# Am I putting too much money away in my AVC?



## auburn (26 May 2007)

Hi,

I am 42 years old, married with 4 children. I am earning 84k a year. I am in a defined benefit superannuation scheme (to which I contribute 6.5% of my salary). I also contribute 18.5% of my salary to an AVC scheme - i.e. I am maxing out on my pension contributions so as to obtain full tax relief (up to 25% of my salary).

I intend to retire at 60 years of age by which time I will have 33 years of pensionable service. My AVC fund will hopefully make up the difference (i.e. the 7 years I will be short).

As the Revenue only allow me half my salary on retirement (assuming a full pension) anyway, surely I will end up putting more money away in my AVC than I will be able to get my hands on?

Or have I lost the plot!

Thanks,
Auburn.


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## South (27 May 2007)

Hi auburn

The revenue will allow up to 2/3 of final salary.

When you retire early you may be subject to certain reduction factor for early retirement so the AVC of 25% may or may not be necessary, there is a good chance you're not overfunding, you should ask your AVC provider to give you a projected benefit so that you can see the figures yourself...


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## auburn (27 May 2007)

Thanks South

auburn


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## LDFerguson (28 May 2007)

In fact, your AVC provider should be able to estimate your total estimated pension at age 60, including AVCs _and_ superannuation benefits, to establish whether or not you're over-funding.


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## South (28 May 2007)

I do not think that the AVC provider may be able to calculate any early retirement reduction factor applying to auburn's main scheme benefit...


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## LDFerguson (28 May 2007)

As Auburn is in a superannuation scheme, there's a reasonable chance that s/he arranged the AVC with the "chosen broker" of the particular scheme, e.g. Cornmarket for many teachers etc.  If so, Cornmarket or whoever should be able to calculate superannuation benefits.  

Sorry - my wording wasn't entireley accurate - should have said broker not provider. 

Having said that, if Auburn started a standalone AVC PRSA, the AVC PRSA provider has a responsibility to ensure that no overfunding occurs.


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## South (28 May 2007)

I don't think that they can possibly guesstimate the rules and particularly the Early Retirement rule applying to every pension plan in Ireland!


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## LDFerguson (28 May 2007)

No but they have a responsibility to find out the rules pertaining to a particular individual's circumstances before advising them to start a PRSA / accepting PRSA contributions particularly if the individual states that their motive is to fund for early retirement.


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## auburn (28 May 2007)

Thanks everyone for your submissions and thoughts on the matter.

The intermediary/broker is Marsh Ireland - a TUI scheme. The fund manager is Irish Life. The problem is everything is so vague. 

Marsh have told me that a new max. figure of *59%* (not 1/2 and not 2/3) of my final salary is now allowed under new Revenue rules. Even if I had a full pension at 60 under the superannuation scheme, I can still contribute to the AVC scheme -  at full tilt!

It seems to be a lot of money to be putting away to achieve the extra 9% of pensionable salary?

Auburn.


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## South (28 May 2007)

59% is beacause you would be retiring early (not at NRA).

Marsh should be able to field all your queries - they are the biggest broker in the world!


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## auburn (29 May 2007)

As it turns out early retirement has nothing to do with it. I can retire at 65 if I wish. 

auburn


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## South (29 May 2007)

Of course you can.

But the max benefit on early retirement is less than that on normal retirement (2/3rds).


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## auburn (29 May 2007)

A *full* pension in our superannuation scheme is *1/2* salary (not 2/3), along with a tax free lump sum of *1.5* times final salary.

However, even if I could obtain a full pension under the main superannuation scheme (irrespective of whether I go at 60 or 65), I can still contribute to an AVC plan with full tax relief (25 % of salary). This appears to be because of a recent change where Revenue will allow a full pension of *59 %* of salary.

auburn


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## South (29 May 2007)

Auburn

Revenue will allow up to 2/3 of final salary at NRA - this includes any tax-free lump-sum...the general wisdom is that 50% of final salary plus a 150% lump-sum roughly equates to 2/3 of final salary (in reality it is not as much as 2/3 of final salary).


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## oysterman (29 May 2007)

South said:


> Revenue will allow up to 2/3 of final salary at NRA - this includes any tax-free lump-sum...the general wisdom is that 50% of final salary plus a 150% lump-sum roughly equates to 2/3 of final salary (in reality it is not as much as 2/3 of final salary).


Not really.

Nobody believes that a 150% lump sum equates to the 16.67% of pension foregone nowadays because of increased longevity and low interest rates. That's why Revenue will allow the extra 9% (mentioned by auburn) to be funded by AVC.


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## South (29 May 2007)

Exactly as I said, the 2/3 is a lot larger.


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