Additional Voluntary Contributions (AVCs) are something of a mystery to a lot of people. Rather than diving right in with a heap of information or a detailed FAQ, we thought we’d start with a glossary of the terms you’ll see us use most in our blog posts about Additional Voluntary Contributions (AVCs).
Additional Voluntary Contribution (AVC)
An AVC is extra savings for when you retire, usually in the form of an investment. Once you retire you can use your AVC in a few different ways:
- Withdraw some or all of it as a cash lump sum (usually free of tax)*
- Put the money into an ARF/AMRF, to have as extra money when you’re older
- Buy an annuity
- Pay employer bills before retirement.
Annuity is an amount of money paid out on a regular basis, usually for the rest of a member’s life.
Approved Minimum Retirement Fund (AMRF)
An Approved Minimum Retirement Fund is an investment fund that you can set up in retirement from the proceeds of an AVC if you do not have a guaranteed income for life of €12,700 per annum. You can withdraw a maximum of 4% of the value each year**. An AMRF turns into an ARF at age 75 or whenever you have a guaranteed income for life of greater than €12,700 per annum.
Approved Retirement Fund (ARF)
An Approved Retirement Fund is an investment fund that you can set up in retirement from the proceeds of an AVC if you do have a guaranteed income for life of €12,700 per annum. You can make withdrawals at any time**. Once you are over 60 years of age, you must make a withdrawal of at least 4% of the value of the ARF every tax year***.
An asset is an economic resource or any property you own that’s considered valuable towards debts.
This is an optional addition to a regular AVC and is paid for by the AVC holder by deducting the cost from the value of the AVC every month. If the option is selected a tax-free lump sum will be paid if the AVC holder dies before retirement and the death benefit option was still in place.
Defined Contribution Pension Scheme
A pension scheme that depends on the amount of money invested and the performance of the fund/investment. An AVC is a defined contribution pension scheme.
Defined Benefit Pension Scheme
A Defined Benefit Pension Scheme is a scheme where the pension benefit at retirement is guaranteed. The Superannuation Scheme is a defined benefit pension scheme.
A tax-free lump sum paid to you by your employer on your retirement.
A regular payment you receive from your employer once you retire.
A plan you put in place to use your income to build up money for your retirement, such as an AVC.
Personal Lifestyle Strategy
A Personal Lifestyle Strategy is very handy as it adds extra protection to your AVC value, against market changes as you get nearer to the all-important retirement date by switching some or all of your AVC into less risky funds.
A Personal Retirement Savings Account (PRSA) AVC is the same as an AVC.
Purchase of Notional Service / Notional Service Purchase
In Public and Semi-State Sectors, you can buy pension benefits from your employer for the years in which you weren’t a member. Every year that you buy adds one year to your pension and one year to your gratuity. This benefit is not available to members of the Single Public Service Pension Scheme.
Occupational Pension Plan
This is the pension plan you’re legally entitled to through your job. Most companies offer occupational pension plans. Essentially, it’s a pension plan set up by your employer to provide a pension to you, the employee. The Superannuation Scheme is the Public Sector Pension Plan.
Purchase and Transfer Facility
This is a facility for members of the Single Public Service Pension Scheme to purchase additional gratuity and / or pension directly from your employer by lump sum payments.
Single Public Service Pension Scheme
In general, anyone employed (or re-employed) in a pensionable post in the public service from 1st January 2013 is a member of the Scheme. You build up gratuity and pension benefits based upon your pensionable salary. It is a career-average defined benefit pension scheme – final benefits are paid based upon the amounts you have built up over your career and are not based upon final salary and service.
A Personal Retirement Savings Account is usually used by the self-employed or by those not in an occupational pension plan to save for their retirement.
State Pensions are a regular amount of money paid out to people at retirement age. They may be contributory or non-contributory.
Your Public Sector Pension Plan. Superannuation, despite the long name, is pretty straightforward: it’s a defined benefit pension plan which pays a gratuity and a pension on retirement, usually based on the retiree’s final salary and number of years’ service.
For more information on AVCs or to find out if an AVC would be right for you, call us today on (01) 420 6779.
*Subject to revenue limits
**Any withdrawal made will be liable for income tax, USC and PRSI (if applicable).
*** 5% after age 70. If your total ARFs exceed €2 million, you must take out 6% of the value of your fund each year. Any withdrawal made will be liable for income tax, USC and PRSI (if applicable).