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What are avcs pensions?

Do you find yourself with extra money at the end of the month? If you are a pension scheme member, you can invest more money into your current pension.

Indeed, you can achieve that by making what is called Additional Voluntary Contributions (AVCs). AVCs are a simple and tax-efficient way to save for your retirement. AVCs are extra contributions that you build alongside your current workplace pension. 

What are the benefits of AVCS?

Additional Voluntary Contributions or AVCs are extra savings that you can make towards your pension. In other words, it’s the money that you add to your pension on top of your regular contributions.

They allow you to increase the level of retirement benefits you will get once you retire.

Plus, any Additional Voluntary contributions are deducted from your salary before tax. Indeed, Additional Voluntary Contributions are treated the same as normal pension contributions for tax purposes.

This means that investing more money into your pension will qualify you for tax relief at a higher rate of tax. Therefore, you will save money on taxes. Click here to learn more about tax relief on pension contributions. 

Example 1:

Aoife earns 100K per year, and she contributes 10% of her salary into her pension, €10,000 per year.

Because Aoife is 40, she can claim tax relief on pension contributions that are up to 25% of her salary. But her contributions represent only 10% of her salary.  

In order to use her full tax relief allowance, she put an extra €15,000 per year into her pension thanks to AVCS.

So, instead of claiming tax relief on only 10% of her salary, she will get tax relief on 25%.

Example 2: 

Simon earns 80K per year, and he contributes 5% of his salary to his pension each year. He invests €4,000 per year. 

Simon is 35, so he can claim tax relief on pension contributions that are up to 20% of his salary.  

Simon’s company pension scheme doesn’t allow AVCs, so Simon can use a Single Contribution Standard PRSA AVC to make an extra pension contribution of €12,000 this year.

In this way, he gets to build his pension and take full advantage of his tax relief. 

How does it work? 

AVCs are only permitted if the pension scheme provided by your employer allows it.

If your workplace pension does not allow you to make AVCs, you have another solution. Indeed, your employer must offer a Standard PRSA, for the purpose of making AVCs. 

You can choose the rate at which to contribute to an AVC, which is subject to a maximum rate determined by Revenue. Also, it’s important to know that your Additional Voluntary Contributions attract tax relief, subject to Revenue limits.

At any time, you have the option to increase, decrease or stop your regular contributions. You can also make one-off lump sum contributions to your AVC fund if you choose, also subject to Revenue limits.

Plus, AVC pension benefits must be administered in the same way and at the same time as your retirement benefits under your main pension scheme.

If you leave your company, you can leave your AVC pension fund invested until retirement or transfer it to your new employer’s pension fund for example. If you want to learn more get in touch with a qualified financial advisor now

How can we help you? 

As financial advisors, we can help you decide if AVCs are the right choice for you this year, and how much you’d like to contribute to your pension.

Based on your situation, we will find the best solution and get you on the right track with your pension. 

We can help you manage your pension post-retirement and guide you along the way.  Get in touch with a financial advisor now. You can get a free 15 min consultation by calling 01 853 2727

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Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor (QFA) & Technician Member of the Irish Taxation Institute

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer service background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018. She believes that product knowledge is key to helping customers make the right choices.

In 2022 Debbie gained a tax qualification as a Technician Member of the Irish Taxation Institute.

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372