Given the actual and potential changes to the tax relief regime for contributions and benefit limits, does it make sense for middle to higher earners (who are already in a pension plan) to make AVCs from now on?
In short, IMO the answer is no! My husband is very worried that if the pension ceiling is reduced any further (as is threatened in the programme for government - to reduce ceiling to €60,000 per anum = €1.2 million total pension value) then his AVCs will essentially be worthless in the long term.
His AVCs, in combination with his defined benefit pension will exceed this €1.2 limit and be taxable (up front) at a rate of 69% when he retires. (because his work contributes to his pension, he cannot stop it growing beyond the €1.2 m value.) He reckons that when he retires, he will now face a huge tax bill - similar to what the judges were complaining about last week. Where are we supposed to come up with that kind of cash? All our savings are tied up in pensions!
He is on good money now, but wasn't always. He has long years of service and put additional savings into AVCs, which he now regrets.
Better to have your money in some account you own and control, and not in some account where the government can keep changing the goalposts!
Yes...we are feeling a bit sore. He has worked hard to put by enough to look after us when he retires - now a lot of that is lost. I haven't seen this issue being raised by many people in the pension industry yet.
It WILL start to hit more middle income earners once the pension ceiling drops.