When you retire, you'll want to ensure that you can continue to enjoy a comfortable lifestyle. As most of us can now expect to live for at least another 20 years after retirement, now might be a good time to think about saving more of your income for later in life.

At retirement you may qualify for a State Pension (Contributory) through your PRSI contributions, and you may also benefit from the proceeds of a company pension plan.

However, will relying on the State Pension (Contributory) for a single person of just €230.30* per week and being a member of your employer's pension scheme be sufficient to enable you to fulfill your retirement dreams? Depending on your circumstances (value of fund, length of service, and performance of fund) it may be necessary for you to make Additional Voluntary Contributions (AVC’s) to your pension plan, in order to provide yourself with a supplemental retirement fund for a brighter future in retirement.

With the attractive tax relief offered by the Government, retirement savings can offer an even better deal than the SSIA, giving you the opportunity to potentially double your savings.

* (State Pension (Contributory) Personal Rate as at January 2009)

Why an AVC or a PRSA AVC?

You have successfully planned your retirement.  You have a company sponsored pension plan in place.  You may well also qualify for contributory Sate Pension.  It appears you have maximised your retirement options or have you?

A PRSA AVC (additional voluntary contribution) as its name suggests is a method whereby you can add to your existing fund by way of personal contribution.

By taking out a PRSA AVC there are a number of options and benefits that are not available to those in a pension scheme AVC.

The recently issued National Pensions Framework plans to extend the ARF option to all defined contribution members from 2011 and remove the AMRF possibly from 2014.  It has also been proposed  to increase the required guaranteed income of €12,700 to 1.5 times state pension (approximately €18,000) and remove the AMRF option.  While this will provide broader access to the ARF option, it will make it more difficult to attain, with the increased required income.

This will make the PRSA AVC option more attractive, as individuals may leave their funds in the PRSA (after taking any tax free lump sum, if applicable) on retirement. The only stipulation is that a fund of €63,500 must be left in the fund, if the required guaranteed income cannot be met at that time.

At a later stage if you are in receipt of state pension and annuity from employment, you could have the option to transfer the funds to an ARF, providing greater flexibility in enabling access to the full fund if need be.  While under a scheme AVC where benefits are taken as an ARF, there is currently an Imputed Distribution for those over 60 years of age in that tax year, where the individual is taxed on a deemed withdrawal of 3%. Under current legislation and reconfirmed in the recent Finance Bill 2010, there is no Imputed Distribution Tax on vested PRSAs, so that tax is only paid on withdrawals at the individual’s own discretion.

PRSA AVCs provide greater control of your funds. You may choose the provider of your PRSA AVC (if paying the premiums through your own bank account), with the possibility of a greater range of funds to choose from.

• You get tax relief up to very generous limits.
• You can boost your pension fund size and your lump sum (where allowable).
• AVC’s are available to ARF/AMRF’s.
• If in the past, you have taken time out, are short years of service, you can grow your AVC fund to compensate.

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