Example:Hi,
Could you give a worked example of a ''last minute AVC'' and the benefit of the contribution?
Retiring from (say) Public Service with 30 years service.Hi,
Could you give a worked example of a ''last minute AVC'' and the benefit of the contribution?
Snap!!Retiring from (say) Public Service with 30 years service.
Salary (say) €80,000
Scheme lump sum 30x3/90 x€80,000 = €90,000
Revenue max lump sum 150% x €80,000 = €120,000
Shortfall €30,000
Invest €30,000 AVC in final year
Less tax relief (say 40%) net contribution =€18,000
Effect is to turn net contribution of €18,000 into additional tax free lump sum of €30,000.
Hi PodgerodgeJust to clarify though - if you were retiring EARLY with 30 years service i.e. under cost neutral early retirement, Revenue reduce the 1.5 I think accordingly, depending on how many years to 'normal' retirement, I think.
There is more to AVCs than just availing of the tax relief. The primary decision is whether you have scope (within Revenue limit’s) to fund any AVCs. Clearly the most tax advantageous strategy is investing AVCs to fund a shortfall in the retirement lump sum (with up to €200,000 being tax free). But if you are going to have full service at retirement, then as I explained earlier, you have very limited scope for AVCs. So if someone is trying to “sell” you AVCs, you need to ensure that you have scope for AVCs. Most advisors to the Public Sector (eg Cornmarket) will work this out for you.thanks Conan for the info. I was advised that there was scope to contribute via AVC to avail of the 40% tax relief. this is with full retirement benefits on the old defined benefits public sector pension scheme. its all very confusing!
In terms of the retirement lump sum, the absolute Revenue max is 150% of Final Salary (Subject to certain rules). The taxation of any lump sum is separate. The first €200k is tax free, any excess up to €500k is taxable at 20%.So there are two limitations to avcs. The revenue limit of 200k before being taxed and the 1.5 times the final salary cap?
I know many in the public sector who have been advised (cornmarket) to still buy avcs despite having the capacity to draw a full 30 year fast accrual pension. (Defence Force Pension) Ie They would max out at 1.5 times their final salary before any avcs.
In this instance, if wrongly advised, what would happen to these avcs?
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