Teacher - AVC or other financial service

seekingthetruth

Hi, Im a teacher working in cork on my first year that will hopefully lead me to CID.
Im just gone 35 and have been teaching since Jan 2006 on various different contracts (maternity, career breaks, secondment).

I recently had a meeting with a man from Cornmarket and he advised me to open an AVC to make up the shortfall in my pension because of being down in years at retirement.

I have been looking on boards.ie and the feedback is not good for Cornmarket or AVCs and I am very unsure of what to do?

Is someone able to advise me?

Its hard to find someone to trust to tell you the truth

Thanks

coylemj

In general terms, paying into an AVC is definitely advisable for you since you will not be able to clock up maximum service given that you are 35 and have only one year of service. An AVC is a very tax-efficient method of boosting your pension.

Can you tell us what options you've been given in terms of where the money will be invested - were you given a shopping list of different companies like Irish Life, Zurich etc. and/or different funds within those companies?

seekingthetruth

Im teaching since Jan 06 so the years I have will count but becasue they are temperorary contracts they wont count for full service.
Ive been told two different totals by two different people - at 65 I will have somewhere in the region of 31.5 years to 36 years service, which is the truth I dont know....

The AVC plan was through Cornmarket and Irish Life was mentioned (I asked him who designed the software and he told me Irish Life), when the options were put on the consultants computer screen - Zero Risk, Low Risk and up the line to High Risk I think, he selected Low Risk for me.

Personally I would prefer Zero Risk but maybe Low Risk is ok too.
Does this help?

Addle

So you may be just 4 years short of full service?
And you're thinking of paying an insurance company for how many years to make up for that 'shortfall'?
Do you really think it'll be worth it?

seekingthetruth

Cornmarket Consultant calculated that with 31.5 years service I will have a pension of €11k at 65 and then will get the state pension at 68 so there will be a massive shortfall for me and a huge drop in my lump sum

Addle

What about 36 years service?
Have you checked with the department what your service to date is?
Start there.
Cornmarket want to sell you a product.
If you just save the equivalent of the contributions they suggest, you'll probably be as well off.

seekingthetruth

If I email the dept. will they tell me straight out?
The 36 years service was calculated by another finance company that I bought payment protection from so I don't know who to believe tbh but either way the shortfall that I have - are AVCs the best option and who should I go to for them ?

Addle

I'm a civil servant and I can check my own service record online.
Of course your employer will tell you your service record.
It's a few years since I looked into AVCs and I didn't think they were worth it.
No one I know who has bought back years service and retired has got what they thought they would from their AVC payment.
You will have to figure it out for yourself and not be duped by sales people.

bisset

Will you have the option to buy notional years?

seekingthetruth

I don't know , I'm a post 2004 entrant to teaching that's all I know , will the dept tell me that as well if I contact them?

murphyebass

Addle wrote: »

I'm a civil servant and I can check my own service record online.
Of course your employer will tell you your service record.
It's a few years since I looked into AVCs and I didn't think they were worth it.
No one I know who has bought back years service and retired has got what they thought they would from their AVC payment.
You will have to figure it out for yourself and not be duped by sales people.

Whatever you do op don't listen to this poster.

AVC's are the most tax efficient way of boosting your pension.

However it is important to understand the risk that is potentially there with the investment choice you make. Everyone is different in this regard.

If you take it just on your age I'd say because you have so long till retirement and you have to deal with inflationary risk that investing makes sense. But again look at the fund options and choose based on that. Then review that choice annually. It's amazing how many people never review their fund choice.

The bottom line here is don't go with it if you're not comfortable with it but you need to have all the facts etc to make that decision.

As for your years service contact the department. They should be able to tell you.

I don't work for Cornmarket btw but I am a qualified financial advisor working in the industry for the past ten years.

coylemj

OP, AVCs are definitely worth considering. You mention zero or low risk, that is not a good investment choice when you are looking at a horizon of almost 30 years. Every measure of investment performance says that a managed fund with a good exposure to equities (i.e. shares) performs best over this period of time. I'd suggest a fund with risk level 5 would be the right choice for you. You can review it when you are within ten years of retirement and in any event, the default is that they move 10% of the fund into safer funds for each of the last ten years of your working life in order to insulate you from market 'shocks' i.e. stock market crashes.

seekingthetruth

What does risk level 5 mean?
Am I in danger of loosing more than I put into a low risk/zero risk fund over 30 years?

Thanks

coylemj

seekingthetruth wrote: »

What does risk level 5 mean?

http://ratings.moneymate.ie/Info/IE/IndustryRiskProfileExplained.html

It's also explained well in this Zurich document, especially see p.5 ...

https://www.zurichlife.ie/static/documents/DOC_8688/Pathway_Multi_Asset_Funds_Brochure.PDF?docTag=

seekingthetruth wrote: »

Am I in danger of loosing more than I put into a low risk/zero risk fund over 30 years?

Yes, that is a very real risk, especially if there is a period of moderate or high inflation which will potentially inflict serious damage on the real value of your fund. Even with low inflation, putting money for that period of time in low-risk funds will give very little or no return.

murphyebass

seekingthetruth wrote: »

What does risk level 5 mean?
Am I in danger of loosing more than I put into a low risk/zero risk fund over 30 years?

Thanks

Whatever risk you take you can loose some or all of your capital.

Irish life for example use a 1-7 scale. 5 would be high risk but not the same as buying 1 or 2 shares let's say.

It's all about perspective and understanding the risks involved. Talk to an advisor and get them to explain the risks involved. If you walk away not understanding said risks go to another advisor.

Managed funds in general are quite well diversified but will still have a form of risk involved.

GreenwayM

I am nearly 50 and don't have a pension . . .

Is it really that important?

I am self-employed and barely surviving on what I am making . . .

2012paddy2012

coylemj wrote: »

In general terms, paying into an AVC is definitely advisable for you since you will not be able to clock up maximum service given that you are 35 and have only one year of service. An AVC is a very tax-efficient method of boosting your pension.

Can you tell us what options you've been given in terms of where the money will be invested - were you given a shopping list of different companies like Irish Life, Zurich etc. and/or different funds within those companies?

I have one these praa avc too - public servant - 11 years paid in - only realised very recently that depending on circumstances when I retire from public service ... Which I can do now ... I may only get half I paid in and then some sort of v small monthly Arf after that 😩 if I had known that at the start I wouldn't have bothered ... Be aware of this OP

coylemj

2012paddy2012 wrote: »

I have one these praa avc too - public servant - 11 years paid in - only realised very recently that depending on circumstances when I retire from public service ... Which I can do now ... I may only get half I paid in and then some sort of v small monthly Arf after that 😩 if I had known that at the start I wouldn't have bothered ... Be aware of this OP

What fund(s) are you saving into and when did you last get a statement of the value of your AVC? You might have been into negative territory when the stock markets crashed in 2008/9 but you certainly should be well into profit at this stage.

2012paddy2012

coylemj wrote: »

What fund(s) are you saving into and when did you last get a statement of the value of your AVC? You might have been into negative territory when the stock markets crashed in 2008/9 but you certainly should be well into profit at this stage.

Zurich yeah probably a bit ahead of contributions put in .... It's this partial lump sun and monthly payments annoys me ! Just under 5 yrs to go to maturity now

coylemj

2012paddy2012 wrote: »

Zurich yeah probably a bit ahead of contributions put in .... It's this partial lump sun and monthly payments annoys me ! Just under 5 yrs to go to maturity now

Wow, that's some performance, you've gone from <50% to a surplus in 31 minutes!

Part of the problem with an AVC and the public service is that with full service you are already getting 1.5 times final salary as a tax-free lump sum on retirement. That eats up virtually all of your (tax-free) lump sum options so what you should do is first of all make sure that you have drawn as much cash tax-free as you can and leave the rest of the AVC in an ARF which you can then draw on when you need it. All withdrawals are liable to tax and USC at your top rate. Do not buy an annuity whatever you do as the rates these days are terrible because interest rates are at rock bottom.

Addle

coylemj wrote: »

s a tax-free lump sum on retirement

Lump sums won't be tax free for much longer.

Tess Tickle

I would advise you to start a PRSA. Tell your bank manager you want to start a "standard " prsa.You will get the same tax relief and you can vary the savings to your circumstances.
The charges on a standaed prsa are 1% oer annum and all banks are legally obliged to offer them.Cornmarket are an expensive joke.

murphyebass

Tess Tickle wrote: »

I would advise you to start a PRSA. Tell your bank manager you want to start a "standard " prsa.You will get the same tax relief and you can vary the savings to your circumstances.
The charges on a standaed prsa are 1% oer annum and all banks are legally obliged to offer them.Cornmarket are an expensive joke.

Have you any understanding of retirement planning for public sector workers?

Actually don't bother answering that.

murphyebass

Addle wrote: »

Lump sums won't be tax free for much longer.

How do you know this?

Don't get me wrong it could be true but it's yet another bit of misinformation being just wildly thrown out there.

Tess Tickle

Murphyebass..i am an administrator of a private sector pension plan and my spouse is a public sector employee.
I'll tell you what i understand about public sectors avc;s....they are just the same as private sector avc,s and you get ripped off by charges in each case.

Now ,you tell me what you know,or on second thought, dont bother.

seekingthetruth

AVC - What Ive been advised is put in €98 every two weeks into it and Ill get €40 reduction in PAYE so essentially I am putting in €58 every two weeks at the moment and revisit it in two years.
So thats €29 a week for the foreseeable future and will increase as my increments do.

What I really want to know is - should I do this?
Should I do it through Cornmarket or go elsewhere?
What other options have I so I can still get my max tax free lump sum on retirement and top up my pension to the best it can be for the remainder of my life after retiring (and also should I die that whats in the fund goes to my next of kin)?

I think that summarises it, I have no idea what a PRSA is or ARF

coylemj

seekingthetruth wrote: »

AVC - What Ive been advised is put in €98 every two weeks into it and Ill get €40 reduction in PAYE so essentially I am putting in €58 every two weeks at the moment and revisit it in two years.
So thats €29 a week for the foreseeable future and will increase as my increments do.

What I really want to know is - should I do this?
Should I do it through Cornmarket or go elsewhere?
What other options have I so I can still get my max tax free lump sum on retirement and top up my pension to the best it can be for the remainder of my life after retiring (and also should I die that whats in the fund goes to my next of kin)?

I think that summarises it, I have no idea what a PRSA is or ARF

Do you have an option to invest in an AVC with any other financial provider? I suggest you take this up with the teacher's union.

As a teacher you can't do a pension via a PRSA, they're essentially for the self-employed or people in small companies where the company hasn't setup a scheme.

An ARF is an Approved Retirement Fund, it's basically a tax shelter for a lump sum that you can't take on retirement without paying tax. The natural thing to do on retirement is to take as much money as you can tax-free without cashing in any of your pension (income) entitlement. Any money left over you can either take net of tax, or leave it in an ARF. That means that some or all of the money in the AVC at retirement can be transferred to an ARF, either with the same company or to any other company (typically a life assurance company) approved by the Revenue to provide this service.

Income and capital gains within an ARF are tax-free, you pay PAYE and USC when you withdraw money.

Addle

murphyebass wrote: »

How do you know this?

Don't get me wrong it could be true but it's yet another bit of misinformation being just wildly thrown out there.

Did a search online there and can't find back up for my statement, but I'm confident it's true.
Isn't it a big incentive for some who are near retirement to go sooner rather than later?
That's the effect where I am now anyways.

Henry Ford III

Addle wrote: »

Did a search online there and can't find back up for my statement, but I'm confident it's true.
Isn't it a big incentive for some who are near retirement to go sooner rather than later?
That's the effect where I am now anyways.

Why? Tax free lump sums have been around for decades.

Addle

Henry Ford III wrote: »

Why? Tax free lump sums have been around for decades.

Because public servants have suffered a multiple of cuts in pay and conditions in recent years and this is another.

Henry Ford III

Addle wrote: »

Because public servants have suffered a multiple of cuts in pay and conditions in recent years and this is another.

That's a hunch at best.

The J Stands for Jay

Tess Tickle wrote: »

I would advise you to start a PRSA. Tell your bank manager you want to start a "standard " prsa.You will get the same tax relief and you can vary the savings to your circumstances.
The charges on a standaed prsa are 1% oer annum and all banks are legally obliged to offer them.Cornmarket are an expensive joke.

Do not do this. A standard PRSA has a charge of 5% on each contribution and 1% of the fund per annum. A non standard PRSA can have lower charges. Also, banks usual act as tied agents of one provider and won't give independent advice.

The J Stands for Jay

coylemj wrote: »

As a teacher you can't do a pension via a PRSA, they're essentially for the self-employed or people in small companies where the company hasn't setup a scheme

Teachers can have PRSA AVCs.

cashflowplus

seekingthetruth wrote: »

Hi, Im a teacher working in cork on my first year that will hopefully lead me to CID.
Im just gone 35 and have been teaching since Jan 2006 on various different contracts (maternity, career breaks, secondment).

I recently had a meeting with a man from Cornmarket and he advised me to open an AVC to make up the shortfall in my pension because of being down in years at retirement.

I have been looking on boards.ie and the feedback is not good for Cornmarket or AVCs and I am very unsure of what to do?

Is someone able to advise me?

Its hard to find someone to trust to tell you the truth

Thanks

If your a first year teacher your probably in the 20% tax bracket and if so it doesn't make sense to at the moment to invest in an avc as you will receive 20% tax relief and pay more in tax in retirement, when you include the charges that cornmarket charge this doesn't make sense

Generally speaking AVC are good for filling the shortfall in your "tax free" lump sum the key word here is "tax free" this is usually a small amount that you can fill in the last 10 years before retirement and which point you will be receiving tax relief at 41% or 40% starting in 2015.

Another problem with AVC is the government can change the rules tax relief etc, and what was a good idea today might not be a good idea tomorrow

coylemj

cashflowplus wrote: »

Another problem with AVC is the government can change the rules tax relief etc, and what was a good idea today might not be a good idea tomorrow

That's like saying you shouldn't save for the future because you might be knocked down by a bus tomorrow.

cashflowplus

coylemj wrote: »

That's like saying you shouldn't save for the future because you might be knocked down by a bus tomorrow.

I work with the public service re: Pensions and my advice is save your money and with five years until to your retirement you can lump it into a avc if it makes sense at that time you make a more educated decision and not tie up your money for 20/30 years on something that doesn't make sense when the time comes. You can still save for the future just doing it in a better way

Also charges on group schemes are ridiculous you can get much lower charges putting it in as a lump sum

billyhead

Ì am a couple of years younger then you and am a civil servant the last 14 years. I set up an AVC with New Ireland Assurance in 2001 based on a consultation with one of their reps. Its a very good idea to set when up as it comes from your gross income and will the earlier you start the better financial situation you will be in when it comes to your retirement, and the current tax advantages are a no brainer really.

SBarrett

You have two options to make up for the shortfall:

1. Buy back years. You can pay into the scheme to buy back the years that you have lost. Get in touch with the department of education and find out how many years you can buy back, how much does it cost and how can you pay for it. It usually works out to be pretty good value for money. There is no investment risk involved in buying back years.

2. Pay into an AVC plan. You pay a fixed amount into a separate pension plan to the main scheme. How much you get from it is dependent on how much you put in and how well it performs. It is doubtful that it will provide better benefits than buying back years. You assume the investment risk.

You say you are risk adverse and that is fine. Don't forget inflation is a risk too. If you invest in cash over a 30 year period, it is probable that the real value of your investment will be less than you put in. Ask the advisor what the downside risk to any of the fund recommendations was? How did his recommendation perform in 2008 for example? You will then know what level of risk you are comfortable with.

As you are a member of a pension scheme, any additional payments are made by Additional Voluntary Contribution (AVC's). Cornmarket run the teachers AVC scheme. If you do not want to use them, you can make contributions into a PRSA AVC plan. The other types of pension plans will not apply to you.


Do not do anything until you know the cost of buying notional service. Then you can compare which is the best option for you.


Steven

diomed

The advice from SBarrett above looks good.

I am 64. At age 40 I joined a company with a pension scheme. I transferred pension from my 7 years with a previous employer and got 2.3 years with my new employer.
Luckily someone I worked with in the new job told me to buy pension years. I signed up to buy 10 years with the target being 35 years pensionable at age 60 (65 minus 40 starting age = 25 years plus buying 10 years). After a while I also started additional voluntary contributions (AVCs). The reason was I had paid off my mortgage and my income tax had gone up. I also bought one pension year with cash, and got a second year in a job deal for relinquishing rights.

I took early retirement in late 2006 at age 56. The company closed two years later.

I had a pension of about half salary for the last eight years. I got back my €35k AVCs in cash when I left in 2006, and put it into shares two years later at the end of 2008, selling in 2014 for €70k. €60k went into National Savings, and €10k goes in Capital Gains Tax. One thing I did not do when investing was go to a company and ask them to invest my money. They will take 15% up front, then put it in one of their own funds, and pay themselves 1%, 2%, 3% a year to manage it (badly).

My pension is a commuted pension. It reduces to a few thousand at age 65, and at age 66 I'll get the old age pension, with my commuted pension.

If I didn't buy extra pension and AVCs, and stayed with the company I would have been out of work and unemployable at age 58, with a pension that disappeared in an insolvent pension fund. When I left at age 56 the pension fund had to buy an annuity for me. What remained in the pension fund belonged to the people still contributing, and it was insolvent.

Every year since I have signed for credits with the Department of Social Welfare to keep my entitlement to an old age pension. This is important.

Do not spend your time thinking that you must do something sometime about your pension. Act.

Bananaleaf

coylemj wrote: »

Do you have an option to invest in an AVC with any other financial provider? I suggest you take this up with the teacher's union.

As a teacher you can't do a pension via a PRSA, they're essentially for the self-employed or people in small companies where the company hasn't setup a scheme.

An ARF is an Approved Retirement Fund, it's basically a tax shelter for a lump sum that you can't take on retirement without paying tax. The natural thing to do on retirement is to take as much money as you can tax-free without cashing in any of your pension (income) entitlement. Any money left over you can either take net of tax, or leave it in an ARF. That means that some or all of the money in the AVC at retirement can be transferred to an ARF, either with the same company or to any other company (typically a life assurance company) approved by the Revenue to provide this service.

Income and capital gains within an ARF are tax-free, you pay PAYE and USC when you withdraw money.

This is the clearest post I've read on the explanation of these terms.

Just a question... If we are paying into AVC now and getting 40% tax break ... When we transfer to ARF and pay PAYE and USC, and the yearly maintenance fees on the AVC - are we paying the 40% back essentially?

coylemj

Bananaleaf wrote: »

This is the clearest post I've read on the explanation of these terms.

Thank you.

Bananaleaf wrote: »

Just a question... If we are paying into AVC now and getting 40% tax break ... When we transfer to ARF and pay PAYE and USC, and the yearly maintenance fees on the AVC - are we paying the 40% back essentially?

Yes, this is the system in most countries - you get tax relief when paying in but you have to pay tax on post-retirement benefits, as you do with your actual pension.

However..... as you will have a lower income in retirement, you may or may not be paying a lower rate of PAYE on the income you receive from your pension and/or ARF drawdown than you were able to claim on the original contributions.