A V C

imom922

Hi hope someone can help me here.

My mam retired from public sector in mid feb, she as a cleaner in the Dail, 20 yrs service and a grand total lump of 17000. She took out an AVC with new ireland years ago, the paper work at the start told us she was going to recieve 32000 when she retired. A rep from new ireland has now called to the house informing her of new legislation introduced late last year that she will not recieve the full amount 16000 now and 16000 when she is 75. Is this true. Dad is unemployed no one living at home and no other income.

Any help greatly appreciated

Liam D Ferguson

I could be wrong but this sounds like your Mum is being offered the option of taking €16,000 of her AVC fund now and putting the other €16,000 into an Approved Minimum Retirement Fund (AMRF) which she cannot access until she's 75. This is not new legislation, but some of the rules did get changed last year.

She may have other options. Can you post:

• Her age
• The amount of annual pension (before taxes) she's getting from the main pension scheme.
• Had she any pensions from employments prior to the Dail?

imom922

Hi Liam,

Many thanks for your reply and any help would be much appreciated. She turned 65 on 9th Feb 2012 and she has no other pensions from any other employment. Re the amount of annual pension I can not see anything on her statement. However it does state the following:

Retirement fund (at age 65) €32,354
which could be used to purchase
an annual pension of €1342.72

I know that she gets €225 every 2 weeks into her acount and it increases when she turns 66 however not too sure by how much but know it is only a few euro and nothing massive.

Liam D Ferguson

Okay I'll assume that your Mum's total pensions from all sources is less than €18,000 per year before taxes, PRSI etc. Correct me if I'm wrong on this.

With her AVC fund, she can take part of it as a tax-free lump sum, up to Revenue limits. New Ireland should be able to calculate the amount. From your first post, that sounds like it might be €16,000.

After taking out the lump sum, she has two options as to what she can do with the rest of her AVC fund: -

(1) Buy an annuity with it, i.e. a guaranteed pension for the rest of her life. There are quite a few options around buying an annuity so she should get advice on them, e.g. level or increasing pension, with or without spouse's pension etc.

or

(2) Invest the money into an Approved Minimum Retirement Fund (AMRF) - this will be invested in fund(s) of her choice and, assuming she has no other pension entitlements, she cannot access it until she is 75. After she's 75 she can access the funds in the AMRF however she wants - in one go or in instalments. Any such withdrawals will be taxable.

She can convert her AMRF into an annuity (see 1) at any time.

Hope this helps.

imom922

Thanks Liam, that appears to be the situation, when she is assesed she will not make the 18000 per year. Meaning she will not get the full amount, do we have an appeals route. New Ireland did not send her any notification about this. I trully am disgusted again the working class getting s**t on by our glorious leaders...

Liam D Ferguson

Finance Bill 2011 brought about an increase from €12,697 per year to €18,000 per year. Is her total pension (from all sources excluding the AVC fund) greater than €12,697 per year? If not, her position hasn't changed.

Unfortunately, I don't think there's an appeals procedure. The limit was changed last year for everyone, when Finance Bill 2011 was enacted.

imom922

Liam thanks alot for the information. We are going to look at some form of appeal not sure yet. My mother entered into a contract with New Ireland, no third party was involved. New Ireland failed to inform my mother about the change again we are very upset and disappointed. I wonder if many people are affected by this.

John

Liam D Ferguson

You could make a complaint through New Ireland's formal complaints procedure, but you'd need to be able to prove that the rules around payment of benefits at retirement were not properly explained to your mother.

One question that would be very relevant before you make any complaint is: -

Does your mother's pension from all sources (excluding AVCs) exceed €12,697 per year before tax and deductions?

HowFinancial

In response to your original query I agree with Liam. However,
Whether you're going the annuity (pension) route, or the ARF/AMRF (investment route) I'd suggest shopping around.
Just because the AVC was with New Ireland doesn't mean that she has to stay with New Ireland.
Contact an independent broker who deals with New Ireland and other Life Companies. They will shop around for you. If you're not sure if you trust the broker or not, contact 2 brokers and see what both come back to you with.

HowFinancial

P.S. There is a final option which is to take the first 25% tax free lump sum, and take the balance as a Taxable Lump Sum.

imom922

Hi thanks for your input. New Ireland have not made that option available to us. Is it an option, even though mam's annual earings are under the 18000 mark.
John

HowFinancial

Regarding best use of AVC retirement benefits this will depend on all retirement benefits taken from relevant employment, how they were taken, number of years service e.t.c.

AVC benefits are normally attached to Employee Retirement Scheme Benefits. The manner in which you draw these benefits depends on the benefits taken from Employee Retirement Scheme. Traditionally AVC benefits would be used to pay out a Tax Free Lump Sum so that no Tax Free Lump Sum is paid out of company pension scheme (this serves to maximise pension income from the company retirement plan, particularly if it is a Defined Benefit Scheme). However, civil service schemes are slightly different, & this tends not to occur.

As you can see from above paragraph, without having all of the information to hand, establishing your options starts to get a little complicated! This is because your options with respect to "best use" of AVC depends on which options were offered and chosen with respect of Employee Benefit Scheme, as well as any other retained benefits.

Strongly advise bringing all available documentation to an independent Financial Advisor. Documentation should include: Retirement Benefit Options Statements or Leaving Service Options in respect of Employee Pension Plan and AVC, copy of correspondence accompanying any cheques received (if applicable).

VERY IMPORTANT!
One thing to be careful of, is that the value of the AVC may be guaranteed within a certain number of days from retirement. This will be written on your AVC Retirement correspondence. This depends on the investment fund your AVCs are invested in. If the monies are invested in this type of fund, the value could dramatically reduce (MVA) if you delay beyond the prescribed number of days. Therefore I would urge you to speak with a Financial Advisor sooner rather than later. (usually there should be no charge for consultation).

Finally, taking the balance of the fund as a Taxable Lump Sum i.e. paying full income tax on it, at your marginal rate is more than likely an option open to you. However there is probably a better way for you to use the AVC monies.