AVC for early retirement of teacher - How does it work

[hambla]

Hi I am looking for some advice on Avc's.
I am a teacher since 2006 and currently have an avc with Cornmarket with a value of about €45k at present.
I am 41 and looking at options when I get into my 60's.
As post 2004, I believe I wont be able to get my teachers pension till I reach 65.
My query is that if I was to retire at say aged 62 and my avc was then worth say €90k, is it possible to get 30k each year until I then reached 65 and was to get my teachers pension. Any advice would be greatly appreciated.

 

[Protocol]

The AVC benefits are taken at the same time as you retire.

If you can't retire before 65, then I think the only way to retire at 62 is Cost Neutral Early Retirement?

 

[Early Riser]

As post 2004, I believe I wont be able to get my teachers pension till I reach 65.
My query is that if I was to retire at say aged 62 and my avc was then worth say €90k, is it possible to get 30k each year until I then reached 65 and was to get my teachers pension. Any advice would be greatly appreciated.

No, that is not possible. Or at least it is not possible to resign at 62 with a preserved pension that you access at 65, and use the AVCs to fund the intervening 3 years. Your AVC must be accessed at the same time as your main scheme pension.

What you could do is take Cost Neutral Early Retirement at 62, ie, an actuarial reduced mainstream pension. Having "topped-up" your tax-free lump sum to the max allowed by Revenue, you could invest the rest of the AVC pot in an Approved Retirement Fund (ARF). You can draw this down as flexibly as you like (subject to an annual minimum). So you could draw it down over 3 years if you like (subject to income tax).

 

[hambla]

No, that is not possible. Or at least it is not possible to resign at 62 with a preserved pension that you access at 65, and use the AVCs to fund the intervening 3 years. Your AVC must be accessed at the same time as your main scheme pension.

What you could do is take Cost Neutral Early Retirement at 62, ie, an actuarial reduced mainstream pension. Having "topped-up" your tax-free lump sum to the max allowed by Revenue, you could invest the rest of the AVC pot in an Approved Retirement Fund (ARF). You can draw this down as flexibly as you like (subject to an annual minimum). So you could draw it down over 3 years if you like (subject to income tax).

Thank you.
How much is the max allowed tax-free lump sum at present?
Say I get a teacher's pension lump sum of 120k and have a avc value of 60k and the tax free lump sum is 200k, am I then allowed to take a tax free lump sum of 180k at 65?

 

[Conan]

No.
The max lump sum is 150% of Final Salary ( a few definitions, but generally gross taxable salary at retirement ) subject to having at least 20 years service by retirement. Of that figure, the first €200,000 is tax free. So to get say €200,000 as a lump sum from your main scheme, you would need a final Salary of €133,333.
But if your Final Salary was say €100,000, then the max lump sum would be €150,000. If your scheme only paid you say €100,000 (perhaps because of short service) then you could use some or all of an AVC Fund to top up the €100,000 to €150,000.
But you cannot get a lump sum of €200,000 if your Final Salary does not justify it.

 

[k06351000]

Is this 1.5 times salary a general rule or specific to public service?

if I have a limited company in a different sector I presume I can pay myself a salary with that and top up my income and therefore my tax free lump sum..

 

[Conan]

The max of 1.5 times is a general Revenue rule. But it requires a minimum of 20 years service in the organization by retirement.
if you have a separate earned income outside the PS then it’s possible to “Pension” that income. If you have a limited company and it pays you a salary, then the company can also establish a pension scheme for you. You could target to build up a fund of 1.5 times Salary and assuming you will have 20 years service by retirement, then you could take the full 1.5 times Salary as a lump sum.

 

[LDFerguson]

Is this 1.5 times salary a general rule or specific to public service?

if I have a limited company in a different sector I presume I can pay myself a salary with that and top up my income and therefore my tax free lump sum..

In the private sector, there are two methods of calculating the lump sum sum: 25% of the accumulated pension fund or 1.5 times salary at retirement, subject to certain conditions. If you use the latter method, you must buy an annuity with the balance under current rules. While it's possible for a company director to hike up their salary to therefore hike up 1.5 times final salary, the definition of final salary for a company director is a 3 year average.