# 30% of AVCs can be withdrawn for up to 3 years



## Brendan Burgess

But will be taxed at marginal rate. 

I presume that this extends to all employees' contributions


----------



## Brendan Burgess

I have been advised in numerous submissions of the value of allowing   limited early withdrawal from AVCs.  Therefore, in the Finance Bill I   will make provision for persons with AVCs to withdraw up to 30 per cent   of their value. Any amounts withdrawn will be subject to tax at the   individual’s marginal rate since marginal rate relief was provided on   the contributions on the way in. The option will be available for a 3   year period from the passing of Finance Bill 2013.


----------



## ClubMan

Employer facilitates access to a _PRSA _for employees and matches the first 6% contributed by the employee. The employee contributes 10% of gross. What is the _AVC_ here? Employee contribution of 10%? Employee + employer contribution of 16%? The 4% of gross representing the employer's non matched contribution? Something else?


----------



## Protocol

No AVC there??

An AVC is a top-up or extra to a *main occupational pension scheme*.

In your case, the main scheme is a PRSA, with variable cont rates, so no need for any AVC.


----------



## ClubMan

Are you sure about that - i.e. that there is no _AVC _here? Seems discriminatory against those whose employers only offer _PRSAs _and not occupational schemes.


----------



## Meloh

Hi,
I'm just €5 over the cut off rate and pay that at the higher rate of tax.  Does this mean whatever I withdraw from the AVC will be taxed at the higher rate.  
thanks


----------



## squaw

I just called the Dept of Finance and have been told that the measure is only for AVC's to Occupational Schemes and payments into PRSA's or RAC's are not allowed. AVC PRSA's are allowable though if I understood correctly.


----------



## TrotterDel

What happens if a person is unemployed ? do they pay no Tax ?


----------



## LDFerguson

TrotterDel said:


> What happens if a person is unemployed ? do they pay no Tax ?


 
My understanding is that the withdrawn AVCs would be taxed as income, so if the person's total income for the year plus their AVCs is below their tax credits, they would pay no tax.


----------



## LDFerguson

For what it's worth, I think that this AVC announcement is little more than an exercise in playing politics.  Various people have suggested early access to pension funds in the past and have got nowhere to date.  By limiting access to a very small group (just AVCs in Occupational Pension Schemes) I would expect that the take-up will be very small.  


Self-employed sole traders will be excluded excluded because they would use Personal Pensions and PRSAs.
Company directors will be largely excluded because they would typically just put company contributions into an OP scheme.  Little reason for a company director to make an AVC.
PAYE Employees in PRSA schemes will be excluded.
PAYE Employees in OP schemes, who make "ordinary" contributions will be excluded.
So that leaves what I would imagine to be a small group of eligible people, who are in OP schemes, have specific AVC funds AND are in financial difficulty or at least want to withdraw their AVCs even if they're taxable.  

If I was a conspiracy theorist, I'd say that the Government can use this to appease whoever was pushing for early access to pension funds.  The take-up will be low for the reasons outlined.  Then if anyone suggests wider early access to pension funds in the future, the powers that be can say "Well we tried that in 2013 and the take-up was very low so we're not going to bother with it again because the demand clearly isn't there..."


----------



## Conshine

What happens in the situation where somebody is in finacial trouble, can they be forced to withdraw their AVC's by the company / bank chasing the debt?
Household charge is another looming example where there could be accessible money, but the individual refuses to withdraw it, yet they cannot afford it while on benefits.
Or say in a divorce settlement, will AVC's be taken into account as part of the money to be split between the partnrs?


----------



## LDFerguson

Conshine said:


> What happens in the situation where somebody is in finacial trouble, can they be forced to withdraw their AVC's by the company / bank chasing the debt?
> Household charge is another looming example where there could be accessible money, but the individual refuses to withdraw it, yet they cannot afford it while on benefits.


 
This is a very interesting question and one that I hope will be dealt with when the legislation covering AVC withdrawals is published shortly.  As AVC funds are part of a trust, they are currently out of reach of creditors.  

If a person *chooses* to access their AVCs then they are withdrawing funds from the trust and holding them in cash, in which case they would be fair game for creditors.  

I would hope that a person cannot be forced to withdraw their AVCs.



Conshine said:


> Or say in a divorce settlement, will AVC's be taken into account as part of the money to be split between the partnrs?


 
A divorce settlement is different.  All pension entitlements (not just AVCs) can be split between partners using a Pension Adjustment Order.  This mechanism already exists.


----------



## boaber

ClubMan said:


> Surely we have to wait for the Finance Bill to find out?
> 
> Just thinking - in past years pension contributions below the age related percentage limits attracted tax plus _PRSI _(and health levy?) relief and later just tax relief so to apply _USC _(and in some cases _PRSI_) deductions could be seen as unfair in certain cases... Not that this is necessarily a reason that it won't happen!



    Finance Bill just published.  No USC or PRSI to be deducted


----------



## boaber

Section 16

Will only take effect though when the Bill is enacted - usually around the start of April.

You should contact your provider to see what their procedure / requirements will be


----------



## athomson101

Help!  I'm confused by this.

From reading the Act (section 16), does this cover PRSA's?  My employer gives access to a PRSA (as required).  I think the Act says I can withdraw this amount but I'm not sure.

Can someone please clarify?

Thanks

A.


----------



## boaber

Hi athomson101

AVC PRSAs are eligible for the 30% withdrawal.  An AVC PRSA would be set up to allow the employee to make additional contributions to those of the main scheme.

Sounds like your PRSA *is* your main scheme, therefore won't be eligible.  Your PRSA provider should be able to provide clarification.


----------



## Conan

The facility to withdraw is only available in relation to AVCs. It should be noted that AVCs are a specific type of member contribution. AVCs are not the same as a normal member contribution. For example if you have a Group DC or DB scheme where the member is required to contribute a specific contribution (say 5% of salary) such is not an AVC. An AVC is an "additional" contribution. So in this example if the member decides to contribute an extra % then such is an AVC.
Equally in the case of a PRSA, unless the members contribution are specifically established as a separate AVC PRSA then such are not accessible under these new rules.


----------



## ashambles

Is there a possibility to make use of this AVC withdrawal as a short term investment vehicle? Over the next 3 years put in extra AVCs up to your limit, with the intention of withdrawing them.

Only applies to –
- People who’ve already substantial AVCs in their pension, so that the 30% limit will allow them withdraw all new AVCs made.
- People who’ve got low cost company pensions – i.e. no entry fees
- People who’re happy to take the risk of funds having a bad 3 years.
- (Probably) people on the higher rate of tax

You’re benefitting by being able to invest money that otherwise would have been deducted in tax. So you’re getting around 41% higher returns than you would have outside of a pension. 

I think an equivalent might be a bank selling an investment account where for every 1000 euro you’d put in they’d add around 700 euros, but you need to pay 41% tax on everything when you withdraw. (Not sure if this is a good analogy – open to correction.) 

It’s only 3 years, you’re exposing your money to the pension levy for a year or two and you’re limited to relatively small sums of money – perhaps around 10% of your annual income X 3, but perhaps it’s worth considering, especially if you're thinking of investing similar sums of money anyway.

A question would be what charges the pension company will try to impose on any money withdrawn. I’d guess they’d be a little unhappy about giving people their money back free of charge.


----------



## Marianne

I'm not sure I follow where the benefit would be.  


I invest €1,000 in an AVC.  I claim €410 tax relief.  It costs me €590.
I withdraw it under the terms of the new scheme.  I'll assume no charges and no investment growth.  The withdrawal of my €1,000 is taxed at 41% and I get back my €590.
Do you mean that I've had the benefit of €1,000 invested for growth at a cost of only €590?  If so, then the growth would need to be fairly substantial to make it a worthwhile exercise in my opinion, especially given the very strong link between potential return and risk.  If I was sure of making, say 20% growth in a short space of time and had the capacity to invest a substantial sum into an AVC, then perhaps this strategy might make sense.  The problem arises in that any investment which has the potential to make strong growth has almost equal potential to fall in value, for reasons which may not be apparent right now.


----------



## SPC100

If you had low/zero PAYE income when you are withdrawing, this would be interesting. So for the unemployed or those planning career breaks etc.,


----------



## squaw

For the last few months Senator Susan O'Keefe and TD Mary Mitchell O'Connor have been trying to get an answer to a query I sent them regarding access to Pension funds being limited to OP schemes only. 

Mary Mitchell O'Connor was one of the first people to speak about people having access to some of their pension funds for their own rainy day.

However, both she and Susan, have received no reply to date from either the Dept or the Minister. 

Bear in mind the government introduced the PRSA system in order to encourage more people to take up pensions and a lot of employers are more interested in providing PRSAs than OP's. But then the government exclude these people from this measure. 

If you too are interested to raising this as an issue, please contact your TD.


----------



## PaddyBloggit

Tax is taken out of your whatever you are drawing out before you are sent the money by the AVC provider. Unless you tell the provider otherwise they'll deduct tax at the higher rate.

I withdrew from AVCs via this scheme ... provider was Irish Life and they had the forms on their website, I filled them in, submitted them via email (they accepted scanned forms), there was a fast enough turnaround and after a few weeks the money was lodged to my bank account.


----------



## knockshe

I have recently become unemployed so I am considering availing of this 30% AVC draw-down (should be worthwhile as I am in a low tax bracket this year!). However, can somebody tell me if this would have any impact on the tax free lump sum that I would hope to draw down when I eventually retire?


----------



## LDFerguson

knockshe said:


> I have recently become unemployed so I am considering availing of this 30% AVC draw-down (should be worthwhile as I am in a low tax bracket this year!). However, can somebody tell me if this would have any impact on the tax free lump sum that I would hope to draw down when I eventually retire?



It doesn't affect the amount of tax-free cash you can get at retirement.  Your fund will be smaller.


----------



## knockshe

Thank you for that reply, it is much appreciated!


----------



## rob oyle

knockshe said:


> I have recently become unemployed so I am considering availing of this 30% AVC draw-down (should be worthwhile as I am in a low tax bracket this year!). However, can somebody tell me if this would have any impact on the tax free lump sum that I would hope to draw down when I eventually retire?


Hi Knockshe, just wondering if you went ahead with this and what your experience was? I'm in a position to be able to claim some of my AVCs back at the standard rate of tax this year so it may be a Q4 decision for me...


----------

