The Orca Financial Guide to understanding

Additional Voluntary Contributions (AVCs)

Pensions can be complex products, so it is important to get the right financial advice. At Orca Financial we will take you through all your pension options and explain AVCs in detail, so you’ll have plan in place that suits your needs perfectly, and offers maximum tax efficiencies.

What are AVCs?

Additional Voluntary Contributions (AVCs) are extra payments that you choose to make to your private pension, in order to boost the funds available to you at time of retirement. The money you have built up in your AVC fund can then be used to top-up your employer pension.

Why you should consider AVCs

The purpose of your employer pension is to provide you with the maximum financial benefits at retirement. However, for many of us in Ireland, these pensions fall short of the limits set by Revenue, and may not afford us the level of comfort we hoped for in retirement.How a shortfall can arise:
  • You may not have reached the required years of service by retirement age
  • Some of your earnings (for example, overtime or certain allowances) may not qualify for pension benefit purposes
  • Changes to rules that apply to particular pensions

How AVCs work

You decide the level of AVCs you want to pay (note that Revenue limits apply).Your AVCs are invested in funds, typically a mix of shares, bonds, property and cash. The value of your AVCs can rise and fall in line with the values of investment funds your money is invested in. You are not guaranteed any specific level of AVC fund or retirement benefits by retirement age.Upon reaching retirement age, your AVC fund is used to top-up your retirement benefits.
  • You can use it to increase the tax-free lump sum that you are allowed to withdraw
  • You may be able to transfer any balance to an Approved Retirement Fund (ARF), which you can draw on in retirement, or use to buy an annuity (an annual guaranteed fixed payment)
For exampleJohn works in the private sector. He finds out that he is entitled to take €36,000 as a maximum tax-free lump sum at retirement from his employer’s plan. He has also built up an AVC fund worth €50,000. John decides to take the full €36,000 as a tax-free lump sum. With the balance of €14,000 he can choose to:
  • buy an annuity, and so get extra pension income
  • invest in an Approved Retirement Fund
  • take it as another lump sum (this will be subject to income tax)

Dipping into your AVCs

Currently (until 27 March 2016 only), Revenue allows you to make a once-off withdrawal from your AVCs of up to 30% of their value at the time of withdrawal. The sum you withdraw is subject to PAYE for income tax purposes, but is not liable to Universal Social Charge or PRSI.

Find out more information about AVC

Ask your HR department, pension administrator or your union about AVCs. If there is no facility within your employer's pension plan for making AVCs, you can set up your own independently.For a better understanding of AVCs,call Orca Financial on 01 2103030or email info@orca.ie