Revenue 2/3rds pension limit

J

james80

Registered User
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Hi,
I am a member of a private sector DB scheme, so after reading previous posts it seems you cannot get more than 2/3rds final salary (which may mean there is limited scope for AVC's in a generous DB scheme).

Is there any way to get a pension/salary after retierment of more than 2/3rds final salary? For example, it is my understanding that a person contributing to their own PRSA and then transfering to an ARF, given that it is sufficiently funded, can draw down funds as they wish and therefore keep the same salary in retierment as while they were working (if for whatever reason they wanted to)?

Is it possible to get a transfer value from the DB scehme, move that, along with well funded AVC's into a PRSA pre retierment. Then at retierment transfer to an ARF. Then it would be possible to draw down what you like when you like, and other advantages such as the fund being your own?

My question is not really with the veiw to salting away huge sumes of money tax free. I am on an average enough salary, and just really wanted to get my AVC options right.

If anyone can answer the above or point me in the direction of good pensions advisors or good books on the subject - would be good too.

Thanks
 
How generous is your DB scheme, you should be aware of the following.

Most schemes deduct the state pension and provide only 2/3 or less for partners pension.
Also most schemes pay on final salary whereas revenue allow 2/3 of P60 (various rules apply in calculating) i.e BIK figures not included in final salary.

Not sure about the remainder of your question.
 
Re transferring from a DB scheme to a PRSA - very difficult to do. If you have more than 15 years service impossible. Not very advisable.

Really if you want to aim to have more income than 2/3rds times Final Taxable Earnings ( includes all bonus, car allowance etc), then savings outside of pension is the only way to provide this. 2/3rds is all you will be permitted from tax-free pension contributions whatever way you approach it.

However, talk to your pension advisor of your DB scheme and ensure you are maximising any AVC contributions before you save for a pension outside of the tax-relief method.

As the previous poster stated, the 2/3rds x Final Salary is actually a very generous pension - this is costed at pension increases of inflation/3% , 100% spouses. Therefore a pension of 80% of salary with no pension increases is likely to be less than this overall limit.
 
Thank you for the answers. I thought that the non occupational route (by using PRSA and then ARF) you could basically draw as much money as you wanted each year from the ARF regardless you your final salary or the 2/3rds rule. This assuming you have a well funded ARF. It seems that the PRSA / ARF route gives some advantages over a DB plan as below:

  • Can accumulated a big fund if you start early and contribute the maximum amount.
  • the 2/3rds rule is not applicable for ARF's??
  • It is your pot of money which can be passed on.
Yes my DB scheme deducts the state pension from the final salary figure so I guess AVC's could be used here. For example:

Final Salary = 60k
State Pension * 1.5 = c.15k
Pensionalble Salary = c.45k (60k-15k)
2/3rds pension = c.30k (45k*0.66)

So you could use AVC's to increase the 30k pension payable from the scheme to 2/3rds of 60k final salary above above.


Thanks for your replies.
 
james80 said:
the 2/3rds rule is not applicable for ARF's??
Click to expand...

The 2/3 rule applies to ALL Occupational Pension Schemes. It's used as a funding test. In the test, it is assumed that you're buying an annuity, regardless of whether or not you actually intend to. The (possibly notional) annuity must not exceed 2/3 of your final salary.

If you pass this funding test, THEN you can choose to transfer some or all of your fund into an ARF if the option is available to you. You can withdraw from the ARF at any rate you choose.
 
For the sake of clarity:
  • An ARF is the post-retirement vehicle where the funds accumulated in the re-retirement vehicle are invested (from a PRSA, Personal Pension etc). An ARF is not a funding vehicle.
  • In the case of an employee (or Co.Director) you cannot fund for benefits in excess of Revenue limits in the pre-retirement vehicle, whether that be a PRSA or an occupational scheme.
  • Yes, one of the attractions of the ARF route in retirement (if you are eligible to access such) is that on death any capital remaining can pass on to children (after a surviving spouse)
  • Most occupational DB schemes tend to have scope for AVCs (e.g. where they deduct State Social Pension, where the Spouses Pension is less thatn 100%, where there is no indexation of pension in payment). AVCs can then be used to bridge those gaps.
 
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