# at age 60 is it worth getting PRSA or AVC?



## sdeg (11 Sep 2013)

Is is better to simply save the money that might go into an AVC or PRSA, that way the complete fund willl be available at age 65 to use as esired.

With PRSA/AVC most of it will be tied down and only producing a very small pension.

For example even at the 40% contribution the sum accumulated in 4 years might only produce a pension of approx. 3000 per year.


----------



## ashambles (11 Sep 2013)

I know little about PRSAs but you'd need to check what's the largest tax free lump sum you can withdraw. Generally the closer you are to retirement the more sense it makes to put AVCs away.

If you can put in say 60000 over 5 years but get tax relief at 41% then one way to think of it is that the 60k would only cost you around 36k to put in.

Then if you can simply withdraw the AVCs as a tax free lump sum when you retire your 36k has become 60k. 

Since you're close to retiring don't put the money into anything except a low risk deposit style fund, perhaps a capital guaranteed fund.

(I'm assuming things here, you're on 41% tax, the government doesn't seize any more of private pensions, that you can withdraw the full amount as a lump sum, that you're not in an expensive scheme where they nobble you as you put money in and take it out, etc..)


----------



## putsch (11 Sep 2013)

I started a PRSA at age 52 to a)avail of employers pension contribution and b) ability to withdraw 25% tax free when finished work (due to age and existing early retirement pension) . Took the job for just 4 years and got a nice tax free sum at the end. Of course I made sure that the money was invested in a no risk cash deposit.


----------



## Marc (11 Sep 2013)

It depends.......

Marginal rate of income tax now?

Expected marginal rate in retirement?

Size of existing pension fund?

Spouse? Their pension fund?

Attitude to risk - ARF vs Annuity?

Other non pension capital already accumulated

Net worth - assets minus liabilities

Desire to leave a legacy to the next generation?

Etc etc etc


----------



## ClearFinance (11 Sep 2013)

It is an idea to go into a low risk/cash fund just to avail of the tax relief as this would nerly double your returns based on being a 41% tax payer for example. DO you have any other pension benefits accrued to date?


----------



## ClearFinance (11 Sep 2013)

max tax free cash on a PRSA is 25% of the fund value.


----------



## sdeg (12 Sep 2013)

Thanks to all for the advice so far ...

Just some more detail re. my situation. Had a pension with canada life which I cashed in at age 50 due to personal circumstances at the time. A certain amout could not be withdrawn -- a certain minimum required to be left in by law, as a result I receive approx. 200 euro per year.

Have made no contributions to any fund between then and now - again due to circumstances . Now am in a position to contribute ---salary 50K. However even if could afford to contribute at the max. allowed of 40% ( which I can not ) the end result pension/year would be around 3000 or 4000 at most. There has to be better way. 

At this stage am willing to take risks. 

There is not all that much to loose --- the difference between state pension ( guessing around same level as social welfare payments roughly 10,000/year ) and say 13000.


----------



## ClearFinance (12 Sep 2013)

sdeg said:


> Thanks to all for the advice so far ...
> 
> Just some more detail re. my situation. Had a pension with canada life which I cashed in at age 50 due to personal circumstances at the time. A certain amout could not be withdrawn -- a certain minimum required to be left in by law, as a result I receive approx. 200 euro per year.
> 
> ...




When you say a certain amount has to beleft for legal reasons, do you know off hand was this a buy out bond or an exec plan for example?


----------



## sdeg (12 Sep 2013)

Hi ClearFinance, I can not recall what the product was with Canada Life. It was begun in 1993 by basically transfering funds from a company pension plan. Company in question was going out of business. The term buyout bond certainly rings a bell, I do believe it was a buyout bond.


----------



## ClearFinance (15 Sep 2013)

Sounds like you took the tax free cash from the bond and got the pension with the balance alright....


----------



## Mowgli597 (30 Sep 2013)

*Regular Savings or AVCs*

Not sure whether this is the right thread for this question but here goes:

 Age 62; 3yrs and 8 mos to retirement (at 66) - June 2017; mortgage fully paid, no outstanding loans/debts. Wife aged 61; retiring at 65 (when I do); jointly assesed for income tax - currently paying 41% on combined incomes.

  Since paying off the mortgage we have been able to save €2500 per month. Up to now this has been divided up into 2x €1000 PTSB Regular savings accounts (one each for my wife and myself) and €500 in a joint ESB regular savings account.

  Nationwide UK (Ireland) are now offering 4% on their Regular Savings account, minimum period 15 mos.

  I'm closing the PTSB accounts and considering transferring to Nationwide with the same set up (i.e. 2x €1000 pm accounts) to get the higher rate of interest.

  My employer has recently closed their DB pension plan, leaving me with an accumulated pension pot of c. €22k per annum at retirement. They have changed to a DC plan (Zurich) with monthly contributions of c. €500 plus an AVC contribution from me of €125 p.m. But, as I said, I only have 3yrs and 8 mos to run on this.

  We're saving for retirement and don't foresee any need for funds before then. Our combined annual pensions will hopefully be sufficient for our needs (we're considering moving abroad and so will not be resident in Ireland for income tax purposes) and so don't need extra monthly pension on retirement. So primarily we're looking for the best return to accumulate a lump sum - mostly to help buy property in our future retirement home.

  The only lump sum from our current pensions is c. €19k from my wife's employer's pension plan. So we have no issues (I believe) regarding maxing out the retirement lump sum for tax purposes (which is €200k??)

  No legacy requirements - we have an investment property which will be sold to generate inheritance for 2 adult children.

  Following all that background (forgive my verbosity!), my basic questions are:

  1. Should we continue to invest our €2500 p.m. in, e.g., Nationwide or any other institution or should I put it into my employer's new DC pension plan as a monthly AVC, to be drawn down as a lump sum at retirement.

  2. Ditto with regard to the amount accumulated in our PTSB regular savings account to date (c. €21000) - ie., put it into the DC Pension plan as a lump sum now rather than into a fixed-term (2 year) PTSB Deposit account at 2.5% APR p.a.

Many thanks.


----------



## Steven Barrett (30 Sep 2013)

Hi Mowgli

When you say best return, what do you mean? Are you willing to take risk in the hope of making a big gain but could a also lose a lot?

What kind of emergency fund do you have? 

Why put your kids inheritence in 30 years time ahead of your own enjoyment now? (Sorry, this is a hang up I have with Irish people. Spend your money now and if there's any left over when your dead, your kids can have it).

How secure is the DB scheme? Most of them have closed but how solvent is it? Is there any cause for concern? 

How about using AVC's to fund your tax free lump sum? Put the money in, 41% tax relief, take it out tax free. You'll need to check your years service etc to make sure there is scope, but you should be able to do it.


Steven
Www.bluewaterfp.ie


----------



## Mowgli597 (1 Oct 2013)

Thanks for your reply Steven.

When you say am I prepared to take risk, I presume you mean with regard to the DC pension plan investment which has replaced our DB plan (which I guess is as secure as anything nowadays in that it is a Church scheme and so backed by the resources of the Church).

My (perhaps naive?) view on that is that since the major part of my occupational pension is "fixed" (in that the amount earned to date by my DB contributions, i.e. 36-odd years, is essentially guaranteed), then the relatively small amount which will go into the DC pot over the next 3-odd years, i.e. my employer's contribution and my own contribution, could be invested for maximum return (higher risk). The projected pension figure at retirement date which Zurich has given me comes to €1300 p.a. I would be prepared to lose some of that in the hope of higher gains through a higher risk investment strategy with Zurich.

My (and my wife's) employment is secure. We have a sufficient emergency fund in hand.

As regards the kid's inheritance, our plan, should we decide to go abroad on retirement, would be to sell our investment property and divide the proceeds between them. You're right, they need it now - not in umpteen years when we both kick the bucket.

From your last paragraph it seems as though you would be thinking that the best option is to forget about saving with a financial institution and instead put everything into AVCs, thereby gaining the 41% tax relief and lump sum bonuses, and avoiding DIRT on our savings' interest.


----------



## orka (1 Oct 2013)

You already have some good pension income locked in - 22K for yourself plus your wife's pension plus possibly two state pensions so you may end up paying higher rate tax and some USC on any marginal extra pension income so, apart from the 25% tax-free lumpsum, you are deferring tax rather than actually saving it (and you will possibly end up paying USC twice).  That said, the taxfree lumpsum makes a pension worthwhile if you can get a good allocation and low charges.

Make sure you understand the tax position plus the pension terms and conditions and impacts of any charges - particularly any initial charges (less than 100% allocation, possibly because you are investing for less than five years).  

It might also be worth waiting until after the budget to see if there are any adverse changes: the 0.6% pa pension levy stops next year but there is a possibility it will be replace by a levy to fund situations like the Waterford Crystal one - the government has to find the money from somewhere and tapping pension funds/assets is probably the most sensible place to charge a levy (I think it's a horrible idea retrospectively taxing locked away assets but if the levy is to protect pension schemes, it does make sense to tap pension assets to pay for it).


----------



## Steven Barrett (2 Oct 2013)

Hi Mowgli

My attitude towards risk is 'why take it if you don't have to?'. From your posts, you seem to be fairly happy with your financial situation, so is there a need to risk losing some of your hard earned money? Or do you want to invest for the thrill of seeing how it will do? (People do this all the time). 

The reasons I suggested that strategy for your AVC's is that you don't seem to have deducted a tax-free lump sum from your own DB pension. 

I certainly believe you should look at the possibility of making AVC's, getting tax relief and taking the whole lot out tax-free. There would be more work to it than chatting on an internet forum. The scheme adviser should certainly be able to help you out in this regard, it is not that uncommon, especially for DB schemes.


Steven 
www.bluewaterfp.ie


----------



## 56HB (5 May 2014)

Great posts reading all with interest , this is a subject I know little about but should do.
May I ask your thoughts on the following:
I am 58 and a half .. have a salary of about 65,000 working in the health service will have a pension, currently have 33 years service. I have some shares which I held in Danska bank account now to be  transferred to Goodbody , however should I open an AVC Prsa with Davy Select This would seem much more tax efficient for me if I could transfer my shares ( less than 10 grands worth ) into this and try to add further over the next few years . any thoughts appreciated


----------



## Baracuda (5 May 2014)

You cannot transfer your shares into a pension arrangement. You would have to sell your current shares and pay whatever tax liability is due on them, you could then repurchase the shares under a PRSA AVC contract.

 Word of caution, you should do a cost analysis before selling your shares and repurchasing them through a PRSA AVC as you are going to attract a lot of trading costs and this certainly will eat into the tax relief you will get. 

 You also state that you may invest more money into the PRSA AVC, are you sure that you are comfortable with investing in shares with a defined surrender date? The reason I ask this is that when you retire you have no option but cash in you PRSA AVC. The share price may be down and you have no option but to sell. Where as by holding on to them as they are you can cash them in at any time you like!


----------



## LDFerguson (6 May 2014)

I would echo Baracuda's advice and would just add that in order for your AVC PRSA to be able to buy your shares, it would need to have €10,000 (or whatever their value) in it.  So you'd need to make a contribution of that amount into it first and would therefore need to establish if it makes sense for you to be making a contribution to a PRSA AVC of this size in your particular circumstances.


----------



## 56HB (6 May 2014)

Thanks for that -it now makes sense for me, however what are your thoughts on opening an   AVC account at this stage - given 6 years to retirement - as  I may be able to put some money aside (in addition to having an emergency fund available ) Are there AVC accounts that just invest in very  low risk areas - would they be worth it for the tax relief alone ?
Which companies would people currently suggest? Cornmarket is the one the health service push but having read about them here and their charges I wonder


----------



## LDFerguson (6 May 2014)

There can be a difference between what the lump sum at retirement from the health service will be and what the maximum permitted lump sum under Revenue rules.  If so, AVCs are a great way of bridging that gap - you contribute enough to bridge the gap, claiming tax relief at 41% on the contributions and when you retire, withdraw the AVCs as a tax-free lump sum.  So that's the first thing to investigate - what will be your lump sum at retirement.  

Having dealt with that, it's a little bit more complex to decide whether or not you want to contribute further AVCs to increase your retirement income.  You'd need to figure out what tax rate you and your spouse (if such a person exists!) will be on when you retire.  If you'll be paying no Income Tax or 20%, but are paying 41% now, then it makes sense to pay AVCs - you'll get 41% tax relief now but will pay no or 20% tax on the proceeds when you retire.  If you're going to be on 41% when you retire then I don't think I'd bother.


----------



## Baracuda (6 May 2014)

It really depends on what rate of tax you will pay when you retire, have you other income such as rental income, are you married etc etc. If you are single your part of your penion will certainly be taxed at the higher rate so there will be no real advantage starting a AVC except for tax free growth. 

If you are married and you nominated the main earner and ye have transfered the max cut off point to yourself (41,800)then it maybe worth while funding a AVC. Lets say for a moment that your total personal income is 32,500, you could invest in a ARF when you retire and then withdraw up to 9,300 per year and only pay 20% tax plus USC of 7%. Summing up...You would get 41% tax relief on contributions but when you retire and if the sums add up as above you would only pay 27% tax on any withdrawals 

You really need to sit down with an advisor and look at what the likely rate of tax you would pay on any funds you would draw down in retirement before you should consider contribution to an AVC


----------



## 56HB (6 May 2014)

Thanks beginning to understand things better now.
Its good to know what you don't know and what you need to know before talking to an advisor...


----------

