The 31st
of October 2021 is the deadline date for saving your once off
Additional Voluntary Contributions (AVCs).
Often
referred to as ‘rocket fuel’ for pensions, these once off payments help you add
to your retirement savings and maximise the tax relief you are entitled to.
This not only helps you save for your future but reduces the amount of tax you
pay today.
The
deadline is extended until November 14th, for those who file online via ROS.
While some
of us may not have the luxury of disposable income in the current climate, it
is worth considering what you can afford to contribute. This is especially
helpful if you are worried about your retirement fund as you approach your 50’s.
With that said, every year you miss out saving these AVCs, you also miss out on
the generous tax relief they provide and potential investment gains.
Why
should we save AVCs if we are already paying into our pension?
For those
of us focused solely on today and feel that retirement is a long way off, there
is an immediate benefit of AVCs - tax relief. Saving AVCs will ensure you can
avail of tax relief. This is something that will benefit you now and will benefit
you when you come to retire.
-
Tax relief at source:
Tax Relief is given at your marginal tax rate of
tax on AVCs paid. There are limits on the tax relief, depending on your age. As
you edge closer to retirement, your tax relief increases. There is a maximum
annual amount of earnings for which tax relief is given. Currently this is
€115,000 p.a. This amount is adjusted from time to time by the Minister for
Finance.
-
No Tax on Gains: There are other
tax advantages for the duration of your retirement saving in contrast to other
solutions. There is no tax deducted on any gains you make over the years you
save for retirement – this compares well to other investment types where DIRT
or CGT are applied.
-
Tax free amount when you
draw down:
Subject to revenue limits,
when you retire you can take a substantial amount of your fund tax free.
AVC Contributed
|
Rate of Income Tax
|
Reduction in Take Home
Pay
|
€100.00
|
20%
|
€80.00
|
€100.00
|
40%
|
€60.00
|
Whether you
save AVCs on a regular basis or as a lump sum really depends on your own circumstances.
For many people, paying a mortgage will take priority, but for some heading
into retirement, they may realise that the savings they made will not be
adequate for their future. In this case, saving AVCs will help offset this and
provide for a more comfortable retirement.
A regular
AVC payment would suit PAYE employees who are members of an occupational
pension scheme. This means you contribute by means of salary deduction via
payroll and receive tax relief at source.
However, if
you have other sources of income that necessitates a manual tax return each
year then you may wish to save an AVC prior to the end of each tax year to
reduce your tax bill. You can save an AVC prior to the 31st October each year
(or later if you complete your tax return online – i.e. 14th November in 2024),
and claim tax relief for the previous year. This will not only reduce your tax
bill for the previous year but also your provisional tax bill for the current
year.
Making AVCs
to your pension arrangement provides great benefits - today and for your
retirement. Now all that remains to decide is how and when you wish to do it.
If you would like to avail of tax relief and make a contribution to your
retirement future, AVCs are a great step that can be taken now.
For further
information on retirement planning and AVCs, please contact our experienced
team on info@cers.ie