Last minute AVC

J

JimmyB99

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My sister is going to hang up her CS boots at the end of the month.

Is there still time to do a last minute AVC?

Are there notes available on the scope available for AVCs in respect of targeting the difference between the lump sum allowed by the Revenue and the CS gratuity of 3/80ths x Service.

For background, she joined in the early 1980s and has 30 years Full-time equivalent service. This is because she has been working 50% of the time for the last number of years. Her P/T salary is c. €40k meaning that her F/T equivalent salary is c. €80k. She'll be 61 at the end of the month.

Any guidance/comments appreciated.
 
JimmyB99 said:
Are there notes available on the scope available for AVCs in respect of targeting the difference between the lump sum allowed by the Revenue and the CS gratuity of 3/80ths x Service.

For background, she joined in the early 1980s and has 30 years Full-time equivalent service. This is because she has been working 50% of the time for the last number of years. Her P/T salary is c. €40k meaning that her F/T equivalent salary is c. €80k. She'll be 61 at the end of the month.
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If she joined in the 1980s I take it that she has a "normal retirement age" of 60? (ie, It is not Cost Neutral Early Retirement she is taking - just normal retirement?). If so she can top up her tax free lump sum to 120/80 - that is €120k in her case. Once it is at or past, "Normal Retirement Age", and she has at least 20 years pensionable service, she can top up to this level. She should get 90/80 in the main scheme with her 30 years.

I don't know about the logistics about getting it done by the end of the month but it should be possible. It must be done before she retires.
 
Thanks very much, Early Riser,

I'm not trying to be awkward but I'm unsure as to the precise meaning of "Normal Retirement Age" (NRA) for a regular civil servant who joined her department in 1981.

The reason I say this is because my understanding is that her official retirement date is her 65 birthday but that, at any time after age 60, she could retire based on her then accrued service without any "early retirement" adjustments (for the period between when she actually retires and 65 - so long as retirement occurs after age 60). Does this make sense?

In relation to the Revenue maximum purposes (for civil servants) - the question as I see it is whether her NRA is equal to (a) 65 or (b) the age that she actually retires between 60 and 65.

If it is (b), then I agree with your calculation of 1.5 x €80k. Indeed, I'm hoping that this is the case. I'd just like to be certain because if it is (a), then if I'm reading the Revenue Manual correctly, a further adjustment needs to be done. I hope this makes sense.
 
JimmyB99 said:
The reason I say this is because my understanding is that her official retirement date is her 65 birthday but that, at any time after age 60, she could retire based on her then accrued service without any "early retirement" adjustments (
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Then her "normal retirement age" is 60 - as is the norm for pre-2004 entrants to the PS. It doesn't matter as to what age she retires after this. She can top up to 120/80 for the lump sum.
 
That's great, Early Riser - thanks for the prompt response.

Again, honestly, I'm not trying to be awkward, just being sure to be sure to be sure - are you as certain as one can be that 120/80 is correct based on what I've outlined?.....[Read: I'd be relaxed enough if it was my own money......but I'm giving "friendly advice" to my sister and don't want it to boomerang on me! :) ]

Also, formal confirmation of this single point from the likes of Cornmarket would cost north of €500 I'd imagine!
 
Public servants (including civil servants) recruited (and joining the pension scheme) before 2004 have a "normal retirement age" of 60 and a "maximum" retirement age of 65. I am not sure if this maximum still applies but the "normal retirement age" certainly does. Everything you have said points to your wife being in this category.

"Minimum pension age is the earliest age at which a public servant is entitled to retire and receive
immediate payment of their retirement benefits from their occupational pension scheme without
actuarial reduction. It is sometimes referred to as normal retirement age.
Minimum pension age in the public service is generally determined by the date of recruitment of the
individual public servant and, for the most part, is provided for in primary legislation and/or in the
terms of the public service pension scheme of which the person is a member."
(Circular 03/2021: Guidance on Minimum Pension Ages/Compulsory Retirement Ages in the Public
Service.)

See 7.2 here for Revenue maximums:
 
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THANKS - yet again Early Riser

I really appreciate your time, knowledge and.........patience!

My suspicion is that if we did pay the €500 plus to a Cornmarket rep, we wouldn't get the same sense of comfort as you have provided. So BIG fair play to you.
 
Just to say that you do not have to use Cornmarket - although they should be very familiar with the civil service pension schemes. You can run a search for brokers and you may be able to get a better price. But time is of the essence - the AVC must be set up before she actually retires.
 
Point taken re Cornmarket's charges. They offer a "no advice" service which, I understand, costs €100 plus 4% B/O spread. Probably, fair enough given the B&B nature of what's intended! And thanks to you, I can avoid their "consultancy" fee.

Also, isn't Cornmarket the only ones to do AVCs? As in the other brokers would only be able to offer AVC PRSAs? I remember my tax advisor telling me once that AVC PRSAs could be problematic when funding the "gap" we're discussing........Something to do with a difference between market practice versus what the legislation actually says? As you can see, I'm a steady Eddie and as you say time is of the essence so I'm happy to avoid AVC PRSAs in case there's a potential issue.

Anyway, thanks again....
 
Apologies, one final question before we write the cheque......

I'm happy with Early Riser's very helpful calcs which show scope of up to about €30k in relation to the TFLS.

Of course, the other constraint is the max allowable contributions of 40% so in respect of 2022, all we can pay in is €16k.

I'm not even sure if we'll bother about this final point but just thought I'd ask anyhow. In relation to earnings for 2023, she'll earn about €4k when holidays, etc. are taken into account. This suggests that she could pay a further €1,600 in 2023.

My question is can we write a cheque to Cornmarket/Irish Life for €17,600 with a cover note that this single premium is made up of €16,000 is in respect of 2022 and €1,600 in respect of 2023.? Any problems with this approach? Thanks!
 
Yes, you are bound by the 40% limit. She will have to make an application to Revenue this year and Cornmarket/Broker should provide the relevant certificate that she will require. January is not the best time to retire for last minute AVC purposes. (https://www.revenue.ie/en/tax-professionals/tdm/pensions/d-appendix3.pdf)
I don't know the details of this and someone else may advise. But I would not just write a cheque - she should discuss it with Cornmarket/Broker first. Cornmarket, or Broker, will need details from her anyway. They should be very aware of any limits.
 
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You could pay in any amount you want. You don't have to state what years the amount is for. The only risk in doing this is that you might invest an amount greater than the total allowed for tax relief. The surplus amount would then be taxed into the AVCs and possibly taxed again when withdrawn.
 
Thanks bstop,

I don't want to overthink all this. It's not exactly brain surgery. Based on the info provided, do you see any specific problem with what I wrote in post 10?
 
@JimmyB99

The 40% applies to all pension deductions, ie, including her ongoing contributions to the main scheme. So she will have less than 40% of the total still available for the AVC. That is, if there are employee contributions in her pension scheme. She is probably a modified PRSI contributor (Class B or D) and I think they only pay towards the Survivors pension (1.5%).
 
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Thanks Early Riser. As it happens, 40% is the right figure for her as, although she is married, she never made the 1.5% contribution in relation to her husband's pension. (I'll be sure to mention this, at some social occasion, when the time is right!!!!!). I'm very impressed by your level of detail - excellent observation.
 
JimmyB99 said:
As in the other brokers would only be able to offer AVC PRSAs? I remember my tax advisor telling me once that AVC PRSAs could be problematic when funding the "gap" we're discussing........Something to do with a difference between market practice versus what the legislation actually says?
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This isn't true at all. An AVC PRSA and an AVC are governed by precisely the same limits and rules regarding how much can be contributed and what can be withdrawn.
 
You may very well be right, Liam but occasionally in life, we could across people who are just amazing at their job. The guy that told me this is one such person. He is ill at the moment so I don't want to bother him. FWIW, I believe that the pension industry agrees with you and that, in all probability, there would be no problem doing a LA broker AVC PRSA - i.e. the issue, if there is one, will not be picked up. This would be cheaper than the monopolistic pricing of Cornmarket. I'm not trying to convince others that the industry has this wrong! I was simply mentioned in passing why I would not be recommending a lower priced offerings to my sister. I fully appreciate that you may have processed loads of AVC PRSAs without a hitch. This does not preclude the possibility that my tax adviser is also right imo!
 
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