Full service class D, Do I have any AVC options?

M

Mike Rosoft

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Hi

Is an AVC not a option for me or am I missing out on enhancing my pension or lump sum? I'm a 59 yr old civil servant with full 40 years service on class D PRSI, considering retiring in 6 years time at age 65 but that may change to 63 or 64. My pension will be half final years salary (currently mid 50K) with a lump sum of final salary X 1.5. If an AVC is not an option for me does that also include a last minute AVC in final year before retirement? Would appreciate any info or guidance.
 
If you are likely to retire on full benefits then very unlikely to be any scope for AVCs. Your only scope for AVCs would be:
- if you have allowances or income not pensionable such as bonus, overtime etc
You cannot use AVCs in anticipation of retiring early.
 
Thanks Conan,
I do receive non pensionable income in the form of an allowance and some OT so that I presume explains why a financial consultant in a well known pensions and finance company proposed an AVC to me back in 2015 when they came to our offices. The point was made to me that for every year past age 60 until 65 I could accrue an extra three eightieths bringing my lump sum from 120/80 to 135/80. I didn't follow up on it and its only now that I'm taking this retirement business seriously.
 
Never heard of the extra 80ths rule. I suggest you confirm that with your Pensions office. The allowances and overtime help. Doing AVC to at least fund 150% of the additional income is very tax effective.
 
There are two potential benefits which can be funded by AVCs even where the individual has 40 years service:
1 Where there is non-pensionable income as I detailed earlier, and
2 The Revenue max Spouses Pension is not 100% of the members pension. Since the scheme only provides a Spouses Pension of 50% , in theory the AVC fund could be used to provide a further 50% (but remember that such a Spouses Pension only arises if the Scheme member pre-deceases their spouse - which may or may not happen).

The section of the Revenue Pensions Manual referred to above is mainly to do with calculating the maximum fund threshold, a different issue.
 
Conan said:
2 The Revenue max Spouses Pension is not 100% of the members pension. Since the scheme only provides a Spouses Pension of 50% , in theory the AVC fund could be used to provide a further 50% (but remember that such a Spouses Pension only arises if the Scheme member pre-deceases their spouse - which may or may not happen).

The section of the Revenue Pensions Manual referred to above is mainly to do with calculating the maximum fund threshold, a different issue.
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Hi Conan, I am having difficulty getting my head around the Revenue example in the link. It seems to suggest that a Class D public servant retiring with full service at age 60, and on a pensionable salary of €60,000, has the potential to have funded and AVC up to €257,000.

Is it that this fund can only be used to fund a top-up to the spouse's pension in the event that the retiree pre-deceases the spouse? If so, how is this to be implemented or monitored? (Or, more likely, am I completely misunderstanding this?).
 
I have to admit that it is confusing. The example quoted assumes that age 60 is the normal retirement age. You cannot fund AVCs for the purpose of retiring early. The purpose of the example you refer to is to calculate whether any there is any scope for AVCs. What the example identifies is that since the Scheme benefits capital value is less than the capital value of the Revenue max (the shortfall being the Spouses Pension at 50% rather than 100%) there is thus scope for AVCs. Even though the shortfall is due to the Spouses Pension, it would in fact be difficult (impossible?) to buy the shortfall as a specific reversionary pension. Therefore the €257,000 (in the example) would have to be invested into an ARF.
I suggest you clarify the exact position with the Pensions people in your office.
 
Conan said:
Even though the shortfall is due to the Spouses Pension, it would in fact be difficult (impossible?) to buy the shortfall as a specific reversionary pension. Therefore the €257,000 (in the example) would have to be invested into an ARF.
Click to expand...

That is what I am surmising also. It would suggest that there is scope for a Class D with projected full service to make some level of AVC investment - though with a view to an ARF rather than the tax free lump sum.

Conan said:
I suggest you clarify the exact position with the Pensions people in your office.
Click to expand...

No, not for me - already out to grass! I'm just curious about the principle.
 
Thanks again,
Looking back over the summary the consultant did up for me in 2015 he proposed that by starting an AVC of €200 per week net (€335 gross) I could generate a fund of €196,000 at age 65 and I could increase my lump sum from €82,500 to €118,000 by topping it up with €35,500 from this fund. The remaining balance of €160,500 could be used to supplement my pension by investing in an ARF and drawing down a percentage monthly as additional income.
 
Mike Rosoft said:
Thanks again,
Looking back over the summary the consultant did up for me in 2015 he proposed that by starting an AVC of €200 per week net (€335 gross) I could generate a fund of €196,000 at age 65 and I could increase my lump sum from €82,500 to €118,000 by topping it up with €35,500 from this fund. The remaining balance of €160,500 could be used to supplement my pension by investing in an ARF and drawing down a percentage monthly as additional income.
Click to expand...

There are a number of issues in play for class "D" PRSI payers.
Depending on your employment certain payments (Allowances/Overtime or similar) may not be "superannuating" or simply put they will not count for reckonable pensionable salary.

The "fund threshold" mentioned above also comes into play.

In a scenario where the "notional pot value" is below this it is possible to use AVC's to generate extra benefits to be drawn down at retirement.
This is the example mentioned above.

I understand that where AVC'c are taken out with the "main scheme" provider they must be drawn down at the same time.

Usually you put the extra "non-superannuating" payments towards AVC'c.
As with anything, especially in pensions it is vital that you get personal circumstances specific advice.
 
Thanks all,
I'm contacting a recommended financial advisor next week to arrange a consultation and will be raising points mentioned in this thread
 
Mike Rosoft said:
I'm contacting a recommended financial advisor next week to arrange a consultation
Click to expand...

Good luck with that. By the way, it seems you were right about the potential to top up your lump sum to 135/80 with 45 years of service :

"8.5 Service exceeding 40 years – lump sum benefit

If total service exceeds 40 years, the lump sum element of the aggregate benefits may be
increased by 3/80ths of final remuneration at the date of retirement per each additional
year of service, up to a maximum of five years."

 
Can the OP not pour cash into an AVC now for 6 years...avail of the 40% tax relief and then drawn down the fund as a lump sum at retirement and pay tax on it @20%..would still be hugely beneficial?
 
Yes BUT any income you draw down is taxed at your marginal rate in that year, so could be 40% + USC.
Ideally using AVC to top up your retirement lump sum is far more tax effective.
 
Hi There, wondering if you received any update from the advisor Mike ?

I've been looking at my own situation which has some parallels with this (A Class though).

Semi State DB Scheme, will have 40 years @ 60 40/80 (including some notional service purchase) and I was wondering if purchasing AVC was worthwhile ?

I was initially thinking to use it to fund the lump sum element primarily, but it seems that the max you can get is 1.5 times final salary with no scope to turn 25% of your AVC into an extra lump sum to work towards the €200k threshold.

It seems though that you could use it to fund the potential difference between 40/80 of your final salary and 60/80 of your final salary ?
 
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