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 in 2023 and there was a tax-free amount of 7K and the remaining approx. 17K was liable for PAYE, USC etc and this was deducted at source by Irish Life and appears on my revenue tax record. Leaving me with approx. 17K net.

When organising an AVC now, is the figure I set it up for 20K or 13K (Subtracting the 7K Previous tax free from a Personal Retirement Bond).

Any advice on this and the best place to set it up.

I have a consultation with Cornmarket in a few weeks but I want to explore all options before then.

DingDing said:

When organising an AVC now, is the figure I set it up for 20K or 13K (Subtracting the 7K Previous tax free from a Personal Retirement Bond).

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As I understand it:

- you commenced service in 1999,
- you are looking to avail of a lump sum benefit greater than 3/80ths of final remuneration for each year of service,
- you previously took a lump sum entitlement of 25% from a PRB of €7k and rather than ARF or annuitize the balance, you took taxable cash, and
- all lump sum benefits (lump sum from PRB & lump sum from public scheme) will amount to less than €200,000.

According to Paragraph 7.2 of Chapter 7 of the Revenue Pensions Manual:

"Lump sum benefits greater than 3/80ths of final remuneration for each year of service may be given on retirement at normal retirement age (NRA).....provided that the aggregate of the value of non-pension retirement benefits in respect of service with the current employer and any retained benefits does not exceed 1.5 times final remuneration."

The 'retained benefit' relates to any other lump sum entitlement from another pension arrangement - in your case the lump sum entitlement was €7k.

1.5x final remuneration less the lump sum payout under the public scheme is €20k.

Deducting the previous lump sum entitlement leaves room for another €13k to fund tax free.

There are 3 different ways of determining final salary.
The method used by your public sector employer is probably not the revenue allowed best method of calculation.

Cornmarlet might or might not choose the best method.

You should check out all 3 methods and do your own calculation to ensure you get the maximum tax free lump sum.

If you have scope for extra earnings at 20% tax after retirement and are currently paying 40%, it could be worthwhile maximizing your AVCs and taking out an ARF or annuity at retirement.


From Zurich....

Remuneration can be defined as total of basic pay plus overtime payments, bonuses, commissions, fees, etc. assessed to tax under the PAYE system (i.e. Schedule E), including the value of any benefit-in-kind.In determining “Final Remuneration” for maximum allowable benefits purposes, the Revenue will allow the use of any one of three different definitions, provided you are not a ‘20% Director’ (in which case Definition 2 must be used).

Definition 1 .
Basic salary over any twelve month period in the five years before retirement, plus the average of any fluctuating emoluments (commission, bonuses, benefit-in-kind, etc.),over three or more consecutive years, ending on the last day of the twelve month period chosen.We require proof of salary in the form of a letter from the company’s accountants.

Definition 2.
The average of total emoluments (income taxed under Schedule E) for any three or more consecutive years, ending not earlier than ten years before retirement.

Definition 3. 
The rate of basic pay at retirement, or at any date within the year ending on theretirement date, plus the average of any fluctuating emoluments (commission, bonuses,benefit-in-kind, etc.) over three or more consecutive years, ending on the day used to determine basic pay.

Thanks both some great advice.

@S class
My position is salaried, so there are no bonus or other additional payments or overtime. So my last pay would have been the highest as I will have just gained a 1% pay rise a few days before retirement.

It is this salary I was basing the calculations on.

@AAAContributor Thanks, this is as expected. so I will be able to fund 13K Tax free.

I can see for some Public Sector employees, i.e. Gardai, where there are allowances and overtime available, it would be very much worth looking at your pay under the various definitions. Thanks for all the advice.

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DingDing said:

I also left a previous pension scheme in 1999 and I got a Personal Retirement Bond..

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Was this PRB related to your present employment or to another employment ?

S class said:

Was this PRB related to your present employment or to another employment ?

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Yes a different employment, It was a private sector company I worked for between 1993 and 1999 immediately prior to joining the public sector.

AAAContributor said:

The 'retained benefit' relates to any other lump sum entitlement from another pension arrangement - in your case the lump sum entitlement was €7k.

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Does a retained benefit relate to an employment that was ceased before the current employment began ?

What happens when 2 employments run concurrently for a period of time ?

The example I am thinking about is related to my wife's employments.

Basically she had 2 employments running concurrently for a number of years.

One employment did not have a pension scheme. She operated a PRSA for this employment.

The second employment had a pension scheme and
she also made AVCs for this employment.

She retired from the PRSA employment and took 25% of the PRSA as a tax free lump sum.

She remained working in the pensionable employment for a further 3 years and then retired from it.

She had worked in this employment for approx 18 years. (15 years were concurrent with the PRSAable employment)

She received her allowed tax free lump sum from this employment pension scheme.

She then used her AVCs to maximize her revenue allowable tax free lump sum from this employment.

She filled out a retirement options from from an ARF provider and filled in all details relating to her previous PRSA lump sum.

She also supplied details of her highest earnings for a 12 month period as in Definition 1 above.

She then received an extra tax free lump sum.

This extra tax free lump sum corresponded to the earnings figure from Definition 1.multiplied by the 18 years of employment factor from Chapter 7, minus the tax free sum she had already received from the employment scheme.

There was no reduction for any retained benefits.

Is this correct ?

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S class said:

There was no reduction for any retained benefits.

Is this correct ?

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Yes, I believe so.

Retained benefits from concurrent employments are ignored according to Revenue Guidance

Note: Whilst the document refers to retained benefits from concurrent employments with regard to schemes and retirement annuity contracts only, I see no reason why PRSAs shouldn't also be ignored.

This post got me thinking. Suppose I retired this year at 60 and returned to the private sector for a year or so at a higher level, Say 30K higher.

How many goes do you get at retiring.

So I retire again after a couple of years say 65, which would be the minimum retirement age for the new job.

I now have a final salary of my current final salary +30K.

Now when I retire I am entitled to 1.5 times my final salary which frees up an additional 45K, less my pension on the job for the couple of years.

Would this give me an entitlement to do another last minute AVC, or can you only retire once.

Not that I intend to do so of course, and there are all sorts of pre-requisites for jobs to try to prevent this in the Public Sector, but perhaps I could work in the private sector for more money for a few years and retire again.

You can take up new employment after retirement.

You can also maximise your tax allowable pension contributions on the new employment by making AVCs. Or if there is no pension scheme you could open a PRSA.

My wife is an example of this. She made last minute AVCs for her second retirement.

You can also claim Jobseekers Benefit as a retiree. This is something that post 95 PS early retires are expected to do by the government.

If you had 2 employments running concurrently as in my wife's case and you meet the Jobseekers benefit rules for subsidiary employment, you can retire from one employment and claim JB.

After finishing your JB claim from that employment you can then, at a later date, retire from the second employment and begin a new JB claim for this retirement.

Being a retiree is by no means being thrown on the scrapheap.There is plenty of potential for a 60 year old to continue working.

With the new rules for deferring the state pension and continuing to pay Prsi up to age 70, sure life is only begining at age 60.

@S class thats an excellent perspective, The pension prevented me taking opportunities in the past, although I had good opportunities in the public sector. I see it very much as the start of another chapter, but nothing planned at the moment.

The Subsidiary employment is interesting, just looked it up. You could be doing a full weeks work (35 Hours) and still get some JB if you organised yourself properly, if you got it all into 3 days.

I am a voluntary director of my local credit union and the "Subsidiary Employment" aspect of this should allow my claim. I would have been doing it in parallel with my job for over 6 months. I also have a couple of other non-paid voluntary work which I have done outside work before. At least I can still keep doing it and not have to have the claim impacted, and be seen to be doing them as some of them are very public facing.

Thanks for all the help on this question and others as I plan for the next steps.

DingDing said:

@S class thats an excellent perspective, The pension prevented me taking opportunities in the past, although I had good opportunities in the public sector. I see it very much as the start of another chapter, but nothing planned at the moment.

The Subsidiary employment is interesting, just looked it up. You could be doing a full weeks work (35 Hours) and still get some JB if you organised yourself properly, if you got it all into 3 days.

I am a voluntary director of my local credit union and the "Subsidiary Employment" aspect of this should allow my claim. I would have been doing it in parallel with my job for over 6 months. I also have a couple of other non-paid voluntary work which I have done outside work before. At least I can still keep doing it and not have to have the claim impacted, and be seen to be doing them as some of them are very public facing.

Thanks for all the help on this question and others as I plan for the next steps.

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There is also the possibility to extend a JB claim beyond the 9 months limit if a person is exgaged it certain types of unpaid voluntary work.

I think any unpaid voluntary work that does not replace normal paid employment is acceptable.

Found details of the scheme. It is in my interest currently to transition to the supplementary pension ASAP as the JB has limitations on travel and holidays that the SP doesn't. However it is a useful recruitment tool when recruiting volunteers who don't have the cushion of supplementary pension.