If you haven’t done too much research into them, Additional Voluntary Contributions (AVCs) can seem quite confusing. Essentially, an AVC is a way of having extra savings when you retire. Usually, it’s in the form of an investment and upon retirement you have a few different options, like taking out a lump sum. At Cornmarket we’re experts in the area of AVCs, so we’re going to highlight some of the reasons why investing in an AVC is a great idea.
You save money on tax
In today’s climate, it’s important that we try to save as much money as possible. An AVC can give you the opportunity to reduce your tax bill at the end of each month. For example, a top rate tax payer would reduce their tax bill by €40 for every €100 contributed into their AVC.
You can grow your retirement fund with an AVC
Right now, your retirement fund might just consist of your main pension scheme or it might not even be something you’ve really implemented. Investing in an Additional Voluntary Contribution means that you can grow your retirement fund so you’ll have more money when you retire.
Without an AVC, you will likely have enough money from your pension to cover day-to-day bills but an AVC gives you the opportunity to really enjoy your retirement. AVCs can help grow the size of your retirement fund and provide you with extra resources so you can go on that cruise you’ve always wanted, travel, or do whatever takes your fancy!
You can take early retirement
The age of retirement increased to 66 from 1 January 2014 for many Public Sector employees. If you start your AVC investment while you’re young, you might be in a position to use your AVC investment to supplement your income and take early retirement when you’re older.
You get a tax free lump sum/gratuity
Another added benefit of investing in an AVC is that it can allow you to increase your tax-free lump sum or gratuity (subject to Revenue retirement limits) by drawing down on the funds within your AVC—which means you can save more money on tax!
Flexible AVC contributions
When you first start your AVC, you might not be able to afford a big contribution. AVCs give you the peace of mind of being able to invest smaller amounts at the start, with the opportunity to increase your AVC contributions in the future.
This flexibility is one of the best benefits of investing in an AVC as it allows you to start small and grow over time as your wages increase. Essentially, your AVC will grow with you.
In the long run, investing in an AVC is one of the best decisions you can make during your employment. Your AVC will stand to benefit you by providing you with tax savings as well as giving you extra savings when you retire.