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ADDITIONAL
VOLUNTARY CONTRIBUTIONS AVCs
An AVC is a voluntary contribution made by
employees in addition to the required contributions if any,
that are to be made to their company pension schemes. Generally,
an AVC is made to take advantage of the tax benefit and to
also improve the benefits available at the time of retirement.
AVCs are subject to Revenue limits.
The option of AVCs is usually provided in
the trust deed and rules of the main scheme. A separately
constituted scheme may alternatively be available for AVC
contributions
Finance Act, 2002 - Changes to Company
Pension Rules including AVC's
The Finance Act, 2002 provides for a significant
improvement in the taxation relief for members of occupational
pension schemes.
Changes in pension rules for employees
In order to encourage employees to increase
their level of pension cover, the following changes have been
made: -
(1) The previous limit of 15% of qualifying
annual earnings for tax relief for contributions, including
Additional Voluntary Contributions (AVCs) by employees into
occupational pension schemes has been increased to the tax
relieved limits that applied to contributions by those not
in occupational pension schemes, to Retirement Annuity Contracts
(RACs). These limits are:
Age Limits
| Up to 30 years
of age |
15% of net relevant
earnings |
| 30 to 39 |
20% |
| 40 to 49 |
25% |
| 50 to 54 |
30% |
| 55 to 59 |
35% |
| 60 years and
over |
40% |
The overall existing maximum pensions benefit
rules will continue to apply.
Revenue Limit on AVCs
For tax relief purposes, an employee's total
pension contributions cannot exceed the limits as set out
above, in any year. This is inclusive of any ordinary contributions
made, subject to the following conditions: -
- The additional benefits secured by AVCs,
when added to the benefits of the main scheme, must be within
the approval limits set by the Revenue Commissioners.
- No more than 5/6 of the member's total
benefits from all pension schemes of the employer may have
been paid for by the member.
The Uses Of AVCs
AVCs can be used for the following, subject
to Revenue rules: -
- Increase basic pension or provide benefits
based on non-pensionable pay;
- Increase tax-free lump sum, if possible;
- Provide or increase dependants' provisions;
- Provide or increase cost of living provisions;
and
- Provide additional benefits on early retirement.
- Once paid, AVCs are locked into the scheme,
similar to ordinary contributions. Independent advice is
strongly recommended.
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