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AVCs and the Public Service David Malone Head of Operations and Communications The Pensions Authority. Pensions Authority Established by the Pensions Act, 1990 . Pillar 1: State pension
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Head of Operations and Communications
The Pensions Authority
Contributory pension of maximum of €230.30 per week = 35% of average earnings (Non-statutory political commitment to maintain at this level)
Means-tested non-contributory pension of €219 per week
Aim is essentially one of poverty prevention
Pillar 2: Occupational pension schemes
Employer sponsored DB and DC schemes
Operate on a funded basis (private sector) and pay-as you go basis (public service)
Pillar 3: Personal pensions
Personal pension vehicles
Includes Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs)
75% rely on the State pensionPensions system in Ireland
- 933 schemes with 189,644 members are subject to the Funding Standard
- 107 schemes with 338,037 Public Service employees (full and part-time)
206,936 PRSAs with asset value of €3.46 billion
(200,000 + contracts – Irish Insurance Federation)
The recommendations include :
Life expectancy increasing – 20 plus years in retirement
What kind of lifestyle do you want and how will you fund it?
Current State pension = €230.30 per week
8 out of 10 people say - the State pension will not meet all their needs in retirement
Pension = Income in Retirement
Highest age at any time during the tax year Limit
Under 30 15%
60 and over 40%
For tax purposes limited to earnings up to a
maximum of €115,000 in any year.
Standard Fund Threshold - €2 million.
There are three main options open to public servants who want to ‘top up’ their retirement savings. They can:
Retirement benefits for most public servants are provided through a Defined Benefit (DB) pension scheme. Maximum pensionable service in this scheme is normally 40 years.
Public servants who will have the maximum service allowable at retirement age cannot avail of PNS.
Public servants who will have less than maximum pensionable service at retirement age can buy notional service to make up for the shortfall in their pension entitlements.
There are two methods of purchasing this service. Payment may be by:
Advantages of PNS include:
Additional Voluntary Contributions (AVCs)
AVCs are a defined contribution pension arrangement provided by a financial institution, usually an insurance company.
The individual bears the risk in a defined contribution arrangement, as the fund available at retirement age is determined by the combination of your contributions and any investment returns on these contributions.
Any estimate on the size of the fund at retirement age should be treated as just that – an estimate. Investment returns are subject to a number of factors and can rise or fall. So it is important to regularly review the performance of your fund.
The policy of the Department of Finance is that there should only be one AVC scheme per Trade Union. This is to help minimise administrative costs to the State in relation to the handling of payroll deductions for staff.
The contributions that you make to an AVC are subject to charges, and are invested in unit-linked funds. There is a lot of flexibility in the way that a fund provided by an AVC can be used. The fund at retirement can be:
Individuals can choose the rate at which to contribute to an AVC, subject to a minimum rate set by the AVC provider and the maximum rate determined by Revenue limits. Contributions to AVCs attract tax relief, subject to Revenue limits.
For some who cannot avail of PNS as they will have full service at retirement they may be able to opt for an AVC to increase their retirement benefits (subject to Revenue limits).
Public servants can make AVCs to a PRSA. There is no obligation on the employer to set
up a PRSA to act as an AVC given the existence of both the PNS and AVC facilities. However, an
individual can open a PRSA to provide additional retirement benefits.
For further information in relation to the PRSA AVC option, you should contact a PRSA provider.
Details of PRSA providers are available on the Pensions Authority’s website.
The question of which option is the best for you depends on a number of factors.
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