BourbonWithIce
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If you expect to get a full occupational pension (say after 40 years service) then you will have little scope for investing AVCs.
By the way, what don't you understand about your DB occupational pension?
Salary is currently 88k. Yes I am PRSI A employee.
My wife is a private sector employee but no pension provisions other than the state pension. I now understand the benefits of her looking into an AVC or PRSA whereas it may not be beneficial for me to do so.
Ex colleagues with over 40 years service have paid 40% of salary into something for a year before retiring and said they saved thousands. What is this?
Once she earns over 26,300 (after pension contribution, but can include earned, like rent in your case) it's at top rate - you just switch part of the tax band between you to benefit. I might have missed if you mentioned her salary.Can my wife claim relief at 20% or 40%rate
The biggest attraction of the AVC/PRSA is that contributions into it attract tax relief at the marginal rate - so 40% for yourself. However, this attraction is lost if you have to pay the same rate of tax again at drawdown. (There may be some other advantages from scheme growth but it is the tax benefit that attracts most).
So, if you were retiring today at 65 with 40 years service, you would roughly receive an Occ Pension of €31K and you would also be entitled to the State Pension of €13K at whatever age it becomes payable. Lets assume that you would meet the criteria for a Supplementary Pension in the interim. So your total retirement income would be €44K. If you were to draw down income from an ARF (having transferred your AVC into one) it would be subject to 40% tax. As you have 40 years service you will already have received the maximum tax free lump sum, so no option to top up there.
In this situation I would not be inclined to take out an AVC (there may be some other advantages in terms of estate planning, which I am not familiar with).
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What I have learnt is that for the OP (Public servant aged 40 so able to get tax relief of 25%) all things being equal (In a Class A PRSI pension scheme, will work for 40 years of service until they are 65 and then get a supplementary pension until 68) there is little value in contributing to an AVC / PRSA now. They are already maximising the age related percentage limit of 25% and any additional income through an ARF will be taxed at 40%.
In fact, the tax on the income in retirement could be 40% PAYE + 4% USC. So unlikely to be a very tax-effective strategy.Relatively little as regards tax relief. 40% relief going in but 40% to pay on an ARF drawdown.
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