Lump sum query - can you use AVC to boost your lump sum?

[Benbulben]

Thanks very much for your advise Early Riser. I haven't actually started an AVC yet (I'm waiting on some information from Irish Life and Cornmarket etc.) but I was also thinking of going down the diy route as I already file tax returns for a rental property. I have also put those questions of the additional €1m SFT to them.

I was working out that I have circa €9k per annum that I could invest gross into an AVC or some other vehicle (PRSA's seem to be getting declutterd with red tape legislatively) @25% which would increase when I hit 50 etc. If I start now I could put in circa 182 k before 60 and with any kind of growth at all that should be comfortably between €200k and €300k fingers crossed.

 

[Early Riser]

I have also put those questions of the additional €1m SFT to them

The SFT does apply. It sets the maximum. It doesn't mean that everyone can fund up to this maximum within the confines of a DB scheme. The SFT sets restraints on the pension benefits of very high earners within a DB scheme and it sets limits on the combined benefits from a DB scheme and from some other scheme.

In a DB pension the maximum Revenue allow is 1/60 of pensionable emoluments per year of service. This is adjusted to 1/80 per year of service to take account of the tax free lump sum in the PS and similar schemes. In your example of a pensionable salary of €90k this means a maximum allowable pension of €45k. As your actual pension will be €31k this gives room for a substantial ARF. (I am not sure of the age related capitalization factors used to calculate the maximum ARF but it is unlikely to be an issue for you).

But you will already have received your 120/80 tax free from the main scheme. There is no room to increase this further.

 

[Benbulben]

Thanks very much for your help and advise Early Riser and for your comments in the other thread also.

 

[Conan]

Thanks very much for your help and advise Early Riser and for your comments in the other thread also.

If I am reading your post correctly, you say that your Occupational Pension might be €31k and you expect a combined State SW Pension of c€28k. This gives a combined income of c€60k, plus whatever pension income your wife has. So this may well put you into the higher tax rate (depending on the split of income). I was curious as to whether you thought the State SW Pension was not liable for tax (sorry, but it is potentially liable for Income Tax).
so investing into an AVC to augment your Retirement Lump Sum to the Revenue max makes sense. But it is arguable whether it is tax effective to invest AVCs to provide an additional pension income, particularly if that additional income will be taxed at 40% + USC.
In terms of the SFT, your Occupational Benefits will be well below the €2m limit (typically the Revenue multiplier varies between 20:1 and 30:1 depending on your retirement age).

 

[Benbulben]

If I am reading your post correctly, you say that your Occupational Pension might be €31k and you expect a combined State SW Pension of c€28k. This gives a combined income of c€60k, plus whatever pension income your wife has. So this may well put you into the higher tax rate (depending on the split of income). I was curious as to whether you thought the State SW Pension was not liable for tax (sorry, but it is potentially liable for Income Tax).
so investing into an AVC to augment your Retirement Lump Sum to the Revenue max makes sense. But it is arguable whether it is tax effective to invest AVCs to provide an additional pension income, particularly if that additional income will be taxed at 40% + USC.
In terms of the SFT, your Occupational Benefits will be well below the €2m limit (typically the Revenue multiplier varies between 20:1 and 30:1 depending on your retirement age).

Hi Conan

We file taxes jointly so from my understanding we would be able to make circa €80k before moving onto the higher band of 40% as things currently stand, who knows if they'll introduce a third band as has been mentioned before.

My primary concern would be funding those years between 60 and 65 where the income would be 31k (based on today's salary). I think this would give us scope of circa €49k that we could draw down from an ARF before putting us into the 40% bracket and this should give us the flexibility to travel a bit and enjoy ourselves a bit when we are hopefully fit enough and healthy enough to do so.

I take your point about when we get to 66 and start drawing he state pension and we might need to readjust our figures to keep below the 40% threshold.