Boost your pension with AVCs

Whether you're looking to increase your pension fund, retire earlier, or simply enjoy greater financial security in retirement, AVCs can be a valuable part of your long-term financial plan.

Why consider making AVCs?

AVCs provide an effective way to boost your retirement savings while benefiting from valuable tax incentives. By making additional contributions throughout your working life, you can potentially build a larger pension fund and improve your financial wellbeing in retirement.

The main benefits of AVCs

There are three key advantages to making AVCs.

1. Tax relief on contributions

One of the biggest attractions of AVCs is the income tax relief available on contributions. Depending on your marginal rate of tax, you may receive relief at 20% or 40%.

This makes AVCs one of the most tax-efficient ways to save for retirement.

2. Tax-free investment growth

Any investment growth generated within your AVC fund is free from income tax and capital gains tax while invested within your pension arrangement.

This allows your savings to compound over time, helping your pension fund grow more efficiently.

3. Flexibility

AVCs offer considerable flexibility, allowing you to decide:

• How much to contribute.
• When to contribute.
• Whether to make regular or one-off payments.

Are there limits to how much I can contribute?

Yes, tax-relievable AVC contributions are subject to Revenue limits. However, these limits are generally quite generous.

Some important points to remember:

• The percentage of earnings you can contribute increases with age.
• Employer pension contributions do not count towards your personal tax-relievable contribution limits.
• An earnings cap applies when calculating the maximum contribution amount.

Understanding AVC contribution limits

Your maximum tax-relievable pension contribution depends on your age and earnings.

For example:

• If you are aged 40 to 49, you can contribute up to 25% of gross earnings and receive tax relief.
• If you already contribute 5% of salary through your regular employee pension contributions, you could potentially contribute an additional 20% as AVCs.

Earnings cap

There is also a pension earnings cap of €115,000.

If your earnings exceed this amount, your maximum tax-relievable contribution is calculated using €115,000 rather than your full salary.

How can I make AVCs?

There are two main ways to make AVC contributions.

Through payroll: Many people choose to make AVCs through payroll deductions. 

Direct single premium contributions: You can also make one-off AVC payments directly to your pension provider. If you choose this option, you will generally need to claim any available tax relief directly from Revenue yourself. If you do it this way, you have to claim the income tax relief yourself back from Revenue.

Why AVCs could be right for you

AVCs can play an important role in helping you achieve your retirement goals.

They offer:

• Flexibility
• Attractive tax relief
• Tax-efficient investment growth
• The opportunity to build a larger retirement fund
• Potentially greater financial freedom in retirement

For some individuals, additional pension savings may even help make early retirement more achievable.

Next steps

If you're considering making AVCs, it may be worthwhile speaking with a financial advisor to understand how AVCs fit into your overall retirement plan and what contribution level may be appropriate for your circumstances.

AVCs are one of the most tax-efficient ways to boost your retirement savings. With tax relief on contributions, tax-free investment growth, and flexible contribution options, they can help you build a stronger financial future and potentially enjoy a more comfortable retirement.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.