​3 Top Reasons To Make An Additional Voluntary Contribution To Your Pension

13 October 2020

Additional Voluntary Contributions (AVCs) are extra contributions made by members of Group Pension Schemes in order to increase their benefits when they retire. These pension contributions must be made while you are still working; i.e. before leaving employment or retiring. Why am I talking about AVC’s now? Because right now you can make an AVC to a pension arrangement and still claim tax relief against your earnings for last year!

To obtain tax relief against your 2019 income, you will need to make an AVC by the tax return filing date of 31st October 2020, or 10th December 2020 if you use the Revenue Online Services (ROS) to file your return and pay your tax bill.

The main reasons you should consider making an AVC before these deadline dates are outlined below:

  • 1)Tax Relief
  • §You will receive tax relief at your marginal rate against the contribution. So broadly speaking, if you on are on the higher tax rate and make an AVC of €100, it will only cost you €60 as you would have paid the other €40 in tax had you taken the money as income, whereas when you make the pension contribution no PAYE is deducted.
  • §AVCs and all other pension contributions grow tax free within the pension fund so you can accumulate growth quicker than in a personal savings plan.
  • 2)Enhance Your Retirement Benefits
  • §AVC payments will increase the size of your fund and therefore you will receive a higher income in retirement.
  • §AVCs can be used specifically to increase your tax free cash lump sum at retirement so you can choose to maximise this entitlement.
  • 3)Choice
  • §AVC contributions can be made as a single lump sum each year or as a regular monthly amount.
  • §All of the main Insurance Companies in Ireland offer AVC contracts; therefore, you have the option to invest these contributions in a wide range of funds from any of these Providers.

There are a number of Revenue rules surrounding AVCs that need to be taken into account when deciding how much of an AVC to make. In addition to this, the AVC contracts offered by the various Insurance Companies have different charging structures, etc. so it is imperative that you seek the advice of an impartial Financial Advisor before making your contribution to ensure you get the correct advice for your individual circumstances.

Lisa Doherty QFA RPA is a Qualified Financial Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on lisad@jfl.ie 

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