Additional voluntary contribution (AVCs) in Ireland explained

An AVC pension, short for additional voluntary contribution pension, lets you add extra funds to your occupational pension scheme, whether you work in the public sector or private sector. 

If you’re already enrolled in your employer’s pension plan, you probably make regular contributions. However, these contributions may not always be enough for your desired retirement income, and this is where an AVC pension can help.

By making AVCs, you can top up your pension pot beyond what you and your employer normally contribute. This means putting aside additional funds during your working years, which can help build your retirement benefits. The extra contributions are invested, potentially growing over time.

In Ireland, many people choose to make AVCs to take advantage of tax relief. The AVC contributions you make are often eligible for tax deductions, reducing the amount of tax you pay each year, which can make saving for retirement even more attractive.

Anyone in a company pension scheme can contribute to AVC pensions in Ireland, provided the scheme allows for AVCs. You can add money regularly or as a lump sum when you have extra to spare. It’s up to you how much you contribute, but it’s worth being aware of the limits set by Revenue when it comes to tax relief, as these generally dictate the maximum AVC contributions in Ireland.

To start making AVCs, you fill out a form stating how much you want to contribute and give it to your payroll department. Contributions are deducted directly from your salary, so you get AVC tax relief straight away. You can also make once-off payments on your own, but you’ll need to claim tax relief from Revenue.

In Ireland, AVCs operate within your employer’s pension scheme, but are managed by an insurance company or specialised provider, so typical rates of return can vary. If your employer doesn’t offer AVC pensions, they must provide an alternative pension option, like a PRSA, to allow employees to make additional contributions.

Your AVC pension’s growth depends on your contributions, investment performance, and any associated charges. Like any investment, there is inherent risk, meaning the value of your investment can go up or down before you access the funds.

How much you contribute to your AVC pension is largely determined by the tax relief limits on pension contributions in Ireland, which are tied to your income tax rate.

As you approach retirement, the percentage of your salary that you can contribute to your pension and still benefit from tax relief increases.

For example, someone who is 57 and earns €100,000 annually can contribute up to €35,000 (35% of €100,000) towards their pension and receive tax relief on this contribution. The idea behind these limits is to encourage people to make higher contributions as they get closer to retirement age, ensuring they have adequate savings. 

In Ireland, there is also a maximum earnings limit of €115,000 for tax relief on pension contributions. This means that, if you earn more than €115,000 per year, you can still make further additional voluntary contributions, but you’ll only get tax relief on the first €115,000 of your income.

It’s also worth considering whether your chosen AVC pension contributions fit within your budget and allow you to meet current expenses comfortably. Saving for the future shouldn’t compromise your financial stability now.

By maximising your contributions within these AVC limits in Ireland, you can potentially increase your retirement savings. However, it can help to contact a financial or pensions adviser to avoid unanticipated tax liabilities.

How well do you understand your pension and the options available to you? Learn more about pensions and how you can invest for your future.

You might be wondering: are AVCs worth it? While tax relief is often the main attraction of AVCs, there are some further advantages of AVC pensions, which are outlined here:

While AVC pensions can be a tax-efficient way of boosting your retirement fund, they aren’t suitable for everyone, and there are some potential drawbacks worth considering:

To work out whether AVCs are suitable for you, you could start by using an online tool like a pension calculator to see what benefits you are currently on track to receive on retirement. If these are lower than you’d hoped, an AVC pension might help to bridge the gap. However, it can be worth discussing your calculations and entitlements with a financial adviser.

Alternatively, if you prefer shorter-term savings with predictable interest, you might consider fixed term deposit accounts. Note: fixed term deposit accounts offered through Raisin are standard deposit products. They do not qualify for pension tax relief and interest earned is subject to Deposit Interest Retention Tax (DIRT) at 33% where applicable.

Explore the latest rates at Raisin and see what you could earn from your savings.

Yes, if you leave your job, there are various options for your AVC pension fund. You can leave it invested until you retire or transfer it to your new employer’s pension scheme. Alternatively, you can move it into a Personal Retirement Bond (PRB), which acts like a personal pension policy. For guidance on what you should do, it can help to refer to the rules of your AVC scheme when it comes to transfers.

In general, it’s not possible to withdraw money early from your AVC pension. These funds are locked away until you reach retirement age and begin drawing from your main occupational pension.

There are some exceptions that may allow you to withdraw funds early. If you leave service or take early retirement from age 50 onwards, you may access your occupational pension and AVCs, subject to employer and scheme trustee approval. You may also have the option to access your funds if you experience serious ill health.

At retirement, you can typically access a tax-free lump sum. Depending on your scheme structure, this is calculated as either up to 1.5 times your final remuneration (based on years of service) or 25% of your total fund value. Under Irish Revenue rules, the maximum lifetime tax-free lump sum you can receive across all pensions is capped at €200,000.

Other options include placing your pension fund in an ARF (Approved Retirement Fund) for future needs, or purchasing an annuity. An annuity can provide some degree of security in retirement, as you will receive a regular income throughout your later years. 

What you decide to do with your AVC pension will ultimately depend on your financial needs and preferences. It can help to contact a pensions adviser or financial adviser to discuss your options.

Once you can access your tax-free lump sum, you might be considering how to manage those funds.

Through the Raisin marketplace, you can compare a wide range of savings accounts from partner banks across Europe. This allows you to choose between fixed term and easy access accounts based on your timeline and savings goals.

Simply register for a free Raisin Account, compare the available offers, and fund your selected account. Deposits of up to €100,000 per person, per bank are legally protected by national deposit guarantee schemes.