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October is Pension Season

03/10/2024 Posted by Communications | Comments(0)

Why should I make an AVC?

Making an Additional Voluntary Contribution (AVC) is an excellent way to boost your retirement savings. By contributing more than the minimum required by your pension scheme, you can enhance your future financial security and take advantage of tax efficiencies. These additional contributions can grow over time as they are invested, ensuring you have a larger pension fund at retirement. Furthermore, AVCs offer a flexible way to save, as you can adjust the amount you contribute based on your financial situation.

How much value do they add?

Well that really depends on your age and how much you contribute.

Current Age (approx.)

€100 per month to age 65

55

€14,312

45

€34,909

35

€63,717

25

€103,381

Projected net future investment return of 3.09% p.a. on the CERS Multi Asset Fund.

The younger you are, the more you will contribute and the longer the fund will be invested – allowing for a greater impact.  However, as a tax efficient savings plan – AVC’s still make sense when you are older.  Visit our calculator to see how AVC’s can add value to your fund.

AVCs offer several tax benefits that can make them an attractive option for enhancing your retirement savings. Firstly, any contributions you make to your AVC are typically eligible for tax relief at your highest rate of income tax. This means that a portion of your contributions is effectively funded by the tax savings, reducing your overall cost of investing in your pension, see below.

40% Tax Rate

20% Tax Rate

AVC amount

€100

€100

Less Tax saved

€40

€20

Actual cost to you

€60

€80

 

Additionally, investments within your AVC grow tax-free, which can significantly increase your overall returns. This tax-efficient growth can help your pension pot accumulate more rapidly compared to taxable investments.

When you eventually retire and start drawing from your AVC, you may be able to take a portion of your savings as a tax-free lump sum. The exact amount you can withdraw tax-free will depend on your specific pension scheme rules and limits set by the government.

In summary, AVCs not only allow you to save more for your retirement but also provide substantial tax advantages that can maximize the value of your contributions and investment growth.

How do I make an AVC?

Complete the AVC form here– once completed you can email the form to your payroll department and copy info@cers.ie

Should I make a regular AVC or a lump sum AVC?

You can make a regular monthly AVC from your salary – with the tax relief provided at source – or you can make a lump sum AVC.

When deciding whether to make a regular AVC or a lump sum AVC, it's important to consider your individual financial circumstances and goals.

Regular AVCs allow you to spread your contributions over time, making it easier to manage your cash flow and budget.

On the other hand, a lump sum AVC can be beneficial if you have a windfall or a significant amount of money available to invest. This type of contribution can immediately boost your pension fund and can be useful if you are very close to retirement.

Ultimately, the choice between regular and lump sum AVCs will depend on your financial situation.

How to make a lump sum AVC

You can transfer your lump sum AVC directly to the CERS bank account by EFT using the details below.

Please include your name or CERS member ID as a narrative so that we can easily identify who the amount is from.

Once our team receive your AVC, we will send you an acknowledgment. We will do this within ten working days of receiving your AVC. You do not need to send the acknowledgment to your local Inspector of Taxes but do keep it for your records.

We have been advised of a requirement to upload a pension tax certificate or a pension contribution details form when you make a once off AVC. We will send you a form which can be completed by you and uploaded to ROS when we acknowledge your AVC.

How to claim tax relief on your lump sum AVC

If you are a PAYE employee and do not file a return online, you must make your claim for tax relief and your personal tax return before the 31st October 2024.

If you are paying and filing online via ROS, the deadline this year is the 14th November 2024.

The granting of tax relief is at the discretion of your local Inspector of Taxes. It is important to note if your AVC is against this year’s income, you may not get a refund, but may receive amended tax credits instead.

You should be sure that you are eligible for tax relief on the AVC contribution you wish to make.

You can confirm this with your local tax office if you are uncertain. Check the contact locator on the Revenue website to find your local Revenue office.

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