# DB pension. Should I make AVC and how much?



## Frank Grimes (14 May 2010)

I done a search but am none the wiser. My employer has a DB pension where the calculated outcome will be a pension of 2/3rds of final salary less 1.5 times the current State Pension. This value is determined as €24k p.a. Hope that makes sense. 
My employer contributes €2400 p.a. and I have €1200 p.a. deducted from my salary. There is an option to make AVC's to a DC pension. I intend from this year to contribute €1200 p.a. to this.

From what I have read on here, it is not always in my interest to make an AVC when having a DB pension due to there being an absolute limit of the pension being 2/3rds of final salary? How do I determine whether or not it is an effective use of my income?

I am 35. I finally began to organise my finances this year. Using Personal Finance for Dummies(USA) as a template: I created an Emergency fund and started some Investment Savings (Lowish cost Mutual Fund). However the book is heavily biased towards maximising retirement investment. Hence my confusion, should I be contributing more to an AVC? 
I should add that my main interest in AVC's was due to the introduction of quarterly performance bonuses this year, potentially producing an unexpected income of ~€500 per quarter before tax. The plan would be to direct this income to the AVC also.


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## JoeRoberts (18 May 2010)

There are many threads on this subject on this site. To start with , you can fund for the State pension which is over 10k per year and would require a fund of well over 200k. When you look like you will reach that, then maybe consider prof advice. Also, annual pension increments and spouses benefits can be provided for - it is difficult to over fund so don't be worried at this stage - no need to pay for prof advice - your pension consultants for the company should answer any queries through your HR dept. Plus regular postings on this site.

I would be more concerned that people who try and provide for a decent pension will be means tested for the state pension in 30 or 40 yrs time when the Govt realises that they cannot pay everyone the contributory state pension - in that case, AVCs may prove to have been a waste of money.


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## Frank Grimes (19 May 2010)

Thanks for the replys.
I received some paperwork today with regard to my AVC and a projection into the future of what the potential value of the pension could be purchased. A scenario where €1000 p.a. is invested in the AVC could realise a pension of €1500 p.a. (in today's money).  So fears of overfunding appear unfounded at this stage.


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## Anfear (19 May 2010)

First consider the affordability of AVC contributions in your current circumstances, then the tax relief advantages.
Personally, I feel it is a bit academic to start targeting fund values many years hence since rapid change is such a big feature of people's lives these days!
Check out the type of funds you can invest in in the company AVC scheme, then compare with PRSA AVC's available on the open market.
Then compare costs of company AVC v's open market AVC's. Often costs will be lower for company AVC. Occasionally people don't want their employer to know what pension planning they're doing so go open market for only that reason, but I can't see much sense in that!
These days, also, everyone seems to get hung up on costs & only costs, ie the "something for nothing" syndrome. Wishful thinking!
At the end of the day "Ye gets what ye pays for!", as Another John wisely pointed out! Best of luck.


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## Complainer (19 May 2010)

Frank Grimes said:


> Thanks for the replys.
> I received some paperwork today with regard to my AVC and a projection into the future of what the potential value of the pension could be purchased. A scenario where €1000 p.a. is invested in the AVC could realise a pension of €1500 p.a. (in today's money).  So fears of overfunding appear unfounded at this stage.



Can I ask what age you are, Frank?


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## fobs (19 May 2010)

He said he was 35


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