28 y/o Starting pension - Are AVCs the best way to go?

Rothmans

A small bit of guidance is need on the above.

A bit of background- I'm in my late 20s, in the public service with 32 years to go til mandatory retirement.
I'm on the single public service pension scheme. However, I've been advised that this will not be enough to live on, given that the Contributory pension may well be gone in 40 years. So I'm looking to set up private pension.

The only option that seems to be easily accessible to me is AVCs with Cornmarket. I was speaking to a rep the other day and he informed me that there are three funds - 1. Cautious fund (average 3 % return), 2. A moderate fund (average 5 % return) and 3. An adventurous fund (average 7% return).

The funds are managed by Irish life. I've been informed that there is a €595 set up fee, and then a 1% annual fund management fee per year.

I intend to pump in as much as I possibly can into this ( approx 12 % of gross income).

I'm thinking if the adventurous fund given my age.

Can anybody tell me if this represents good value for money, or am I best advised to look elsewhere?

Dempsey

Yes, you should be adventurous while you are young and more cautious as the pot grows large and you come close to retirement

I'm in an occupational pension scheme so it might be like comparing apples to oranges but that 1% annual fee is high to me.

The highest fee in my scheme is 0.50% and its for the most adventurous fund, i.e. a diversified equity fund (mix of active/passive)

Rothmans

Dempsey wrote: »

Yes, you should be adventurous while you are young and more cautious as the pot grows large and you come close to retirement

I'm in an occupational pension scheme so it might be like comparing apples to oranges but that 1% annual fee is high to me.

The highest fee in my scheme is 0.50% and its for the most adventurous fund, i.e. a diversified equity fund (mix of active/passive)

Thanks Dempsey. Do you mind me asking which company manages your pension? There doesn't seem to be much choice readily available. Irish life and zurich from what I can see, and the various brokers who use the.

Dempsey

Rothmans wrote: »

Thanks Dempsey. Do you mind me asking which company manages your pension? There doesn't seem to be much choice readily available. Irish life and zurich from what I can see, and the various brokers who use the.

Mercer are managing, Irish Life are providing the investment funds

Rothmans

Dempsey wrote: »

Mercer are managing, Irish Life are providing the investment funds

Many thanks. I must enquire as to why my proposed fees are so much higher given that irish life are providing the underlying funds.

Ace2007

Rothmans wrote: »

Many thanks. I must enquire as to why my proposed fees are so much higher given that irish life are providing the underlying funds.

At a guess - your a random individual walking in off the street. Dempsey works for a company where the trustees of the schemes have the power to possible get lower investment fees if their business is large. For instance if Dempsey is in a pension fund with 400m+ of assets, investment managers be fighting for the business which will push the mgmt. fees down.

The J Stands for Jay

Ace2007 wrote: »

At a guess - your a random individual walking in off the street. Dempsey works for a company where the trustees of the schemes have the power to possible get lower investment fees if their business is large. For instance if Dempsey is in a pension fund with 400m+ of assets, investment managers be fighting for the business which will push the mgmt. fees down.

It's because cornmarket (owned by Irish life) got a cushy deal with the department of education to provide AVCs. You don't have to go with them, you can set up a PRSA AVC with whoever you want. You may or may not be able to get a better deal (I reckon you will). You'll easily be able to get a better fund choice at least

caviardreams

OP my advice would be to have a think about things - I would not rush into it. Would you be saving for a mortgage deposit etc? If so, it might make more sense to prioritise this right now as you are still only in your 20s rather than locking away your savings in a pension. You already have your occupational scheme so it's not like you are not already contributing or building up your pension.

Are you sure you must retire at 60 OP? Some of the newer entrant conditions are a bit later iirc and I even thought they pushed legislation through recently to allow people stay on until 70, so you could build up your full 40 years of contributions if this was the case.

Ace2007

McGaggs wrote: »

It's because cornmarket (owned by Irish life) got a cushy deal with the department of education to provide AVCs. You don't have to go with them, you can set up a PRSA AVC with whoever you want. You may or may not be able to get a better deal (I reckon you will). You'll easily be able to get a better fund choice at least

OP never said that he was a teacher?

yabadabado

Ace2007 wrote: »

OP never said that he was a teacher?

I think Cornmarket have a deal done across the Public Service. OP can choose any provider just they will have to do some extra work that Cornmarket would take care of.
Tax back etc but that's very straightforward.

Rothmans

Many thanks for the replies.

Ace2007 wrote: »

At a guess - your a random individual walking in off the street. Dempsey works for a company where the trustees of the schemes have the power to possible get lower investment fees if their business is large. For instance if Dempsey is in a pension fund with 400m+ of assets, investment managers be fighting for the business which will push the mgmt. fees down.

Cornmarket has a scheme for the trade union that I am a member of. But I suspected that what you have highlighted above may be the case. I have been sent further policy documents outlining that the management fees drop to 0.75% on anything after the first 40k in the pension fund. It seems to be the same deal as Irish Life provide directly. No contribution fees other than the set up fee.

McGaggs wrote: »

It's because cornmarket (owned by Irish life) got a cushy deal with the department of education to provide AVCs. You don't have to go with them, you can set up a PRSA AVC with whoever you want. You may or may not be able to get a better deal (I reckon you will). You'll easily be able to get a better fund choice at least

I was thinking of a PRSA, but most PRSAs seem to have contribution charges up to 5% in addition to the 1% management fees, which seems very high compared to the Cornmarket AVCs which only charge a set-up fee in lieu of contribution fees.

caviardreams wrote: »

OP my advice would be to have a think about things - I would not rush into it. Would you be saving for a mortgage deposit etc? If so, it might make more sense to prioritise this right now as you are still only in your 20s rather than locking away your savings in a pension. You already have your occupational scheme so it's not like you are not already contributing or building up your pension.

Are you sure you must retire at 60 OP? Some of the newer entrant conditions are a bit later iirc and I even thought they pushed legislation through recently to allow people stay on until 70, so you could build up your full 40 years of contributions if this was the case.

That was my first priority caviadreams, and I spent my first 4 years working saving the deposit, and bought last year. Now the focus has shifted to pensions. 60 is mandatory retirement for me unfortunately. When I retire at 60 (after 38 years service), my occupational pension will be worth around 14k which, while nowhere near the level of the old public service pensions, is not bad. However, I think I'll need an extra annuity of maybe 8k to live comfortably. I don't want to just 'survive' if you know what I mean. 14k might seem a lot, but when you factor in LPT, house maintenance, gas, electricity, bins, broadband, car etc in retirement, I'd imagine 14k wouldn't go to far. I think 22k a year would afford a reasonably comfortable quality of living, given that my mortgage would (ideally) be paid off. Would I be right in thinking that?

Ace2007 wrote: »

OP never said that he was a teacher?

Correct.

yabadabado wrote: »

I think Cornmarket have a deal done across the Public Service. OP can choose any provider just they will have to do some extra work that Cornmarket would take care of.
Tax back etc but that's very straightforward.

As far as I can work out, Irish Life seem to charge the 1% management fee, even if you go direct to them.

yabadabado

They all charge a management fee but iirc Cornmarket have a few extra charges most others dont.

caviardreams

OP I would not worry that much about the state pension portion of the public service pension disappearing - the unions would not let it happen easily, and I think even if the state pension did disappear, there could be some agreement worked out in terms of public service pensions etc.

If you have already bought property then you are sorted and absolutely right to look towards your pension. Fair play to you for having everything in order at such a young age!

Ace2007

caviardreams wrote: »

OP I would not worry that much about the state pension portion of the public service pension disappearing - the unions would not let it happen easily, and I think even if the state pension did disappear, there could be some agreement worked out in terms of public service pensions etc.

Currently for every pensioner there are 5 people working, this will drop to 2 workers for every pensioner in around 20/30 years time - how will the government afford the state pension - do you want your kids/grand kids paying 80% taxes so that others can have a pension?

Generations will look back and be like why didn't people just save for retirement for themselves - why did they have this idea that they had to buy a house etc and get into huge debt and have no income in retirement.

Rothmans

caviardreams wrote: »

OP I would not worry that much about the state pension portion of the public service pension disappearing - the unions would not let it happen easily, and I think even if the state pension did disappear, there could be some agreement worked out in terms of public service pensions etc.

If you have already bought property then you are sorted and absolutely right to look towards your pension. Fair play to you for having everything in order at such a young age!

Ace2007 wrote: »

Currently for every pensioner there are 5 people working, this will drop to 2 workers for every pensioner in around 20/30 years time - how will the government afford the state pension - do you want your kids/grand kids paying 80% taxes so that others can have a pension?

Generations will look back and be like why didn't people just save for retirement for themselves - why did they have this idea that they had to buy a house etc and get into huge debt and have no income in retirement.

I'm not worried about anything happening to the occupational pension. I paid 7k in pension contributions last year. At that rate I'd hope the occupational pensions would be safe enough! Last year, I paid 17.5 % in pension contributions on any salary over 28750, which I think is quite a lot. As I understand things, this rate is going to be reduced somewhat for anyone in the single scheme over the next few years whereas it will remain in place for anyone on the old scheme. This should free up some funds to invest in a private scheme.

So, to be clear, I have no concerns re the occupational scheme. That should really be secure. It's the Contributory PRSI pension which I think will be significantly reduced.
Even if the PRSI pension is still going strong, the fact that mandatory retirement will be 60 for me, means that there will at least be a significant gap between retirement and pension age that I will need to bridge at the very least.

Geuze

Few quick points:

PRSI + PS pension should be enough, especially with long service

Maybe saving for a house is more important? - sorry, I see you bought a house

Cornmarket fees are very high, get a PRSA-AVC instead with lower fees.

Rothmans

Geuze wrote: »

Few quick points:

PRSI + PS pension should be enough, especially with long service

Maybe saving for a house is more important? - sorry, I see you bought a house

Cornmarket fees are very high, get a PRSA-AVC instead with lower fees.

I asked a few times, and was told that the only fee applied by Cornmarket is the set up fee, so their fees must have come down somewhat!

yabadabado

Rothmans wrote: »

I asked a few times, and was told that the only fee applied by Cornmarket is the set up fee, so their fees must have come down somewhat!

I thought there was around €600 set up fee ,1% management fee.
Is there a 4 or 5% charge for what something else ?I thought there was but can't recall.

Geuze

Rothmans wrote: »

I asked a few times, and was told that the only fee applied by Cornmarket is the set up fee, so their fees must have come down somewhat!

https://www.cornmarket.ie/uploads/12748_Update_AVC_charge_statements_11-17_rebranded_TUI.pdf

Here are the TUI AVC fees:

525 set-up fee

Plus

2% charge on all regular conts

Plus

1% AMC.


You can reduce the first two fees to zero by not using Cornmarket.

Geuze

Rothmans wrote: »

A small bit of guidance is need on the above.

A bit of background- I'm in my late 20s, in the public service with 32 years to go til mandatory retirement.
I'm on the single public service pension scheme. However, I've been advised that this will not be enough to live on, given that the Contributory pension may well be gone in 40 years.

I don't agree with this advice.

A full-service PS pension is enough to live on.

Prezatch

The pensions authority of Ireland publish an overview of all PRSA charges and providers which may be useful:

https://www.pensionsauthority.ie/en/I_want_to_start_a_Pension_PRSA/PRSAs/

yabadabado

Geuze wrote: »

I don't agree with this advice.

A full-service PS pension is enough to live on.

How do you know the PS pension will be enough for him to live on?
It isn't one gold plated pension payment across the whole service.

No one here knows what the OP is currently on nor what he is likely to finish is job on .

billyhead

Sorry for going off topic OP but I am paying into an AVC plan and have about €25,000 saved thus far. I will be retiring at 60 after 40 years service in the Civil Service. I joining pre 2013. I am considering stopping the payments into the AVC plan. Would i be penalized for stopping and should I withdraw the amount if I stop. Is it difficult to do this? Will I lose all the tax relief build up. Should I leave it in the fund until I retire. Can the pension provider do this or would I have to pay some sort of annual fee etc to leave it sitting in the account until I reach 60.

august12

billyhead wrote: »

Sorry for going off topic OP but I am paying into an AVC plan and have about €25,000 saved thus far. I will be retiring at 60 after 40 years service in the Civil Service. I joining pre 2013. I am considering stopping the payments into the AVC plan. Would i be penalized for stopping and should I withdraw the amount if I stop. Is it difficult to do this? Will I lose all the tax relief build up. Should I leave it in the fund until I retire. Can the pension provider do this or would I have to pay some sort of annual fee etc to leave it sitting in the account until I reach 60.

So you will have the full 40 years service, I thought the purpose of AVC was to make up the shortfall if one didn't have the 40 years, my understanding of this, you can only take 1.5 times of your salary tax free, anything above this will incur tax, prsi, USC etc. You can stop paying into this policy but there will be an annual management fee I would presume,

ezra_pound

Rothmans wrote: »

I'm not worried about anything happening to the occupational pension. I paid 7k in pension contributions last year. At that rate I'd hope the occupational pensions would be safe enough! Last year, I paid 17.5 % in pension contributions on any salary over 28750, which I think is quite a lot. As I understand things, this rate is going to be reduced somewhat for anyone in the single scheme over the next few years whereas it will remain in place for anyone on the old scheme. This should free up some funds to invest in a private scheme.

So, to be clear, I have no concerns re the occupational scheme. That should really be secure. It's the Contributory PRSI pension which I think will be significantly reduced.
Even if the PRSI pension is still going strong, the fact that mandatory retirement will be 60 for me, means that there will at least be a significant gap between retirement and pension age that I will need to bridge at the very least.

If the state pension is got rid of, the single scheme benefit will increase by the amount of the contributory state pension, so you don't have to worry about state pension going.

ezra_pound

august12 wrote: »

So you will have the full 40 years service, I thought the purpose of AVC was to make up the shortfall if one didn't have the 40 years, my understanding of this, you can only take 1.5 times of your salary tax free, anything above this will incur tax, prsi, USC etc. You can stop paying into this policy but there will be an annual management fee I would presume,

The current rules under revenue are that lump sums between 200 k and 500k are taxed at 20 per cent. Over 500k is 40%. You're correct about the 1.5 salary tax free in public sector pension.
But suppose your ps lump sum is 100k, which would be realistic under the single scheme for someone retiring at ap level, depending on when they were promoted etc. In this circumstance, they could avail of 100k tax free avc lump sum top up.

ezra_pound

billyhead wrote: »

Sorry for going off topic OP but I am paying into an AVC plan and have about €25,000 saved thus far. I will be retiring at 60 after 40 years service in the Civil Service. I joining pre 2013. I am considering stopping the payments into the AVC plan. Would i be penalized for stopping and should I withdraw the amount if I stop. Is it difficult to do this? Will I lose all the tax relief build up. Should I leave it in the fund until I retire. Can the pension provider do this or would I have to pay some sort of annual fee etc to leave it sitting in the account until I reach 60.

Are you pre 1997?

Heiser

Im in a similar position to OP. 35 y/o, joined PS in 2008. Will probably retire at 65 after 40 years service. I'm going to get an AVC setup so I have options of maybe retiring can bit earlier when I get to my sixties. My understanding is up to 200k is tax free and over that it's 20% tax on the lump sum. The money I'd be getting paid instead of going into my AVC would be getting taxed at 40%, worse case scenario it gets taxed at 20% on drawdown.

OP look into Irish pensions & finance. No setup fee but 2.75% for ten years and then .75% after, you also get a bonus 5% on retirement. You also pay the 1% fund management fee. It's taken at source too which is handy.

Rothmans

yabadabado wrote: »

How do you know the PS pension will be enough for him to live on?
It isn't one gold plated pension payment across the whole service.

No one here knows what the OP is currently on nor what he is likely to finish is job on .

Exactly! As mentioned above, I'm not in the pre 1995 scheme which Gueze seems to think is applied to all public servants.

Rothmans

ezra_pound wrote: »

If the state pension is got rid of, the single scheme benefit will increase by the amount of the contributory state pension, so you don't have to worry about state pension going.

Really?

That'd be great if true. However, while the single scheme policy document states that the Single scheme is calculated on the assumption that the Contributory pension will be there in it's current form, it makes absolutely no suggestion that the state will make up the shortfall if it's gone or reduced.

Can you give me any information source for the above. As I said, it would be great if true, but I fear it may just be another generalised assumption about public service pensions.

august12

Heiser wrote: »

Im in a similar position to OP. 35 y/o, joined PS in 2008. Will probably retire at 65 after 40 years service. I'm going to get an AVC setup so I have options of maybe retiring can bit earlier when I get to my sixties. My understanding is up to 200k is tax free and over that it's 20% tax on the lump sum. The money I'd be getting paid instead of going into my AVC would be getting taxed at 40%, worse case scenario it gets taxed at 20% on drawdown.

OP look into Irish pensions & finance. No setup fee but 2.75% for ten years and then .75% after, you also get a bonus 5% on retirement. You also pay the 1% fund management fee. It's taken at source too which is handy.

Are you sure 200,000 is tax free, I understood 1.5 times final salary is tax free up to 200,000, so let's say, final salary is 50,000, in this case 75,000 would be the tax free lump sum and any amount drawn from an AVC as a further lump sum above 75,000 would be liable to the 20% tax up to 200,000. Can anyone clarify if this is correct.

yabadabado

Apologies to jump in here but I've a similar query.

I stated in the PS in 2005 and will have 40 years service at retirement.

I'm also thinking of going with a PRSA or AVC .

Anyone recommend a good financial adviser ?

I'm saving some money every month but not really putting it to much use,just going into credit union.

Thinking I'd continue saving half with credit union and put the other half into a plan and get 40% tax back.500 into a AVC would have a real cost of €300 ?

billyhead

august12 wrote: »

So you will have the full 40 years service, I thought the purpose of AVC was to make up the shortfall if one didn't have the 40 years, my understanding of this, you can only take 1.5 times of your salary tax free, anything above this will incur tax, prsi, USC etc. You can stop paying into this policy but there will be an annual management fee I would presume,

Cheers for the response. If I was to cancel it and withdraw it would I still get the full amount of money I put or saved away in the scheme thus far? Would it be financially more sensible to stop paying and leave the account in situ but keep paying the annual management fees and avail of the tax relief earned to date and then once I retire withdraw the funds and close the account.

august12

billyhead wrote: »

Cheers for the response. If I was to cancel it and withdraw it would I still get the full amount of money I put or saved away in the scheme thus far? Would it be financially more sensible to stop paying and leave the account in situ but keep paying the annual management fees and avail of the tax relief earned to date and then once I retire withdraw the funds and close the account.

To be honest, I have no idea as I don't have a financial background, am in the PS also and will have a shortfall of years due to worksharing for many years, it would be worth your while going to an independent financial broker and seeking advice or at the very least, if in the cornmarket scheme, contacting them for your best options and giving details of your potential years of service etc. I have asked boards members for clarification on the tax issue of lump sum above the 1.5 salary, this obviously would have a bearing on how you invest and how much to invest. Obviously, if paying the higher rate of tax, then there is an obvious benefit to AVCs,
Re your query above, is there a tax implication to withdrawing AVCs before a certain age?

caviardreams

Rothmans wrote: »

Really?

That'd be great if true. However, while the single scheme policy document states that the Single scheme is calculated on the assumption that the Contributory pension will be there in it's current form, it makes absolutely no suggestion that the state will make up the shortfall if it's gone or reduced.

Can you give me any information source for the above. As I said, it would be great if true, but I fear it may just be another generalised assumption about public service pensions.

Obviously nobody knows what's going to happen in the future, but the unions would not stand for it and there would be strikes left right and centre if staff coming up to retirement were not going to get promised benefit i.e. half their average salary with 40 years contributions, whether it comes from state pension + occ pension, or the govt having to make good on it by topping up the occ pension to the same level imo.

Rothmans

caviardreams wrote: »

Obviously nobody knows what's going to happen in the future, but the unions would not stand for it and there would be strikes left right and centre if staff coming up to retirement were not going to get promised benefit i.e. half their average salary with 40 years contributions, whether it comes from state pension + occ pension, or the govt having to make good on it by topping up the occ pension to the same level imo.

You see that's the thing. You're referring to anyone who joined the public service between 1995 and 2013.

The pension for pre 95 entrants is the best one .I.e. 50% of the average of your final three years. For example, if your average salary for your final 3 tears is 60k, your pension will be worth 30k per annum.

For the cohort between 95 and 13, their salary is (average of your final three years) minus €12,700. So a public servant who joined between 95 and 13 on a final average salary of 60k will get an occupational pension of 30k - 12,700 = 17,300. This is based in the understanding that they will be availing of the OAP at 68. For anyone who retires before 68, or are in a job with an mandatory retirement age of 60, they are left with a shortfall which I believe has not been addressed yet.

As far as I am aware, there is no understanding that those on the single scheme will be paid the equvilant of the OAP when the hit 68, if the OAP is gone, or reduced.

judeboy101

Rothmans wrote: »

You see that's the thing. You're referring to anyone who joined the public service between 1995 and 2013.

The pension for pre 95 entrants is the best one .I.e. 50% of the average of your final three years. For example, if your average salary for your final 3 tears is 60k, your pension will be worth 30k per annum.

For the cohort between 95 and 13, their salary is (average of your final three years) minus €12,700. So a public servant who joined between 95 and 13 on a final average salary of 60k will get an occupational pension of 30k - 12,700 = 17,300. This is based in the understanding that they will be availing of the OAP at 68. For anyone who retires before 68, or are in a job with an mandatory retirement age of 60, they are left with a shortfall which I believe has not been addressed yet.

As far as I am aware, there is no understanding that those on the single scheme will be paid the equvilant of the OAP when the hit 68, if the OAP is gone, or reduced.

The pre 95 and 95-2013 are the same in terms of the 30k but the pre 95 get it all from one source and can't claim prsi oap and 95-13 group get basically half and half?

Rothmans

judeboy101 wrote: »

The pre 95 and 95-2013 are the same in terms of the 30k but the pre 95 get it all from one source and can't claim prsi oap and 95-13 group get basically half and half?

No the occupational pension is as I outlined above. They are left 12,700 shortfall the assumption that they will claim the the OAP once they turn 68. They will not be entitled to claim this until 68, and the Contributory pension that we all pay 4 % towards and everybody, public or private, is entitled to. It is entirely distinct from the occupational pension, but it's value is deducted from the occupational pension such that in effect there is no OAP for the 95 to 13 bunch.

Geuze

billyhead wrote: »

Cheers for the response. If I was to cancel it and withdraw it would I still get the full amount of money I put or saved away in the scheme thus far? Would it be financially more sensible to stop paying and leave the account in situ but keep paying the annual management fees and avail of the tax relief earned to date and then once I retire withdraw the funds and close the account.

You can get the benefits of the AVC when you retire.

Geuze

Rothmans wrote: »

Y

For the cohort between 95 and 13, their salary is (average of your final three years) minus €12,700. So a public servant who joined between 95 and 13 on a final average salary of 60k will get an occupational pension of 30k - 12,700 = 17,300. This is based in the understanding that they will be availing of the OAP at 68. For anyone who retires before 68, or are in a job with an mandatory retirement age of 60, they are left with a shortfall which I believe has not been addressed yet.

For PS hired post 1995, they can get a supplementary pension to cover them between retirement and when the SPC kicks in.

It's not automatic, there are conditions attached.

Rothmans

Geuze wrote: »

For PS hired post 1995, they can get a supplementary pension to cover them between retirement and when the SPC kicks in.

It's not automatic, there are conditions attached.

But not for those post 2012

Ace2007

billyhead wrote: »

Cheers for the response. If I was to cancel it and withdraw it would I still get the full amount of money I put or saved away in the scheme thus far? Would it be financially more sensible to stop paying and leave the account in situ but keep paying the annual management fees and avail of the tax relief earned to date and then once I retire withdraw the funds and close the account.

You can't just withdraw your AVC's - they are there for until you retire.

AVC - maximise your tax free lump sum at retirement, you could take a cash lump sum up to 500k taxed at 20%. So the closer you get to retirement you should be making use of the fact you can put up to 40% of your total earnings into your AVC tax free, and then get them back in a few years paying either no tax, or 20% tax - which is a win win if your marginal rate of tax is 40%.

You could buy an additional pension from the a life office and have this in addition to your PS pension.

You may be able to go down the ARF/AMRF route and continue to have the monies invested post retirement and drawdown if and when you need it - this is particular useful way of passing monies on for inheritance reasons.

Get advise from an independent advisor.

yabadabado

Anyone able to recommend an independent adviser?