Aren't you on track anyway to have 40 years' contributions (the maximum) by 65?I am 40 and I am considering starting AVC’s. I started teaching in 2006.
I started teaching when I was 21. Any interaction I had with Cornmarket reps emphasised that my pension wouldn't be adequate and that I would need to take out AVCs to supplement it. This was of course untrue as I am in the pre 95 scheme. Luckily I did the figures myself and asked the questions about the commission being taken etc and decided I didn't need them. Most of my contemporaries went ahead and took out AVCs and many find now as they approach retirement that they have overfunded them. Best to get some impartial advice if you can. AVCs are certainly a good idea if you will be short on service. A "last minute AVC" is a very tax efficient way of funding any short fall in your pension lumpsum.Aren't you on track anyway to have 40 years' contributions (the maximum) by 65?
redwellies would seem to be in a Class A Prsi scheme so he/she should have plenty of scope to fund an AVC without over-funding, even with full service. The thing he/she needs to be consider is what level of taxation is likely to apply to pension drawdowns (arf or annuity) post-retirement. If it is likely to be at top rate then there is little point.This was of course untrue as I am in the pre 95 scheme.
Could I please ask a question similar to this. I’m going to be starting a new sna job so just on scale 1, I’m in my late 40s. Im a single parent. I would only be on 20% tax, by the time I retire I would be at the top of the scale and on the top rate of tax. Do you recommend avcs in my situation? I’m not clued into pensions but am a fast learner. Many thanks.
Each to their own, but I would not make an AVC contribution for 20% tax relief if I am likely to be paying a similar amount of tax on any drawdown in retirement. Bear in mind that your State Pension will also be taxable, so it when added to your PS pension may well bring you into the tax net. At the moment the threshold is about €18K for a single person.Im a single parent. I would only be on 20% tax, by the time I retire I would be at the top of the scale and on the top rate of tax.
The state pension entitlement is included in the public sector pension for anyone who joined the public service post 1995. Unfortunately as Maura has just started her SNA job she is in the single public sector career average scheme which means that that her pension entitlement at retirement is unlikely to exceed the state pension by much (if by anything at all). Unfortunately she will have to pay more towards this pension that those who currently qualify for the state pension of the basis of A rate contributions alone. This is as far from "gold plated" as you can get in terms of pension provision.Bear in mind that your State Pension will also be taxable, so it when added to your PS pension may well bring you into the tax net.
Not quite. The pension of post-1995 PSs is coordinated with the State Pension. The PS employee pays PRSI contributions, which counts towards the State pension in the normal way. Maura's State Pension rate will be determined by her full PRSI record and not just her current PRSI contributions in her PS job.The state pension entitlement is included in the public sector pension for anyone who joined the public service post 1995.
Not quite again. Maura will pay exactly the same towards her State Pension as anyone else who is paying PRSI (ie, the same PRSI rate -which varies depending on earnings, of course). What she pays separately towards her Single Scheme will go towards an Occupational Pension. I agree that the benefits payable in the Single Scheme pension are much more unfavourable, as they are based on career-average earnings rather than final salary.Unfortunately as Maura has just started her SNA job she is in the single public sector career average scheme which means that that her pension entitlement at retirement is unlikely to exceed the state pension by much (if by anything at all). Unfortunately she will have to pay more towards this pension that those who currently qualify for the state pension of the basis of A rate contributions alone
early riser is the most competent on public service pensions on this forum. in fact one of the most knowledgeable I have come across anywhere. He also made the point that you are making
No other pension unfortunately.By the time that you retire you may well be on the top rate of tax, but that won't apply the day after you retire when, presumably, most or all of your income will come from a reduced pension - or have you already got a private pension from any other job?
Thanks so much for your detailed response, which I will take time to study in depth. It’s very helpful and I appreciate the time you took on it.@maura throwing out ballpark figures below for you but think you should speak to @Steven Barrett or @LDFerguson who I think are the pros on here to make sure I am not leading you astray (because hand's up, I dont know, what I dont know....and I dont claim to be an expert and everybody circumstances are different)
Let's say your 49.....you will retire from your SNA role at 66......this means you will have 17 years service upon retirement.
Top of the SNA scales looks like €42,190 from what I can tell.......an SNA colleague with 40 years service is entitled to receive in CASH and TAX FREE €63,285 when they retire (1.5 x €42,190).
You will only have 17 years service though....so will get a tax free lump sum prorated of ~€26,896 because you only have 17 years completed.....
HOWEVER and this is a big however.......
You have scope to make additional voluntary contributions (AVC PRSA) that will allow you to collect a tax free sum lump equal to your SNA colleague with 40 years service even though you only have 17 at retirement......I calculate your scope to create a self funded AVC PRSA tax free lump sum @ ~€36,388.
I also note from the SNA scale - that the long service increment bringing an SNA to €42,190 occurs after c.14 years.......this is important because based on current tax bands (& assuming you might be single) you will be a marginal 40% tax payer on your last € of income in 14 years time on €42k....meaning any AVC contributions will attract 40% tax relief going into your AVC because you will be a top rate tax payer then.......exactly when this occurs you will be over 60 and therefore entitled to also contribute up to 40% of your annual gross income into a PRSA AVC scheme.
Without knowing anything more and my hot take.......but please speak to the two guys I've directed you too to get a more holistic and well rounded picture of what makes sense:
But at a MINIMUM.....once you become a 40% marginal tax payer in 14 years time.....aggressively contribute into your PRSA AVC such that you max out your available tax free lump sum threshold of €63k.......in the meantime nothing is stopping you from saving and investing some portion of your income TODAY such that large contributions to your AVC PRSA in 14 years are funded from this pool of cash/investments and are less of a strain on your household budget at that time.....as I've said in 14 years time, you will be able to contribute c.€16,876 per anumm based on your age and gross salary at that time and receive 40% tax relief back on that contribution (€6,750).......that money will then exit your AVC in THREE short years completely tax free!
All told I think there is €14,555 of 'free' Paschal Donohue money sitting there for you if you plan correctly.
Its a no brainer and you should start a financial plan NOW to avail of the opportunity by speaking to @LDFerguson and @Steven Barrett
Thanks so much for all your help, much appreciated.Each to their own, but I would not make an AVC contribution for 20% tax relief if I am likely to be paying a similar amount of tax on any drawdown in retirement. Bear in mind that your State Pension will also be taxable, so it when added to your PS pension may well bring you into the tax net. At the moment the threshold is about €18K for a single person.
As you will be short of full service at retirement, I would certainly look to fund enough into an AVC to top up the lump sum to Revenue's tax-free limit. However, this could wait until you move into the higher tax bracket so you get maximum relief on your contributions.
by the time some of us reach retirement the tax bands could be for greater allowing for more scope for avc. also its not subject to deemed disposal and is prob the only way to save long term on irelandEach to their own, but I would not make an AVC contribution for 20% tax relief if I am likely to be paying a similar amount of tax on any drawdown in retirement. Bear in mind that your State Pension will also be taxable, so it when added to your PS pension may well bring you into the tax net. At the moment the threshold is about €18K for a single person.
As you will be short of full service at retirement, I would certainly look to fund enough into an AVC to top up the lump sum to Revenue's tax-free limit. However, this could wait until you move into the higher tax bracket so you get maximum relief on your contributions.
I think tax relief is not worth foregoing even at 20%.Each to their own, but I would not make an AVC contribution for 20% tax relief if I am likely to be paying a similar amount of tax on any drawdown in retirement. Bear in mind that your State Pension will also be taxable, so it when added to your PS pension may well bring you into the tax net. At the moment the threshold is about €18K for a single person.
Just curious, did you query them about this advice which seems completely inappropriate and perhaps aimed at maximising their fees rather than your best interests?I started teaching when I was 21. Any interaction I had with Cornmarket reps emphasised that my pension wouldn't be adequate and that I would need to take out AVCs to supplement it. This was of course untrue as I am in the pre 95 scheme.
Yes, I did query the advice and asked for a booklet which would clearly explain the charges and benefits (this was pre easy access internet days). I never received the booklet nor any further contact from the rep. Cornmarket at that time had sole access to sell financial products to teachers.Just curious, did you query them about this advice which seems completely inappropriate and perhaps aimed at maximising their fees rather than your best interests?