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).
Annuity is a fixed amount of money paid out to someone yearly, usually for the rest of their life.
Approved Minimum Retirement Fund
An Approved Minimum Retirement Fund is an investment fund that you can set up in retirement if you do not have a guaranteed income for life of €12,700 per annum. The capital invested in an AMRF can’t be withdrawn until you turn 75 or until you have a guaranteed income for life of €12,700, whichever comes sooner. However, you can withdraw any investment returns made at any stage.* It’s an extra investment and can mean you’ll have more money when you’re older.
Approved Retirement Fund
An Approved Retirement Fund is an investment fund that you can set up in retirement if you do have a guaranteed income for life of €12,700 per annum. Unlike an AMRF you can make withdrawals at any time.* Once you are over 60 years of age, you must make a withdrawal of at least 5% of the value of the ARF every tax year. It’s an extra investment and can mean you’ll have more money when you’re older.
Any property you own that’s considered valuable towards debts, etc. An economic resource.
Additional Voluntary Contribution. 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 Approved (Minimum) Retirement Fund, to have as extra money when you’re older
- Buy an annuity
- Pay employer bills before retirement.
A tax-free lump sum payable when the AVC holder dies.
Defined Contribution Pension Scheme
A pension scheme that depends on the amount of money invested and the performance of the fund/investment. Defined Contribution Schemes are particularly popular with small and medium companies. The 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.
Withdrawing funds from your AVC plan before you are retire. You will only be allowed a once off withdrawal between March 2013–March 2016. Early withdrawals are taxed at the highest rate of tax that you pay, in the year that you make the withdrawal.
Stocks/shares that you own.
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.
Personal Lifestyle Strategy
A Personal Lifestyle Strategy is very handy as it adds extra protection to your pension fund value, against market changes as you get nearer to the all-important retirement date.
A Personal Retirement Savings Account (PRSA) AVC is the same as an AVC as explained above.
Purchase of Notional Service / Notional Service Purchase
In Public and Semi-State Sectors, you can buy pension benefits 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.
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 employer makes a contribution to your pension. If the employer doesn’t provide an Employer/Occupational Pension Plan, they are legally obliged to offer you a Standard PRSA.
You invest a one-off sum of money and/or make regular contributions into a pension plan. You may be entitled to tax relief, so check!
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.
*Any withdrawal made will be liable for income tax, USC and PRSI (if applicable).