What Are Additional Voluntary Contributions (AVCs) in Ireland and Should You Consider Them?

When it comes to building your pension, many people focus on the basic contributions deducted from their paycheck. But what if you want to do more to boost your future retirement income? That’s where Additional Voluntary Contributions (AVCs) come in, a smart way to enhance your pension and make the most of tax relief while you’re working.

Understanding AVCs

AVCs are extra pension contributions you choose to make on top of your regular contributions to your occupational pension scheme, that is, the pension plan your employer provides. In most workplace pension schemes, you  contribute a certain amount to your pension each month, and the rest of the monthly contribution is made up of additional employer contributions. An AVC Pension allows you to go beyond this by voluntarily contributing more into your pension pot.

These contributions are entirely optional but can significantly increase the value of your pension at retirement.

Key Features of AVCs

Supplementary Savings: AVCs allow you to build a larger pension fund by topping up your standard contributions.

Tax Relief: AVCs benefit from the same generous tax relief as regular pension contributions. For example, if you’re paying tax at the higher 40% rate, contributing €100 to your AVCs could cost you just €60 after tax relief.

Flexibility: You can typically start, stop, increase or reduce your AVCs at any time, depending on your financial situation.

Tailored Planning: AVCs can be used to help fund early retirement, increase your tax-free lump sum, or improve your overall pension income.

 

Who Are AVCs for?

AVCs are designed for employees who are already members of a company pension scheme. If your employer runs an occupational pension plan, and you’re part of it, you’re eligible to make AVCs.

However, if you’re not in a company scheme, for example, if you’re self-employed or saving into a PRSA (Personal Retirement Savings Account) the term AVC doesn’t really apply. In that case, all of your pension contributions are simply personal contributions, though they still benefit from tax relief and investment growth.

 

Is Making AVCs the Right Choice?

AVCs are ideal if you:

• Want to retire earlier than your scheme’s normal retirement age.
• Are aiming to maximise your tax-free lump sum at retirement.
• Have extra income now and want to put it to good use.
• Want to take advantage of unused tax relief limits.

If you’re closer to retirement and feel your current pension won’t give you the lifestyle you want, AVCs can be a powerful way to catch up.

 

Final Thoughts

Additional Voluntary Contributions are a flexible, tax-efficient way to take more control of your retirement planning, especially if you’re already part of a workplace pension scheme. While they may not apply to everyone, for those who are eligible, AVCs can play a key role in closing the gap between what your pension will provide and what you’ll actually need in retirement.

Consulting a Certified Financial Planner is a wise first step to make before making any retirement planning decisions.
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