Last Minute AVCs

Last Minute AVC

Most people we deal with like to know ‘how to maximise your tax-free cash’ at retirement. There is no short answer to this question as it depends on your individual circumstances. One method of maximising the amount of tax-free cash an employee can get at retirement is by way of a ‘Last Minute AVC’.

This can be of major benefit to employees but there are instances where it will not be possible.

The opportunity for a last minute AVC arises when an employee’s gratuity or tax-free lump sum under the Superannuation scheme or Company pension scheme is less than the maximum allowed.

Calculating  Last Minute AVC

There are two main variables at play in calculating the advantages in making a last minute AVC contribution. The first factor involved revolves around your salary and your service. Your employer Tax Free lump-sum is likely to be Less than the maximum allowed by Revenue rules because you :

  1. Received a reduction in salary in recent years, even if you have full service, and/or
  2. Are short service, you may have less than full service (typically 40 years), and/or
  3. Have non-pensionable earnings (e.g. Overtime, ex-gratia payments, etc)
  4. Are retiring under Cost Neutral conditions
  5. Retirement is under ill-health

Tax relief is the second main variable involved in calculating your last minute AVC scope. Therefore, when calculating what amount should be contributed (if any) we must also establish what is the maximum amount allowable for tax relief purposes.

Relevant factors involved here include age, pensionable salary and non pensionable earnings and pension contributions already made in the past 2 years.

If the contribution is made and tax return is submitted before October 31st the client can also use tax relief allowable from the previous tax year.

Benefits of  Last Minute Additional Voluntary Contributions

In summary, the benefits of a Last Minute AVC include:

  • Tax refund on pension contributions
  • Maximising your tax-free cash lump sum at retirement

The rules in this area are complex. Please let us know if you would like us to examine your circumstances for assessment of your last minute AVC options.

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