# AVC Where to place



## edge124 (9 Feb 2010)

AVC will be available July 2010. Amount 160,000.00 euro. Income not required  for 5 years. What are best options.?


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## LDFerguson (10 Feb 2010)

When you say AVC will be available, do you mean that you are retiring in July 2010?


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## edge124 (14 Feb 2010)

yes.


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## LDFerguson (14 Feb 2010)

If you don't want any income from the AVC fund for the next five years, you should transfer it to an AVC PRSA now or in any event, before you retire.  At retirement, you can take your maximum Revenue entitlement to a tax-free lump sum and then leave the balance of the AVC PRSA fund invested, with no requirement to draw an income.  In my opinion, the amount of the fund that will be eligible as a tax-free lump sum should be invested in a cash fund given that it will be withdrawn in a matter of months.  Where to invest the balance will depend on your attitude to risk vs reward, your investment experience, your financial circumstances and how long you anticipate holding the AVC fund for.  

If you go down the route of transferring the AVC fund into an Approved Retirement Fund (ARF) at retirement, you must withdraw at least 3% of the fund per year, or else you will be taxed on a notional 3% withdrawal anyway.  

Liam D. Ferguson


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## oldtimer (17 Feb 2010)

My wife has an AVC with Hibernian Aviva, funds invested in 'Aviva Irl Unitis With Prof (P) / Aviva Investors'. By my (amateur) calculations it is not performing well. She is 62 and due to retire in three years time. Wondering what are her options (a) cash it in and probably suffer encashment loss (b) reduce contributions or (c) just keep paying in as now hoping it will recover? The employer matches her contributions and she then tops it up to maximum contribution allowed. Any advice appreciated.


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## Squaremile (18 Feb 2010)

Dear Oldtimer,

An AVC fund cannot be 'cashed in' as it is a pension product and is therefore only accessible at retirement. The decision on whether to continue contributing to it and if so what to invest the contributions in is affected by a number of factors. In particular it is vital to consider the rate of tax you and your wife are likely to be paying when the policy matures as this determines whether or not the AVC is an efficient investment vehicle for you.

Also, as your wife's existing contributions go into a with-profits fund there are a number of factors to consider including:

a. If you cease payments you may lose any bonuses that are due to you up to an including a maturity bonus

b. If you switch from the with profits fund a Market Value Adjustment (MVA) may or may not be applied to the fund - i.e. the value of your fund may be reduced as a penalty for switching

Before you make any decision I would recommend that you discuss your options with a reputable broker. You will find links to a number of experienced brokers (including myself) on these pages.

Best wishes,
Andrew
squaremile.ie


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## GSheehy (19 Feb 2010)

The most 'recent' asset mix I have to hand for the Aviva Irl With-Profit Funds dates back to 30/06/2009 and is as follows :

Bonds - 84.4%
Cash - 6%
Property - 9%
Equities - 0.6%

I doubt it has changed much in the meantime so it may be relevant to any changes you might consider making in the short-term.


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## oldtimer (20 Feb 2010)

Thanks for the replies - much appreciated. The Company my wife works for has arranged an appointment between a broker and herself. I had an AVC with Eagle Star and their policy ensured I would not lose any money as my retirement approached, automically transferring  into their SuperCapp Fund, which is mainly a deposit account. Thought this was the way with all AVC policies as retirement age approached, but apparently not. Is it somewhat irresponsible of Hibernian Aviva not to protect their customers as they approached retirement?


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## LDFerguson (22 Feb 2010)

oldtimer said:


> Thanks for the replies - much appreciated. The Company my wife works for has arranged an appointment between a broker and herself. I had an AVC with Eagle Star and their policy ensured I would not lose any money as my retirement approached, automically transferring into their SuperCapp Fund, which is mainly a deposit account. Thought this was the way with all AVC policies as retirement age approached, but apparently not. Is it somewhat irresponsible of Hibernian Aviva not to protect their customers as they approached retirement?


 
It's a good question.  Eagle Star / Zurich only do this for customers who choose their "lifestyle" option.  Aviva do have comparable options available.  

I wouldn't necessarily agree that all pension companies should automatically switch all customers into low-risk assets as they approach retirement.  Just as there have been some customers who have been adversely affected by downward investment movements in recent years, there will undoubtedly be some years where assets gain strongly in value just prior to people's retirement.  If they have been automatically switched into lower-risk assets, they might feel aggrieved at having lost out on a last-minute gain.  

There are also those who intend to invest their pension fund into Approved Retirement Funds at retirement, and so will be happy to continue a medium or higher-risk investment strategy.  

But I do think that pension providers could contact all pension clients at regular intervals as they approach retirement age, detailing the risk profile of their current fund as well as reminding them of their option to switch to lower-risk funds if they want.  Current annual statements tend to be a lot more figures-based.


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