Savings & AVCs

DI Dwyer

I will retire in 4 yrs time (I hope!)... Q.. Would it make sense to dump some cash savings I have into my pension as AVCs. i.e over the next few yrs. I have some Vodafone shares also and was thinking of cashing in and putting the value into the AVC.. realising an immediate increase in value due to the tax reduction..... maybe I've answered my own question... Suggestions/comments welcome. I'm in my employers DC scheme....

coylemj

Yes it will make eminent sense. You can even make an AVC contribution in respect of last year up to the end of October. With the volatility that's currently in the markets and since you're only a few years from retrement, I'd put the AVC money into a cash fund - avoid equities (managed) and fixed-interest funds.

There has to be a revenue approved AVC scheme in place which is typically tied to your employer's scheme in that the benefits from the AVC must be taken at the same time as the benefits from the company scheme. In plain English, this means that the AVC money is locked away until you start collecting a pension from the company scheme at which stage what most people do is take as much of the AVC as they can as a tax-free lump sum and put the rest into an ARF.

There is a limit on the % of your gross income which you can pay into your pension and on which you can claim relief, it includes the contribution you are currently making to the comnpany scheme, assuing its a contributory scheme but the gross income for his purpose includes any benefit in kind on which you are paying tax so if you have a company car, you can add the BIK to your actual income to come up with the gross income for pension tax-relief purposes.

What's a 'DI' scheme?

DI Dwyer

MJ, Many thanks for your reply and content. I had forgotten about the possibility of claiming in the previous year. (That should read 'DC', defined contribution)

coylemj

If you're in a DC scheme then the liklihood is that you will be forced to buy an annuity when you retire to give you a pension of at least xxxx and as interest rates are at historic lows and consequently annuity rates are also low, I'd delay retiring for as long as possible, at least until rates start to creep up even a little bit.

So stuff as much cash as you can into an AVC but watch the pension tax relief as it's scheduled to be reduced in the next few years, this means you should aim to front load it as much as you can afford to get relief at the top rate for as long as is possible.

DI Dwyer

Hmmm!... I thought the new rule is that everybody has a choice of opting for an ARF if they so wish.

DI Dwyer

Today's Sunday Business Post gave pages of advice and options for those with 'lump sums' to invest.... However, there wasn't a mention of the possibility of a person transferring all or a portion of a 'lump' to a spouse who has yet to retire and could make (additional) AVC contributions and thereby massively reduce yearly tax laibility.....

FernandoTorres

DI Dwyer wrote: »

Hmmm!... I thought the new rule is that everybody has a choice of opting for an ARF if they so wish.

To access the ARF option you must put at least €119,800 into an AMRF which can't be accessed until age 75 or else have a guaranteed income in retirement of €18,000 per annum. So it wouldn't be available to everyone.

DI Dwyer

Ok, thanks for that FT. Can the 18k include the state pension?

FernandoTorres

DI Dwyer wrote: »

Ok, thanks for that FT. Can the 18k include the state pension?

It can yes but you must be in receipt of it at the time you are crystallising your benefits i.e. 66 or over. So essentially you must purchase an annuity of around 6k per annum which would cost circa €130,000.

DI Dwyer

OK.... An Allotment sounds like too much work.......