avc overfund

[Dublin85]

I apologise as I have asked this before but I can't find a definitive answer even after asking cornmarket I'm still unsure.

I plan to retire with a full public service pension in around 22 years. I stated this to cornmarket last year and was still advised to start a avc.

I'm paying 100 a month a week into it and get 40 tax relief. the fund is expected to be around 150k when I retire.

from researching it, if I retire on full pension , the avc is pointless and I will be forced to pay massive tax on it as its overfunded.

spoke to.cornmatket last week and thr lad said not.to worry about it as I can revisit it years down the road and that by the time I retire I will prob only be paying 20% tax on arf and getting 40% relief on contributions.

I'm thinking about stopping it now.and just focusing on paying down mortgage instead.

is the above correct. thanks

 

[LDFerguson]

Are you paying Class A PRSI?

 

[BoscoTalking]

FWIW the mortgage would be my first priority in your shoes too.

 

[Conan]

spoke to.cornmatket last week and thr lad said not.to worry about it as I can revisit it years down the road and that by the time I retire I will prob only be paying 20% tax on arf and getting 40% relief on contributions

This is just lazy advice. Suggesting that you will be taxed at 20% in 22 years time is poor. This guy is clearly a "salesman " not an advisor. If you are a D contributor and retiring on full pension then you have limited scope for AVCs. If you are an A contributor (in the "integrated " scheme) then you have much more scope for AVCs.

 

[Dublin85]

Are you paying Class A PRSI?

class A

 

[Dublin85]

class A

This is just lazy advice. Suggesting that you will be taxed at 20% in 22 years time is poor. This guy is clearly a "salesman " not an advisor. If you are a D contributor and retiring on full pension then you have limited scope for AVCs. If you are an A contributor (in the "integrated " scheme) then you have much more scope for AVCs.

Conan, I'm a Class A contributor. I agree. it seems that I don't need the avc product at all and wonder should I just stop contributing or reduce it to the minimum.

in your experience is there any benefit for me to continue with avc? I could put that few hundred a month into paying off my mortgage

 

[Dublin85]

FWIW the mortgage would be my first priority in your shoes too.

ya I know I could get better returns elsewhere but would feel better about reducing this debt down

 

[Conan]

Conan, I'm a Class A contributor. I agree. it seems that I don't need the avc product at all and wonder should I just stop contributing or reduce it to the minimum.

in your experience is there any benefit for me to continue with avc? I could put that few hundred a month into paying off my mortgage

If you are class A then you have considerable scope for AVCs . You can fund for the equivalent of the State Pension offset.

 

[LDFerguson]

As you're Class A PRSI your public service pension is reduced to take account of the fact that you should also receive the State Contributory Pension. So as Conan says you can use AVCs to increase your pension. So your AVCs are unlikely to be overfunding. Whether or not you should depends on your larger financial position.

 

[Dublin85]

If you are class A then you have considerable scope for AVCs . You can fund for the equivalent of the State Pension offset.

what does this mean? sorry, excuse my ignorance.

I understand little about it but am I right in thinking that my yearly pension will be broke down into occupational and state pension? I think il get something like 30k a year when I retire.

I know it's a long way off but I want to make sure I'm doing the right thing with what money I have.


thanks

 

[Dublin85]

As you're Class A PRSI your public service pension is reduced to take account of the fact that you should also receive the State Contributory Pension. So as Conan says you can use AVCs to increase your pension. So your AVCs are unlikely to be overfunding. Whether or not you should depends on your larger financial position.

thanks for this information. so I can contribute away without fear of over funding?

does it mean that when i so retire I can withdraw from avc pot upto the point of going into higher tax bracket? eg 10k from avc pot on top of my 30k pension.

thanks

 

[Conan]

thanks for this information. so I can contribute away without fear of over funding?

does it mean that when i so retire I can withdraw from avc pot upto the point of going into higher tax bracket? eg 10k from avc pot on top of my 30k pension.

thanks

Not that simple.
- Who knows what the tax rates will be in 22 years time (certainly not the Cornmarket guy)?
- if you try funding for the State Pension offset then on current rates that's equivalent to an AVC fund of over €300k.
- if you are happy to continue AVC payments, then you should review the numbers as you get closer to retirement age
- then you will have a better understanding of your occupational pension numbers, tax rates etc.

 

[Dublin85]

Not that simple.
- Who knows what the tax rates will be in 22 years time (certainly not the Cornmarket guy)?
- if you try funding for the State Pension offset then on current rates that's equivalent to an AVC fund of over €300k.
- if you are happy to continue AVC payments, then you should review the numbers as you get closer to retirement age
- then you will have a better understanding of your occupational pension numbers, tax rates etc.

OK. But what happens with the avc pot when I do retire. let's say it's 150k and I have my full pension. how do I utilise it? In your opinion is it stupid?

 

[bstop]

You buy an ARF. You have to make a minimum withdrawal of 4% per year. However as you suggested you could withdraw an amount greater than this up to the limit of your 20% tax band.

 

[Dublin85]

I see. so in that case it may be good to keep it going for a bit. I appreciate all the advice on this. as I said earlier I'm clueless.

2 key take away points for me

1. its very unlikely that I will overfund
2. I can set up an arf and take out around 5% a year to bring up pension abit and stay under higher tax band

 

[Early Riser]

1. its very unlikely that I will overfund

You will almost certainly not overfund.

I can set up an arf and take out around 5% a year to bring up pension abit and stay under higher tax band

Impossible to answer this. Noone can be sure what the tax bands will be in 20 years time. But even by today's standard it all depends on your total income in retirement (your occupational pension and State Pension - and any other income, if applicable) and, if a married couple, your partner's taxable income/pension.
For example, if you were retiring at 65 with full service and a pensionable income of €120,000 it is likely that you would be paying tax at the higher rate on any any ARF drawdown. But if your pensionable salary was €60,000 it is more likely that you could drawdown at 20%. You don't give any indication of your circumstances or salary.

 

[Dublin85]

.

 

[Dublin85]

You will almost certainly not overfund.

Impossible to answer this. Noone can be sure what the tax bands will be in 20 years time. But even by today's standard it all depends on your total income in retirement (your occupational pension and State Pension - and any other income, if applicable) and, if a married couple, your partner's taxable income/pension.
For example, if you were retiring at 65 with full service and a pensionable income of €120,000 it is likely that you would be paying tax at the higher rate on any any ARF drawdown. But if your pensionable salary was €60,000 it is more likely that you could drawdown at 20%. You don't give any indication of your circumstances or salary.

my wife is a sna with around 7 years service so far. my top pay scale is 56k before Allowances and overtime. my pension is expected to be approx 30k a year with a 90k lumpsum.

it's not fantastic which is why I was hoping to have a good avc pot built up.

 

[Early Riser]

my wife is a sna with around 7 years service so far. my top pay scale is 56k before Allowances and overtime. my pension is expected to be approx 30k a year with a 90k lumpsum.

I take it that the €30k is inclusive of the State Pension, ie, an occupational pension of €17k plus the State Pension? Anyway, given those figures you should certainly have scope to fund an AVC with an expectation to be able draw down from it without hitting the high rate of tax. You would certainly be fine by today's standards, and likely to remain so unless bands change very dramatically. An AVC also allows some scope to consider early retirement should this be a consideration in the future.
Whether you choose to go the AVC route or concentrate on the mortgage is a wider question, but simply tax-wise the AVC should be a winner.

 

[Dublin85]

I take it that the €30k is inclusive of the State Pension, ie, an occupational pension of €17k plus the State Pension? Anyway, given those figures you should certainly have scope to fund an AVC with an expectation to be able draw down from it without hitting the high rate of tax. You would certainly be fine by today's standards, and likely to remain so unless bands change very dramatically. An AVC also allows some scope to consider early retirement should this be a consideration in the future.
Whether you choose to go the AVC route or concentrate on the mortgage is a wider question, but simply tax-wise the AVC should be a winner.

yes it is occupational pension plus state pension. if there is no worry of overfunding il continue with it as it beats investing in an etf outside of pension i.e deemed disposal.

if anything I assume the tax bands will widen.. I hope . its just an idea to give me an extra 5k a year to .are things more comfortable.

I was thinking about an avc for my wife but she would only get 20% tax relief so prob not worth it. hard to believe she will be a sna for another 35 years. seems crazy actually. her pension will be very low after all that service on the single pension scheme.

Thanks for all your help