More AVC Queries

[Max Power]

Hi Everyone. Great forum for advice. I'm a 40 public sector worker that is paying the max into AVC's. I estimate at retirement I will have about a 500k shortfall due to CNER/shortage of years etc. I should all going well hit this target a few years before retirement which could be an issue. I also have a private sector income of about 15k per annum.

(a) Is it possible to pay pension contributions from my private sector income into my AVC PRSA and claim relief (public + private sector incomes would still be below the 110k threshold) even though my AVC PRSA is obviously linked to my public sector salary/pension. Or do I have to set up a seperate regular PRSA for this?

(b) I remember reading somewhere that the last contribution you make to a PRSA determines if it is an AVC PRSA or a regular PRSA. Can anyone confirm this? If so I could make my final contribution in years to come from my private sector income and break the link between my pension fund & my public sector employment thereby allowing me have a fund in excess of 500K.

I hope I have explained that ok. Any feedback appreciated.

 

[Conan]

Separate incomes means separate pensions. So if you have a private sector income (is it self- employed or as a Director of a Company?) then you can set up a separate PRSA or Company Pension. Whilst practically you could pay AVCs under your Public Sector arrangement from your private income, I don’t see any advantage. Having two separate pensions should allow you to get a larger combined retirement lump sum.
I don’t follow what you are getting at in (b).

 

[LDFerguson]

(b) I remember reading somewhere that the last contribution you make to a PRSA determines if it is an AVC PRSA or a regular PRSA. Can anyone confirm this? If so I could make my final contribution in years to come from my private sector income and break the link between my pension fund & my public sector employment thereby allowing me have a fund in excess of 500K.

Never heard of this. An AVC PRSA and a PRSA are two different products, even though they have similarities. So if you've been contributing to an AVC PRSA then these will always be AVCs to the main superannuation scheme and treated as such at retirement.

As you're 40 and earning €15,000 as your private income you can put up to 25% of this or €3,750 per year into a separate Personal Pension or PRSA, assuming that an Occupational Pension Scheme cannot be established in respect of this income. Be careful if the combined public and private sector incomes exceed €115,000 per year as this will trigger other limits.

Regards,

Liam
www.ferga.com

 

[Max Power]

Separate incomes means separate pensions. So if you have a private sector income (is it self- employed or as a Director of a Company?) then you can set up a separate PRSA or Company Pension. Whilst practically you could pay AVCs under your Public Sector arrangement from your private income, I don’t see any advantage. Having two separate pensions should allow you to get a larger combined retirement lump sum.
I don’t follow what you are getting at in (b).

Thanks Conan. Appreciate it. I'm employed in a private company part time btw.

 

[Max Power]

Never heard of this. An AVC PRSA and a PRSA are two different products, even though they have similarities. So if you've been contributing to an AVC PRSA then these will always be AVCs to the main superannuation scheme and treated as such at retirement.

As you're 40 and earning €15,000 as your private income you can put up to 25% of this or €3,750 per year into a separate Personal Pension or PRSA, assuming that an Occupational Pension Scheme cannot be established in respect of this income. Be careful if the combined public and private sector incomes exceed €115,000 per year as this will trigger other limits.

Regards,

Liam
www.ferga.com

Thanks Liam. I actually did a trawl and think I have found the article. Its from an Irish Life AVC brochure p.16

[broken link removed]

WHEN AND HOW CAN I TAKE AVC BENEFITS? Usually you have to take your AVC benefits at the same time as the benefits from your main scheme. An exception to this is where you have been using a PRSA for your AVCs but your last contribution before you retired was an ordinary contribution (for example, as a self-employed person). Then your PRSA benefits will not be linked to your main scheme and you do not have to take them at the same time. In either event you may be able to take part of your fund as a retirement lump sum

PRSAs where your last contribution was not an AVC. You may take 25% of the fund in your PRSA as a retirement lump sum.

 

[LDFerguson]

Thanks Liam. I actually did a trawl and think I have found the article. Its from an Irish Life AVC brochure p.16

[broken link removed]

WHEN AND HOW CAN I TAKE AVC BENEFITS? Usually you have to take your AVC benefits at the same time as the benefits from your main scheme. An exception to this is where you have been using a PRSA for your AVCs but your last contribution before you retired was an ordinary contribution (for example, as a self-employed person). Then your PRSA benefits will not be linked to your main scheme and you do not have to take them at the same time. In either event you may be able to take part of your fund as a retirement lump sum

PRSAs where your last contribution was not an AVC. You may take 25% of the fund in your PRSA as a retirement lump sum.

My gast is well and truly flabbered. That's the first I've heard of this. I'm not sure how it would work in practice. I must ask Irish Life. Sorry for wrongly contradicting you earlier.

 

[Gordon Gekko]

Fascinating

 

[Max Power]

My gast is well and truly flabbered. That's the first I've heard of this. I'm not sure how it would work in practice. I must ask Irish Life. Sorry for wrongly contradicting you earlier.

Don't worry I'm well and truly amazed as well because it defeats a lot of the reasons we have two products - PRSA's & AVC PRSA's. I'd be interested to hear from any others involved in the pensions about this.

 

[Oisin19]

It would be interesting to get an actuaries view on this. While a change in the individuals circumstances and then a contribution from a different source might change the status of the PRSA contract those AVC’s in the fund will always be avc’s in relation to that previous employment. I would always think this is case no matter how you mix the funds. Therefore when the main scheme is retired the avc’s would have to be retired?

 

[Conan]

Far be it from me to query an Irish Life publication.......but I have never heard of this facility. Hopefully Liam can clarify with Irish Life.

 

[LDFerguson]

It would be interesting to get an actuaries view on this. While a change in the individuals circumstances and then a contribution from a different source might change the status of the PRSA contract those AVC’s in the fund will always be avc’s in relation to that previous employment. I would always think this is case no matter how you mix the funds. Therefore when the main scheme is retired the avc’s would have to be retired?

That would always have been my understanding of the spirit of the rules. Perhaps the wording allowed wriggle room for this loophole.

 

[LDFerguson]

Far be it from me to query an Irish Life publication.......but I have never heard of this facility. Hopefully Liam can clarify with Irish Life.

Sorry - didn't get a chance to query this yet - pesky job got in the way. I'll raise the query with them next week.

I'm also reluctant to suggest that an Irish Life brochure is wrong, but if this loophole exists, it leaves room for all sorts of shenanigans. Off the top of my head I'm thinking about well-paid medical consultants with dual income from public and private practice and long service. Public sector income is >€115,000 so scope only to pay into a PRSA AVC. Retire from the public sector job but delay drawing down superannuation benefits for a couple of days. Pay one last PRSA contribution against private income and hey presto - normal PRSA retirement rules apply - full 25% of fund lump sum and no checks for over-funding.

 

[GSheehy]

WHEN AND HOW CAN I TAKE AVC BENEFITS? Usually you have to take your AVC benefits at the same time as the benefits from your main scheme. An exception to this is where you have been using a PRSA for your AVCs but your last contribution before you retired was an ordinary contribution (for example, as a self-employed person). Then your PRSA benefits will not be linked to your main scheme and you do not have to take them at the same time. In either event you may be able to take part of your fund as a retirement lump sum

PRSAs where your last contribution was not an AVC. You may take 25% of the fund in your PRSA as a retirement lump sum.

I ran this by another PRSA provider and the bottom line was that a PRSA AVC and a PRSA are two distinct contracts separately approved by the Pensions Authority. You you cannot transition a PRSA AVC to a normal PRSA at a later date if you become self employed. The PRSA AVC is inextricably linked to the main occupational pension scheme and should always be matured at the same time as that main scheme.

Gerard

www.prsa.ie