Non Contributory DB Pension / AVC query

The pension from my job is a non contribitory pension which allows for 2/3 of final salary on retirement assuming 40 years service i.e. 1/60 for each year. In addition my pension is deducted by the state pension.

Per revenue rules I can take a pension of 2/3 of salary as a pension

Can I contribute to an AVC to build up a fund to

1. take 1.5 times my salary thereby leaving my company pension at 2/3 less the state pension i.e. not take a reduced pension

2. any amount that is left over supplement my company pension up to an amount equal to the state pension

In addition can I make annual contributions to an AVC. I have a lump sum to invest (I realise I can make contributions against last years income up to 31/10.) Is this reasonably standard?
Is the entry fee the same?
I take it the monthly policy fee is not applied?

What is the defination of final salary? Is it 2/3 of salary on your P60 (which includes BIK and includes deductions for travel pass etc.)

Finally, will my employer know that I have set up an AVC. (May not want them to know if early retirement / redundancy package is available.)

Re: Pension/ AVC query

A really good and reasonably complex question this one.

You enjoy a defined benefit pension scheme, which is rare and reasonably generous in this day and age.

If you will have earned 40 years scheme service at retirement age, I think you will be able to fund an AVC only to cover the contributory OAP set off, any non pensionable bonuses, and the value of any BIK's. If your scheme service is less than 40 years however you will not get maximum scheme benefits at NRD. You may be given the option of "buying back" years of service however.

The maximum Revenue allowed pension in a scheme such as yours is 2/3 x final salary, and a tax free lump sum is taken from this of up to 150% of final salary, with a reduced pension. It is not possible within the scheme to take cash and still get a 2/3 of F.S. pension.

If you are going to make AVCs within the scheme, the costs are agreed between the Trustees and AVC provider, usually a big broker. Enquire to what these are.

Your income tax relief will be limited, depending on your age, so be wary of firing a big lump sumin all at once.

All these options are within the scheme, of which your employer will have knowledge.

You now have an option to do a standalone PRSA AVC, either by salary deduction, or directly from your own a/c (good for privacy, but tax relief is not immediate and must be claimed annually from the Revenue).

PRSA benefits are 25% of the kitty in cash, and the balance to provide retirement benfis in an annuity, or AMRF/ARF. Another bounus is that the PRSA is your own policy and you can control it.

I hope this gives you an idea of what's possible.

E. & O. E.

Re: Pension/ AVC query

RS2K
Many thanks for your reply

Now you have me worried

"The maximum Revenue allowed pension in a scheme such as yours is 2/3 x final salary, and a tax free lump sum is taken from this of up to 150% of final salary, with a reduced pension. It is not possible within the scheme to take cash and still get a 2/3 of F.S. pension."

Click to expand...

Documentation received from our AVC supplier states

"At NRA you can take a tax free lump sum of up to 1.5 times your final salary (for more than 20years service). You can choose to take this amount from your AVC and avoid reducing your main pension (Note that you can only take one such lump sum from either your main scheme or your AVCs)"

This does not appear to agree with what you said?

Anyone any advise on the remainder of the question regarding AVCs charges etc

Could I take early retirement if it looks like the fund is going to be overprovided?

Re: Pension/ AVC query

No need to worry.

Your annual bonus, bik, and the contrib. OAP set off can all be provided for, pension wise by an AVC (or PRSA AVC).

Taking tax free cash from this will not effect your main scheme pension benefits.

The other thing is your main scheme benefits cannot really be overfunded in the event of normal or early retirement. Even if they are (most D.B. pension schemes are massively underfunded) it's only a concern for your employer.

If you retire early your 2/3 f.s. pension will be restricted as you will not have full service (40 years).

I'll work out a few figures to illustrate when I get a chance.