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Finance - Money Matters - Getting your AVCs right

In 2013 hundreds of public sector employees received thousands of euro extra in their tax free lump sum in retirement by availing of a tax break called ‘last minute AVCs’.

If you are retiring this year, there is still time to maximise your lump sum at retirement by using this tax break. Last minute AVCs still present a fantastic opportunity for nurses and midwives, who are either short on service or have had their salary reduced in recent years, to increase their tax-free lump sum at retirement.

How it works
Without complicating matters, public sector employees at retirement receive a tax free lump sum and pension. In general terms, when calculating these benefits, your employer has to take into account your pensionable salary and superannuated service along with any social welfare entitlements.

However, Revenue rules may differ to those applied by your employer when calculating your final pensionable salary. One of the Revenue rules in relation to the calculation of your final pensionable salary allows individuals to receive benefits from an AVC based on their earnings up to the 10 years preceding their retirement date.

This is of particular relevance to nurses and midwives who have experienced a reduction in salary in recent years and are retiring in the near future. In other words, this affects the vast majority of readers.

Using a simple example, Mary, a nurse, is retiring on December 31, 2014 with 40 years’ service and a final pensionable salary of €68,046. Under Superannuation rules, Mary will receive a tax-free lump sum of €102,069.

Last minute AVCs still present a fantastic opportunity for nurses and midwives, who are either short on service or have had their salary reduced in recent years, to increase their tax free lump sum at retirement

As Mary’s salary was greater in the years before the pay cuts in 2010 were implemented, in this example Revenue rules now allow for a final salary of €75,514 to be used to calculate her retirement benefits for an AVC. This greater salary would allow a tax-free lump sum of €110,271 to be paid, ie. an extra €8,202.

In order for Mary to maximise this extra tax-free lump sum, she would need to invest in an AVC where she would benefit from tax relief at her highest rate of tax. If she invested €8,202 into an AVC before she retired, she would be eligible for a tax rebate at retirement of up to €3,363 plus her €8,202 investment back, less charges.

In addition: nurses and midwives can also use non-pensionable earnings, such as on-call allowances, premium payment etc. to maximise their final pensionable salary.

As mentioned, all the above are general guidelines to what are complex rules. The potential opportunity for nurses and midwives to increase their tax-free lump sum is significant, especially taking into account the reductions in pay employees have suffered in recent years.

Nurses and midwives can find out how to take advantage of this tax break at retirement by contacting Cornmarket at Tel: 01-4084058. If a ‘Last Minute AVC’ is appropriate, we will guide you through the various steps involved.

IMPORTANT: You can’t do a ‘Last Minute AVC’ after retirement so please ensure you get in touch in advance of retirement. Call today.

Ivan Ahern is a director of Cornmarket Financial Services Ltd

This article was prepared by Ivan Ahern, Director, Cornmarket Group Financial Services Ltd.

Warning: The value of your investment may go down as well as up.

Warning: If you invest in this product you will not have any access to your money until you receive your Superannuation Benefits.

This information is intended only as a general guide and has no legal standing. Members who have specific questions relating to their personal finances, Superannuation entitlements, etc. are advised to seek professional advice and can contact Cornmarket. Cornmarket Group Financial Services Ltd. is regulated by the Central Bank of Ireland. A member of the Irish Life Group Ltd. Irish Life Assurance plc is regulated by the Central Bank of Ireland. Telephone calls may be recorded for quality control and training purposes.

Finance - Money Matters - Getting your AVCs right

 

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Irish Nurses & Midwives Organisation (Cumann Altrai agus Ban Cabhrach na hEireann). The Whitworth Building, North Brunswick Street, Dublin 7. T:+353 1 664 0600 E:inmo@inmo.ie