Brendan Burgess
Founder
- Messages
- 52,079
Compiled by Brendan Burgess and Ajapale. Thanks to the many contributors whose work we have plagiarised, and in particular – Conan, D53, Alan Moore & Homer
Corrections and suggestions welcome. Some questions have not been answered yet. So if anyone wants to draft a reply, go right ahead...
This FAQ does not apply to Defined Contribution Pension Schemes (where the pension on retirement is not guaranteed) Nor does it apply to the Civil Service or Public Service pension schemes. However, it does apply to most commercial semi-state companies.
A Defined Benefit Scheme, also known as a Final Salary Scheme, is one which guarantees you a defined benefit e.g. 2/3rds of salary on retirement. The employer has to fund the scheme to make sure that it can provide this level of benefits. It doesn’t matter how long you live or how well the pension fund invests its money – you will get the agreed level of pension from when you retire until you die.
Contributory or Non-Contributory ?
In a contributory scheme, you will contribute a certain percentage of your salary – say 5%. In a non-contributory scheme, the employer funds the whole scheme. Note that this use of the word contributory has nothing to do with the Social Welfare Contributory Old Age Pension.
What happens when I reach retirement age?
You will be entitled to a pension based on your length of service and final salary. You will be able to take a smaller pension in exchange for a tax free lump sum. The maximum lump sum at normal retirement age is 1.5 times your final salary if you have had 20 years service. If you retire early or have less than 20 years service, you will be entitled to a lower lump sum.
Definitions of final salary vary - it is often basic salary only and does not include bonus, commission or overtime. In some cases it is the average basic salary over the last number of years.
Will my pension be index linked to inflation?
Some schemes allow for the pension to rise with inflation, some do not.
My Defined Benefit pension scheme is Integrated (or Coordinated) what does this mean?
This means the pension you receive from the company is reduced by the amount of the Old Age Pension. Typically, in a contributory scheme, your contribution is also reduced by factor related to the current OAP.
Are there any other benefits associated with membership of a DB scheme?
Some schemes provide:
surviving spouses and children with pensions.
a payment to your survivors if you die in service
for early retirement by reason of ill health on a reduced pension.
AVCs – Additional Voluntary Contributions
Many employees may feel the need to enhance their retirement benefits. This occurs typically where a late entrant may not have many years service in a db scheme or where an employee (e.g. Sales Manager) might be on low wages but on high commission and bonus.
These AVCs go into a separate fund with your name on it.
You will be able to use the AVCs to buy a bigger pension or you will be able to put the balance in an Approved Retirement Fund (ARF) or AMRF. You can draw an income from this fund as you wish and it will be taxed at your marginal tax rate.
What tax relief do I get on AVC’s?
Broadly speaking, you get tax relief each year up to the following percentages of your salary:
Under 30 - 15%
Under 40 - 20%
Under 50 - 25%
Over 50 - 30%
These contributions apply to earnings subject to a cap of €254,000.
If you are aged under 30 and contributing 5% of your salary to a contributory pension, you will be able to get tax relief on an extra 10% of your salary.
If you have a very well funded scheme and full service, there may not be any point in making AVCs.
See this topic
What’s the significance of 31 October for AVCs?
If you make an AVC (strictly speaking, a special employee contribution) on or before 31 October and choose to designate it as backdated to the previous tax year, you will be eligible to claim a refund of tax paid for the previous tax year.
What happens if I leave my current employer?
If you have been in the scheme for more than 2 years:
You can leave it there and get a deferred benefit when you retire or
The actuary to the pension scheme will calculate the present value of your benefits – the transfer value.
You can transfer this to your new employer’s occupational pension scheme
You can transfer it to a Buy Out Bond.
You can theoretically transfer it to a PRSA, although few PRSAs will take in transfers.
What does “vesting period” mean?
Each pension scheme has a vesting period up to a maximum of 2 years. If you are in the fund for the full vesting period, your employer is obliged to give you the full benefit of both your contributions and your employer’s contributions when you leave. If you leave before the vesting period, your employer is only obliged to refund you your contributions. These will be paid directly to you less a 20% deduction for tax.
The vesting period is not the amount of time you have been employed by the company. It is the amount of time during which you have been a member of the pension scheme. If you have transferred in a value from a previous pension scheme, your vesting period will be reduced.
How safe if my pension fund?
Your pension fund is a separate legal entity from your employer. If you employer goes bust, the pension fund does not go bust. However, it is up to the employer to fund the pension scheme adequately and companies in financial difficulties often do not fund the pension scheme. If the pension commitments of the fund exceed the assets when the employer goes bust, your pension will be reduced.
Who runs the Pension Fund?
Ultimate responsibility lies with the trustees of the pension fund, which should have representatives of the employees and employer. On a day to day basis, it could be managed by the company itself or, more usually, by an outside firm of pension managers.
Where can I get more information about my pension?
Your employer should provide you with a booklet summarising the scheme. There should also be a more detailed set of rules available. There should also be a firm of pension advisors who advise you on your rights and entitlements under the scheme. Many companies have knowledgeable HR and Payroll staff who may be able to answer your questions in an informal fashion. Also, Trade Unions have often negotiated the pension benefits can be helpful. Some companies allow direct access by their employees their pensions advisors. Some companies may include pension information in their new employee induction pack. A small number of companies may have pension information on their company Intranet.
Occasionally Asked Questions:
I’m being made redundant what are my pension options?
Can I backdate AVCs?
Is the transfer value reasonable?
What is a “Pension Holiday”?
This occurs where the Pension Fund does far better than anticipated and the company may not make any contribution to the fund for a period. Fund surpluses were a common feature in the mid to late 1990s but they are a rare occurrence nowadays.
What is the Accrual Rate?
My company has a generous DB scheme, are they obliged to allow me join.?
Some DB schemes have upper and lower age limits.
What is the Benefit Statement?
What happens our DB scheme if our company is acquired or merged with another?
Transfer of Undertakings Protection of Employees Legislation
When can I retire and what is normal retiring age?
Corrections and suggestions welcome. Some questions have not been answered yet. So if anyone wants to draft a reply, go right ahead...
This FAQ does not apply to Defined Contribution Pension Schemes (where the pension on retirement is not guaranteed) Nor does it apply to the Civil Service or Public Service pension schemes. However, it does apply to most commercial semi-state companies.
A Defined Benefit Scheme, also known as a Final Salary Scheme, is one which guarantees you a defined benefit e.g. 2/3rds of salary on retirement. The employer has to fund the scheme to make sure that it can provide this level of benefits. It doesn’t matter how long you live or how well the pension fund invests its money – you will get the agreed level of pension from when you retire until you die.
Contributory or Non-Contributory ?
In a contributory scheme, you will contribute a certain percentage of your salary – say 5%. In a non-contributory scheme, the employer funds the whole scheme. Note that this use of the word contributory has nothing to do with the Social Welfare Contributory Old Age Pension.
What happens when I reach retirement age?
You will be entitled to a pension based on your length of service and final salary. You will be able to take a smaller pension in exchange for a tax free lump sum. The maximum lump sum at normal retirement age is 1.5 times your final salary if you have had 20 years service. If you retire early or have less than 20 years service, you will be entitled to a lower lump sum.
Definitions of final salary vary - it is often basic salary only and does not include bonus, commission or overtime. In some cases it is the average basic salary over the last number of years.
Will my pension be index linked to inflation?
Some schemes allow for the pension to rise with inflation, some do not.
My Defined Benefit pension scheme is Integrated (or Coordinated) what does this mean?
This means the pension you receive from the company is reduced by the amount of the Old Age Pension. Typically, in a contributory scheme, your contribution is also reduced by factor related to the current OAP.
Are there any other benefits associated with membership of a DB scheme?
Some schemes provide:
surviving spouses and children with pensions.
a payment to your survivors if you die in service
for early retirement by reason of ill health on a reduced pension.
AVCs – Additional Voluntary Contributions
Many employees may feel the need to enhance their retirement benefits. This occurs typically where a late entrant may not have many years service in a db scheme or where an employee (e.g. Sales Manager) might be on low wages but on high commission and bonus.
These AVCs go into a separate fund with your name on it.
You will be able to use the AVCs to buy a bigger pension or you will be able to put the balance in an Approved Retirement Fund (ARF) or AMRF. You can draw an income from this fund as you wish and it will be taxed at your marginal tax rate.
What tax relief do I get on AVC’s?
Broadly speaking, you get tax relief each year up to the following percentages of your salary:
Under 30 - 15%
Under 40 - 20%
Under 50 - 25%
Over 50 - 30%
These contributions apply to earnings subject to a cap of €254,000.
If you are aged under 30 and contributing 5% of your salary to a contributory pension, you will be able to get tax relief on an extra 10% of your salary.
If you have a very well funded scheme and full service, there may not be any point in making AVCs.
See this topic
What’s the significance of 31 October for AVCs?
If you make an AVC (strictly speaking, a special employee contribution) on or before 31 October and choose to designate it as backdated to the previous tax year, you will be eligible to claim a refund of tax paid for the previous tax year.
What happens if I leave my current employer?
If you have been in the scheme for more than 2 years:
You can leave it there and get a deferred benefit when you retire or
The actuary to the pension scheme will calculate the present value of your benefits – the transfer value.
You can transfer this to your new employer’s occupational pension scheme
You can transfer it to a Buy Out Bond.
You can theoretically transfer it to a PRSA, although few PRSAs will take in transfers.
What does “vesting period” mean?
Each pension scheme has a vesting period up to a maximum of 2 years. If you are in the fund for the full vesting period, your employer is obliged to give you the full benefit of both your contributions and your employer’s contributions when you leave. If you leave before the vesting period, your employer is only obliged to refund you your contributions. These will be paid directly to you less a 20% deduction for tax.
The vesting period is not the amount of time you have been employed by the company. It is the amount of time during which you have been a member of the pension scheme. If you have transferred in a value from a previous pension scheme, your vesting period will be reduced.
How safe if my pension fund?
Your pension fund is a separate legal entity from your employer. If you employer goes bust, the pension fund does not go bust. However, it is up to the employer to fund the pension scheme adequately and companies in financial difficulties often do not fund the pension scheme. If the pension commitments of the fund exceed the assets when the employer goes bust, your pension will be reduced.
Who runs the Pension Fund?
Ultimate responsibility lies with the trustees of the pension fund, which should have representatives of the employees and employer. On a day to day basis, it could be managed by the company itself or, more usually, by an outside firm of pension managers.
Where can I get more information about my pension?
Your employer should provide you with a booklet summarising the scheme. There should also be a more detailed set of rules available. There should also be a firm of pension advisors who advise you on your rights and entitlements under the scheme. Many companies have knowledgeable HR and Payroll staff who may be able to answer your questions in an informal fashion. Also, Trade Unions have often negotiated the pension benefits can be helpful. Some companies allow direct access by their employees their pensions advisors. Some companies may include pension information in their new employee induction pack. A small number of companies may have pension information on their company Intranet.
Occasionally Asked Questions:
I’m being made redundant what are my pension options?
Can I backdate AVCs?
Is the transfer value reasonable?
What is a “Pension Holiday”?
This occurs where the Pension Fund does far better than anticipated and the company may not make any contribution to the fund for a period. Fund surpluses were a common feature in the mid to late 1990s but they are a rare occurrence nowadays.
What is the Accrual Rate?
My company has a generous DB scheme, are they obliged to allow me join.?
Some DB schemes have upper and lower age limits.
What is the Benefit Statement?
What happens our DB scheme if our company is acquired or merged with another?
Transfer of Undertakings Protection of Employees Legislation
When can I retire and what is normal retiring age?