PRSA AVC to maximise tax relief on Public sector salary and additional income

[Bearsandbulls]

Hi All,

Hoping someone here can point me in the right direction or even know of someone who can. Some advisors I have talked to seem to run a mile from giving advice on AVC's on public sector

My wife is looking to set up an AVC account in order to boost what will be a small pension

Age:38
Social worker with Tusla
Member of Single pension scheme since 2016
Worked full hours from 2016 but went down to 50% shift in 2021 after arrival of second child. Will maintain 50% for forseeable future
Basic salary of €25k however this boosted to approx 35k-40k after shift allowances and weekend premiums
Pays 40% tax on income above 33k (tax credit transferred to me)
Generates additional 5k income from other source. This is likely to increase to 5k-20k from next year
It is unlikely that my wife will work until 65, hence the need to see what can be done now

My questions:
1. Is it possible to calculate the levels of AVC that can be funded to reduce her 40% income tax from Tusla wages? I was warned about potential overfunding so I am trying to figure out how to get this figure
2. Can the same AVC be used to put 20% of her additional income into?

Again I was told about potential overfunding but from my research, it appears that you are forced to go with Cornmarket in order to find out the correct figures you can contribute. If overfunding would be an issue, does this rule out pension contributions from the second income as well?

 

[S class]

Don't worry about over funding.
She has scope to make large amounts of AVCs to make up for the shortfall in the public sector widows pension. This is set at 50% of her pension and the revenue allowable widows or widowers pension is 100% of her pension.
This allows her AVCs to go to a couple of hundred thousand euro.

She would need an AVC PRSA for her public sector income and a seperate PRSA for her other source income.

Over funding is not an issue relating to her other source income. She can make maximum contributions up to her age allowable tax free amount each year.

 

[Bearsandbulls]

Don't worry about over funding.
She has scope to make large amounts of AVCs to make up for the shortfall in the public sector widows pension. This is set at 50% of her pension and the revenue allowable widows or widowers pension is 100% of her pension.
This allows her AVCs to go to a couple of hundred thousand euro.

She would need an AVC PRSA for her public sector income and a seperate PRSA for her other source income.

Over funding is not an issue relating to her other source income. She can make maximum contributions up to her age allowable tax free amount each year.

Thank you S class. Can you explain the angle with a widows pension a bit more? It's not a connection I'd have heard about before.

I will look at setting up a low cost PRSA for the additional income. Let's say the annual income was 10k, would she be restricted to a 2k contribution for tax purposes (considering her age of 38)? I presume I can't just claim all of her relief from salary and additional income against this small PRSA.

Since I require 2 seperate PRSAs, what would your thoughts be on just going with Cornmarket for the salary AVCs? I know their fees are poor but it seems to be a closed shop in terms of knowing how much can be contributed.

Greatly appreciate your help on this

 

[S class]

She can make AVCs to fund for a possible widowers pension for you if she was to die. If this occured you would only receive 50% of her pension. Revenue allow a widowers pension of 100% of her pension. The cost of this extra 50% pension to you would be very large. Basically an annuity to the level of half her pension for your entire life. Consider the possibility of her death at age 50 and you living to age 100. The AVCs needed are enormous.

The AVCs are funded on this basis.
If she survives she can use the AVCs to purchase an ARF or annuity, as with any other AVCs. If she dies the AVCs transfer to her estate, as in the case of any other AVCs.

20% of her other income could be made in AVCs.

Both incomes have to be treated separately. AVCs from PS income to AVC PRSA. 20% of other income to a separate PRSA.

It's almost impossible to overfund.

Cornmarket might be handy, but as you say costly.

It's not. to difficult to set up an AVC PRSA with a broker.

LD Ferguson and Gerard Sheehy offer a great service for execution only PRSAs.

 

[LDFerguson]

One way of keeping it simple is to wait until the end of the tax year to make the pension contributions. Your wife's day-job income is variable due to shift allowances and weekend premiums. Her second income also seems to be variable. So if you wait until the end of the year, you'll know exactly how much she was paid for each job and then you can make your calculations in January based on the exact figures.

 

[GSheehy]

I know their fees are poor but it seems to be a closed shop in terms of knowing how much can be contributed.

When you complete an AVC PRSA application you're aksed about the main scheme and any other pensions that you may have.

The product provider is obliged to do a max funding quote (internally) based on the information supplied so you're protected from 'overfunding' that way. They'd revert if there was an issue.

There was a time when the oversight on this was a bit loose but I think Revenue had a chat with the providers about ensuring that folk didn't overfund.

I've yet to see an AVC PRSA flagged as breaking the limit. The scope for contributions is just way bigger than folk imagine.


Gerard

www.prsa.ie

 

[LDFerguson]

When you complete an AVC PRSA application you're aksed about the main scheme and any other pensions that you may have.

The product provider is obliged to do a max funding quote (internally) based on the information supplied so you're protected from 'overfunding' that way. They'd revert if there was an issue.

There was a time when the oversight on this was a bit loose but I think Revenue had a chat with the providers about ensuring that folk didn't overfund.

I've yet to see an AVC PRSA flagged as breaking the limit. The scope for contributions is just way bigger than folk imagine.


Gerard

www.prsa.ie

Especially with the Single Public Service Pension Scheme. You'd really need to accumulate a huge fund to overfund.

 

[Bearsandbulls]

Thank you all for your advice, this place really is brilliant.

@LDFerguson i note you said the AVC fund would need to be huge.
If she is to maximise her contributions between now and say 60, a fund of 200k/300k would be possible.

Would you view this as in danger of breaching a funding limit?

Maybe I'm being overly cautious when assuming her reduced hours may catch us out

 

[LDFerguson]

Would you view this as in danger of breaching a funding limit?

No. The Single scheme calculates a pension based on career average earnings. The Revenue maximum limits are based on salary at the end of your career. There's a gap there that can be filled with AVCs. Even with 40 years' service (which your wife won't have) the Single scheme won't come within an ass's roar of the Revenue maximum limits. The fact that she'll have less than 40 years means that the gap will be even wider.

 

[Bearsandbulls]

No. The Single scheme calculates a pension based on career average earnings. The Revenue maximum limits are based on salary at the end of your career. There's a gap there that can be filled with AVCs. Even with 40 years' service (which your wife won't have) the Single scheme won't come within an ass's roar of the Revenue maximum limits. The fact that she'll have less than 40 years means that the gap will be even wider.

Thank you so much for this info