Eoin McGee answers your money questions
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What is the purpose of the call‑in segment and how can listeners get their money questions answered?
I'm joined now in studio by financial planner, Owen McGee. Morning,
Owen. Good
morning, Dave. Thanks for having me in. Thanks for coming in. Now, if you have a question about clearing debt, starting a pension or even budgeting or saving, it is now your chance to get some advice. If you get your question in quick, Owen might be able to help you. WhatsApp us on 0870 32 32 32, text 51551 or email today, DMC. at rte.ie. Let's get right into it. Eddie is on the line with a question about AVCs. Morning, Eddie. What's your question?
Morning, David. Just asking, Owen. I have a... I have to start an AVC with a large multinational. I've been 20 years with the pension scheme. And somebody had said to me that doing the AVCs doesn't guarantee that you get it for yourself, that it goes into the pension fund. I'm just wondering if that's right or wrong.
Okay, so if it's a large multinational, what I would say is it's a possibility that there's two types of pension scheme going on here. And I was going to ask you a question, Eddie. Have you ever heard anyone talking in work about a defined benefit pension scheme versus a defined contribution pension scheme? Do those words mean anything to you?
They do, but I'm not too sure what
they mean exactly. So a defined benefit pension scheme is basically, some people would consider it the Rolls-Royce of pensions. There's very few of them left in the private sector anymore. But basically what it is, is it's that if you give 40 years of service or 30 years of service to your employer, they're giving you a promise of a certain income in retirement that's related to your final salary. So... you might end up with 50% of your final salary as the promise that they're going to give you when you retire. So they're defining the benefit you're going to get out. A defined contribution is the opposite. They're just defining what they're putting in, the contribution they're putting in and whatever the pot grows to and whatever pension that buys you when you retire,
So be it. That's how it works. Now, what the confusion might be coming for you is there's two things that could be happening here. If you have what's called a defined and the fact that you even knew the word, but you weren't sure what it was, would suggest that maybe you're part of a defined benefit scheme and work. The defined benefit is locked in. The way you increase it is your entitlement to the promise or how big the promise is, is by giving extra years of service. by putting in AVCs, typically those AVCs go into a separate pot. Now it's your money. And like, for example, if you had died yesterday and you would still go into the estate, it would still be your money. But what it's not doing is increasing the promise.
It's increasing, actually what you'll end up with at the end is you'll have a defined benefit from the company but you'll also have an AVC that built up a defined contribution, whatever that pot is. And it can be really useful with a defined benefit scheme to have the AVCs going in as well because the idea of the AVCs might be you might get a bigger tax-free lump sum or a lump sum out of the pension and you'll have more options is the best way to put it. So, there's some thought process that's going around what someone might have said to you in the canteen or wherever they said it to you but what i would say is is it's not to be worried about like you're putting in how much you say you're putting in was it 400 euros a month you said
yeah just over 400
yeah so if you're putting in 400 euros a month that means that if you're on the higher rate of tax you're it's actually costing you 240 euros a month from your after-tax income to put that 400 euros in like if i said to you if you head around the
corner
yeah if you If I said to you, if you went around the corner to the bookies and you gave them 240 quid and they gave you back 400, you'd jump on it, right? And that's a sure bet every single month. And it's building up your wealth. It's building up your pension pot. And it's giving you more options in retirement when you do go to retire.
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Chapters
5 chapters
1
What is the purpose of the call‑in segment and how can listeners get their money questions answered?
0:00–3:37
2
How do defined benefit and defined contribution pension schemes differ, and what does that mean for AVC contributions?
3:37–7:43
3
Can I take money out of a closed defined benefit scheme as a lump‑sum, or is it locked away?
7:43–13:20
4
What tax rules apply when giving a family member a private loan for home renovations?
13:20–18:00
5
Should I use my €100,000 lottery winnings to pay off my €70,000 mortgage now?
18:00–22:06