Blog Homepage > As Investments go, an AVC is Highly Tax Efficient
Putting money into an AVC is one of the most tax-efficient investments you can make. In Budget 2016 (October 2015) there were no changes to AVCs or to tax relief. This means if you are contributing to an AVC you will receive tax relief on the highest rate of income tax that you pay i.e. if you pay income tax at 40%, then you get tax relief at 40%; so for every €100 you invest it only costs you €60!
Below are 3 examples of Cornmarket retirees. The examples show you just how tax-efficient AVCs really are as well as information on how these clients drew down their AVC in retirement. All three retirees drew down their AVC in different ways to best meet their circumstances.
Note: The examples below are real Cornmarket clients whose personal details have been changed for privacy purposes.
Example 1: Karen took out her AVC 19 years ago and retired at the age of 56
|Paid in gross||€91,682|
|Paid in net (assuming 40% tax relief on all contributions) ACTUAL COST||€55,117|
|The total value of her AVC Plan on retirement was||€127,289|
|At retirement Karen decided to:|
Drawdown as a tax-free lump sum
|Invest the remaining balance in an ARF|
Example 2: Paul took out his AVC 13 years ago and retired at the age of 60
|Paid in gross||€41,574|
|Paid in net (assuming 40% tax relief on all contributions) ACTUAL COST||€24,944|
|The total value of his AVC Plan on retirement was|
|At retirement Paul decided to:|
|Drawdown as a tax-free lump sum||€20,469|
|Invest the remaining balance in an ARF||€30,800|
Example 3: Orla took out her AVC 13 years ago and retired at the age of 62
|Paid in gross|
|Paid in net (assuming 40% tax relief on all contributions) ACTUAL COST||€45,096|
|The total value of her AVC Plan on retirement was||€89,426|
|At retirement Orla decided to:|
|Drawdown as a tax-free lump sum||€14,581|
|Buy back one year of previous service||€3,790|
|Invest the remaining balance in an ARF||€71,055|
Source: Figures provided by Irish Life Assurance plc.
Please note the way in which you can draw down your AVC is subject to Revenue rules and is affected by factors such as your years of service and guaranteed income in retirement etc.
A reminder of how tax relief works when paying contributions from salary
All your pension contributions (Superannuation, Notional Service, AVCs etc.) are eligible for full income tax relief. Your employer deducts your AVC contribution from your gross pay before the application of income tax. In effect this means that only the net amount i.e. after tax relief, is deducted from your salary. This ensures that you receive tax relief without having to claim the benefit of the relief from the tax office.
The percentage of tax relief available is age-related and the limits are shown in the following table:
*Maximum salary of €115,000 allowed for tax relief purposes.
The tax information contained herein is based on Cornmarket's understanding of current Revenue practice as at January 2016 and may change in the future.
For more information about AVCs or to arrange an appointment with one of our qualified financial consultants, call us on (01) 420 0994.
|Warning: The value of your investment may go down as well as up.|
Warning: This product may be affected by changes in currency exchange rates.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: If you invest in this product you will not have any access to your money until you receive your Superannuation Benefits.*
*A once-off withdrawal of up to 30% of the value of your fund is available until 26th March 2016.