If you’re planning for retirement in Ireland, you’ve likely come across the term AVC pension. AVCs, or Additional Voluntary Contributions, are one of the most powerful tools available to boost your pension fund while also enjoying significant tax advantages. But what is an AVC pension exactly? How does AVC tax relief work? And what are the AVC limits in Ireland?
In this guide, we’ll explore all you need to know about AVCs in Ireland, from how they operate to the reasons why financial advice is essential when considering this option for your retirement planning.
AVC stands for Additional Voluntary Contributions, a form of pension savings made on top of your existing occupational pension scheme contributions, whether you’re in the public or private sector.
In simple terms, if you’re already contributing to a pension through your employer but want to save more for retirement, an AVC pension lets you voluntarily pay in additional money. These contributions can significantly increase your retirement income and are usually eligible for AVC tax relief, making them highly tax-efficient.
You can also make AVCs through a PRSA AVC (Personal Retirement Savings Account), which functions similarly but is structured under different regulations.
Anyone who is part of a company pension scheme in Ireland is typically eligible to make AVCs, provided the scheme allows it. If your employer doesn’t offer an AVC scheme, they must offer an alternative, such as a PRSA AVC, to ensure you can still make voluntary contributions.
AVCs are especially common among public sector workers like teachers, nurses, and civil servants, but are equally relevant for private sector employees.
You can make regular or one-off payments into an AVC pension, depending on your financial flexibility. Contributions are generally deducted directly from your payroll, meaning you receive immediate AVC tax relief.
Here’s a step-by-step overview of how it works:
For PRSA AVCs, contributions may be made directly by you and claimed through Revenue, either via myAccount (for PAYE workers) or ROS (for self-employed individuals).
Your AVC contributions are invested and grow tax-free, though like any investment, they carry some risk.
The earlier you start, the more time your AVC pension has to grow. However, even last-minute AVCs (sometimes referred to as “late AVCs”) can be beneficial. Many people approaching retirement make lump sum AVC contributions to maximise tax-free lump sums at retirement.
Age-based AVC limits in Ireland also mean you can contribute more as you get older and still receive tax relief.
Tax relief on AVCs is governed by age-related percentage limits and a maximum earnings threshold of €115,000 per year. Here’s how much of your income you can contribute and still receive tax relief:
For instance, if you’re 57 and earning €100,000 annually, you can contribute up to €35,000 and receive relief at your highest rate of tax, either 20% or 40%.*
Note: You can still contribute more than the eligible amount, but tax relief will only apply up to the thresholds.
Source: Revenue.ie
AVCs are a flexible, tax-efficient way to build a larger retirement pot. Some key benefits include:
Your contributions are deducted before tax, reducing your taxable income. For a higher-rate taxpayer, that’s €40 back for every €100 contributed.
Read more about Pension Contributions in Ireland in this link.
Any gains made on investments within your AVC are not subject to tax while invested.
You can take up to 25% of your AVC fund as a tax-free cash lump sum when you retire, depending on Revenue rules.
You can increase, decrease or stop AVC payments as your financial situation changes.
Catch-Up Potential
If you started saving for retirement late, AVCs allow you to boost your pension fund quickly as retirement approaches.
While AVCs offer several advantages, they are not without potential drawbacks:
At retirement, you have a few options:
Your decision will depend on your overall financial situation, future plans, and desired retirement lifestyle.
Yes, if you leave your employer, you can:
Read more about Personal Retirement Bond in Ireland in this link.
Transferring to a PRSA AVC can offer lower charges, better fund choices, and more control. Speak with a pension advisor to determine if a certificate of comparison is needed before transferring.
If you want to take control of your retirement savings and benefit from generous tax relief, an AVC pension can be a smart move, especially if your current contributions won’t provide the retirement income you need.
But it’s not a one-size-fits-all solution. Factors such as age, income, pension value, and investment risk tolerance all come into play. With expert guidance from Fairstone, you can confidently assess whether AVCs, PRSA AVCs, or alternative strategies are right for you.
While AVCs offer powerful retirement-saving opportunities, their rules are complex, especially when it comes to tax limits, fund performance, and suitability. That’s why it’s crucial to get expert pension advice.
At Fairstone, we specialise in tailored pension planning and impartial AVC guidance. Whether you’re in the public or private sector, approaching retirement or just starting your journey, our advisors will ensure your AVC strategy aligns with your long-term goals, and avoids common pitfalls like overfunding or breaching Revenue limits.
We help clients:
Book a no-obligation retirement planning consultation with Fairstone today and make informed decisions that secure your financial future.
Source:
Related articles:
Pension Contributions in Ireland: What You Need to Know
Is Pension Consolidation Right For You?
The tax treatment is dependent on individual circumstances and may be subject to change in future. This article is for general information purposes and is not an invitation to deal or address your specific requirements. Any expressions of opinions are subject to change without notice. The information disclosed should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information of the various source material, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
