Surplus AVC

johnl68 said:

I was sold AVC's on the understanding that if I choose to retire early under cost neutral conditions after 20years service I would be able to bump up my lump sum to 150% of salary. According to the above that's not the case?

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I would have thought that that you can.

I am not an expert on this stuff, but I’d have thought you get your AVC bit tax free and the DB bit is reduced actuarially.

That’s based on what I’ve read here.

johnl68 said:

I was sold AVC's on the understanding that if I choose to retire early under cost neutral conditions after 20years service I would be able to bump up my lump sum to 150% of salary. According to the above that's not the case?

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Gordon Gekko said:

I’d have thought you get your AVC bit tax free and the DB bit is reduced actuarially

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When retiring with AVCs before NRA in the Public Service there are two issues to consider regarding the tax free lump sum - the actuarial reduction to the Occupational Pension lump sum and the Revenue's rules.

Going back to the example given previously by Gordon in Posts 6 and 9. After 20 years of service and retiring at 50 this person would have her Occupational lump sum reduced from €60000 to approximately €49300. But the revenue max tax free limit is also reduced. By my reckoning it is reduced from €120k to €80k. So this person could also take approx €31k from her AVC fund tax free. However, if she opted for a preserved pension, the main scheme reduction would not apply and I don't think the revenue one would either (not sure on this).

I am not certain of the actual Revenue calculation but there is a Revenue reduction in the max tax free lump sum allowed (in addition to the actuarial reduction to the main Occupational scheme) if taking Cost Neutral Early Retirement.

Thanks for that folks, I'll have to investigate. In my case I would have 22years service at 55, I thought that equated to 66/80ths lump sum and I could use avc's to fund remaining 54/80sths tax free.

Do check it out. There is a Revenue reduction to the max allowed. By my reckoning it will in your case it will be 22/27 of 120/80 of your pensionable salary (assuming you have a NRA of 60 - a pre 2004 entrant).

Don't forget that your 66/80 from the main scheme will also be actuarially reduced under cost neutral retirement. At 55 it is reduced to 91%. But you can use the two funds combined to top up the lump sum to Revenue limits.

Thanks Early Riser. Jeez nothing is ever simple, I specifically gave the pensions dude my scenario of cost neutral early retirement at 55 and he was unequivocal in my ability to fund 120/80ths tax free. There's a chance I'm paying too much into the fund on this news.

I should have known not to take his calculations at face value, he looked about 12 and his handwriting was awful.

johnl68 said:

I should have known not to take his calculations at face value, he looked about 12 and his handwriting was awful.

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I don’t look 12 but to say that my handwriting is childlike would be a heinous insult to children everywhere.

I'm another one very grateful for the word processor!

If one retires earlier than Normal Pension Age, then under Revenue rules the benefits must be reduced. So if one was entitled to a lump sum of 150% of Salary at say age 65, then by retiring at age (say) 55, the maximum lump sum will be reduced.
It is not possible to fund 150% of Salary as a lump sum if you are planning to retire early at age 55. So John, if you were told otherwise, it’s wrong. That’s not to say that if you did retire early and your overall benefits are reduced (Pension and Lump Sum) that there may not be some scope for using AVCs to fund any potential shortfall between the early retirement benefits under the Scheme and the Revenue maximum early retirement benefits.

That's true Conan, there will be a surplus of avc's left over. I did the sums based on Early Riser's figures and it's not so bad. The remaing funds then transfer to an AMRF.

johnl68 said:

That's true Conan, there will be a surplus of avc's left over. I did the sums based on Early Riser's figures and it's not so bad. The remaing funds then transfer to an AMRF.

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Surely not on the basis that the punter has guaranteed specified income greater than €12,700?

Pieface said:

This thing about 20 years service allowing 150% of final salary perplexes me. What if in your final job before retirement you only have 1 year of service but in your whole life you have worked more than 20 years? How do you calculate the tax free lump sum then?

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What if the final role before retirement is in a new company and with a lower salary than the previous one? Let’s assume I will have worked for more than 30 years in various roles. Will my final total tax free retirement lump sum (taking account all roles) work out to be lower? Just trying to work if it is worth it to semi retire by moving to a job that I would enjoy more but with a lower salary or maybe even work part time without moving to a another company.

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