‘Dept. Of Education’ Pension 6%
Spouse and Child Pension 1.5%
Notional % Contribution, I am not sure of (For ease of use, let’s say 2.5%)
So, 6% + 1.5% + 2.5% = 10%.
Therefore, am I ‘wasting’ 15% of my tax-relief allowance by not utilising it? (Allowable Tax Relief 25% minus Claimed Tax Relief 10% = 15%)
For a Public Servant their main scheme will typically provide:
- Pension of 1/80th of Salary for each year of service (assuming he is a member of the old style DB scheme)
Jude,Cormac,
Just read your first post and I'm not sure if you got your sums right. In the Non Pension Investment you assumed 41% tax on the full amount not the return.
You would pay 41% on (€131 - €60) = €29 leaving you with €102.
If I'm correct then you only gain €3- over 20 years by tying your money in a pension and would lose the freedom of getting this earlier if you wanted it and you would not be subject to any of the rules above.
I know the actual situation is more complex and that you have to pay your tax on the fund every 9 years and that in general savings seem to incur more management fees than AVCs.
Am I right?
Jude
How do revenue calculate if you are overfunded?You can only “maximize” your pension contribution if the overall result (combination of Main Scheme and AVC ) does not generate benefits in excess of Revenue limits.
For a Public Servant their main scheme will typically provide:
- Pension of 1/80th of Salary for each year of service (assuming he is a member of the old style DB scheme)
- a lump sum of 3/80ths of Salary for each year of service
- a Spouses Pension (on the member’s death in retirement) of 50% of the member pension
- indexation of benefits in payment.
So for example if you have 40 years service, then you are getting very close to the Revenue maximum and therefore little scope for AVC’s. If however you have short service, that’s where the scope for AVC’s exists.
However, it is not possible to “”overfund”. If you do, then technically the Main Scheme benefits must be reduced. Effectively, you should not be allowed to over-contribute. So before you contribute AVC’s you need to work out what the shortfall is between your Main Scheme and the Revenue maximum.
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