Can an AVC PRSA be split in two?

Hello,

I have already asked this question in this thread and in this thread. They were other peoples threads and I never got an answer either so I am asking it here again in my own thread. If no one knows the answer and I eventually find out the answer I will update this thread as I think it would be helpful for people to know this information.

I have contacted Revenue, my local Pension Office (twice) and Cornmarket (twice) weeks ago and none have gotten back to me. I have also emailed the Single Pension Scheme "helpline" but they don't know.

I am a member of the HSE Single Pension Scheme. I won't have 40 years service by the time I retire. I am about to start paying AVCs and hope to do that for the next 20+ years.

Regarding the option to purchase additional referable amounts (Pension benefits), not with cash but by way of transfer, subject to the rules in this circular.

The Circular states:

"All transfer values relating to a previous employment, PRSA or BoB/PRB must always be included in the purchase of referable amounts by way of transfer. No split transfers are permitted. For this reason, Scheme members should be aware that in cases where the transfer value exceeds the cost of purchasing the maximum amount of pension/lump sum referable amounts permitted for the individual member under this Circular, this would result in the balance of the transfer value being lost to the member."

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Let's say as an example by the time I get to retirement age I have 500,000 in my AVC PRSA and I want to purchase by way of transfer 300,000 worth of referable amounts is there no way for me to not forfeit 200,000 from my pension fund? Could I first siphon off 300,000 from my AVC PRSA in to another PRSA purely for the purpose of purchasing 300,000 worth of referable amounts, by way of transferring that PRSA in its entirety, such that in doing so I would not forfeit any remainder in my main AVC PRSA... this amount (200,000 in this example) I would aim to transfer to an ARF.

I would like to know is this possible and would I need to pay any taxes in the process? My aim would be to do all this at the time of my retirement, hopefully not incurring any tax liability in the process.

In his great thread: "The Single Public Service Pension Scheme" @Ent319 states:

"You can't split your main AVC to part-fund purchases through the facility . If you wanted to keep your options open about buying from the purchase facility you could set up a separate, more modest PRSA-AVC separate to your main AVC and transfer this in later on in your career, if it was worth it at that point."

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I don't want to do it that way. That will be too much hassle having to keep an eye on the value of one fund and trying to judge how much to keep contributing to that then endlessly checking to see will it grow to just the right amount but not by too much either because I might have to forfeit the excess.

One useful help I got was from the Pensions Authority who confirmed that you can transfer benefits from one PRSA to another but my question is specifically can I transfer only a portion of one AVC PRSA in to another PRSA. To split it in other words, in to two funds, and only to satisfy the rules outlined in the Circular above whilst not forfeiting any of my retirement fund. The Pensions Authority suggested I read Chapter 24 of the Revenue Pensions Manual, Personal Retirement Savings Accounts. From my initial read it isn't clear if splitting an AVC PRSA is allowed.

Any help would be much appreciated. Thank you.

Did you find out from your employer what the eligibility details for purchase? Did you ask them if there were any restrictions on the amount you could pay in one year (the year that you choose to retire) to purchase the referable amounts? Did you ask, for example from your example, what €300,000 would buy you in the actual year you want to retire? Are the purchase amounts salary based?

I can't see why a product provider would have any issue with splitting an AVC PRSA but the control of what you can/can't do would be with employer.

I've said it before but, this scheme is actuarially based, it's highly unlikely that it would be a financial 'no brainer' that would put you in a much better position than would, say, purchasing an annuity on the open market on a retirement date of your choosing. Remember, if you put the €500k into an ARF, you can always buy an annuity with part of that value when you're older and annuity rates might be more attractive.

Gerard

www.execution-only.ie

What's a "local Pension Office"?

@GSheehy
That's helpful advice thank you. As I will have a small HSE pension I was thinking it would be wise to bump it up. But as you say maybe a better option is to buy the annuity later into retirement when I might get a better deal. Didn't realise they got cheaper the older you get, which makes sense I suppose.

The answers to some of your questions are in the link for the Circular in my last post. I don't think there is a limit to how much you can buy in one year. There is an online Single Pension Scheme "buy back" calculator that estimates how much you would be allowed to buy and how much it would cost. The other questions: what is the latest I could avail of this scheme; can an AVC PRSA be split and would I have to pay taxes in the process I have asked my local pensions office, by email, but they have not replied to me. The last two of those questions are not clear to me from reading Chapter 24 of the Revenue Pensions Manual, Personal Retirement Savings Accounts.

I'm not sure what "actuarially based" means? Probably that the HSE are not trying to incentivize staff to avail of this "buy back" option by way of trying to compete with other providers on the market in terms of price? I had a look on an online Irish annuity calculator and granted the HSE deal didn't seem much better price wise but the way I look at it is you have to pay ALOT extra to get built-in inflation protection from annuities on the market, and the more inflation protection you want the more you pay. Whereas this particular HSE buy back deal would give you the same "cost of living protections" a HSE defined benefit pension offers. From my experience there is no limit on by how much the government will increase the wages of HSE staff in times of runaway inflation. They seem to be constantly bumping up salaries little by little along with various union agreements and retired HSE staff are treated the same way.

So on that basis I think bumping up the HSE DB pension might be a better deal than paying for an annuity on the market and maybe the HSE realise that so they don't bother trying to sweeten the deal. I don't know what is the right answer Gerard maybe I'm better off just building up as big a fund as possible and leaving it all in high risk equities as recently recommended by The Boss.

I'll try again to get on to my employer pensions section and report back.

@Fortune
I'm probably using the wrong term but by "local pensions office" I mean the Pensions people who look after the HSE region in which I am employed. There might be several across the country, North, South, East and Western Region. I have emailed them twice with all the questions @GSheehy suggested I ask but got no answer yet.

Extremely difficult to make a call on something where the information you need is vague or not available. I'd say the chances of someone with a €500k AVC rolling up to HSE on the day they want to retire and saying they want to buy notional service with €300k would be remote.

So, they'll not have dealt with it before and those at the coalface won't know the answer and will be unsure as to where they would go to find it out. Product providers are unlike to have the answer.

Maybe @sidzer can comment on the company he dealt with that specialize in PS pensions and give an indication of cost of employing them.

The answer, either way, shouldn't stall you starting the AVC though. It might be like waiting for AE. And, the rules of today may not be the rules of tomorrow in the pension World.

Gerard

www.execution-only.ie

Just updating this thread with some information I found.

To re-cap, what I was asking in this thread is:

"At retirement can I use part of my AVC fund to purchase Single Scheme referable amounts and put the rest in to an ARF?"

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I have since gotten confirmation from the Single Scheme administrators and Irish Life that YES this is allowed.

The rule that allows this is clarified in Pt. 55 of a Single Scheme FAQ published in 2023:

"A transfer value must relate to the entirety of the external pension benefit. It is not possible to “split” a pension benefit by leaving a portion of it in situ, while transferring another portion of it to the Single Scheme. The entire pension benefit must be transferred at once."

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"The only exception in relation to the bullet above is where a Scheme member holds a Public Sector AVC which is linked to the public sector employment and scheme rules. In this case it may be possible for the member to enact a partial transfer of that Public Sector ACV to the Single Scheme. This potential for partial transfer does not apply in relation to any other pension product."

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Apparently this is long standing standard practice and known in the pension business (and understood by HSE pension scheme administrators) as "paying hospital bills".

So I am eligible to do the above as a public sector employee who is paying in to an Irish Life AVC fund where the contributions are deducted from my salary and they manage the tax relief with The Revenue.

I also asked Irish Life and basically got confirmation from Revenue.ie that this transaction whereby at retirement I might use part of an AVC fund to purchase referable amounts and then put the rest in an ARF is NOT subject to taxation. Tax comes in when you earn an income from your pension fund.