Additional Voluntary Contributions (AVCs): What You Need to Know
If you’re already paying into a workplace pension, you’ve probably heard of Additional Voluntary Contributions (AVCs). They’re one of the most effective ways to top up your pension, reduce your tax bill, and build a stronger financial foundation for retirement.
Here’s our straightforward overview of how AVCs work in Ireland, and why they’re worth considering.
What Are Additional Voluntary Contributions?
AVCs are extra payments you choose to make into your pension plan, on top of the regular contributions from you and your employer. Even relatively small AVCs can make a big difference to your retirement income over time.
Why Consider AVCs?
Boost your pension savings – AVCs increase your fund and give you more flexibility in retirement.
Tax relief – Contributions qualify for relief at your marginal rate (20% or 40%), reducing the real cost.
Growth potential – Contributions grow tax-free, and compound growth can have a big impact over time.
Understanding Tax Relief
One of the biggest advantages of AVCs is the tax relief:
Higher-rate taxpayers (40%): Contribute €100, real cost €60.
Standard-rate taxpayers (20%): Contribute €100, real cost €80.
This means every euro you invest works harder than it would in a savings account.
How to Contribute
You can contribute in two main ways:
Regular monthly payments – great for consistent growth.
One-off lump sums – useful if you want to maximise tax relief before the annual deadline (31st October for the 2024 tax year).
AVCs for Different Employees
Public sector employees can use AVCs to supplement their defined benefit pension or increase their tax-free lump sum.
Private sector employees can boost their defined contribution plans with AVCs. If your employer doesn’t allow AVCs, you can contribute through a PRSA AVC instead.
Making the Most of AVCs
The value of AVCs depends on:
When you start – the earlier, the more time for growth.
How much you contribute – even small, regular payments build up.
Where you invest – choosing the right fund mix for your age and goals is key.
Take Action Today
Additional Voluntary Contributions (AVCs) are one of the most tax-efficient ways to save for retirement. They give you more flexibility, boost your pension savings, and reduce your tax bill.
Every person’s pension is different, so the right AVC strategy depends on your income, age, and retirement goals.
If you’d like advice on how AVCs could work for you, contact Financial Planning Matters today for a 30 minute Zoom consultation. Our Dublin-based team of CFPs®are ready to help you help you make the most of your options.
Visit Financial Planning Matters to schedule your consultation.
