are AVC's a waste? saving 20%, withdrawing at 42% tax.

is it a waste of time putting into avc??
saving 20% tax and withdrawing it at 42%tax????

title expanded by ajapale

Re: pensions acc

The AAM Guide to Savings & Investments would suggest that you could be correct assuming that you are a 20% taxpayer. If you are a 42% taxpayer then you get 42% relief though. In both cases you will also get PRSI relief.

The point being made is...

... that the employee is now paing tax at 20% but expects to be paying 42% on his/her retirement income.

If this is the case the argument is quite valid and perhaps AVC payments should be held back until they are paying at the higher rate.

However the converse is true and probably applies to most people. i.e. that those that pay AVCs will in fact be paying less tax in retirement as the pension that most can fund for after the lump sum is taken is a pension of approx 50% of final salary. Therefore the majority of people in retirement pay no tax or tax at 20%. For those people AVCs will make sense.

There is also merit in investing in AVCs where the tax treatment is similar in retirement.

Re: The point being made is...

... that the employee is now paing tax at 20% but expects to be paying 42% on his/her retirement income.

I realise that. I just pointed out that tax relief was granted at one's marginal rate in case the original poster assumed that it was at standard rate only. I also pointed out that PRSI relief is available.

Re: The point being made is...

"the original poster assumed that it was at standard rate only"

I read it that the client was a 20% taxpayer rather than that they had assumed that any relief was at the standard rate. If I'd read if 10 minutes earlier would have read it the same way as you. I think between us Clubman we've answered from both angles.

Re: The point being made is...

Please note that I said "in case" the original poster assumed that only standard rate tax relief applied to pension contributions. I did not assume this but felt it prudent to cover this possibility.

The advice I was given on AVCs was that they are a good tool to keep you in the 20% tax bracket.that is the only reason Ihave made an AVC