DB + AVC Lump Sum Question

[Thomas1]

Hi Folks

I'm due a DB pension @ 65 worth 50/75ths of my final salary or a lump sum with a commensurate reduction on the annual pension.

I'm also contributing to an AVC at a level that will be worth c. €200k when I'm 55. While the AVC is managed by the company, they do not contribute.

If I retire @ 55, I know I'll lose 10/75th of my DB pension at 65 but my questions are:

1. If I retire at 55, can I take my AVC to the full max €200k tax free? I assume my company would have to agree? The DB rules/laws seem to stipulate that you can only take 1.5x final salary from a DB scheme which I expect won't be anywhere close to €200k. Does the AVC avoid this? The rules and law seem unclear if you've set aside your own AVCs.

2. If I retire at 55, will I be forced to put funds into an AMRF at that stage considering the DB pension won't kick in until I'm 65?

Many thanks for any help.

Thomas

 

[Conan]

A couple of points to bear in mind:
- if you are in a DB scheme and you also have an AVC fund, the two are linked together in terms of accessing benefits
- if you retire (draw down benefits) at age 55, not alone will you lose 10 years service but you pension will be reduced due to the fact that it is starting to be paid 10 years earlier than originally agreed
- if you simply leave service ( but not draw down your DB pension) you will get a deferred pension payable from 65 (but lose 10 years service). In this case your AVC fund remains invested until you get to 65.
- you cannot access your AVC fund until you actually retire (draw down your DB pension).
- if you retire from a DB scheme, the max retirement lump sum is 150% of final salary. You can either take this from the DB scheme (and thus get a reduced pension) or you could take it from the AVC fund and perhaps not suffer a reduction in your DB pension ( but the rules for this are complicated).
-Your other option is to invest the AVC fund into an ARF from which you must draw down a minimum of 4% pa

I hope this helps

 

[Steven Barrett]

Hi Thomas

It is unlikely you will ever be able to take your €200,000 AVC fund tax free. Your tax free lump sum is calculated as a % of final salary and years service. The AVC's may be used to fund the lump sum, leaving you with a higher annuity. You need a final salary of €133,333 and the required number of years to get €200,000 lump sum (this is the maximum allowable tax free lump sum).

If you retire early, the annuity paid to you and the lump sum payable will be reduced to reflect the fact that you retired early.

As Conan has said, your AVC's and DB benefits are linked. You cannot draw down your AVC's (with the exception of that govt scheme where you can access 30% and pay tax on it) without drawing down your DB scheme. You need the trustees permission to draw down your DB early. If you get that, the AMRF requirement is that if you do not have a guaranteed income of €12,700 at the time of drawing down your pension, you must put €63,500 into an AMRF or you can use that money to purchase an annuity.

Accessing the AVC's at 55 are wholly dependent on the trustees letting you retire at 55.

Steven
www.bluewaterfp.ie