Can an AVC PRSA be split in two?

[CharlieMac]

Hello,

I have already asked this question in this thread and in this thread. They were other peoples threads and I never got an answer either so I am asking it here again in my own thread. If no one knows the answer and I eventually find out the answer I will update this thread as I think it would be helpful for people to know this information.

I have contacted Revenue, my local Pension Office (twice) and Cornmarket (twice) weeks ago and none have gotten back to me. I have also emailed the Single Pension Scheme "helpline" but they don't know.

I am a member of the HSE Single Pension Scheme. I won't have 40 years service by the time I retire. I am about to start paying AVCs and hope to do that for the next 20+ years.

Regarding the option to purchase additional referable amounts (Pension benefits), not with cash but by way of transfer, subject to the rules in this circular.

The Circular states:

"All transfer values relating to a previous employment, PRSA or BoB/PRB must always be included in the purchase of referable amounts by way of transfer. No split transfers are permitted. For this reason, Scheme members should be aware that in cases where the transfer value exceeds the cost of purchasing the maximum amount of pension/lump sum referable amounts permitted for the individual member under this Circular, this would result in the balance of the transfer value being lost to the member."

Let's say as an example by the time I get to retirement age I have 500,000 in my AVC PRSA and I want to purchase by way of transfer 300,000 worth of referable amounts is there no way for me to not forfeit 200,000 from my pension fund? Could I first siphon off 300,000 from my AVC PRSA in to another PRSA purely for the purpose of purchasing 300,000 worth of referable amounts, by way of transferring that PRSA in its entirety, such that in doing so I would not forfeit any remainder in my main AVC PRSA... this amount (200,000 in this example) I would aim to transfer to an ARF.

I would like to know is this possible and would I need to pay any taxes in the process? My aim would be to do all this at the time of my retirement, hopefully not incurring any tax liability in the process.

In his great thread: "The Single Public Service Pension Scheme" @Ent319 states:

"You can't split your main AVC to part-fund purchases through the facility . If you wanted to keep your options open about buying from the purchase facility you could set up a separate, more modest PRSA-AVC separate to your main AVC and transfer this in later on in your career, if it was worth it at that point."

I don't want to do it that way. That will be too much hassle having to keep an eye on the value of one fund and trying to judge how much to keep contributing to that then endlessly checking to see will it grow to just the right amount but not by too much either because I might have to forfeit the excess.

One useful help I got was from the Pensions Authority who confirmed that you can transfer benefits from one PRSA to another but my question is specifically can I transfer only a portion of one AVC PRSA in to another PRSA. To split it in other words, in to two funds, and only to satisfy the rules outlined in the Circular above whilst not forfeiting any of my retirement fund. The Pensions Authority suggested I read Chapter 24 of the Revenue Pensions Manual, Personal Retirement Savings Accounts. From my initial read it isn't clear if splitting an AVC PRSA is allowed.

Any help would be much appreciated. Thank you.

 

[GSheehy]

Did you find out from your employer what the eligibility details for purchase? Did you ask them if there were any restrictions on the amount you could pay in one year (the year that you choose to retire) to purchase the referable amounts? Did you ask, for example from your example, what €300,000 would buy you in the actual year you want to retire? Are the purchase amounts salary based?

I can't see why a product provider would have any issue with splitting an AVC PRSA but the control of what you can/can't do would be with employer.

I've said it before but, this scheme is actuarially based, it's highly unlikely that it would be a financial 'no brainer' that would put you in a much better position than would, say, purchasing an annuity on the open market on a retirement date of your choosing. Remember, if you put the €500k into an ARF, you can always buy an annuity with part of that value when you're older and annuity rates might be more attractive.

Gerard

www.execution-only.ie

 

[Fortune]

What's a "local Pension Office"?

 

[CharlieMac]

@GSheehy
That's helpful advice thank you. As I will have a small HSE pension I was thinking it would be wise to bump it up. But as you say maybe a better option is to buy the annuity later into retirement when I might get a better deal. Didn't realise they got cheaper the older you get, which makes sense I suppose.

The answers to some of your questions are in the link for the Circular in my last post. I don't think there is a limit to how much you can buy in one year. There is an online Single Pension Scheme "buy back" calculator that estimates how much you would be allowed to buy and how much it would cost. The other questions: what is the latest I could avail of this scheme; can an AVC PRSA be split and would I have to pay taxes in the process I have asked my local pensions office, by email, but they have not replied to me. The last two of those questions are not clear to me from reading Chapter 24 of the Revenue Pensions Manual, Personal Retirement Savings Accounts.

I'm not sure what "actuarially based" means? Probably that the HSE are not trying to incentivize staff to avail of this "buy back" option by way of trying to compete with other providers on the market in terms of price? I had a look on an online Irish annuity calculator and granted the HSE deal didn't seem much better price wise but the way I look at it is you have to pay ALOT extra to get built-in inflation protection from annuities on the market, and the more inflation protection you want the more you pay. Whereas this particular HSE buy back deal would give you the same "cost of living protections" a HSE defined benefit pension offers. From my experience there is no limit on by how much the government will increase the wages of HSE staff in times of runaway inflation. They seem to be constantly bumping up salaries little by little along with various union agreements and retired HSE staff are treated the same way.

So on that basis I think bumping up the HSE DB pension might be a better deal than paying for an annuity on the market and maybe the HSE realise that so they don't bother trying to sweeten the deal. I don't know what is the right answer Gerard maybe I'm better off just building up as big a fund as possible and leaving it all in high risk equities as recently recommended by The Boss.

I'll try again to get on to my employer pensions section and report back.

@Fortune
I'm probably using the wrong term but by "local pensions office" I mean the Pensions people who look after the HSE region in which I am employed. There might be several across the country, North, South, East and Western Region. I have emailed them twice with all the questions @GSheehy suggested I ask but got no answer yet.

 

[GSheehy]

Extremely difficult to make a call on something where the information you need is vague or not available. I'd say the chances of someone with a €500k AVC rolling up to HSE on the day they want to retire and saying they want to buy notional service with €300k would be remote.

So, they'll not have dealt with it before and those at the coalface won't know the answer and will be unsure as to where they would go to find it out. Product providers are unlike to have the answer.

Maybe @sidzer can comment on the company he dealt with that specialize in PS pensions and give an indication of cost of employing them.

The answer, either way, shouldn't stall you starting the AVC though. It might be like waiting for AE. And, the rules of today may not be the rules of tomorrow in the pension World.

Gerard

www.execution-only.ie

 

[CharlieMac]

Just updating this thread with some information I found.

To re-cap, what I was asking in this thread is:

"At retirement can I use part of my AVC fund to purchase Single Scheme referable amounts and put the rest in to an ARF?"

I have since gotten confirmation from the Single Scheme administrators and Irish Life that YES this is allowed.

The rule that allows this is clarified in Pt. 55 of a Single Scheme FAQ published in 2023:

"A transfer value must relate to the entirety of the external pension benefit. It is not possible to “split” a pension benefit by leaving a portion of it in situ, while transferring another portion of it to the Single Scheme. The entire pension benefit must be transferred at once."

"The only exception in relation to the bullet above is where a Scheme member holds a Public Sector AVC which is linked to the public sector employment and scheme rules. In this case it may be possible for the member to enact a partial transfer of that Public Sector ACV to the Single Scheme. This potential for partial transfer does not apply in relation to any other pension product."

Apparently this is long standing standard practice and known in the pension business (and understood by HSE pension scheme administrators) as "paying hospital bills".

So I am eligible to do the above as a public sector employee who is paying in to an Irish Life AVC fund where the contributions are deducted from my salary and they manage the tax relief with The Revenue.

I also asked Irish Life and basically got confirmation from Revenue.ie that this transaction whereby at retirement I might use part of an AVC fund to purchase referable amounts and then put the rest in an ARF is NOT subject to taxation. Tax comes in when you earn an income from your pension fund.

 

[penguins]

(Deleted as realises the answer to my question was already in the thread)

 

[Romegie45]

If a AVC has matured you can take 25% as a lump sum and buy a Referable Lump sum under the single scheme with it, doing this close to retirement will give you a 1:1 investment in the single scheme lump sum and a 40% tax break in that year or the previous year while using the money you already got a tax break on already.

 

[CharlieMac]

If a AVC has matured

What do you mean by this? You can't take a 25% (tax free) lump sum unless you are at the point of retiring. Maybe that's what you mean by an AVC maturing?

 

[Romegie45]

Correct. An AVC is for a set retirement date, it doesn't have to be 66 when you collect your OAP. if you time it right you can use these funds as above.

 

[CharlieMac]

An AVC is for a set retirement date

As I understand it you can keep making AVCs for as long as you are employed and you don't have to specify in advance a stop date when you plan on stopping making AVCs.

When I spoke to Irish Life/Cornmarket about this purchase facility I was told you can take value out of your AVC fund to pay for those additional referable amounts. I don't think you are limited to only using your tax free lump sum. And, with a public sector linked AVC Scheme (e.g.: Forsa AVC Scheme, ACHPS AVC Scheme) I actually think you can do this any number of times (once a year) before you retire. That option does not apply to a PRSA AVC.

It makes sense not to purchase until as close to ones retirement as possible.

I'm happy to be corrected as I want to learn more about these matters.

 

[Dave Vanian]

If a AVC has matured you can take 25% as a lump sum and buy a Referable Lump sum under the single scheme with it, doing this close to retirement will give you a 1:1 investment in the single scheme lump sum and a 40% tax break in that year or the previous year while using the money you already got a tax break on already.

The lump sum at retirement from an AVC is not necessarily 25% of the fund. It's calculated by reference to the lump sum from the main pension scheme.

In order to access an AVC fund you must also retire your benefits from the main pension scheme. How do you propose doing this and then being able to contribute a further AVC?

This suggestion doesn't make sense to me.

 

[CharlieMac]

Not sure if you are talking to me or @Romegie45 who I don't think was suggesting to take a lump sum and then continue to make AVCs afterwards?

I was suggesting that it is possible to purchase referable amounts from the Single Pension Scheme using value from your AVC fund and then continue to make AVCs in to that fund. It only applies to PS workers making AVCs in to an AVC scheme.

You have to be a member of a PS AVC Scheme set up solely for the purpose of supplementing PS pension benefits, examples of such PS Schemes include: AHCPS, ASTI, DCU, Fórsa (Civil Service), INTO, Local Authority & State Agency, Nurses and Other Health Professionals, SOLAS, TUI and UCD.

This partial transfer is possible because AVC value is not taken as income then used to purchase but value is transferred from your AVC fund directly to the Single Pension Scheme. In the case of PS workers who went the Cornmarket/Irish Life route to make AVCs the transfer is enacted by Irish Life (they call it "paying hospital bills") and given to the SPS on your behalf who then use it to entitle you to a bigger pension/lump sum from the SPS on your retirement.

The concept of a partial transfer of pension value out of a PRSA and a PRSA AVC is not permitted according to Revenue rules and re-iterated in the SPS Purchase and Transfer Circular 15/2019 but for some reason an exception has been make for an AVC scheme as mentioned in Point 55 of the SPS FAQ from May 2023.

I need to confirm if this partial transfer can happen once only at the time of retirement or could it be done several times before retirement for instance where you bought back pension benefits from the SPS once a year over a period of several years.

 

[Romegie45]

@CharlieMac The big question is whats defined as a 'Public sector AVC' as you cant create a AVC under the SPS directly and link them together. I would assume the only people who can answer that question are DPER.

@Dave Vanian You cant have an AVS linked to your SPS they are separate. The AVC is a totally private.

 

[CharlieMac]

The big question is whats defined as a 'Public sector AVC'

I asked the Singe Pension Scheme administration lead "What is a Public Sector AVC" and the response was:

A Public Sector AVC to my knowledge is an AVC that was set up with the sole purpose of supplementing a public sector pension scheme. The advice I received was that they were generally set up by unions and the union is the trustee of the scheme.

I asked: "Does the SPSPS have a list?" and the response was:

I asked and the HSE does not hold a definitive list of these AVCs. I was told that Cornmarket Civil and Public Service Master Trust covers most Health Sector AVCs and may be your only option in this regard.

I gave a list of PS AVC Schemes in my last post which might be of use. I doubt that is is a complete list.

You cant have an AVS linked to your SPS they are separate. The AVC is a totally private.

I don't think the poster was suggesting this. Anyway a key difference between an AVC and a PRSA AVC, in the eyes of the Single Pension Scheme, seems to be that, if you are making AVCs in to an AVC fund, there is some way in which that Public Sector AVC Scheme is linked to the SPS perhaps via some kind of shared governance or other such understanding between the SPS and the Unions who are trustees of Public Sector AVC Schemes. The SPS seem to consider that all PRSA AVCs do not have this special kind of linkage... but don't themselves really know what exactly is the nature of the difference between an AVC and a PRSA AVC.

This added advantage of being allowed to make a split/partial transfer out of an AVC but not a PRSA AVC (to purchase Single Scheme referable amounts) is a nonsense. Both are set up with the express purpose of supplementing pension benefits on the same public sector pension scheme and are linked to the same scheme rules. Also Cornmarket/Irish Life will anyway accept a transfer of a PRSA AVC back into one of their PS AVC Schemes from where you can then use your money to do all the split transfers you like.

 

[Dave Vanian]

You cant have an AVS linked to your SPS they are separate. The AVC is a totally private.

An AVC or an AVC PRSA must be linked to the Occupational Pension Scheme of the same employment and must have the same retirement age. The fact they are established as separate policies outside of the main scheme is irrelevant. You must retire an AVC or AVC PRSA at the same time as you retire from the main scheme.