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 sector pension only allows 50% of a deceased pensioners pension to be paid to their surviving spouse.

Details of how much AVCs can be made to provide for this surviving spouses pension are in this link.


For example, the maximum AVCs allowed for a male public sector worker earning 60k and with 40 years service is 357k. (see attached file)

This 357k relates entirely to the funding for the surviving spouse shortfall.

An employee with extra non pensionable earnings would be able to make extra AVCs.


What can an employee retiring with maximum pension lump sum of 150% final salary and maximum pension of 50% final earnings do with their AVCs ?

Firstly they might be able to gain extra tax free lump sum. The maximum revenue allowed lump sum calculation can allow for a higher tax free lump sum than the Public Sector calculation allows.

Then any remaining AVCs can be taken as an ARF, Annuity or as a taxed lump sum.


Can the employee have extra retirement earnings on top of their maximum 50% Public Sector Pension ?

Yes.
If they use their AVCs to set up an ARF or an Annuity, they can have retirement earnings from either of these on top of their Public Sector Pension.

When benefits are taken from their AVCs these benefits are no longer linked to their Public Sector pension. Their ARF or Annuity is totally standalone and they are free to choose how they want to take earnings from these.


Can the employee qualify for the Contributory Pension ?

Yes.
Having an ARF can be very beneficial for pre 95 early retirees. If they drawdown a minimum of 5k per year from their ARF they will gain 52 class S reckonable prsi contributions.

Class S prsi contributions are also counted towards the 260 minimum full rate paid contributions level in order to qualify for a pro rata pension and for the 520 full rate paid contributions level in order to qualify for a pension calculated using the Averaging or Total contributions methods.

These extra reckonable contributions could enable them to qualify for a portion of the Contributory Pension.

Post 95 employees would have potential for larger AVCs because they can also fund for the shortfall due to the integration of the Contributory pension into their Public Sector pension.

Thanks S Class, your last post is interesting. If I have already retired at 60, previously A contributions public servant, my wife is a D contributing public servant. I purchased AVC's before retirement to make up the shortfall. My wife on retirement will probably have 35 years service, so there is a small opportunity to have an AVC equivalent to the lump sum that would have been achieved with the 5 years (40-35).

Regarding the point about funding the shortfall due to the integration of the contributory pension. Is there anything that can be done there or is it too late, I would have retired in Early October last year.

Just when you think you have it all figured out, there is another angle.

On an aside, there is probably an innovative pensions product which will involve lending the amount of money to set up the AVC, creating the AVC, with the client paying back the loan and interest from the tax return and the maturing AVC, with some money left over after fees and interest.

I often think, if you don't have the money to hand to fund the AVC, you could leaving a lot of potential tax rebates on the table. From a lending perspective, if the loan was secured on the AVC, it is very low risk for the lender.

Once you have ceased employment you can no longer get tax relief on AVCs.

You could put some money into your wife's AVCs.
Definitely max out her AVCs at 40% relief if her earnings are high enough.
If as a couple you have extra 20% earnings capacity after she retires it could be worthwhile. She also can make large amounts of AVCs to fund for a surviving spouse pension.

Yes an AVC bridging loan would be a great idea.

Thanks S Class, So my wife D class, still working, could fund an AVC to cover the the surviving spouse pension. Do you have the calculation / documentation that I could work out the AVC that I we could fund.

EDIT: Found the details in your first post above, ill try to work through it.

Good Afternoon S Class,
I was reflecting on this. As an example my wife over the next 4 years would fund an AVC say 30K at 7.5 K per year. She would get 40% tax refund on this say 3K per year.

On retirement she would purchase a ARF which she would draw down at 5K per year, this would give her s class contributions. This would give her S class contributions to her 66th Birthday which is 312 contributions.

Alternatively say she needed more contributions, she could contribute more to the AVC say 40K and get another 2 years contributions, and also get convert the last 2 years D contributions to A contributions by getting a job for a short period.

She would have a couple of years A contributions pre joining the PS.

The 5K on withdrawal would be taxed, negating the tax refund of the earlier years.

DingDing said:

Good Afternoon S Class,
I was reflecting on this. As an example my wife over the next 4 years would fund an AVC say 30K at 7.5 K per year. She would get 40% tax refund on this say 3K per year.

On retirement she would purchase a ARF which she would draw down at 5K per year, this would give her s class contributions. This would give her S class contributions to her 66th Birthday which is 312 contributions.

Alternatively say she needed more contributions, she could contribute more to the AVC say 40K and get another 2 years contributions, and also get convert the last 2 years D contributions to A contributions by getting a job for a short period.

She would have a couple of years A contributions pre joining the PS.

The 5K on withdrawal would be taxed, negating the tax refund of the earlier years.

Click to expand...

Commenting specifically on your last paragraph ; Is the taxation of the ARF drawdown the only consideration here ?
I know it has to be taxed and has to be at the marginal rate . No problem with that .
But there have been many posts on AAM to the effect that the main PS pension will somehow be limited if the individual also has an ARF . I have never heard of this happening but it has been posted .
Is Chapter 5 of Revenues Pension Manual the ultimate determinant of the quantum of a public service employees optimum total pension ?

Yes each 5k ARF drawdown will be taxed and USC and Prsi will be deducted.

Will she be getting 40% tax relief on all her AVCs ?
Will she pay tax at 40% on any of her ARF drawdowns after retirement ?

If she will be in a position where some of her AVCs only get 20% tax relief or some of her ARF drawdowns at taxed at 40% after retirement, she also has the choice to pay voluntary contributions instead.

This might be a better option than paying 40% tax on some of her ARF drawdowns.

If she paid voluntary contributions based on her class S contributions it would cost 650 euro per year.

If her extra contributions to reach 40k in AVCs are only tax relieved at 20%, but her extra 5k ARF drawdowns are also taxed at 20% , there would not be a lot of difference in cost between making extra AVCs or paying for voluntary contributions.

If she wants to minimise her AVCs, she could just make enough to get her up to the 260 paid rate using class S from an ARF.
She can count up her existing class A and top up with class S to reach 260 paid. She can then pay voluntary contributions up to maximum age 70.

lawoman said:

Is Chapter 5 of Revenues Pension Manual the ultimate determinant of the quantum of a public service employees optimum total pension ?

Click to expand...

It is stating the ultimate level of funding allowed by Revenue.

The maximum pension allowed for in the Public Sector scheme rules is 150% tax free lump sum + 50% pension.

When these benefits are calculated, there is a large surplus amount of extra Revenue allowable funding possible.

Any benefits taken from AVCs up to this Revenue allowable surplus can be taken on top of the maximum Public Sector pension.

lawoman said:

But there have been many posts on AAM to the effect that the main PS pension will somehow be limited if the individual also has an ARF

Click to expand...

There are a lot of misleading posts.

"The maximum pension allowed for in the Public Sector scheme rules is 150% tax free lump sum + 50% pension."

Just to clarify, if a pre95 Class D employee got 150% TFLS which was below 115k, they could use AVCs to bring the total TFLS up to 115K?
So 150%salary + AVC lump sum =< 115K from a PRSA AVC for example.

In many cases, the advice given (by Cornmarket etc ..) to ps workers is to use AVCs to bridge any shortfall in the 150% TFLS due to < 40ysr service.

redstar said:

Just to clarify, if a pre95 Class D employee got 150% TFLS which was below 115k, they could use AVCs to bring the total TFLS up to 115K?

Click to expand...

No this is not correct.

The maximum lump sum allowable under revenue rules is calculated using any of 3 methods attached.

The method of calculation used in the Public Sector schemes probably won't reach the maximum revenue allowable calculated amount.

Any shortfall up to the revenue maximum calculation can be taken as an extra tax free lump sum from AVCs.

There is also a table of factors that apply to people with service of less than 20 years. For anybody with service of over 20 years the revenue allowable calculation is based on 40 years service.
This can result in a larger amount of extra revenue allowable tax free lump sum which can be taken from AVCs.



Apart from these calculations, the maximum tax free lump sum is capped at 200k.

Understood. I thought it didnt seem right.

Most ps pre-95 workers would likely use AVCs to top-up their TFLS to the max allowed if they won't reach that max due to having < 40yrs service.

S class said:

Yes each 5k ARF drawdown will be taxed and USC and Prsi will be deducted.

Will she be getting 40% tax relief on all her AVCs ?
Will she pay tax at 40% on any of her ARF drawdowns after retirement ?

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Yes both at the point of paying and drawdown, jointly assessed we will be high rate tax-payers, just.

Depending on tax changes over the next few budgets and PS pay increases, it may change but unlikely.

DingDing said:

Yes both at the point of paying and drawdown, jointly assessed we will be high rate tax-payers, just.

Depending on tax changes over the next few budgets and PS pay increases, it may change but unlikely.

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The Prsi is zero on ARFs after you start to claim the State Contributory Pension. Even with 40% tax in and 40% tax out, there is the advantage of no tax on investment gains in the AVC funds. If these are in high risk funds the investment gains could be high. It could still be worthwhile maximising AVCs.

This is down to how the markets perform. I am currently paying 40% tax on my ARF drawdowns, but the ARF has almost doubled in value, including taking 4% drawdowns over the last 6 years.

The 4% drawdowns started at about 7k, this year they are 12k.

S class said:

No this is not correct.

The maximum lump sum allowable under revenue rules is calculated using any of 3 methods attached.

The method of calculation used in the Public Sector schemes probably won't reach the maximum revenue allowable calculated amount.

Any shortfall up to the revenue maximum calculation can be taken as an extra tax free lump sum from AVCs.

There is also a table of factors that apply to people with service of less than 20 years. For anybody with service of over 20 years the revenue allowable calculation is based on 40 years service.
This can result in a larger amount of extra revenue allowable tax free lump sum which can be taken from AVCs.



Apart from these calculations, the maximum tax free lump sum is capped at 200k.

Click to expand...

Hi - thanks for the thread and I am interested in relation to the lump sum allowable under revenue rules.

In my situation I (pre 95 - local govt ) intend to retire in two years at age 63 after 33 years service on full pension based on professional added years (which bring me up to the 40 years equivalent). When I look at the three methods used in the attached document - I don't see that there is any difference between my tax free allowance under my local govt scheme scheme and the three options; essentially because I don't receive any' emoluments' (commission, overtime, BIK etc) - I just receive salary and expenses (not taxable). Is this understanding correct - is it only 'emoluments' that make the difference?

Thanks

GingerH said:

essentially because I don't receive any' emoluments' (commission, overtime, BIK etc) - I just receive salary and expenses (not taxable). Is this understanding correct - is it only 'emoluments' that make the difference?

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Yes. Your expenses won't increase your Revenue lump sum allowance.

GingerH said:

I don't see that there is any difference between my tax free allowance under my local govt scheme scheme and the three options; essentially because I don't receive any' emoluments' (commission, overtime, BIK etc)

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Yes, you probably don't have much scope for extra tax free lump sum.

In Definition 1 the 12 month period can run between any dates.
For example it could run from 1st August to 31st July the following year. Are there any 12 months periods where you received back money from a cost of living or increment pay rise ?

Just to note, the professional added years isn't guaranteed, my organisation recommended one added year and this was accepted, however when the paperwork went to the department, my pension was abated I was awarded 0 added years. It took about 4 months to reach a decision, and they would only accept it 3 months before confirmed retirement date. They went into a lot of details and questions over and back about previous pension schemes. There are a lot of variables such as the required qualifications and experience for the role as it was advertised etc... so 2 people in similar circumstances depending on the job description, might have a different outcome from the process.