The 31st of October 2021 is the deadline date for saving your once off Additional Voluntary Contributions (AVCs). Often referred to as ‘rocket fuel’ for pensions, these once off payments help you add to your retirement savings and maximise the tax relief you are entitled to. This not only helps you save for your future but reduces the amount of tax you pay today. The deadline is extended until November 17th, for those who file online via ROS.
While some of us may not have the luxury of disposable income in the current climate, it is worth considering what you can afford to contribute. This is especially helpful if you are worried about your retirement fund as you approach your 50s. With that said, every year you miss out saving these AVCs, you also miss out on the generous tax relief they provide and potential investment gains.
Why should we save AVCs if we are already paying into our pension?
For those of us focused solely on today and feel that retirement is a long way off, there is an immediate benefit of AVCs - tax relief. Saving AVCs will ensure you can avail of tax relief. This is something that will benefit you now and benefit you when you come to retire.
Tax relief at source: Tax Relief is given at your marginal tax rate of tax on AVCs paid. There are limits on the tax relief, depending on your age. As you edge closer to retirement, your tax relief increases.
There is a maximum annual amount of earnings for which tax relief is given. Currently this is €115,000 p.a. This amount is adjusted from time to time by the Minister for Finance.
No Tax on Gains: There are other tax advantages for the duration of your retirement saving in contrast to other solutions. There is no tax deducted on any gains you make over the years you save for retirement – this compares well to other investment types where DIRT or CGT are applied.
Tax free amount when you draw down: Subject to revenue limits, when you retire you can take a substantial amount of your fund tax free.
||Rate of Income Tax
||Reduction in Take Home Pay
Whether you save AVCs on a regular basis or as a lump sum really depends on your circumstances. For many people, paying a mortgage may take priority, but for some heading into retirement, they may realise that the savings they made will not be adequate for their future. In this case, saving AVCs will help offset this and provide for a more comfortable retirement.
A regular AVC payment would suit PAYE employees who are members of an occupational pension scheme. This means you contribute by means of salary deduction via payroll and receive tax relief at source.
However, if you have other sources of income that necessitates a manual tax return each year then you may wish to save an AVC prior to the end of each tax year to reduce your tax bill. You can save an AVC prior to the 31st October each year (or later if you complete your tax return online – i.e. 17th November in 2021), and claim tax relief for the previous year. This will not only reduce your tax bill for the previous year but also your provisional tax bill for the current year.
Making AVCs to your pension arrangement provides great benefits - today and for your retirement. Now all that remains to decide is how and when you wish to do it. If you would like to avail of tax relief and make a contribution to your retirement future, AVCs are a great step that can be taken now.
For further information on retirement planning and AVCs, please contact our experienced team on firstname.lastname@example.org
Please note that all cheques should be received by 29th October 2021.