Teacher - AVC or other financial service

The J Stands for Jay

Tess Tickle wrote: »

I would advise you to start a PRSA. Tell your bank manager you want to start a "standard " prsa.You will get the same tax relief and you can vary the savings to your circumstances.
The charges on a standaed prsa are 1% oer annum and all banks are legally obliged to offer them.Cornmarket are an expensive joke.

Do not do this. A standard PRSA has a charge of 5% on each contribution and 1% of the fund per annum. A non standard PRSA can have lower charges. Also, banks usual act as tied agents of one provider and won't give independent advice.

The J Stands for Jay

coylemj wrote: »

As a teacher you can't do a pension via a PRSA, they're essentially for the self-employed or people in small companies where the company hasn't setup a scheme

Teachers can have PRSA AVCs.

cashflowplus

seekingthetruth wrote: »

Hi, Im a teacher working in cork on my first year that will hopefully lead me to CID.
Im just gone 35 and have been teaching since Jan 2006 on various different contracts (maternity, career breaks, secondment).

I recently had a meeting with a man from Cornmarket and he advised me to open an AVC to make up the shortfall in my pension because of being down in years at retirement.

I have been looking on boards.ie and the feedback is not good for Cornmarket or AVCs and I am very unsure of what to do?

Is someone able to advise me?

Its hard to find someone to trust to tell you the truth

Thanks

If your a first year teacher your probably in the 20% tax bracket and if so it doesn't make sense to at the moment to invest in an avc as you will receive 20% tax relief and pay more in tax in retirement, when you include the charges that cornmarket charge this doesn't make sense

Generally speaking AVC are good for filling the shortfall in your "tax free" lump sum the key word here is "tax free" this is usually a small amount that you can fill in the last 10 years before retirement and which point you will be receiving tax relief at 41% or 40% starting in 2015.

Another problem with AVC is the government can change the rules tax relief etc, and what was a good idea today might not be a good idea tomorrow

coylemj

cashflowplus wrote: »

Another problem with AVC is the government can change the rules tax relief etc, and what was a good idea today might not be a good idea tomorrow

That's like saying you shouldn't save for the future because you might be knocked down by a bus tomorrow.

cashflowplus

coylemj wrote: »

That's like saying you shouldn't save for the future because you might be knocked down by a bus tomorrow.

I work with the public service re: Pensions and my advice is save your money and with five years until to your retirement you can lump it into a avc if it makes sense at that time you make a more educated decision and not tie up your money for 20/30 years on something that doesn't make sense when the time comes. You can still save for the future just doing it in a better way

Also charges on group schemes are ridiculous you can get much lower charges putting it in as a lump sum

billyhead

Ì am a couple of years younger then you and am a civil servant the last 14 years. I set up an AVC with New Ireland Assurance in 2001 based on a consultation with one of their reps. Its a very good idea to set when up as it comes from your gross income and will the earlier you start the better financial situation you will be in when it comes to your retirement, and the current tax advantages are a no brainer really.

SBarrett

You have two options to make up for the shortfall:

1. Buy back years. You can pay into the scheme to buy back the years that you have lost. Get in touch with the department of education and find out how many years you can buy back, how much does it cost and how can you pay for it. It usually works out to be pretty good value for money. There is no investment risk involved in buying back years.

2. Pay into an AVC plan. You pay a fixed amount into a separate pension plan to the main scheme. How much you get from it is dependent on how much you put in and how well it performs. It is doubtful that it will provide better benefits than buying back years. You assume the investment risk.

You say you are risk adverse and that is fine. Don't forget inflation is a risk too. If you invest in cash over a 30 year period, it is probable that the real value of your investment will be less than you put in. Ask the advisor what the downside risk to any of the fund recommendations was? How did his recommendation perform in 2008 for example? You will then know what level of risk you are comfortable with.

As you are a member of a pension scheme, any additional payments are made by Additional Voluntary Contribution (AVC's). Cornmarket run the teachers AVC scheme. If you do not want to use them, you can make contributions into a PRSA AVC plan. The other types of pension plans will not apply to you.


Do not do anything until you know the cost of buying notional service. Then you can compare which is the best option for you.


Steven

diomed

The advice from SBarrett above looks good.

I am 64. At age 40 I joined a company with a pension scheme. I transferred pension from my 7 years with a previous employer and got 2.3 years with my new employer.
Luckily someone I worked with in the new job told me to buy pension years. I signed up to buy 10 years with the target being 35 years pensionable at age 60 (65 minus 40 starting age = 25 years plus buying 10 years). After a while I also started additional voluntary contributions (AVCs). The reason was I had paid off my mortgage and my income tax had gone up. I also bought one pension year with cash, and got a second year in a job deal for relinquishing rights.

I took early retirement in late 2006 at age 56. The company closed two years later.

I had a pension of about half salary for the last eight years. I got back my €35k AVCs in cash when I left in 2006, and put it into shares two years later at the end of 2008, selling in 2014 for €70k. €60k went into National Savings, and €10k goes in Capital Gains Tax. One thing I did not do when investing was go to a company and ask them to invest my money. They will take 15% up front, then put it in one of their own funds, and pay themselves 1%, 2%, 3% a year to manage it (badly).

My pension is a commuted pension. It reduces to a few thousand at age 65, and at age 66 I'll get the old age pension, with my commuted pension.

If I didn't buy extra pension and AVCs, and stayed with the company I would have been out of work and unemployable at age 58, with a pension that disappeared in an insolvent pension fund. When I left at age 56 the pension fund had to buy an annuity for me. What remained in the pension fund belonged to the people still contributing, and it was insolvent.

Every year since I have signed for credits with the Department of Social Welfare to keep my entitlement to an old age pension. This is important.

Do not spend your time thinking that you must do something sometime about your pension. Act.

Bananaleaf

coylemj wrote: »

Do you have an option to invest in an AVC with any other financial provider? I suggest you take this up with the teacher's union.

As a teacher you can't do a pension via a PRSA, they're essentially for the self-employed or people in small companies where the company hasn't setup a scheme.

An ARF is an Approved Retirement Fund, it's basically a tax shelter for a lump sum that you can't take on retirement without paying tax. The natural thing to do on retirement is to take as much money as you can tax-free without cashing in any of your pension (income) entitlement. Any money left over you can either take net of tax, or leave it in an ARF. That means that some or all of the money in the AVC at retirement can be transferred to an ARF, either with the same company or to any other company (typically a life assurance company) approved by the Revenue to provide this service.

Income and capital gains within an ARF are tax-free, you pay PAYE and USC when you withdraw money.

This is the clearest post I've read on the explanation of these terms.

Just a question... If we are paying into AVC now and getting 40% tax break ... When we transfer to ARF and pay PAYE and USC, and the yearly maintenance fees on the AVC - are we paying the 40% back essentially?

coylemj

Bananaleaf wrote: »

This is the clearest post I've read on the explanation of these terms.

Thank you.

Bananaleaf wrote: »

Just a question... If we are paying into AVC now and getting 40% tax break ... When we transfer to ARF and pay PAYE and USC, and the yearly maintenance fees on the AVC - are we paying the 40% back essentially?

Yes, this is the system in most countries - you get tax relief when paying in but you have to pay tax on post-retirement benefits, as you do with your actual pension.

However..... as you will have a lower income in retirement, you may or may not be paying a lower rate of PAYE on the income you receive from your pension and/or ARF drawdown than you were able to claim on the original contributions.