AVC - good idea?

Bananaleaf

Hi
We have a cornmarket rep in the school at the moment.

He mentioned the idea of an AVC to me today.

Are these a good idea? The basic info I got was that it's saving money at high interest - 40%. You can't cash out til retirement.

Thats all I was told so far. Meeting was short so meeting again tomorrow.

I'm just wondering if anyone has any opinions on AVCs and whether they are something to be avoided

I assume at 40% interest this has to be pretty high risk?

By the way, I'm 30, CID and will be one yr off full pension come retirement - not sure if this info is necessary or not but anyway

Thanks

solerina

If you are post 2004 entrant then as far as I know you may not have the minimum amount necessary at retirement to actually be allowed claim your pension until you are 68. If this is the case then no.....I have spoken to various pension experts who have come into the staff room and this is what I have been told by all.
Then again, its a long time away so who knows how many changes will have happened by then so its an impossible question to really answer with any certainty !!

byhookorbycrook

There was a programme not so long ago where Cornmarket came out as being less than wonderful as a choice for AVCs, I'd suggest you talk to an independent financial adviser.

Bananaleaf

Byhookorbycrook thank you. Will do so during Easter.

I am post 2004. I will have worked up full service by 66. But if I were to retire at 66 and not get state pension until 68, do I also not get avc until then too? Or do I get that when I retire?

Also, sorry for the silly question, but by independent financial advisor do you mean an accountant? Or where do I go for one? Do I just Google independent financial advisor in my location?

solerina

Bananaleaf wrote: »

Byhookorbycrook thank you. Will do so during Easter.

I am post 2004. I will have worked up full service by 66. But if I were to retire at 66 and not get state pension until 68, do I also not get avc until then too? Or do I get that when I retire?

Also, sorry for the silly question, but by independent financial advisor do you mean an accountant? Or where do I go for one? Do I just Google independent financial advisor in my location?

My understanding is that under the present scheme you will need to wait until 68 to get access to your full pension (including OAP) to be allowed access to your AVCs.

gaiscioch

byhookorbycrook wrote: »

There was a programme not so long ago where Cornmarket came out as being less than wonderful as a choice for AVCs, I'd suggest you talk to an independent financial adviser.

I recall seeing something like this on Prime Time some years ago (the INTO guy came out very badly in the one I saw). I think this might be a discussion on it.

If Cornmarket is not giving teachers the best deal in the market and the teachers' unions are promoting Cornmarket, it's not exactly much of a service from the unions for our c. €335 fee per annum (@ €530 before tax), to put it mildly.

dingding

You should have a look on ask about money.

Www.askaboutmoney.com

I think there are loads of threads on this topic. I would also look at the exit charges and the annual management costs. Probably to get paid advise as you are potentially talking about a lot of money and the broaker you are dealing with has a vested interest.

Notional service might be the way to go but it depends on your Service and other factors.

dingding

gaiscioch wrote: »

I recall seeing something like this on Prime Time some years ago (the INTO guy came out very badly in the one I saw). I think this might be a discussion on it.

If Cornmarket is not giving teachers the best deal in the market and the teachers' unions are promoting Cornmarket, it's not exactly much of a service from the unions for our c. €335 fee per annum (@ €530 before tax), to put it mildly.

That is the thread I was thinking about. It makes interesting reading
http://www.askaboutmoney.com/threads/prime-time-responds-to-pension-ombudsmans-criticism.101473/#post-780021

Another link worth reading.

evolving_doors

dingding wrote: »

That is the thread I was thinking about. It makes interesting reading
http://www.askaboutmoney.com/threads/prime-time-responds-to-pension-ombudsmans-criticism.101473/#post-780021

Another link worth reading.

AAM has multiple threads on AVC's if you do a search for that term. Under the pensions section I think.

When you say The basic info I got was that it's saving money at high interest - 40%. do you mean tax relief? i.e. if you put in €100 you can claim back €40 in tax relief (if you are paying tax at the higher rate).

dingding

Gebgbegb wrote: »

AAM has multiple threads on AVC's if you do a search for that term. Under the pensions section I think.

When you say The basic info I got was that it's saving money at high interest - 40%. do you mean tax relief? i.e. if you put in €100 you can claim back €40 in tax relief (if you are paying tax at the higher rate).

I am think they are confusing return with tax relief.

From reading the thread on amm they seem to count tax relief as return. If you cash it in before retirement you have to pay the tax.

Geuze

Bananaleaf wrote: »

Hi
We have a cornmarket rep in the school at the moment.

He mentioned the idea of an AVC to me today.

Are these a good idea? The basic info I got was that it's saving money at high interest - 40%. You can't cash out til retirement.

Thats all I was told so far. Meeting was short so meeting again tomorrow.

I'm just wondering if anyone has any opinions on AVCs and whether they are something to be avoided

I assume at 40% interest this has to be pretty high risk?

By the way, I'm 30, CID and will be one yr off full pension come retirement - not sure if this info is necessary or not but anyway

Thanks

It's 40% tax relief on conts, not a 40% return.

Where you save/invest your conts is up to you, you choose the fund, can be no / low / medium / high risk.

evolving_doors

Geuze wrote: »

It's 40% tax relief on conts, not a 40% return.

Where you save/invest your conts is up to you, you choose the fund, can be no / low / medium / high risk.

Fair enough that you have to pay back the tax relief as you are taking the AVC out and claiming the tax relief on the presumption that it's for your retirement.

Still though, getting 40% relief is nothing to be sneezed at. But then again there are alternatives... stick it into post office 10yr bond, save up to pay off mortgage/move house, money for rainy day.

Anyone know whats the difference between PRSA's and AVC's?

gaiscioch

I think a Sticky on this forum entirely devoted to teachers' finances would be a fantastic idea. I've followed the links in this thread over to the superb Ask About Money discussions, and if half of the stuff there is true then we all should be concerned.

What was said in this post in October 2006 caught my eye:

My wife was paying into a Woodchester AVC since early 1997. Scheme did not break even for her until 2005 (contributing approx. €4k p.a.)

Repeated requests for a breakdown of costs, both verbal and in writing, failed to achieve anything other than extra copies of information booklet.

My wife opened an independent PRSA last March, so her charges are set at 5%, if she increases her contributions, the charge falls to 3% - we'll see how the first year goes but looking good so far.

Unfortunately her Woodchester/Cornmarket fund must stay with them until retirement, but hopefully it will have grown a little by then.

ASTI AVCs: Dept. of Ed takes a 1% charge from your contributions, justified on the basis of the "difficulties in collecting the contributions".

Then there is the 5% management fee taken by Woodchester/Cornmarket off the gross contribution.

At the end of the year there is the Woodchester/Cornmarket annual management fee, generally 1% but, hidden in the booklet the Concensus Fund fee is given as 1.75%.

Woodchester/Cornmarket push people for a meeting with their advisor. This will cost you €832, the same as the initial consultation fee. If you want to vary the contribution without a meeting, just inform them - it will then only cost you €416. Clearly if you go for an annual consultation you will be fleeced.

Our advice - if you haven't a Woodchester/Cornmarket Teachers AVC - don't go there - get an independent PRSA AVC. If you do have one, get out. Between the Dept. and Woodchester/Cornmarket the costs of staying in this scheme are exorbitant and unjustifiable.

btw, the independent PRSA AVC isn't payable thro' the Dept. - you'll have to pay it thro' your current a/c

Are the highlighted parts still true in 2015? (I'm completely shocked that the Department takes 1% out of all our AVC contributions!) Did the Prime Time and other controversies lead to a better deal being negotiated by the ASTI for teachers? What, indeed, was the ASTI response to it all?

gaiscioch

A thread for finances would be helpful for other basic questions. For instance, my net income declined by €50 this week, even though all my gross figures were precisely the same. My PAYE had increased by that amount. I rang the Department and the woman there explained that because of the way tax is calculated my net income will decline for the rest of the year. I had assumed that they knew my annual salary at the start of the year and therefore spread my tax payment evenly across the year. Not so at all, apparently. You live and learn.

dingding

You should have a look at your tax free allowance, you may have had an allowance taken off.

Bananaleaf

Well, I cancelled the AVC, availed of the 10 day cooling off period. Seems to be quite a lot of additional charges that the rep (obviously) didn't mention at initial meeting

dingding

http://www.tui.ie/welcome-to-our-website/third-level-pensions-.2168.html

Interestingly the TUI website the section on pensions does not mention purchase of notional service, and it advises members to purchase AVC's through cornmarket.

The AVC is not the best option for everyone and Notional Service may a suitable option for some.

Also there might be other AVC products with lower charges.

killbillvol2

Bananaleaf wrote: »

Well, I cancelled the AVC, availed of the 10 day cooling off period. Seems to be quite a lot of additional charges that the rep (obviously) didn't mention at initial meeting

Where did you find out about the additional charges not mentioned by the rep? And what were they?

2011abc

Anybody kindly able to do a plain English explanation of Notional Service Purchase .The 'official' circulars are gobbledygook .Are the tables showing the percentage cost per year purchased per year of your wages till retirement ? Or are there lump sum calculators ? Or both ? None of the tables make it clear the percentages are for EACH YEAR you want to buy back .Or are they ?

Bananaleaf

Notional service is not an option for post 2004 teachers. We are not allowed to buy back years anymore. That's what rep told me, dont know if that is accurate or not, if not can someone correct me. It's very difficult to know who to trust.

The additional fees were that each year cornmarket take a percentage of your savings. I will consult the booklet for specific percentage tomorrow and update. That would be expected though I guess, but my main reason for cancelling was that the rep sold me the policy on the basis that as I'm starting the AVC "young" (I'm 31 - rep says that's young???) That I could start off paying in low and could increase as time went on.

But..... You must pay a charge to increase your monthly payments .... And it's a lot! I just feel that id be better off holding off a few years and then start paying in a higher amount. I feel I'll end up paying less charges this way.

Also you pay cornmarket a service fee of something close to 400€ - I want to research whether or not there is a way around this, like can I set it up without cornmarket and save myself that money

Geuze

Bananaleaf wrote: »

Also you pay cornmarket a service fee of something close to 400€ - I want to research whether or not there is a way around this, like can I set it up without cornmarket and save myself that money

Yes, you can.

What you are looking for is a PRSA-AVC.

killbillvol2

Bananaleaf wrote: »

Notional service is not an option for post 2004 teachers. We are not allowed to buy back years anymore. That's what rep told me, dont know if that is accurate or not, if not can someone correct me. It's very difficult to know who to trust.

The additional fees were that each year cornmarket take a percentage of your savings. I will consult the booklet for specific percentage tomorrow and update. That would be expected though I guess, but my main reason for cancelling was that the rep sold me the policy on the basis that as I'm starting the AVC "young" (I'm 31 - rep says that's young???) That I could start off paying in low and could increase as time went on.

But..... You must pay a charge to increase your monthly payments .... And it's a lot! I just feel that id be better off holding off a few years and then start paying in a higher amount. I feel I'll end up paying less charges this way.

Also you pay cornmarket a service fee of something close to 400€ - I want to research whether or not there is a way around this, like can I set it up without cornmarket and save myself that money

The disadvantage of starting later is, of course, that the money you invest early has time to grow.

There was a time, believe it or not, when Cornmarket had knowledgeable advisors who didn't hard sell everything. Now they seem to be sending out pimply kids who have as much knowledge as telesales people.

I paid into AVCs for a good number of years and was then advised to stop as the tax relief I was receiving would be cancelled out at the other end by USC etc. It'll cover the shortfall in my tax free lump sum and I'll figure out what to do with the rest when the time comes.

At the end of the day there's too much money involved here to not seek professional, independent advice.

Geuze

killbillvol2 wrote: »

I paid into AVCs for a good number of years and was then advised to stop as the tax relief I was receiving would be cancelled out at the other end by USC etc. It'll cover the shortfall in my tax free lump sum and I'll figure out what to do with the rest when the time comes.

My father got 45% approx tax relief on his AVC conts.

He now draws an income from the AVC fund.

His income tax effective rate is 10%.

So there was a massive tax saving, not just deferred.

killbillvol2

Geuze wrote: »

My father got 45% approx tax relief on his AVC conts.

He now draws an income from the AVC fund.

His income tax effective rate is 10%.

So there was a massive tax saving, not just deferred.

By my calculations, and those of others in similar circumstances, the marginal rate on our income from AVCs would be the top tax rate + USC under current rates.

Geuze

killbillvol2 wrote: »

By my calculations, and those of others in similar circumstances, the marginal rate on our income from AVCs would be the top tax rate + USC under current rates.

His AVC income is taxed at 20%, yes, by the paying insurer. Plus 4% USC.

But the effective tax rate across all his income is under 10%.

Under 10% on nearly 50k gross is a reflection of the wonderful generousity of this nation towards those aged over 65.

dingding

2011abc wrote: »

Anybody kindly able to do a plain English explanation of Notional Service Purchase .The 'official' circulars are gobbledygook .Are the tables showing the percentage cost per year purchased per year of your wages till retirement ? Or are there lump sum calculators ? Or both ? None of the tables make it clear the percentages are for EACH YEAR you want to buy back .Or are they ?

With notional service you are buying back extra pension entitlement as if you had those years service. So if you would have 35 years service on retirement and buy back another 5 years service this would mean that you would have full service at retirement.

You can either pay in a lump sum or by means of a monthly payment.

The benefit is that each year you buy back you get an additional lump sum and an additional monthly payment.

It is expensive and I worked out that I would need to have about 12 years pension to make the money back that I would have put into the scheme.

As others have mentioned, there is an element of a gamble because if you die early in your retirement, you will not get out all you put into the pension scheme.

I used this site to give me an approximate cost of what I had to pay, but you can request a pension statement from your employer and get a quotation for the purchase of notional service.

http://www.cspensions.gov.ie/

And used this pensions modeller

http://www.cspensions.gov.ie/modellers.asp

I hope this was helpful.

Bananaleaf

But if you die early in your retirement, your payments will still go to spouse if you have one, is this correct?

spurious

Bananaleaf wrote: »

But if you die early in your retirement, your payments will still go to spouse if you have one, is this correct?

Half your pension will, at least that's what happened when my Dad died.

dingding

Bananaleaf wrote: »

But if you die early in your retirement, your payments will still go to spouse if you have one, is this correct?

Yes, half your pension, also depending on the age of your children there may be some additional payment.

honeybear

About 7/8 years ago I rang the I.N.T.O enquiring about buying back years. The gentleman I eventually managed to speak to could not give me any solid information. At the time I had also considered AVC's but I did not like the Cornmarket salesman-imagine my surprise to "see" him feature on a primetime expose a few years later!!!

r93kaey5p2izun

Bananaleaf wrote: »

Notional service is not an option for post 2004 teachers. We are not allowed to buy back years anymore. That's what rep told me, dont know if that is accurate or not, if not can someone correct me. It's very difficult to know who to trust.

I was told we could buy back years if we wouldn't have full service by 65, our minimum retirement age.

dingding

I am buying back years for about 6 years now. I am not sure what the current situation is.

solerina

dingding wrote: »

I am buying back years for about 6 years now. I am not sure what the current situation is.

Just wondering is it very expensive to buy back years ? I have been wondering would it be worth my while but cant decide would the cost be worth the benefit to me.

dingding

It can be expensive. It depends on how many years you are buying back, and over how many years you have till retirement.

It is also related to your current salary also.

http://www.pensionsauthority.ie/en/Publications/Information_Booklets/Purchase_of_Notional_Service_and_Additional_Voluntary_Contributions.pdf

This shows how it is calculated for the HSE.

http://www.hse.ie/eng/staff/Benefits_Services/Pension_Management/Current_Employees'_Pension_Scheme_Members/Circular_23_2006_Notional_Service.pdf

I would imagine it is similar but worth checking out.