What will be the lasting impacts of the Covid pandemic on stock markets? James Maguire recently caught up with Ian Slattery, Investment Consultant at Zurich, via Zoom to discuss key issues and themes looking forward.

Finance Corner – Ask the Expert

QUESTION: “Are extra payments towards my pension necessary and if so, what age should I start making these?“

Additional Voluntary Contributions, or AVCs, are extra contributions you can make in addition to your existing company pension. This product is suitable for members of company pension schemes, who want to make additional contributions.

The first point to consider, when thinking about AVCs, is to determine whether you’re maxing out your pension contributions already. For example, if your employer will give you up to 10% of your salary on the basis that you are contributing 8%, but, in fact, you’re only contributing 6%, clearly the first step is to increase these contributions in the first instance.

You can either make AVCs through your employer, or by yourself. If the option is available to you, making contributions through your employer is usually the most straightforward since each contribution can be taken from your salary. If you make personal additional contributions, you can claim the tax back online from Revenue. Some employees may want to take out a PRSA separately because it can offer a broader choice of investment options and they don’t want employers to see how much they’re contributing.

The main benefits of making AVCs:

• An AVC can help you bridge the gap on your pension benefits enabling you to retire early.
• You can claim tax relief against AVCs, subject to revenue limits*, and your investment growth won’t be taxed.
• Some, or all, of your AVC may be tax-free at retirement.

When is the right time to start making AVCs?

Most of us don’t start to avail of them until we’re in our fifties and retirement is edging ever closer. While the logic behind them might make sense, many of us either can’t afford to make them, or simply don’t know enough about them to do so, which means that take-up rates can be low. An AVC pension can be a particularly tax-efficient option for people with higher incomes, as it allows you to save more of your money to enjoy in later life.

Essentially an AVC is a savings plan, typically one designed to work over long periods of time. Like any savings plan its final value is largely determined by:

1. The amount invested – generally speaking, you choose the amount to save. You can increase, decrease, stop, or restart your AVC contributions at any time.
2. The investment returns – your AVC is paid into an investment fund. Like all investments of this nature, the value can fall as well as rise.
3. The charges – Financial advisers conduct research on your behalf, to find those AVCs with the best possible performance and charges suitable for you.

With proper financial advice and planning, an AVC can be a very effective tool in reducing tax and improving future finances.  We are all living longer so why not spend those extra years on your own time.

Tax Deadline! If you are an employee who feels you are paying too much tax, the good news is that you may be entitled to a refund of some of the Income Tax you paid in 2020. This can be achieved by making an AVC pension contribution by 31 October 2021 and electing to backdate the tax relief to 2020. The amount you can contribute will be subject to age related limits but you may be entitled to a tax refund of 40% on the lumpsum contribution that you make.

*You will receive valuable tax relief on AVC amounts you pay, for example, every €100 you invest, it will currently only cost you €60, assuming you pay tax at 40%. Tax relief is available on contributions, subject to age criteria. The older you get, the greater the relief.

Note: Investments can fall as well as rise. Past performance is no guarantee of future results.

Finance Corner – Ask the Expert

QUESTION: “According to recent headlines Irish banks are preparing to impose negative interest rates on personal banking customers. I’d like to find out more about what the alternatives are to leaving money on deposit in the bank.”

Over the last number of years, strong, positive investment market returns, coupled with record low interest rates for money held on deposit, has seen many people taking a little more risk to increase their chance of making a better return on their money. With an investment saving plan your money will be invested with a view to growing your savings.  You can still have access to your money at any time and you have a choice as to where your money is invested and how much risk you want to take. We know that taking the first step into investment markets can be daunting, that is where we come in. It’s our job to help guide you into making the correct decision for you about where to invest your money.

Savings policies offer medium to long-term investment option for your savings – ideally you should consider it for five years or longer. If you need access to your money, that is no problem as there are options available that give you access to your money without any penalties. You choose the amount you want to invest and the funds you want to invest in – there is now a wide choice of investment funds to choose from with options for those that are averse to risk to those that like a little more adventurous.  It is important to remember the value of your investment may go down as well as up.

How to apply:

1. Get in touch by email or phone with any questions.
2. Decide how much you would like to save – you can choose to invest a lump sum, a regular monthly amount or both.
3. Complete a risk profile questionnaire & choose your funds – you will have access to an extensive range of investment funds with varied risk profiles. We can go through this with you and help you choose funds with a history of outperformance and ones that match your risk profile.
4. Complete an application form – this can now be done online or over the phone with ourselves, all you need to send us is ID and proof of both your address and PPSN. You will be able to review your application before it is submitted by us on your behalf to the selected provider.
5. Track your investment performance – this can be done online with the policy provider; we will also send you an email update every six months containing the value of your investment.
6. You can switch funds, pause, or change the amount of your contributions easily at any stage.

IT’S TIME TO REVIEW YOUR PENSION

The personal tax return deadline is at the end of October. Whether you are an employee, self-employed or a company director, it is an opportunity to review your taxes. This will ensure that you are claiming the credits you are entitled to and that you are not paying too much tax.

One of the best ways to reduce your tax liability is contributing to your pension. The earlier you start your pension the better, but it’s never too late. We recommend that each of our clients review their pension on an annual basis.

Calculate now what you may need to put away for later: