# Have we paid too much money into AVCs and should we stop?



## JamieV (14 Apr 2020)

Age: *49*
Spouse’s/Partner's age: *49*

Annual gross income from employment: *€75K (Private sector)*
Annual gross income of spouse: *€75K (Pre-93 public sector)*

Monthly take-home pay: *€5,500 after AVCs, pensions etc*

Type of employment: *Private Sector / Public Sector (pre-93)*

In general are you:
(a) spending more than you earn, or *No*
(b) saving? *€2K per month*

Rough estimate of value of home: *€350K*
Amount outstanding on your mortgage: *€120K*
What interest rate are you paying?: *0.8% - Tracker - 10 years left*

Other borrowings – car loans/personal loans etc: *0*

Do you pay off your full credit card balance each month?: *Yes*
If not, what is the balance on your credit card?: *0*

Savings and investments: *€55K split between equities and cash - Also put €150pm into fund for childs education since birth which will continue*

Do you have a pension scheme? *Both have one.  
Spouse has standard public servant pension plus also AVCs.  AVCs are worth €110K as of last week and pays €400 per month into it.
Mine is company pension scheme.  Worth €375K as of today.  I pay 25% of salary and company pays 7.5% of salary and when im 50 next year will increase to 30% from my salary.*

Do you own any investment or other property? *Yes (Tracker of 0.5%, remaining term <11 yrs. pre tax profit of €12K p/a. Worth €195K,  €61K left on mortgage)*

Ages of children: *1 child - age 7*

Life insurance: *€150 pm total for life insurance and mortgage protection insurance, plus work insurances.*


What specific question do you have or what issues are of concern to you?

*1 - *We are happy enough where we are at the moment and have no issues with spending or saving etc,
But it has come to our attention that my spouse may be overpaying into AVCs.   And that at drawdown if we are in the high tax bracket with our pensions that there is no advantage at the moment to be getting the tax relief on the public sector AVCs as they will be taxed at the higher rate anyway, even if I draw a small enough amount to get us into the lower tax bracket when we retire.  Could this be true.  Have we gone over the limit where it is  tax efficient to keep paying into AVCs at this point and have too much paid into my spouses AVCs?  Should we stop paying AVCs for for my spouse.  .   If we stop where should we invest that money?

I plan to keep paying the max rate allowed anyway into mine.  But worried we are wasting our time putting it into spouses AVCs with the fund value at this point and that we would be better off just banking the cash as there might be no benefit from putting it away.  Or is there a benefit in putting it into spouses AVCs over keeping it as cash?

*2 - *We are thinking of both retiring in 5 or 6 years.  Would this be possible on what we are putting away now?  If we did retire at €55 we would plan to have enough cash put away to pay off the mortgages if needed at that point, or just leave them be as they are not much monthly.

Thanks in advance guys


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## 50andOut (30 Apr 2020)

check the key posts under the pension thread


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## Baby boomer (30 Apr 2020)

Congratulations, you are in an admirable position and have made excellent financial decisions over the years that are now coming to fruition.  
Retiring at 55 is well within your capability and, from personal experience, I'd recommend it.  (Well, semi-retirement anyway, I still do a bit.)

I don't think there's much danger of over-contributing to the AVC, particularly if you're going for early retirement.  As I understand things, you can use the AVC to top up or replace the small loss in pension and lump sum you'd incur by retiring early.

I would also consider whether you're overpaying life insurance.  You have excellent pensions and public service death in service benefit.  Income continuance might be a better option for yourself.  Spouse is covered anyway as public servant.

Finally, when your spouse retires s/he could consider some part time self employment.  It doesn't have to be onerous and paying Class S (self employed) PRSI will qualify for the Contributory OAP in due course.

Hope this helps.


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## PaxmanK (1 May 2020)

I think you are in a great position.
I have heard that with AVCs in the public sector you could end up paying the high rate of tax when drawing down after you retire.
Then as you say - whats the point of putting the money in now.
I think you might have to ask a good financial advisor because it is complicated.
There are some FAs on AAM who might be able to tackle that question, but the since none of them have tried to tackle this question so far they might not know they answer.  Perhaps cornmarket could help you?

There may be solidarity bonds coming down the track.  Last time you could get 50% without paying tax in them.
There is bound to be an equal offer this time.  For now though keep what doing what you are doing and call cornmarket or some other advisor for advice.


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## cremeegg (1 May 2020)

If your income in retirement is such that you will be a higher rate tax payer, then perhaps continuing to fund the AVC is not very attractive.

What will your income in retirement be, will you continue to have rental income.

Money invested in the AVC will continue to grow tax free in the meantime, the tax you may or may not have to pay on the income from that in future is not a crucial issue. 

If you want to continue to save the €400 per month the question of wether it is better in the pension wrapper or not depends mostly on your expected income profile in retirement. And the answer is probably marginal.


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## What the (18 May 2020)

Leaving aside the finance element here your child will only be 13/14 and unless he/she is going to boarding school you will probably have to stay local for a good few years while he/she finishes up. My youngest is also going to be in that age range when I hit 55 so I planned to work until 60 when he does his leaving cert. Retiring earlier is very appealing though. I would hope you have planned the non monetary side of it also so that you do not wake up one morning post retirement with no idea about what you are going to do to occupy your time.


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