme and if there is a subsequent reduction in pensions in payment, it will also apply to the years you bought back. 

Steven
www.bluewaterfp.ie


----------



## JoeRoberts (5 Jun 2015)

SBarrett said:


> it will also apply to the years you bought back


Are you sure this is correct ? My understanding is that AVCs and benefits secured by AVCs still have absolute priority even under the new rules.


----------



## landlord (6 Jun 2015)

So my pensions office has told me that I am unable to buy back years or take out AVCs through the scheme.
So it's back to considering a PRSA AVCs

Worst case scenario.....

Let's say I put in a 10,000 euro lump sum today into a PRSA AVC fund (and claim the tax relief) and I realise at retirment that I have inadvertently exceeded the 2 million SFT by exactly 10,000 Euros.(or perhaps 10,000 plus the gain)
Would I be better, the same or worse off at retirment if  today I invested that 10,000 Euros lump sum in exactly the same fund on the stock market outside of a pension wrapper.

Basically do I have anything to loose by investing something in a PRSA AVC now as opposed to the stock market outside of a pension wrapper, hoping that the legislation will improve in the future?


----------



## Gordon Gekko (6 Jun 2015)

The effective threshold is €2.15m, so you'd be grand.

Personally, I think that €10k extra (i.e. €2.16m) in your pension fund is better, notwithstanding the chargeable excess tax.


----------



## Steven Barrett (6 Jun 2015)

JoeRoberts said:


> Are you sure this is correct ? My understanding is that AVCs and benefits secured by AVCs still have absolute priority even under the new rules.



According to The Pensions Board. They told me if you buy back years, you buy into the scheme and its rules, so if there is a 10% reduction in the pensions being paid, the years being bought back are reduced also. 

Steven
www.bluewaterfp.ie


----------



## landlord (17 Jun 2015)

If I pay 10 grand into a PRSA AVC, and if eligible, can I claim back 40% (marginal rate) or is it 41% from revenue?


----------



## Steven Barrett (18 Jun 2015)

40%


----------

