Maximising Lump Sum with AVC

mozzer

Registered User
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Folks,

Having looked at the limits on Revenue re Lump Sum on Retirement, there is a figure of €200,000 mentioned as the limit before tax applies.

So, if a public servant will have 40 years service accumulated at retirement age and a lump sum of €140,000 coming to them, could they in effect contribute to an AVC fund to generate another lump sum of €60,000 tax free?

Any observations would be appreciated greatly.
 
The maximum tax free sum allowed in a public sector scheme is 1.5 times pensionable salary (usually final salary). This is inclusive of Occ. Pension and AVC. If you have 40 years service then the €140,000 from the Occ Pension scheme is presumably 1.5 times final salary. You cannot use an AVC to take a tax free drawdown beyond this. You may be able to use it to fund an ARF to draw down at your marginal tax rate in retirement.
 
The maximum tax free sum allowed in a public sector scheme is 1.5 times pensionable salary (usually final salary). This is inclusive of Occ. Pension and AVC. If you have 40 years service then the €140,000 from the Occ Pension scheme is presumably 1.5 times final salary. You cannot use an AVC to take a tax free drawdown beyond this. You may be able to use it to fund an ARF to draw down at your marginal tax rate in retirement.

Thanks very much Early Riser,

I'll look into the ARF option and see if it makes sense for me to pursue.
 
I'll look into the ARF option and see if it makes sense for me to pursue.

If your retirement lump sum will amount to €140,000 then your retirement pension will probably amount to around €47,000 (including the State Pension if you are Class A PRSI). So anything drawn from an ARF will be taxed at top rate. I am not sure if it is worth taking out an AVC to avail of the top tax rate relief if you are also going to be paying this rate at drawdown. It might be different if you were looking towards early retirement (or if you were short years of service).
 
As it happens Early Riser,

With the introduction of the new rule that one can now choose to work up until the age of 70, I won't be short on service. That said to get the full pension, I will have to work until I am just over 66, which isn't too bad.

At the moment, I'm happy enough to do that, but that could change over time.

I suppose if I change my mind and look to retire early then I could load in some avc money to bring me up to the full lump sum. And I am a Class A PRSI case, so I will be drawing down the State Pension as well.
 
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