Am I putting too much money away in my AVC?

A

auburn

Registered User
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27
Hi,

I am 42 years old, married with 4 children. I am earning 84k a year. I am in a defined benefit superannuation scheme (to which I contribute 6.5% of my salary). I also contribute 18.5% of my salary to an AVC scheme - i.e. I am maxing out on my pension contributions so as to obtain full tax relief (up to 25% of my salary).

I intend to retire at 60 years of age by which time I will have 33 years of pensionable service. My AVC fund will hopefully make up the difference (i.e. the 7 years I will be short).

As the Revenue only allow me half my salary on retirement (assuming a full pension) anyway, surely I will end up putting more money away in my AVC than I will be able to get my hands on?

Or have I lost the plot!

Thanks,
Auburn.
 
Hi auburn

The revenue will allow up to 2/3 of final salary.

When you retire early you may be subject to certain reduction factor for early retirement so the AVC of 25% may or may not be necessary, there is a good chance you're not overfunding, you should ask your AVC provider to give you a projected benefit so that you can see the figures yourself...
 
In fact, your AVC provider should be able to estimate your total estimated pension at age 60, including AVCs and superannuation benefits, to establish whether or not you're over-funding.
 
I do not think that the AVC provider may be able to calculate any early retirement reduction factor applying to auburn's main scheme benefit...
 
As Auburn is in a superannuation scheme, there's a reasonable chance that s/he arranged the AVC with the "chosen broker" of the particular scheme, e.g. Cornmarket for many teachers etc. If so, Cornmarket or whoever should be able to calculate superannuation benefits.

Sorry - my wording wasn't entireley accurate - should have said broker not provider.

Having said that, if Auburn started a standalone AVC PRSA, the AVC PRSA provider has a responsibility to ensure that no overfunding occurs.
 
I don't think that they can possibly guesstimate the rules and particularly the Early Retirement rule applying to every pension plan in Ireland!
 
No but they have a responsibility to find out the rules pertaining to a particular individual's circumstances before advising them to start a PRSA / accepting PRSA contributions particularly if the individual states that their motive is to fund for early retirement.
 
Thanks everyone for your submissions and thoughts on the matter.

The intermediary/broker is Marsh Ireland - a TUI scheme. The fund manager is Irish Life. The problem is everything is so vague.

Marsh have told me that a new max. figure of 59% (not 1/2 and not 2/3) of my final salary is now allowed under new Revenue rules. Even if I had a full pension at 60 under the superannuation scheme, I can still contribute to the AVC scheme - at full tilt!

It seems to be a lot of money to be putting away to achieve the extra 9% of pensionable salary?

Auburn.
 
59% is beacause you would be retiring early (not at NRA).

Marsh should be able to field all your queries - they are the biggest broker in the world!
 
As it turns out early retirement has nothing to do with it. I can retire at 65 if I wish.

auburn
 
Of course you can.

But the max benefit on early retirement is less than that on normal retirement (2/3rds).
 
A full pension in our superannuation scheme is 1/2 salary (not 2/3), along with a tax free lump sum of 1.5 times final salary.

However, even if I could obtain a full pension under the main superannuation scheme (irrespective of whether I go at 60 or 65), I can still contribute to an AVC plan with full tax relief (25 % of salary). This appears to be because of a recent change where Revenue will allow a full pension of 59 % of salary.

auburn
 
Auburn

Revenue will allow up to 2/3 of final salary at NRA - this includes any tax-free lump-sum...the general wisdom is that 50% of final salary plus a 150% lump-sum roughly equates to 2/3 of final salary (in reality it is not as much as 2/3 of final salary).
 
Not really.

Nobody believes that a 150% lump sum equates to the 16.67% of pension foregone nowadays because of increased longevity and low interest rates. That's why Revenue will allow the extra 9% (mentioned by auburn) to be funded by AVC.
 
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