Max AVC limit above tax relief threshold question

S

SharkT

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Is there a a max limit of AVC one can make above the tax relief thresholds? I can't seem to find this info online.

Any can anyone outline some advantages or disadvantages to doing this please.

I am maxing out my AVC for tax relief purposes and am considering making a one off AVC above this amount, rather than trying to set up a separate investment.

Obvious disadvantage is funds are locked away.
Thanks in advance.
 
My understanding is, you can put as much as you like, into AVC’s- above the PAYE tax free thresholds.

There are only limits on what the Employer can contribute for you, and limits on tax free thresholds for Employee contributions to Pension & AVC’s
 
Gordon Gekko said:
As much as you like basically.
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Not quite that simple.
Whilst you can contribute AVCs above the tax deductible limits (meaning any excess contribution may not get tax relief), you cannot contribute such amount (when combined with Employer Contributions) if the resulting projected benefits will exceed Revenue limits.
Whilst this is unlikely to be a problem in a Defined Contribution Scheme, it can be an issue in a Defined Benefit Scheme for those with full service.
SharkT should consult with Scheme Trustees before making any excess contribution.
 
Thanks. This would be a defined contribution scheme. I'll contact the trustees to see if I am breaching any limit.
 
Of course it might be wise to see what kind of return your pension presently achieves and compare it with other products, just for peace of mind.
 
If you do contribute a lump sum in excess of the yearly limit, the excess can be carried forward to a future year when perhaps your % limit increases.
Also worth bearing in mind that if you are not getting tax relief on some of the contributions, the additional income generated by that contribution will be potentially taxable at up to 40% +USC. So if you are not going to get tax relief and the additional income is going to be taxable at the max, it does not make financial sense.
 
I'm not convinced on that Conan.

1. I may yet get to claim future relief on it. Life changes etc, but consider that in the last years before retiring If I deem the relief was valuable, I can stop contributing and then claim the relief. The money I didn't contribute in the last years, I can use to shore up my cash reserves before starting retirement. Most will need cash reserves (even from practical point of view when retiring). Effectively I gained years of tax free growth as per normal pension, but I loaned revenue the relief interest-free during those years. Or the relief was discounted (Seems like probably still a good deal and better than being invested outside pension.).

2. imagine it's 10k and I really never get to claim relief.

2a. let assume I don't die, and let's consider it the last money that I will ever take from my pension. I got decades of tax free growth where it accumulated much more than it would have outside of pension, probably many years of only ~2 p.c. p.a. tax, and finally marginal tax on drawdown. If I deem the 2 p.c. tax pa not good value, then I can withdraw earlier.

You think overall that will be a higher tax load vs non pension vehicle? Assuming I'm invested in equity I'm not sure.

2b Imagine I die without removing it from pension: I'm less sure on this case.
 
Paul O Mahoney said:
Of course it might be wise to see what kind of return your pension presently achieves and compare it with other products, just for peace of mind.
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Good question. I’ve often thought about this, and some of the pro’s of an AVC including an AVC, that does not get tax relief on contribution are:

25 % of an AVC +growth, will likely be available tax free on DC Schemes.
75 % of an AVC + growth, will become an ARF which the individual controls the pace of the withdrawal, and with future planning, tax can often be planned and reduced.

Versus an investment in equity:
Capital Gains on the growth, no control over that tax.
Will likely (but not always) be withdrawn in full, at a specific date, individual may loose control of timing of maturity, and therefore not have any choices with the tax consequences.
 
As I said, any unused tax deductible contribution can be carried forward and will presumably (?) benefit from tax relief eventually.
The OP didn’t state what the investment term might be for the lump sum contribution. If the investment term is ,say, 20 years plus, then the benefit of gross roll-up might (might) outweigh the loss of tax relief. But if the investment term is short, then it won’t.
The tax effectiveness of Pension contributions is based on getting tax relief on the way in (plus gross roll-up), getting a portion of the fund (25%) back tax free on retirement and paying (perhaps) a lower level of tax on the eventual retirement income.
 
Thanks all for to those replies. Really appreciate the insight here. So being able to use the additional avc for future tax relief would be viable. I'm thinking of a term of prob 15 -20 years here.

If I was to contribute 20k this year for which I couldn't get tax relief. I would use this to get tax relief in future years by just not contributing AVCs from my salary up to the amount of 20k. And do I just file that in my tax return in order to claim the tax relief?
 
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