I am a 45 year old public sector worker and will not have full service achieved by retirement age. I am planning to start doing AVC's to bring my lump sum at retirement age to the maximum allowable. I was looking for advice please on whether it is advisable to increase further that is allowable with AVC's to create a post retirement pension pot?
The only debt we have is mortgage and we are saving monthly, so I would have the funds to do these additional AVCs.
Otherwise the savings would be used to buy stocks or pay an additional amount off the mortgage monthly.
Many thanks for any advice on this.
Having maximised the tax-free lump sum, the question of whether or not to supplement your pension itself is mainly answered by looking at your tax position, now and in retirement. The primary incentive for you to put money away into an AVC rather than save or invest money elsewhere is the tax relief. But any additional pension will be assessable for tax. So you need to try to estimate what rate of tax you'll be paying in retirement. Add up all pensions, include the State Pension if applicable, any rental income, any dividend income that you're likely to have in retirement and see if it all ads up to paying zero Income Tax, 20% Income Tax or 40% Income Tax.
If you're paying 40% tax now, you'll get 40% tax relief on AVCs. If you're going to be paying zero or 20% tax in retirement, then it makes sense. If you're going to be paying 40% tax in retirement, then it doesn't really make sense to add more to your AVCs than will maximise your tax-free lump sum.
Regards,
Liam
www.ferga.com
But the marginal tax rate would be 40% +USC on the extra pension generated by the AVCs.I don't have a current calculation but, as at September 2019 a married couple, both in receipt of State Pension + another pension income of €24,000 pa (total €48,481.60) would have an effective tax on income of 9%.
Tax exemption for over 65s is currently €36,000 (married or in civil partnership). Half that for single/widowed.
If that combined income was €72,481.60 then the effective tax on income would be 19%.
Gerard
www.prsa.ie
But the marginal tax rate would be 40% +USC on the extra pension generated by the AVCs.
I don’t follow the logic of talking about effective rates of tax at all.
If I’m considering whether to generate additional income or not, the marginal rate is all that’s relevant.
I'm not an expert by any means but you may be able to buy back Notional Service for the years you are missing for a full pension.
Many thanks for all this advice.
I have looked into this and have been informed that now that I have gone down to part time work ( to look after children) I will only have 23 years of service at retirement.
I have been told that I am allowed to purchase 9 years of Notional service.
Could I ask for advice please: am I better doing this or going privately and purchasing AVC's? or should I do both?
many thanks for all advice
I will only have 23 years of service at retirement.
I have been told that I am allowed to purchase 9 years of Notional service.
I have gone down to part time work
went to parttime contract in 2015
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