Page 9 - IrishPensions Spring Edition

9 Irish Pensions Magazine Spring 2013
• A member close to retirement may be giving up a
retirement benefit that may be taken as a tax free
lump sum
• A member close to retirement may be taxed at
41% on the withdrawal whereas if the benefit was
taken as retirement income it may only be taxed at
the basic rate
• Withdrawing AVCs from an insured contract
may result in the loss of valuable bonuses and
guarantees or incur early encashment penalties
However, in the current economic environment,
members may have immediate financial demands.
For example, a member may be struggling to make
mortgage repayments and could be in danger of
losing the family home. Trustees are not in a position
to understand each individual member’s financial
circumstances. Accessing AVCs has to be the
individual’s own decision - trustees and administrators
should ensure that the member signs a declaration
confirming that this is the case.
While trustees should not be drawn into giving
advice to individual members, they may consider a
general communication to members highlighting the
importance of making AVCs and outlining potential
circumstances such as those above where accessing
AVCs may be to the detriment of members. For Defined
Contribution schemes it is essential to have a clear
programme to educate members on the importance of
making adequate pensions provisions. Employers and
trustees should ensure that this programme highlights
the risks of accessing AVCs prior to retirement.
In summary, while giving access to AVCs may help
some members gain some valuable immediate
relief from pressing financial demands, AVCs were
introduced to assist members in making adequate
provision for their retirement. It is therefore vital that
those responsible for sponsoring and running pension
schemes continue to promote the importance of
making AVCs for retirement purposes.
Gary Colclough
Pensions Development Manager
New Ireland Assurance
While great care has been taken in its preparation, this
article is of a general nature and should not be relied on in
relation to specific issues without appropriate professional
advice. The content is based on the Finance Act 2013.
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Article Author
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