Public Service AVC - confused with example given by provider

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podgerodge

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Hi, I'm stupidly confused by just one of the figures below in a Cornmarket example out of a brochure

(bottom of p.12 of https://www.cornmarket.ie/uploads/13292_AVC_Scheme_Member_SQ_Booklet_08-18_REBRANDED_FA_WEB.pdf )


Example
Aoife started her career before 1st April 2004, is paying D1 PRSI and is now retiring at age 53 - 7 years before her normal retirement age. She is retiring on a salary of €60,000 with 30 years’ service. The change that Aoife will see in her entitlements due to Cost Neutral Early Retirement is outlined in the table opposite.

Normal Retirement Cost Neutral
Pension €22,500 €15,975
Tax-Free Lump Sum €67,500 €58,860
Tax-Free Lump Sum Shortfall €22,500 €14,100
Total Tax-Free Lump Sum €90,000 €72,960


I have worked out and agree with the €15,975 pension, and the €58,860 tax free lump sum. I just can't figure out where the €14,100 is coming from. I think I was definitely wrong in thinking that last minute AVC would allow you, subject to limits per year, to top up to the 1.5 times lump sum of €90k, but the example above suggests that you can't use AVCs to get up to the total if you had cost neutral. While the 1.5 lump sum is obviously reduced (e.g. 90k to €58,860) I thought you could use AVCs to bring you back up to the €90k). Apart from that, as I say, can't figure out the €14,100! Any help appreciated!

CNER for the example above is 71% pension and 87.2% lump sum


Thanks.
 
Ok, misread. It's the extra amount of tax free lump sum possible via tax rebate. Has read it as the amount investable. Duh.
 
podgerodge said:
. I think I was definitely wrong in thinking that last minute AVC would allow you, subject to limits per year, to top up to the 1.5 times lump sum of €90k, but the example above suggests that you can't use AVCs to get up to the total if you had cost neutral
Click to expand...

That is correct. In the event of CNER, Revenue also have reduction in the amount tax free benefit they will allow. It depends on total service to date and potential service to normal retirement age for the scheme, but it is always less than the normal 1.5* limit. But there is some potential to top up the CNER tax free lump sum. I didn't check the calculations in the above example but the principle is correct.
 
Last edited:
Thanks early riser. Is there a way to calculate that 14k shortfall? It doesn't seem to be based on the normal table but cornmarket don't explain.
 
podgerodge said:
Thanks early riser. Is there a way to calculate that 14k shortfall? It doesn't seem to be based on the normal table but cornmarket don't explain.
Click to expand...

Aoife has 30 years service in the scheme. She has potential service of 37 years at normal retirement age for the scheme (60). The max lump sum for the scheme (at her salary) is €90,000. In this instance I think the Revenue formula for the max allowable is €90,000 *30/37 = €72,972.
Under the Public Service rules the maximum lump sum for 30 years has been reduced under CNER to €58,860. So the difference between the CNER lump sum and the Revenue max gives you the €14k odd figure, which may be taken tax free from an AVC.
 
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