With the tax deadline of 19th November 2025 fast approaching, now is a good time to think about topping up your pension. If you’re already part of a pension scheme, you may be familiar with AVCs (Additional Voluntary Contributions). These optional contributions give you the chance to build a bigger retirement fund while also taking advantage of valuable tax relief.
At Derradda Financial Services, we guide clients through every step of their pension journey, including how AVCs can fit into a long-term retirement strategy.
What Are AVCs?
AVCs are optional contributions you make on top of your standard pension payments. They’re available to employees in both public and private sector pension schemes, and can be made either through:
- A Group AVC scheme (set up by your employer), or
- A PRSA AVC if your employer doesn’t offer one.
These contributions are invested, grow tax-free, and can help increase your retirement benefits, including your potential tax-free lump sum.
Key Advantages
- Income Tax Relief: Contributions qualify for tax relief at your marginal rate (20% or 40%), reducing your taxable income.
- Tax-Free Investment Growth: AVCs grow without capital gains tax or income tax until retirement.
- Flexible Contributions: Start, stop, or adjust payments depending on your financial situation.
- Catch-Up Potential: Useful if you started saving later or had pension gaps.
Contribution Limits
Tax relief is available up to Revenue set limits based on your age and income (capped at €115,000/year).
Here’s a simplified breakdown:
Example: At age 55 with a salary of €90,000, you could contribute up to €31,500 and receive tax relief, saving up to €12,600 if you’re taxed at 40%.
What Happens at Retirement?
At retirement, your AVC fund can be used to:
- Take up to 25% as a tax-free lump sum (subject to Revenue limits),
- Transfer to an ARF (Approved Retirement Fund) for flexible access,
- Or buy an annuity to secure a fixed retirement income.
The right option will depend on your broader financial plan, goals, and whether you’re retiring from the public or private sector.
Considerations & Risks
While AVCs are beneficial, there are a few things to consider:
- Investment Risk: Fund values can rise or fall with markets.
- Limited Access: Funds are generally tied up until retirement.
- Complex Tax Rules: Revenue limits must be followed to avoid losing relief.
That’s why professional financial advice is essential.
Should You Use an AVC?
If your current pension contributions won’t be enough to provide the retirement income you need, AVCs are one of the most flexible, tax-efficient ways to close the gap.
They’re especially useful if you’re:
- Nearing retirement and want to maximise your tax-free lump sum,
- Looking to make the most of unused tax relief, or
- Interested in boosting your pension without increasing your tax bill.
How Derradda Financial Services can help?
At Derradda Financial Services, we offer clear, independent advice to help you:
- Maximise tax efficiency
- Choose the right investment funds
- Plan your retirement drawdown strategy
- Navigate transfers and consolidate pension funds effectively
Get Expert Advice Today
Let’s take the guesswork out of pension planning. Book a no-obligation consultation with our team today and see how AVCs can support your retirement goals.
📞Call us: Dublin Office 01 2330209 / Galway Office 091 399256
📧 Email us: info@derradda.ie