If you are a member of an employment pension scheme you may wish to top up your expected benefits at Normal Retirement Age (NRA). The most straightforward way to do this is by paying Additional Voluntary Contributions (AVCs). This is normally done by setting up a policy called a PRSA.


You can generally contribute to this PRSA on a regular basis or as a once off lump sum. The good news is that you will be entitled to claim tax relief at your marginal rate of income tax on any payments made (within certain limits). Therefore, if you pay income tax at 40%, a €100 contribution to an AVC PRSA will result in a net cost to you of only €60. The contributions will be invested in a fund or funds which should be relevant to your term to retirement and your risk profile. Any investment growth on the policy is also tax free.


Most often there will be a facility within the pension scheme of which you are a member to contribute to an AVC. But you may also wish to set up the AVC PRSA privately. It is important to note, however, that this policy will still be tied into the actual main pension scheme in terms of when and how you take benefits. It cannot be accessed separately.


Not only can paying AVCs mean a higher pension pot at retirement they may also result in more options for you. For example, if you are a member of a Defined Benefit (DB) pension scheme, the AVCs could be used to fund a tax-free lump sum or an Approved Retirement Fund.


As AVCs can be quite complicated, I would recommend seeking advice from an adviser or broker if you are considering contributing to one. If you would like more information, you may contact me on 087 9308181 or gerard@proactivefinance.ie.