Take wife’s pension lump sum to indirectly fund my AVCs??

T

Tryingtoplan

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Hi all,

First time poster so please excuse if this doesn’t add up

Note: We do plan to discuss this with a financial adviser in the coming few weeks before we do anything but just want to see if we’re being crazy here with what we’re thinking!

My wife gave up work 12 years ago to raise our family and as she is now 50, could access her former DC pension from her previous employer.

What we’re wondering is would it make sense for us to take the tax free element of her pension (circa €120k), so €30k (putting the rest into an ARF), and use it to offset the monthly take home that I would be down if I increased my AVC to the max for my age (25%).

I’m currently putting in 6.5% personal contribution and my employer is putting in 12.5% so there is significant room for me to add 18.5% in AVCs and get the tax benefit at the top rate, and leverage the tax free element we would get from my wife’s pension to effectively have the same monthly money in our account.

I suppose what we are thinking is that we can:

* Take €30k tax free and invest the rest in an ARF
* Setup monthly AVC of circa €2.5k (pre tax) into my employee pension
* Effectively be down €1.5k per month in real terms (as now not paying 40% tax on this element)
* Do this for 20 months, using up the €30K lump sum (€1.5k per month) but end up increasing my pension by €50K so a nett benefit of €20K

Am I missing something here or does my logic add up??

Many thanks for any views on this approach
 
Perfectly logical. It doesn't matter where the money for your AVCs originated.
You will get tax relief up to your maximum yearly allowance.

If you are not getting an employer contribution on your extra AVCs, It might be a good idea to set up a separate AVC PRSA to take the new funds.
By doing this your employer will have no knowledge that you are able to afford to make large pension contributions. This could be to your advantage if you are trying to negotiate a pay increase in the future. The less your employer knows about your financial position the better.
 
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Thanks for the information and that sounds like a great idea to look at a separate AVC PRSA for the reasons you mention.

Also, I now realise that we can just do this as a lump sum into the PRSA and not have to worry about monthly AVCs through my employment.

Two follow on items if anyone who has knowledge wouldn’t mind giving their view.

1. I would assume there is no difference in the tax handling (AVC into existing employer scheme Vs AVC PRSA) as I’d be looking to retrospectively max out last tax year contributions (up to the 25%) and put the rest into this tax year?

2. I currently get very low management fees on the employer scheme fund options (average of 0.36% across the funds I’m in) are there any similar AVC PRSA options or would all be significantly higher fees?

Thanks again for any guidance
 
I'm just wondering what happens should the unthinkable happen, and one of you predecease the other? What if - hopefully not - you keel over in 2 years time? All pensions are betting on the future of course.
 
Both of us have good life insurance / death in service benefit and so the other would be in a good financial position should the worst happen.

Assuming my understanding of inheritance is correct my spouse can inherit the entire estate tax-free so I don’t see much additional risk by doing this but perhaps I’m missing something in what you are questioning?
 
Gordanus said:
I'm just wondering what happens should the unthinkable happen, and one of you predecease the other? What if - hopefully not - you keel over in 2 years time? All pensions are betting on the future of course.
Click to expand...
The wife's ARF goes to the OP. If the OP dies, the value of his pension goes to his wife as a tax free lump sum up to 4 times salary and the rest can go in an ARF.

And going back to the OP's question, it makes perfect sense and there is nothing wrong with what you are doing.


Steven
www.bluewaterfp.ie
 
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