confused87
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But if I didn't invest it in avcs from my wages, I would be paying 52% to deposit it in my ba nk and then 33% cgt on any growth if I invest outside my pension?
AVC Limit to aim for
- Thread starter confused87
- Start date
Excellent point.
May be somewhat advantageous having the ARF while at standard rate, not having deemed disposal and lower rate than CGT but marginal rate on the growth on distribution certainly takes the joy out of it.
I’ve wandered off a bit again.
OP will be on marginal rate.
Depending on how you have invested, yes that could be the case.
Important also to remember the annual CGT exemption of €1270.
AVC’s do seem to be the best way of providing for your lump sum anyway.
You don’t want to be getting into taking it from DB (commutation).
Well done for planning and doing your homework in advance.
You’ve a wise head on your shoulders.
I’m touching 66 and still striving to learn from you guys.
confused87
Registered User
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Yes alot of older lads at work are telling us pile into avcs and dont touch our db pension commutation for tax free cash.Trying to do my homework, I'm still bit clueless as to what's advantageous after I take my tax free lump sum though. Must be ARF as wages into my bank 52% gone and then cgt 33% on any gains invested outside pension.
I can understand your frustration.
You’re in a great position. You’ve started early and you’ll be amazed at the compounding.
A lot will change on the pension and revenue landscape over the coming years. I suspect the tax relief will lesson.
If I were you I’d continue contributing to AVC’s, monitor the developing changes in the landscape from time to time and in the meantime, enjoy life to the best of your ability. It’s very fragile.
Benbulben
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Thanks for posting this Confused87, it is very informative and thank you to all of the contributors on it.
Like you I am a member of a DB scheme and on current salary projections will retire with circa 50k (including State Pension) The scheme that I am in might be different to yours though.
I am in a Semi State and I do not believe I have the option to take my Tax free lump sum from AVC's.
In my schemes case the lump sum (with full service) is 3 x Salary divided by 2. The Db pension is then circa 35k (with the State Pension making the other circa 15k). Is there an option I wonder, to not "commute" and increase the Scheme DB annuity or pension ?
We were always advised that you "could not" invest in AVC's unless you were going to be a large number short of years required for "full service" 40 years in our schemes case. I had a bit of a battle with Irish Life to explain to them that yes indeed I could invest in AVC's even though I would retire with 40 years service. (had to insist on getting it pushed up the chain multiple times.)
I initially thought that I could draw down AVC's to top up the Tax free lump sum above and beyond what my salary would earn but learned through some helpful posters that this was not the case and that it was solely limited to your final salary.
However I thought that I could take my AVC's when drawing down my DB pension and convert them into an ARF.
Now though I am wondering if before I convert it into an ARF, do I need to pay 52% tax on it and then put the remainder into the ARF or can I put the full sum into the ARF and then pay the applicable tax on drawdown through the ARF ?
Like you I am a member of a DB scheme and on current salary projections will retire with circa 50k (including State Pension) The scheme that I am in might be different to yours though.
I am in a Semi State and I do not believe I have the option to take my Tax free lump sum from AVC's.
In my schemes case the lump sum (with full service) is 3 x Salary divided by 2. The Db pension is then circa 35k (with the State Pension making the other circa 15k). Is there an option I wonder, to not "commute" and increase the Scheme DB annuity or pension ?
We were always advised that you "could not" invest in AVC's unless you were going to be a large number short of years required for "full service" 40 years in our schemes case. I had a bit of a battle with Irish Life to explain to them that yes indeed I could invest in AVC's even though I would retire with 40 years service. (had to insist on getting it pushed up the chain multiple times.)
I initially thought that I could draw down AVC's to top up the Tax free lump sum above and beyond what my salary would earn but learned through some helpful posters that this was not the case and that it was solely limited to your final salary.
However I thought that I could take my AVC's when drawing down my DB pension and convert them into an ARF.
Now though I am wondering if before I convert it into an ARF, do I need to pay 52% tax on it and then put the remainder into the ARF or can I put the full sum into the ARF and then pay the applicable tax on drawdown through the ARF ?
You can put the full amount of your AVCs into an ARF without paying tax. Tax would then be payable on withdrawals from the ARF.
You might be able to gain some extra tax free lump sum from your AVCs beyond the amount allowed by your employment pension scheme. See here.
Last Minute AVC Calculation, Previous Bond Encashment
Looking at retiring shortly, Public Sector Worker Commenced 1999. There is a gap of 20K between my lump sum and the maximum allowable (1.5 * Final Salary) I also left a previous pension scheme in 1999 and I got a Personal Retirement Bond.. I cashed in the Irish Life Personal Retirement Bond...
www.askaboutmoney.com
Any surplus AVCs remaining after claiming extra tax free lump sum can be used to open an ARF. You will not have to pay any taxes on your surplus AVCs before opening an ARF.
confused87
Registered User
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Are arf withdrawals taxed at marginal rate? Is arf essentially avoiding cgt on investment growth ? Thanks for help with this.
confused87
Registered User
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Cheers, so arf is basically worthwhile to avoid cgt? Rather then investing outside arf?
If you take the Contributory State Pension at age 66 and prior to retirement and starting an ARF had been paying Class A, would you be exempt from paying PRSI on ARF distribution from 66 ?
Thanks in advance.
confused87
Registered User
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Would it not be worthwhile to avoid 33%cgt charges irregardless of withdrawal rate? If I deposited them wages into my bank account instead of avcs I would be paying 52% tax then if I invested the deposited wages I would pay 33% on any gains.
Yes.
A person is exempt from paying Prsi from the date they start their contributory pension.
So if they start at age 66 they will pay no Prsi on their ARF.
If they deferr their pension they would only be exempt from the start date.
This can be up to age 70.
A person who does not qualify for the Contributory pension remains liable to pay Prsi up to age 70. They would pay prsi on their ARF to age 70.
When a person ceases to be liable to pay Prsi they receive 52 class M prsi contributions on their ARF.
Class M is zero cost and has no benefits.
A person is exempt from paying Prsi from the date they start their contributory pension.
So if they start at age 66 they will pay no Prsi on their ARF.
If they deferr their pension they would only be exempt from the start date.
This can be up to age 70.
A person who does not qualify for the Contributory pension remains liable to pay Prsi up to age 70. They would pay prsi on their ARF to age 70.
When a person ceases to be liable to pay Prsi they receive 52 class M prsi contributions on their ARF.
Class M is zero cost and has no benefits.
Couldn’t possibly be made any clearer than that.
Thank you.
At least there’s some benefits to becoming older.
Or should I say less young
I don't think so.
Pension investments roll up tax free. That has nothing to do with income tax that may be payable on drawing a pension.