No Speed Limits on the road to Success
In our last blog we looked at some reasons why Public Sector workers might make AVCs. In a follow up to this, today we look at two specific case studies.
CASE STUDY (A)
WHAT LEVEL OF AVC CAN JOHN MAKE FOR TAX YEAR 2019?
John is Single and has been a Public Servant since 1997. He is age 53 and in 2019 he earned €55,000. How much of an AVC can John make and backdate against his 2019 income? The following would be his scope
|John’s Gross Earnings||€55,000|
|Maximum Age Related % AVC||€16,500 (€55,000 x 30%)|
|Less Main Scheme Contribution||€1,843.08|
|Less Spouse & Children||€825.00|
|Less Contribution for Purchase of Notional Service||€0.00|
|Less AVC already made||€0.00|
|Remaining Scope for AVC||€13,831.92|
John decides to a make a Single Premium AVC as a result of €13,831.92. This contribution has three key benefits for John. It increases his savings for retirement, it lowers his tax payment for 2019 and it creates an asset for his family should he die. In terms of Tax Relief on this contribution, John will get Tax Relief on his AVC at his Marginal Rate. In this instance John will get Tax relief at 40%.
|Gross AVC of €13,831.92|
|Net Cost of AVC||Tax Relief|
|Tax Relief @ 40%||€8,299.15||€5,532.77|
CASE STUDY (B)
ENHANCING YOUR RETIREMENT LUMP SUM
Most Public Servants are very aware of using AVC’s to Enhance their Tax Free Retirement Lump Sum. The key thing to understand is to compare the Lump Sum payable under the Main Scheme against the Maximum Allowable Lump Sum under Revenue Rules.
Mary has 30 years’ service at her Normal Retirement Age. Her Pensionable Remuneration is €70,000. Her Final Remuneration calculation is higher at €75,000. She has no other pension benefits from previous employment.
Under the Main Scheme her Lump Sum will be
3/80ths x 30 x €70,000 = €78,750
The Maximum Revenue Lump Sum Allowable will be the higher of
3/80ths x 30 x €75,000 = €84,375 OR 1.5 x €75,000 = €112,500
This gives a GAP between the Maximum Revenue Lump Sum Allowable and her Main Scheme Lump Sum of €33,750. Therefore if Mary can build up an AVC of €33,750 before her Normal Retirement Age she can take it all Tax Free when she retires at he NRA
If you would like us to work out a plan with you we would love to hear from you. For more information, get in contact with me here at Peavoy Financial Planning and we will put our heads together and work through your situation. I can be contacted on 087-2902206 or alternatively by email on
David Peavoy BA, QFA, LIAP is the owner of Peavoy Financial Planning whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portaloise, Co Laois.
David Peavoy T/A Peavoy Financial Planning is regulated by the Central Bank of Ireland.
Disclaimer: All data and information provided within this blog is for information purposes only. It should not be taken as specific advice for your situation. Peavoy Financial Planning makes no representations as to the accuracy, completeness, or suitability of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries or damages arising from its use.