AVCs - lump sum
- Thread starter BONDGIRL
- Start date
Pension contributions benefit from full tax and PRSI/health contribution relief up to certain age related limits so are, in general, a good way to save long term. Not every cent contributed necessarily qualifies for relief - e.g. if you breach the age related limits then you don't get tax and PRSI/health contribution relief on the excess.
Can you expand a bit on the problems that you're facing? By "my company" do you mean employer (and hence an occupational scheme) or private pension provider/scheme? Have you checked the rules of the scheme to see what's possible? I'm not sure but maybe not all occupational schemes support AVCs in which case you could do a PRSA for AVCs but then you may need to claim the tax and PRSI/health contribution relief manually.
There is some useful information about pensions on www.pensionsboard.ie , www.itsyourmoney.ie , www.citizensinformation.ie and in the key posts in this forum.
Can you expand a bit on the problems that you're facing? By "my company" do you mean employer (and hence an occupational scheme) or private pension provider/scheme? Have you checked the rules of the scheme to see what's possible? I'm not sure but maybe not all occupational schemes support AVCs in which case you could do a PRSA for AVCs but then you may need to claim the tax and PRSI/health contribution relief manually.
There is some useful information about pensions on www.pensionsboard.ie , www.itsyourmoney.ie , www.citizensinformation.ie and in the key posts in this forum.
Thanks ClubMan.I am in a private bank in a DB Scheme. I asked could I setup AVCs about two yrs ago to save for a lump sum when I retire. However I then got a statement only recently and they have me in AVCs alright but its not a lump sum its buying yrs service? I am 30 yrs old and can only actually save 15 euro a month or something because that is the cap on it!!! I have tried to explain I dont want this I want to save for a lump sum. They are now saying I might need a separate stand alone defined contibution scheme? but they are not sure and will get back to me... They have put me in touch with the company that looks after pensions.. I am trying to explain myself but when they hear "lump sum" etc they are like what?My Dad advises me to get into this Scheme as he got a fairly big lump sum when he retired and he said its the way to go.. daddys are never wrong (LOL).. What you think?
OK - DB, as opposed to DC, schemes are beyond my comprehension I'm afraid. As far as I know it may well be a case of "buying service" rather than making AVCs in this case unless (as mentioned above) you take out some separate pension DC product (e.g. a PRSA?) for AVCs.
You'd need to check and understand the rules of the scheme to see what your options are and then see what is the best for your specific circumstances. Do the company have a pension consultant to liaise on such matters? If not (or maybe even if they do) you might want to get independent, professional advice. Can HR or a union (if applicable) not assist in understanding what your options are?
You'd need to check and understand the rules of the scheme to see what your options are and then see what is the best for your specific circumstances. Do the company have a pension consultant to liaise on such matters? If not (or maybe even if they do) you might want to get independent, professional advice. Can HR or a union (if applicable) not assist in understanding what your options are?
I wish... HR havent a clue and the Independent company dont seem to know the rules, yet HR sent me to them... its like its a secret service for this great AVC saving scheme. I do think I will need a DC product scheme, when I suggested this to the "expert" he said sure you dont want that, you would have to cliam back yourself anyway? I was so mixed up then and he said he would ring me back.... still waiting.. so where is the best place to setup a DC product and how do you cliam back relief etc? when you get it back do you just put straight into AVC or how does it work?!!!
THANKS
THANKS
If you set up, say, a PRSA or personal pension plan for (by definition DC) AVCs and made contributions out of net pay then you would need to write to Revenue to get a tax credit in respect of these contributions and then claim back any PRSI/health contribution relief at the end of the tax year.
Claiming PRSI relief on standalone PRSA contribution
Claiming PRSI relief on standalone PRSA contribution
I would start with the discount brokers often mentioned here maybe:
www.labrokers.ie
www.prsas.ie
www.prsacentre.com
www.myadviser.ie
etc.
LDFerguson
Registered User
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- 4,663
Hi Bondgirl,
Am I understanding you correctly? You want to make AVCs to a pension fund but you specifically want to use these AVCs towards getting a lump sum at retirement, as distinct from increasing your pension?
If so, there are limits as to how much you can contribute. Your DB scheme already will provide you with a lump sum at retirement, quite possibly 1.5 years' final pensionable salary. Revenue maximum tax-free lump sum is 1.5 years' your final actual salary. You'd need to check with HR or your DB scheme booklet as to what your pensionable salary is for the purpose of the DB scheme.
In many cases, your actual salary may be higher than your pensionable salary. For example, your pensionable salary probably doesn't include any overtime, bonuses etc. Your pensionable salary may well be your basic salary, less a multiple of the State pension.
If there's a gap between your actual salary and your pensionable salary, you can bridge it using AVCs.
Example - you earn €50,000 per year including overtime.
You find out that your pensionable salary is €40,000 per year.
Scheme will give you €40,000 x 1.5 as a tax-free lump sum = €60,000
Revenue will allow €50,000 x 1.5 = €75,000
You can make contributions to an AVC to fund the €15,000 gap. You can make assumptions as to what your salary in 30 years' time will be, including inflation.
I'm assuming above that you will have maximum service in the DB scheme at retirement. If not, and you've already bought back all the extra years you can, you can bridge any gap with AVCs.
Hope this helps.
Liam D. Ferguson
www.ferga.com
Am I understanding you correctly? You want to make AVCs to a pension fund but you specifically want to use these AVCs towards getting a lump sum at retirement, as distinct from increasing your pension?
If so, there are limits as to how much you can contribute. Your DB scheme already will provide you with a lump sum at retirement, quite possibly 1.5 years' final pensionable salary. Revenue maximum tax-free lump sum is 1.5 years' your final actual salary. You'd need to check with HR or your DB scheme booklet as to what your pensionable salary is for the purpose of the DB scheme.
In many cases, your actual salary may be higher than your pensionable salary. For example, your pensionable salary probably doesn't include any overtime, bonuses etc. Your pensionable salary may well be your basic salary, less a multiple of the State pension.
If there's a gap between your actual salary and your pensionable salary, you can bridge it using AVCs.
Example - you earn €50,000 per year including overtime.
You find out that your pensionable salary is €40,000 per year.
Scheme will give you €40,000 x 1.5 as a tax-free lump sum = €60,000
Revenue will allow €50,000 x 1.5 = €75,000
You can make contributions to an AVC to fund the €15,000 gap. You can make assumptions as to what your salary in 30 years' time will be, including inflation.
I'm assuming above that you will have maximum service in the DB scheme at retirement. If not, and you've already bought back all the extra years you can, you can bridge any gap with AVCs.
Hope this helps.
Liam D. Ferguson
www.ferga.com
thanks Liam.
Yes at retirement I will have full service etc.. they say to retire at 60...
Now I really want to retire at 50. I mean my family history shows I might not live till 60 therefore want to make the best out of my life. When I retire from work with DB scheme I will get set pension each week etc.. not sure of a lump sum? dont think we do.. will check that..
So what is the best way of trying to get out of the work lark early!!!
Yes at retirement I will have full service etc.. they say to retire at 60...
Now I really want to retire at 50. I mean my family history shows I might not live till 60 therefore want to make the best out of my life. When I retire from work with DB scheme I will get set pension each week etc.. not sure of a lump sum? dont think we do.. will check that..
So what is the best way of trying to get out of the work lark early!!!
LDFerguson
Registered User
- Messages
- 4,663
Your DB scheme administrators should be able to tell you what pension you'll be entitled to at 50. It's a fairly straightforward calculation based on the number of years you'll have served by then, compared with the number of years you would have served at normal retirement age.
If this estimated pension doesn't look like it'll support a wild and hedonistic lifestyle for you at 50
, you can supplement it by paying AVCs now.
Remember that family histories of early demise are being rendered increasingly less relevant by advances in medical science. You'll probably still be partying at 100.
If this estimated pension doesn't look like it'll support a wild and hedonistic lifestyle for you at 50
, you can supplement it by paying AVCs now. Remember that family histories of early demise are being rendered increasingly less relevant by advances in medical science. You'll probably still be partying at 100.