Thanks to Conan and Complainer for commenting on the situation I have described ( Pension fund growing > €2.3m PFT) ...
YES : to answer 'Complainer's' point, I am lucky today to be in the situation described : ie having a potential fund value today of almost €2.3m with the potential for it to grow in future years until I retire by virtue of its DB component and hopefully modest AVC growth. However I subscribe to the adage that
you make your own 'luck' :
I have been contributing to my AVC since I was 22 years (ie for 30years) and hence despite recent market turbulence I have an AVC fund that was to provide me with options for a) early retirement, b) indexation of my pension (which my DB scheme does not have - unlike the public service schemes!). Now I find myself in a situation where I cannot get the AVC funds invested back , even though future growth in either the AVC element (even when invested in lower risk cash) or the increasing value of the DB element mean that more and more of my funds will be subject to double taxation. So ,Complainer, while your may be correct in saying that given the current situation of the country that I am 'lucky' wouldnt the country be in a better position overall if others had been similarly prudent and not blown their money in their younger years (which I didnt do) - I work in private industry and have no job security (although my current employment looks very secure) : unlike many others I have been responsible and planned for my future in accordance with government policy that promoted investment in pensions : it cant be right that this policy be undone retrospectively with virtually no grandfathering for future growth of funds that are locked down and inaccessible. I would have no problem with the policy if there was some way of taking the fund back out (albeit taking a tax hit along the way but I dont believe this is an option).
Conan - Thank you for your comments and advice : addessing some of your specific comments (blue italics):
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- Cease all future personal contributions. (May not be possible if you are in some occupational pension schemes)
- I am awaiting some advice from a pensions advisor but it looks like I will be ceasing all of my AVC contributions.
- If you are in a DC scheme, you should cease all employer contributions (you may need to negotiate an alternative use of such contributions going forward)
- I have an AVC contribution match from my employer up to 4% but I will have to forego this benefit -
- If you are in a DB scheme (remember that the PFT value is based on service accrued to Dec 2010) you need to estimate whether your eventual benefit will exceed the PFT (i.e. pension x 20 plus AVC fund)
- I am fortunate in a very competitive DB scheme provided by a MNC employer - I will definitely exceed the PFT by many 100,000s if I work to 65. A question : Does the pensio to fund factor take any account of the ultimate benefit : ie I have seen the 20X factor applied to the DB pension component in examples : does the factor take any account of pension indexation , spousal pension etc etc - I have heard of it being applied to civil service pensions in media commentary but their terms are more attractive than almost all private DB schemes (ie indexation , increments etc)
- If in a DB scheme you also need to consider whether the scheme is fully funded and whether you might actually get the full promised benefit
- Again I am lucky that because of higher funding costs due to longevity and poor returns there was a big deficit, the MNC I am working for has contributed many millions to date to close the gap and has a funding plan to get fully funded over the next 10 years. I am quite happy that this promise will be delivered on in my remaining years with the company.
- De-risk your investment strategy (taking risk will not be rewarded and you must avoid losing any PFT in the future)
- Thanks for this - While awaiting additional advice from pension consultant I moved 50% of fund into cash ( to be honest primarily driven by Euro uncertainty).. so I have partialy followed your advice: will have another reallocation option in the new year.
- If the PFT is reduced further (€1.5m is being suggested) then presumably a form of grandfathering will apply to those currently between €1.5m and €2.3m (as before)
- I dearly hope so or else I am really screwed !! .. I have posted a question elsewhere which I will ask again here : has there been any discussion on legally challenging the retrospective nature of the changes and the lack of allowance for future growth? ( Given the impact on the members of the judiciary and Im sure many of the notables in the legal profession if there was a way of doing this I'm a sure they would have done so and we would have heard of it !)
It doesnt look like I have any other options ?...One other detail : My spouse is a homemaker and doesnt work : we are assessed jointly : is there a way of my assigning my AVC fund to her such that she has her own PFT? I am way out of my depth on this topic and am clutching at straws but maybe some of the more creative advisors on the thread can come uyp with additional suggestions. I have two children that are dependent on me : I assume that I cant gift any of my AVC funds to them ? (Again excuse my ignorance)
I should stress that my objective in this line of enquiry is to avoid penal double taxation of my prudently amassed funds but I have NO objection to paying at the marginal rate what is appropriate on my income
Thanks for any ongoing posts / advice.