If you haven’t done much research into them, Additional Voluntary Contributions (AVCs) can seem quite confusing. Essentially, an AVC is a way of having extra savings for when you retire. Upon retirement you will have a few different options, like taking out a tax free lump sum and / or investing in a retirement fund.
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
We know it’s important to try to save money where 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 – so it would only cost €60!
You can top up your retirement fund with an AVC
Your main pension scheme might not be enough to fund for the life style you deserve in retirement.
Even if you have enough money from your pension to cover day-to-day bills, an AVC can give 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 1st January 2014 for many Public Sector employees and will increase to 67 in 2021 and to 68 in 2028. If you start your AVC investment while you’re young, you might be in a position to retire earlier than the normal retirement age as you will have built up your retirement fund with your AVC.
You are likely to get an additional tax free lump sum
Another added benefit of investing in an AVC is that it can allow you to increase your tax-free lump sum (subject to Revenue retirement limits) — which means you can save more money on tax! 95% of AVC members who settled their AVC in 2018 following their retirement received an additional tax free lump sum from their AVC*.
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. You can also stop, start, increase or decrease your contribution amounts throughout your career as needs must.
This flexibility is one of the best benefits of investing in an AVC.
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.
*Source: Cornmarket 2019, based on 1,443 of 1,520 members who settled their AVC in 2018 across 5 AVC schemes.