Is it worth buying AVCs with full Pension Entitlement?

B

Ballina

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Hello, I`m getting conflicting advice and I hope someone here can clarify things for me. My wife has 43 years service in the Civil Service. Therefore she can retire anytime now, and it is her intention to go soon instead of waiting for her 65th birthday, she will be 63 in February. She was advised to buy additional AVCs to get the tax relief (at the top rate), to top up her Lump Sum, before 31st October, which would be offset against last years Tax and then purchase more AVCs before the 31st December to be offset against this years Tax.
I have two questions please, if she is already going to get the full Lump Sum of 1.5 times final salary, what are the benefits of buying these AVCs?
Secondly, if there is a benefit, I have read on here that buying AVCs through the Single Pension Scheme, of which she is a member, is poor value compared to buying through the Financial Institutions?
Thanks in advance for your help.
 
She can only buy AVCs if there is a funding gap between the value of her benefits under the scheme and revenue limits. If there is a gap, she can make AVCs. If there isn't a gap, she would be overfunded and the AVCs would be refunded. She should talk to the broker who looks after the AVCs and they can run a calculation for her. That is what she is paying for. They have lots of experience doing last minute AVCs. An insurance company won't do it for her.

Steven
www.bluewaterfp.ie
 
Thank You Steven, her Salary is €61,000 the upper limit as per Revenue is €115,000. Does that constitute a funding gap. Her Lump Sum will be around €93,000.
 
Ballina said:
Thank You Steven, her Salary is €61,000 the upper limit as per Revenue is €115,000. Does that constitute a funding gap. Her Lump Sum will be around €93,000.
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Your are confusing two numbers. The maximum retirement lump sum she can get is 150% of Final Salary (so 150% of €61,000 = c€93,000). So based on that, I see no point in investing AVCs, unless she has other non-pensionable income such as bonuses, BIK etc.
The €115,000 is the salary limit that one can use to calculate personal contributions.
 
It is still worthwhile making AVC's even if there is no extra tax free lump sum available.
If there is tax relief at 40% on the AVC contributions and 20% tax on the ARF drawdowns it is a good deal.
There will be headroom as you can make AVC's to fund for a full pension for a spouse instead of the 50% spouses pension included in Public service pensions.
Even if the full 1.5 times final salary is paid as a tax free lump sum there could be extra tax free lump sum available for non pensionable pay such as allowances and overtime.
 
bstop said:
There will be headroom as you can make AVC's to fund for a full pension for a spouse instead of the 50% spouses pension included in Public service pensions.
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Can you please expand on this because I'm confused.
Do you mean one spouse can fund a spouses pension but only up to €115k at applicable percentage, due to age.? Or something else?
 
Public sector pensions only allow for the spouse of a deceased pensioner to get half the value of their pension. Maximum Revenue allowable pension for the spouse of a deceased pensioner is 100% of their pension. This allows AVC funding to be made to provide for the remaining half of the spouses pension which is not included in the Public sector pension.If the Public sector worker does not die before reaching pension age the AVC funds can be used to purchase an ARF or an Annuity. What this actually means is that any public sector worker with 40 years service at retirement age still has scope to make large amounts of AVC's.
 
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bstop said:
Public sector pensions only allow for the spouse of a deceased pensioner to get half the value of their pension. Maximum Revenue allowable pension for the spouse of a deceased pensioner is 100% of their pension. This allows AVC funding to be made to provide for the remaining half of the spouses pension which is not included in the Public sector pension.If the Public sector worker does not die before reaching pension age the AVC funds can be used to purchase an ARF or an Annuity. What this actually means is that any public sector worker with 40 years service at retirement age still has scope to make large amounts of AVC's.
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Is it that simple?
if the employee is getting the max pension but invests AVCs ostensibly to fund an additional reversionary spouses pension (payable on the members death in retirement), but is able to invest the AVC fund into an ARF on retirement, that means that they have access to an additional pension income bringing then over the Revenue max? Also, I’m not sure it’s possible to use the AVC funds just to buy an additional 50% reversionary pension ( without buying a member pension).
 
Conan said:
Is it that simple?
if the employee is getting the max pension but invests AVCs ostensibly to fund an additional reversionary spouses pension (payable on the members death in retirement), but is able to invest the AVC fund into an ARF on retirement, that means that they have access to an additional pension income bringing then over the Revenue max? Also, I’m not sure it’s possible to use the AVC funds just to buy an additional 50% reversionary pension ( without buying a member pension).
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Yes it is that simple. I got this advise directly from the Pensions Ombudsman.
 
Ok, but I think it would have to be a standalone PRSA AVC, not an AVC attached to the main employment scheme.
 
No it can be either. I had both AVC's and an AVC PRSA. When I retired I combined both into a single ARF. It doesn't matter which Revenue maximum funding limits applied while making the AVC's after retirement the funds can buy an ARF or Annuity.
 
See the below thread if you are confused by the above.

"Can AVCs be made to make up for the 50% shortfall in widows pension for public sector workers ?"
 
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