Yes but say after your lump sum of max 200k tax free is taken are we better off not leaving balance of avcs in an arf and withdraw yearly from that, presume that still better then paying 52% tax if we had not put into avcs in the first place? I understand my db pension will give me weekly wage, my first 200k of avcs will be tax free cash but its the balance i am wondering about and is there an upper limit where even if i do arf on balance over the 200k tax free its still taxed at 52%?I'm in a similar situation and also a bit confused. If I understood the advice I was given correctly, I should not make AVCs beyond the point where any money that's eventually withdrawn is taxed at the higher rate (since that would eliminate the tax advantage of 40% saved on money in and 20% taxed on money out). But it's also hard to predict where these tax bands & thresholds will be at the point of retirement, so it's not an exact science. Moreover, even if some of it ends up being taxed at a higher rate, that would eliminate the AVC tax advantage but not necessarily make it less tax inefficient than alternative investments. Does that sound about right or am I missing something?
Taking the next €300k taxed at 20% (if available) is more more advantageous than paying tax withdrawing it from an ARF.Yes but say after your lump sum of max 200k tax free is taken are we better off not leaving balance of avcs in an arf and withdraw yearly from that, presume that still better then paying 52% tax if we had not put into avcs in the first place? I understand my db pension will give me weekly wage, my first 200k of avcs will be tax free cash but its the balance i am wondering about and is there an upper limit where even if i do arf on balance over the 200k tax free its still taxed at 52%?
That’s an interesting point I’ve been considering.Taking the next €300k taxed at 20% (if available) is more more advantageous than paying tax withdrawing it from an ARF.
Yes should have clarified, i know that i am enitiled to 200k tax free lump sum based on my salary. I'm just wondering what will happen tax wise to anything above that 200k seeing as at current rates i would have circa 50k a year from db pension aswell. Presume its ARF i have to put rest of it into which is fine as long as its still tax advantageous.Not as simple as saying the first €200k is tax free. Your gross retirement lump sum in a DB scheme is 150% of Final Salary. So to get €200k as a lump sum you would need a Final Salary of c€133,000.
Just because you have an AVC does not mean you can take it all as a lump sum. The max lump sum , whether coming from the main scheme or the AVC or a combination of both, is still limited to 150% of Final Salary.
I would need salary of 333k roughly to qualify for 200k tax free and 300k @ 20% tax.Taking the next €300k taxed at 20% (if available) is more more advantageous than paying tax withdrawing it from an ARF.
It’s my understanding that overfunding of an occupational pension scheme can result in the surplus being reduced by returning employer contributions.If you are in a DB scheme, the max overall pension you can get (inclusive of any AVC pot) is 2/3rds Final Salary (inclusive of the Retirement Lump Sum) plus a Spouses Pension on your death in retirement of 100% of your pension plus indexation up to a max of CPI.
So depending of your DB benefits, service etc, you need to make sure any AVC'S will not lead to overfunding. So you should consult with your scheme advisors to ensure you aren't likely to overfund.
Any portion of the lump sum between the max TFLS 200k and 500k (300k) is taxed at standard rate 20% even if you are normally subject to marginal 40%.Yes should have clarified, i know that i am enitiled to 200k tax free lump sum based on my salary. I'm just wondering what will happen tax wise to anything above that 200k seeing as at current rates i would have circa 50k a year from db pension aswell. Presume its ARF i have to put rest of it into which is fine as long as its still tax advantageous.
I would need salary of 333k roughly to qualify for 200k tax free and 300k @ 20% tax.
Yes, any AVC overfunding goes to reduce the Employer contributions.It’s my understanding that overfunding of an occupational pension scheme can result in the surplus being reduced by returning employer contributions.
A sobering thought if that is indeed the rule.
Unfortunately that's not true. I thought it was but it isnt. It's only what you qualify as a lump sum is taxed at 20% up to 500k after tax free 200k. Say my salary 150k, my lump sum is 1.5times so 225k. First 200k tax free,25k taxed at 20%. Whatever is left in my avcs is taxed at marginal rate.Any portion of the lump sum between the max TFLS 200k and 500k (300k) is taxed at standard rate 20% even if you are normally subject to marginal 40%.
The surplus AVC above that then offer multiple options including ARF and annuity as far as I’m aware.
Or whatever is left is used to buy an Annuity or invested into an ARF. If it is drawn down as income, then it's taxed at marginal rate in the year of drawdown.Unfortunately that's not true. I thought it was but it isnt. It's only what you qualify as a lump sum is taxed at 20% up to 500k after tax free 200k. Say my salary 150k, my lump sum is 1.5times so 225k. First 200k tax free,25k taxed at 20%. Whatever is left in my avcs is taxed at marginal rate.
So only benefit of having arf instead of just depositing any money after tax free amount in bank is tax free growth on investments? So is there like any point having avc pot above the tax free lump sum if I have db pension?Or whatever is left is used to buy an Annuity or invested into an ARF. If it is drawn down as income, then it's taxed at marginal rate in the year of drawdown.
Yes so essentially for me having db scheme and avc dc fund, the best option is to take 200k tax free lump sum from my avc fund and 20% on the 25k left from lump sum. Whatever is in the balance draw down yearly from an ARF. No other more tax efficient methods?I agree. I think we’re saying the same thing ?
Max lump sum
150% final salary DB scheme.
25% DC fund if you were in a DC scheme choosing an ARF route.
150% final salary if you had been in DC scheme. and choosing annuity route
Max tax free within above limit is 200k
Above 200k and still within those limits 20% tax up to the 500k mark.
Above the limits and or above 500k taxed at marginal 40%.
Open to correction.
Marginal rate on any lump sum above in your case 150% final salary. DB.
In your case also marginal rate on income/distribution from ARF/annuity.
Consideration should be given as to what you plan to do with a lump sum subject to marginal rate income tax, USC and possibly prsi.
May tax free investment within an ARF be a better option?
Paying the tax only on distribution.
Possibly no prsi deduction depending on age at distribution.
This doesn't apply to public sector employees with AVCs, or does it?any AVC overfunding goes to reduce the Employer contributions.
Yes it does. But you should ensure that you get advice to make sure you don't overfund. It rarely happens that someone overfunds.This doesn't apply to public sector employees with AVCs, or does it?
So only benefit of having arf instead of just depositing any money after tax free amount in bank is tax free growth on investments?
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