AVC’s or additional voluntary contributions are very often used by public sector employees to enhance their retirement benefits meaning that once their tax-free lump sum is maximised and their public sector pension is confirmed, an important choice exits, opt a higher pension, taxable cash or invest the balance of the AVC fund in an ARF.
If choosing an ARF, what’s really paramount for retiring public servants to realise, is that they are fully entitled to shop around when choosing their ARF provider and that getting their ARF’s annual management charge (AMC) to a minimum, is a key part of ensuring the ARF fund’s longevity.
Public Sector AVC – Retirement Options
It is important to investigate the use of AVC’s in maximising the overall Tax-Free Lump Sum and this should be done when setting up the main scheme pension, but when it comes to using the balance of the AVC, 3 options will then be presented:
1. Buy Back Notional Years of service to bump up your pension – This involves exchanging your AVC retirement fund for an ongoing income for life. Annuities are based on annuity rates, which in turn are based on interest rates and life expectancy rates. In the current climate, it means the amount of pension income that can be purchased is at historic lows.
2. Withdraw the money and pay the tax – Take the remaining AVC funds as a taxable cash lump sum and pay the relevant tax liability. This option is rarely chosen as many public servants could have to pay up to 52% tax on the withdrawn amount as income tax (40%), PRSI (7%) and USC (4%) need to be paid before you get your hands on this money.
3. Invest in an Approved Retirement Fund (ARF) – This is a post-retirement product to which you can move monies from your AVC, essentially keeping them in an investment fund.
Public Sector AVC – ARF Option
ARFs are proving the most popular option for public sector retirees for reasons described above, but also because, unlike the private sector, public sector retirees can have a pension for life via their main retirement pension, use their AVCs to maximise their Tax-Free-Lump-Sum but also then choose an ARF for their residual AVC retirement pot.
Public Sector AVC – ARF Advice
If you have an AVC fund it is important to seek unbiased, personalised advice and to be made aware that your ARF does not need to be set up with your existing AVC provider, nor through your existing broker or financial advisor. The options presented to you may very well be inferior, both in terms of the investment funds recommended and moreover, the associated charges offered.
Public Sector AVC – ARF Consultation
Visit our ultimate guide to ARF charges and contact us to discuss the broad range of low-cost ARF investment options that we offer. All retirement advice and recommendations are individually tailored with maximum choice, flexibility and transparency assured. We have already assisted retirees across a range of public sector departments and agencies and look forward to hearing from you.
For more information
Contact: Ken O’Gorman – Director – QFA, SIA, MCIBS – Principal Consultant – Pensions & Investment Specialist – One Quote Financial Brokers on: 01 845 0049 or email: firstname.lastname@example.org