Oversubscribing to AVC

M

Moribund

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I am aged 41 in a DB pension scheme at work 17 years in and 23 to go. I am currently maxing on my AVC contributions to an AVC fund. I have heard that you can 'oversubscribe' which negates some of the benefits of AVCs.

Is there some formula to calculate the danger of oversubscribing?

If I was in danger of oversubscribing could I not use the AVC fund to retire earlier?
 
It is possible to oversubscribe AVC's, though your scheme Trustees/Advisors should ensure that you dont.
Remember, AVC's can be invested where the benefits in the main scheme will fall short of the Revenue maximum at normal retirement age. This can arise for many reasons:
  • You will not have completed maximum service by normal retirement age (not relevant in your case)
  • The scheme benefits are less than Revenue max, i.e. no spouses pension , no indexation of pension in reirement, offset of State benefits.
  • Your scheme benefits are based on Basic Salary but you have significant non-pensionable earnings , e.g. bonus, car allowance etc.
If you have full service and are maxing yor AVC's you should ensure that you will not overfund. Talk to your Trustees or scheme advisor. They are obliged under Revenue rules to ensure that you have scope to fund additional benefits by AVC's. Also bear in mind that you cannot fund AVC's purely with the intention of early retirement. The scope for funding AVC's must be based on the benefits payable at normal retirement age.
 
In these days of very low interest rates and longer life expectancy I would say that it is extremely difficult to over-subscribe.

Ask the company's pension advisor to run a check on your expected benefits and to recommended the maximum allowable AVC rate if you are currently overpaying.
 
Does anybody know what happens if you do manage to oversubscribe to AVC? Do you just end up paying tax, say at marginal rate, on the "over" part?
 
I thought you could no longer overpay avcs as any balance can be transfered to an ARF.No idea where i got the idea from though!
 
Thanks for the info folks.

This has given me some good pointers and I will use these to our scheme advisors as per your advice Conan.
 
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