Should I do an AVC?

When it comes to preparing for retirement, many people find that their standard pension scheme may not be enough to meet their long-term financial needs. That’s where AVCs – Additional Voluntary Contributions – come in. In this article, we’ll explain what AVCs are, why they matter, and how they can provide greater flexibility, tax savings, and investment growth as part of your retirement strategy.

What Is an AVC?

An AVC is an extra contribution you can make voluntarily to your pension plan, on top of the regular contributions made by you and/or your employer into an occupational pension scheme.

AVCs are most commonly used by:

  • Employees in the public sector or large private companies

  • Those who are members of defined contribution pension schemes

  • Individuals looking to boost their retirement savings and tax efficiency

Why Consider Making AVCs?

AVC’s give Tax Relief

One of the most attractive benefits of AVCs is the generous tax relief available:

  • You receive income tax relief at your highest rate (20% or 40%)

  • For example, a €100 AVC contribution only costs €60 after 40% tax relief

AVC’s Boost Retirement Income

Your core pension might not provide enough for your retirement lifestyle. AVCs can:

  • Increase your tax-free lump sum

  • Improve your annual retirement income

  • Support early retirement goals

AVC’s are Flexible and Affordable

You control the amount and frequency of AVC payments, which can be:

  • Regular monthly contributions

  • Once-off lump sums

  • Adjusted as your circumstances change

AVC’s have wide Investment Options

AVCs are typically invested, allowing your contributions to grow over time. Your options depend on whether you are:

  • Part of an employer-sponsored AVC arrangement, or

  • Using an AVC PRSA (more below)

Investments may include:

  • Managed pension funds

  • Low-or high-risk to reward options

  • Ethical (ESG), global, or sector-specific funds

Your choice should reflect your risk tolerance, time to retirement, and financial goals. A financial planner can help align your investment strategy accordingly.

What Is an AVC PRSA?

An AVC PRSA is a type of Personal Retirement Savings Account used to make additional contributions outside of your main occupational scheme. It’s especially useful for:

  • Public sector workers seeking wider investment options

  • Individuals wanting more control and transparency

  • Those who prefer portability if changing jobs

Compared to standard AVCs, an AVC PRSA often offers:

  • A broader range of funds and providers

  • Greater flexibility in how funds are accessed

  • The same tax benefits as standard AVCs

Accessing AVCs at Retirement

AVC funds are accessed at the same time as your main pension. At retirement, you can typically:

  • Take a tax-free lump sum (up to 25% of the AVC value)

  • Transfer the remaining balance to an Approved Retirement Fund (ARF)

  • Use part of the AVC to purchase an annuity

  • In some cases, buy additional service in defined benefit schemes

Your retirement plan should reflect your:

  • Overall pension benefits

  • Retirement age

  • Lifestyle needs

  • Tax position at retirement

Final Thoughts: Are AVCs Right for You?

Whether you're looking to top up your pension benefits, retire early, or reduce your current tax bill, AVCs can be a powerful tool in your retirement planning. They offer:

  • Tax efficiency

  • Flexible investment choices

  • A way to bridge the gap between your current pension and your desired retirement lifestyle

As with any financial decision, it's important to seek personalised advice. At Financial Health, we can help you assess whether AVCs or an AVC PRSA make sense based on your career stage, pension benefits, and financial goals.

David Murphy