The main purpose of AVC’s are illustrated below
Ans: AVC’s can be used to buy back years of service and retire from you job earlier. However, this rarely makes financial sense as buying back one year of service is often too expensive to make be a viable option. For example it can cost up to €20000 to buy back 1 year of service. It can often take up to 40 years receive back the €20000 in annual pension income.
Ans: If you have a tax free lump sum shortfall, you can withdraw up to this amount tax free from your AVC. Your tax free lump shortfall is the difference between the lump sum earned from your years of service verses the maximum allowed lump sum (1.5 times Final Salary). You will usually have a shortfall.
Please note that if you have excess funds in your AVC over and above your tax free lump sum shortfall, the excess funds will be taxable as income on retirement. It is important to work you’re your shortfall before starting contributing into AVC’s.
Ans: Once you have withdrawn your tax free portion of your AVC, any excess funds is usually transferred into an Approved Retirement Fund. Once these funds are withdrawn from the ARF, they are taxable. Its always prudent to withdraw these funds tax efficiently each year to avoid paying any unnecessary income tax.
Ans: Public servants or even spouses who are public servants can use AVC’s to reduce any tax liability due on self employed income. As all contributions into AVC’s qualify for tax relief, the tax rebate can be offset against any tax liability due by 31st of October each year. Lumps sum contributions are usually used in these circumstances. Its important to note that there is a limit on how much an individual can contribute into AVC’s each year and qualify for tax relief. This limit is directly correlated to your age and Annual Gross earnings. However you can backdate unused tax relief to the previous years income.
Ans: If you are in receipt of bonuses or commissions from your main occupation, almost half of these payments are taken by the revenue through income tax etc. AVC’s can be used to avoid paying income tax on these payments as all contributions into AVC qualify for tax relief etc.
Access to your AVC funds are restricted to your retirement age. The funds are drawn down in line with your main public sector pension benefits.
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