Difference between AVCs and PRSA AVCs?

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Derek1001

Registered User
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Hi there, I am a mid-forties secondary school teacher and I am planning to set up an AVC. I have been researching which company to go with and would be keen to avoid unnecessary fees from dealing with Zurich or Cornmarket direct.

I know there are execution only companies that offer savings but they seem to offer PRSA AVCs as opposed to the AVCs offered by Cornmarket and others. Does anyone know what the difference is between the two types of AVCs? Perhaps they are the exact same same.

Also, I wonder if I were to use a company like Labrokers or PRSA.ie can I just make a lump sum investment each year instead of using salary decision on a fortnightly basis? Then I could foreseeable just claim this back from Revenue after the end of the tax year where I made the contribution.
Thank you for taking the time to read my mail and for taking the time to respond.

Derek
 
I'd say you can make one-off lump-sum single premiums to an AVC, and manually claim the tax relief in your Form 12 tax return.

Note that the AMCs on lump-sum single premium may be different than on regular premium.



Alternatively, you could make monthly contributions from your bank account, and get the tax relief "coded-in" to your tax credits and SRCOP, so that the tax relief is delivered at source.
 
Derek1001 said:
I know there are execution only companies that offer savings but they seem to offer PRSA AVCs as opposed to the AVCs offered by Cornmarket and others. Does anyone know what the difference is between the two types of AVCs? Perhaps they are the exact same same.
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An AVC (via Cornmarket in your case) has its contributions directly deducted by your pay department. The tax relief is already applied and reflected in your wages. In this regard it is administration free.

Other providers don't have this facility with your wage department. You make the arrangement directly with them and set up contributions via bank transfer from your bank account. In order to get the tax relief you have to do this with Revenue (via MyAccount usually) and they will adjust your tax allowances. Your employment office is not involved. This is an PRSA-AVC. You can choose your provider - some come with advice (on funds, investment strategy, etc) and some are "execution only". Fees and charges vary.

Otherwise they are the same thing. Benefits from both are linked to main scheme benefits in the same way.
 
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AVCs are the scheme run by an employer. The employer agrees to deal with one or more providers and facilitates deduction of contributions at source from your wages. You can also pay lump sums directly to the provider.

An AVC PRSA is a separately set up scheme that your employer has no input into. You set it up directly with a provider and your employer has no rights to be informed about this scheme.
The employer will probably refuse to arrange deductions at source from this scheme.

You can make monthly direct debit payments or lump sum bank payments to an AVC PRSA and you can get tax relief coded in as stated above.

Other than that both are basically the same. You might have a bigger choice of investment funds in the AVC PRSA. Both can only be funded and tax relieved from earnings from the same employment.

You can have either or both schemes.
At all times you are the owner of all funds in both schemes.

At retirement the same rules apply to both. The total funds can be combined and you can choose your own benefits. These are, top up your revenue allowable tax free lump sum, take a taxable lump sum, set up an ARF or Annuity. You can take a combination of all these.

You could for example combine all the funds to set up one ARF.

One advantage of setting up your own AVC PRSA is that it is a very good way of learning about pensions. You will have an added interest and this could be useful in the future when you are planning for your retirement.
 
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And to add to that with an AVC you will need to start drawing down funds at retirement age (end of contract) and perhaps later but with the approval of the trustees and employer.

You may find that your pension/s pot/s are giving you an optimum income via the ARF or annuity bought and you may not want to withdraw more funds at that stage avoiding too paying a bigger amount of tax on it (ie moving from 20% to 40%). Or you may want to preserve your fund value at that stage. That is when the PRSA AVC is of your advantage.

With a PRSA AVC you have.more control and flexibility. Not only you can buy an annuity or ARF, you can also decide to leave it as it is. You can continue investing into your PRSA AVC and/or withdraw your money (any amount you want) at a later stage.
 
Main Scheme = Occupational Pension Scheme

AVC = Occupational Pension Scheme

PRSA AVC = Not Occupational Pension Scheme

Both products regulated by Pensions Authority. Both with different disclosure rules i.e. that AVC doesn't have any disclosure requirement and the PRSA AVC does.

Disclosure = Statement of Reasonable Projection (projected values on growth and values with/without the application of charges + intermediary remuneration disclosed.

Greater clarity on AVC PRSA, IMHO.


Gerard

www.execution-only.ie
 
I thought an AVC and a PRSA AVC would both have to be "retired" when you retire? Because contributions in to each come from the same source of income... your salary. Isn't that what @S class meant: that the rules are (mostly) the same for each?

What I'm wondering is... With an AVC there is a limit to how much can be in that fund isn't that right? It's not the max fund threshold (soon to be €2.8m) but a limit determined by how big your public sector pension is allowed to be given your salary. See thread: The Single Public Service Pension Scheme for details.

If as @S class says with an AVC PRSA: "You set it up directly with a provider and your employer has no rights to be informed about this scheme." Does that mean if you had enough working years to make contributions into both and a big enough salary you could max out your AVC to the allowed public sector limit as per your salary and use the PRSA AVC to reach the standard fund threshold (e.g.: €2.8m) all with just one source of income.. your salary?

Or maybe for the same reason you could keep contributing to the PRSA AVC after "retiring" the AVC? Even then there is a limit of 71 I think?
 
AVCs can be funded up to the revenue allowed maximum.
This is a pension of 66.66% of final salary.

Public sector pensions, even with 40 years service (120/80 tax free lump sum + 40/80 pension) do not reach this revenue allowed maximum.

You can have your maximum public sector pension + an ARF or Annuity (or both) + state contributory pension.

There is more information about this on this thread.
This applies to all Public Sector pension schemes.

AVC information for pre 95 Public Sector employees.

Can these employees make AVCs ? Yes. They can make AVCs based on non pensionable wage payments and to make up for any shortfall if they don't have the full 40 years service at retirement age. They can also make AVCs to fund for the revenue allowed 100% surviving spouses pension. The public...
www.askaboutmoney.com
 
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GSheehy is talking about the AVC as part of the main scheme, I am making the difference between the two schemes.

@CharlieMac
The AVC as part of your OPS (ie via your employer) needs to be actioned when you retire. It is then when you buy a PRSA/ANNUITY and from that point you are obliged to withdraw your funds every year.

However the PRSA AVC as explained is different as at retirement you can leave the remaining funds in your PRSA and withdraw from them at any time. If you decide to buy an ARF then the corresponding rules will apply here too.
 
The rules for taking retirement benefits from AVCs and AVC PRSAs are exactly the same.

Benefits from both must be taken at the same time that benefits are taken from the occupational scheme.

In my case I more or less didn't bother to persue taking benefits for both my AVCs and AVC PRSA. It was about a year after starting my occupational pension when I got around to sorting this out.

Neither of the providers chased me up about this.

I had to initiate the benefit taking procedure for both.

My employer had no input into arranging benefits from my AVCs.
This was done by Irish Life after I requested it.

The AVC PRSA was done by Zurich after I requested it.

Maybe I could have delayed the AVC PRSA for longer.
I don't know if there would have been Revenue implications if I had done this.

I began my occupational pension at age 60 and my ARF was set up at age 61, so there was no imputed distribution involved.
If I had dragged this on longer I suppose there would be tax issues.
 
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Info from Irish life on the AVC PRSA and what you can do:

"When you retire, you can decide to take the AVC fund in the following ways:
1. Use it to make up any retirement lump sum shortfall you may have under your main scheme.
2. Buy an annuity (to add to any shortfall under your main scheme).
3. Continue investing in your PRSA up to age 75 or in an approved retirement fund (ARF), or approved minimum retirement fund (AMRF)."
 
VInterested said:
Continue investing in your PRSA up to age 75 or in an approved retirement fund (ARF), or approved minimum retirement fund (AMRF)."
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This becomes a vested PRSA and is subjected to 4% drawdowns or imputed distributions. It is similar to an ARF.

"Continue investing in" is misleading. They probably mean that the investment product remains in place. If you make any more contributions into it you cannot get tax relief.

If you had post retirement earnings from another employment you would need a separate PRSA in order to continue getting tax relief on pension contributions.
 
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VInterested said:
Info from Irish life on the AVC PRSA and what you can do:
https://www.irishlife.ie/sites/retail/files/avc-and-your-prsa.pdf
"When you retire, you can decide to take the AVC fund in the following ways:
1. Use it to make up any retirement lump sum shortfall you may have under your main scheme.
2. Buy an annuity (to add to any shortfall under your main scheme).
3. Continue investing in your PRSA up to age 75 or in an approved retirement fund (ARF), or approved minimum retirement fund (AMRF)."
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For clarity, you can NOT continue to contribute to an AVC PRSA after you have retired. You can leave the fund in the AVC PRSA where it continues to be invested. Same rules as if it was an ARF. It becomes a Vested AVC PRSA.

The Irish Life document is a bit out of date. Finance Bill 2021 abolished AMRFs with effect from 1/1/2022.
 
Hi, does anyone know if I want to retire early but don't want to take my public sector pension until normal retirement age to avoid a large reduction (cost neutral early retirement) can use my AVC funds through an ARF to fund my retirement until I draw my occupational pension.
 
Asked the Pensions Authority if they (as Regulator for both products) had any plans to level the playing field on the disclosure requirements for AVcs and PRSA AVCs.

The Pensions Authority regulates occupational pension schemes, trust retirement annuity contracts (RACs) and personal retirement savings accounts (PRSAs). The difference in disclosure requirements between occupational pension schemes and PRSAs stems from the distinct regulatory frameworks governing each type of pension scheme.

Occupational Pension Schemes are governed by the Occupational Pension Schemes (Disclosure of Information) Regulations, 2006. These regulations outline the information that must be disclosed to members of occupational pension schemes, including details about the scheme's constitution, audited accounts, valuation reports, and annual reports.

On the other hand, PRSAs are subject to the Personal Retirement Savings Accounts (Disclosure) Regulations, 2002. These regulations require PRSA providers to disclose detailed information about the PRSA, including its key features, investment options, charges, and benefits. The aim is to ensure transparency and help individuals make informed decisions about their retirement savings.

The Pensions Authority’s role is that of a regulator and any changes in legislation is a matter for the Department of Social Protection and wider Government. The Pensions Authority is not aware of any plans to change how the legislation set out above operates.


Gerard

www.execution-only.ie
 
I am coming across another difference between AVCs and PRSA AVCs. It applies to public sector workers who want to buy back pension years with proceeds from an AVC fund.

Members of the HSE Single Pension Scheme (SPS) who have made AVCs in to a public sector "AVC" pension product (e.g: with Cornmarket or Irish Pensions and Finance) are able to purchase additional referable amounts (pension benefits/buy back pension years) by transferring a portion of their AVC fund and still have the option to use whatever remains for things like a lump sum and an ARF. I confirmed this with Irish Life and the SPS. They call it "paying bills" or "paying hospital bills". The rules governing this process are in this DPER Circular from 2019 (Point 5).

However this is not possible if you made your AVCs in to a PRSA-AVC. This is clarified in this FAQ to that Circular (Point 55). The reason is to do with how The Revenue treats PRSAs vs an AVC. Seemingly you cannot split a PRSA AVC you may only transfer the full amount of it. Apparently this is covered by the Revenue Pensions Manual Chapter 13. So if there was more in that fund than was needed to buy all the extra pension benefits you are allowed to buy back you have to forfeit the rest of your PRSA AVC fund.

It affects for instance, late starters to public sector jobs, who went down the PRSA AVC route because the AMCs and fees are less that way compared with the AVC/Cornmarket route. They won't have that option. I think if more people were aware of this financially efficient way to buy back years of a government backed annuity that is a HSE pension they would be interested. It makes far more sense to do this with AVCs built up over a number of years than with post-tax salary alone. It is a double standard that you can transfer a portion of an AVC but not a PRSA AVC.

I don't know of a pension provider who offers public sector AVC products that does not charge lump sum contribution fees so there is no easy way to build up a PRSA AVC fund (with less fees) and then transfer it to an AVC fund later. So you are forced to pay higher AMCs/fees with a public sector AVC product in order to have the option to purchase the referable amounts down the line by way of transferring "some" of your pension funds value and not have to forfeit the rest.

I know there is a line of thinking that SPS benefits buy back makes less sense than waiting until deeper into your retirement to purchase an annuity from another provider when annuity rates might be even more favourable anyway. I've also read that having all your pension in an ARF is more flexible for several reasons. But many public sector workers will just want the guarantee of (a bit more) inflation protected defined benefit pension over money in the stock market. Better still if there was the option of both. If there was true transparency and competition in the pensions market then there should be absolutely no difference between how The Revenue treat an AVC vs a PRSA AVC.
 
CharlieMac said:
However this is not possible if you made your AVCs in to a PRSA-AVC. This is clarified in this FAQ to that Circular (Point 55). The reason is to do with how The Revenue treats PRSAs vs an AVC. Seemingly you cannot split a PRSA AVC you may only transfer the full amount of it. Apparently this is covered by the Revenue Pensions Manual Chapter 13. So if there was more in that fund than was needed to buy all the extra pension benefits you are allowed to buy back you have to forfeit the rest of your PRSA AVC fund.
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I don't think you are correct in this. See the second bullet point in that Paragraph:

"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"

If you take out a PRSA-AVC linked to your PS employment then it is linked to the scheme rules in just the same way as the conventional AVC. I think the exceptions refer to pension funds (AVC or otherwise) linked to former employment or to self-employment. These cannot be partially transferred to purchase Single Scheme benefits.
 
@Ruffian
I hope you are right. That was my initial assumption also. When I wrote to the Single Scheme Administration Unit Lead he got back to say:

"I am not aware of the HSE facilitating Standard Life deductions from an employee’s salary. If you want to send me the name of the pension policy that you are looking into I can see if I can verify if a split transfer is possible from this scheme. I feel that a split transfer from any PRSA isnt possible. But I will have to verify this."
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As @GSheehy mentioned above an AVC and a PRSA AVC are governed by different regulations. But as I see it the main difference between the two is that I have to set up a direct debit for one while the other gets directly deducted by my local payroll. Why would that make any difference? Maybe because payroll are involved the Single Pension Scheme administrators can have more over-sight over what money is going in to an AVC and where it is coming from?

I really wish those Circulars and FAQs to Circulars were written in plain and simple English. I'm sure most lay people (even the pension administrators) would struggle to understand the terse, archaic, quasi legalese language they are written in.

I will update this thread when I get a response.
 
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