Pension Refunds & Re-investing

R

rainyday

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Pension Refunds & Re-investing

A friend has the option of getting a refund of some contributions (net of 20% tax) or transferring his contributions to a new scheme. He has no screaming need for the cash, so he's quite happy to put the money away until his retirement.

If he takes a refund of his contributions, and then re-invests this in his pension via a once-off AVC, does he maximise his return?

So, let's say he has 1,000 in his current fund. He can get a refund of 800 - If he invests this in an AVC, he'll get tax relief at 42% - so he ends up with 800 in his fund and a tax saving of 336 in his hand - Total value of 1136.

Or have I missed something here?
 
No that's perfectly legitimate.

Liam D Ferguson
[broken link removed]
 
His vesting rights may be affected.

Let's say he has two years' contributions in Scheme 1, and transfers the contributions into Scheme 2; he makes, say, a further two years' contributions to Scheme 2. That may count as four years for determining his right to the Employer's Contributions. Whereas, if he transfers the refunded cash amount into Scheme 2 as an AVC, he may have no right to the Employer's Contributions if he leaves the scheme after the two year period.

He should check the vesting rules of the new scheme.
 
Is the €1,000 fund made up of employer and employee contributions?

If so he is only entitled to cash in his own contributions with a 20% hit. The employers contributions may not be cashed, he effectively loses them.

If there is no vesting period in scheme 1 or he has passed his vesting period he may transfer the value of both employee and employer contributions into a new scheme.
 
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