AVC drawdown at retirement?

Conan said:
- the other “shortfall” between the above and Revenue maximum would be the contingent Spouses Pension which technically could be increased from 50% under the main scheme to 100%. But this is a contingent benefit, ie it only arises IF you predecease your spouse (so it might never arise).
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AFAIK Revenue have a capitalization formula to account for this increase in survivor benefit to 100%. So it can be funded based on the formula and the allowable pension pot adjusted accordingly. It can then be drawn down from an ARF in the normal way.

@S class, did you have any non pensionable pay or allowances available to increase the Revenue pension limit?
 
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S class said:
At retirement you can have a pension of 2/3rds final salary + an ARF or Annuity funded from your AVCs.
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Correction.

What I should have said is...

At retirement you can have a pension of 50% final salary + tax free lump sum of 150% final salary + an ARF or Annuity funded from your AVCs.
 
Conan said:
I don’t doubt what you say, BUT:
- if you had 39 years Public Service then you “shortfall” was

3/80ths x Final Salary as a lump sum, plus

1/80 x Final Salary of pension
- the “cost” of that shortfall was probably fairly modest (no disrespect)
- the other “shortfall” between the above and Revenue maximum would be the contingent Spouses Pension which technically could be increased from 50% under the main scheme to 100%. But this is a contingent benefit, ie it only arises IF you predecease your spouse (so it might never arise).
- I am curious how somebody calculated you were not overfunded with an AVC of €183k. How did they value such a contingent benefit?
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The definition of salary per revenue definitions is different to the PS scheme; it includes more than just basic pay and can be indexed in line with inflation. Also, the uplifted scale can give a higher lump sum (and pension) than the 3n80th/n60ths. There's always scope for AVCs on a PS pension.
 
Fortune said:
The definition of salary per revenue definitions is different to the PS scheme; it includes more than just basic pay
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I don't think the definition of salary differs. However, some allowances and payments made to PSs are pensionable and some are not. Those that are not pensionable for PS Superann purposes may be allowed by Revenue. However, this probably doesn't apply to the majority of PSs.

Fortune said:
can be indexed in line with inflation
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I don't get this one - can you elaborate or illustrate?

Fortune said:
Also, the uplifted scale can give a higher lump sum (and pension) than the 3n80th/n60ths
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Service beyond "normal retirement age" which is also beyond the usual 40 years required for a full pension can be used to extend the lump sum by up to 5 years, ie, to a maximum of 135/120 of pensionable pay (Revenue's definition of same). So a Class D retiring with 45 years of service at 65 could draw an extra 15/80 from an AVC tax free.
Is this what you are referring to here or is it something else?
 
Ruffian said:
I don't get this one - can you elaborate or illustrate?
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An average of 3 or more years salary with inflation applied could give a higher salary, where the actual salary has increased at a lower rate than inflation over the period used.
 
Thanks everyone. All very interesting, lots to think about.

I just want to bring it back to basics for a moment and try and avoid complex calculations etc.

I found this definition of “AVC overfunding”

“If you have accumulated excess funds, over and above your tax free shortfall and will have guaranteed pension income (either from your job/state pension or other income) which will put you into the higher income tax threshold (40%), your AVC fund is overfunded.
Many employees, especially members of Defined Benefit Schemes, may find themselves facing a huge tax bill on these funds in retirement. This means, that although you would have got tax relief going into your AVC, at your marginal rate of tax, you could be faced with a tax liability of up to 52% when withdrawing these AVC funds on retirement”.

I mean is this essentially it? If you are being taxed at 40% when accessing AVC’s, it’s probably not worth your while and you should explore other options to save/invest for retirement? And AVC’s are really only beneficial to top up your pension in retirement only if you can keep it in 20% income tax rate?
 
Confused28 said:
Thanks everyone. All very interesting, lots to think about.

I just want to bring it back to basics for a moment and try and avoid complex calculations etc.

I found this definition of “AVC overfunding”

“If you have accumulated excess funds, over and above your tax free shortfall and will have guaranteed pension income (either from your job/state pension or other income) which will put you into the higher income tax threshold (40%), your AVC fund is overfunded.
Many employees, especially members of Defined Benefit Schemes, may find themselves facing a huge tax bill on these funds in retirement. This means, that although you would have got tax relief going into your AVC, at your marginal rate of tax, you could be faced with a tax liability of up to 52% when withdrawing these AVC funds on retirement”.

I mean is this essentially it? If you are being taxed at 40% when accessing AVC’s, it’s probably not worth your while and you should explore other options to save/invest for retirement? And AVC’s are really only beneficial to top up your pension in retirement only if you can keep it in 20% income tax rate?
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In pensions jargon, "overfunded" means that you have exceeded Revenue maximum allowable pension / lump sum limits relative to your salary.

The above definition describes a position where it doesn't make sense to contribute AVCs due to being taxed at the high rate when you withdraw them.

The two are not necessarily the same situation. I could contribute AVCs that are within permissible Revenue limits but will be taxed at the high rate when I withdraw them.
 
Overfunding is when your total AVCs are larger than the revenue allowed total.

I posted a new thread

AVC information for pre 95 Public Sector employees.

Can these employees make AVCs ? Yes. They can make AVCs based on non pensionable wage payments and to make up for any shortfall if they don't have the full 40 years service at retirement age. They can also make AVCs to fund for the revenue allowed 100% surviving spouses pension. The public...
www.askaboutmoney.com

This demonstrates how much AVCs are allowed just to cater for the shortfall in surviving spouse pension.

In your case, as a post 95 employee, you can fund for the surviving spouse pension and also for the shortfall in your pension due to the inclusion of the Contributory Pension into your Public Sector pension.

You will be able to make AVCs well in excess of 300k without overfunding.
 
Confused28 said:
“If you have accumulated excess funds, over and above your tax free shortfall and will have guaranteed pension income which will put you into the higher income tax threshold (40%), your AVC fund is overfunded.
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This is completely wrong
 
ClubMan said:
Yeah, I was wondering where this came from. Seems to be from here:
mmadvisors.ie

Public Sector AVCs | AVCs Contributions And Tax Relief/Top up your tax free lump sum/

Expert public sector AVCs advise. Calculate your AVC requirements and whether or not AVCs are beneficial for you. Learn if you are underfunded or overfunded and how to make regular or lump sum contributions into AVCs to fund any shortfall in your pension.
mmadvisors.ie mmadvisors.ie
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Yes, that’s it. I tried to put in the link but it wouldn’t let me post.
 
Confused28 said:
I found this definition of “AVC overfunding”

“If you have accumulated excess funds, over and above your tax free shortfall and will have guaranteed pension income (either from your job/state pension or other income) which will put you into the higher income tax threshold (40%), your AVC fund is overfunded.
Many employees, especially members of Defined Benefit Schemes, may find themselves facing a huge tax bill on these funds in retirement. This means, that although you would have got tax relief going into your AVC, at your marginal rate of tax, you could be faced with a tax liability of up to 52% when withdrawing these AVC funds on retirement”.
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This is an unusual take on "overfunding" and not how it is normally defined. But, yes, you are probably on course to pay tax at the top rate on pension income. It is a personal decision on whether or not you wish proceed with building up the AVC pot on that basis - people have differing views on that. Personally I would not be depriving myself now for the sake of making AVCs - other than to prepare for the option of early retirement. But others quite reasonably opt for the AVC route in similar circumstances.
 
There must surely be a strategy where you retire earlier but don't use the 'other' sources for a few years,living instead off the AVC pot and avoiding excessive taxes
 
So can I put as much as I want via AVC’s without repercussions, ie. Fines from revenue etc, apart from income tax etc.
Thanks
 
HynesMA said:
Can you not withdraw lump sum from the AVC's instead of your main scheme ??
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Yes, you could take the max lump sum out of the AVC pot only and leave the main scheme pension undiluted.
BUT, you would have to make sure that the lump sum and undiluted pension when combined are within Revenue overall limits.
 
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