Early Retirement with Service Purchase

[Gordon Gekko]

Hi,

Say someone entered the public sector in 2000, will have 39 years’ service at age 60, and buys back that year today.

Say that person then decides to retire at age 50.

What happens?

Were they wrong to buy back service?

Thanks,

G

 

[Early Riser]

Not wrong - but the impact depends on whether they paid by lump sum or salary deduction. If they paid by lump sum then the bought back year counts in the usual way - they will have 30 years pensionable service at retirement. So they can get a preserved pension at 60 based on 30 years service or an "actuarially reduced" pension at 50 based on the same length of service.
If they opted to pay by salary deduction then they would have only the proportion of that purchased year that has been paid for by 50.

This only applies to the Occupational Pension. Their eventual state pension will be calculated on the basis of the full PRSI record in the normal way (the buy back does not apply to a "PRSI year").
Any Supplementary Pension after 60 will also be calculated on the basis of 30 years service, if the extra year has been fully paid for.

PS. If the retirement at 50 had been foreseen (unlikely) it would probably have better to invest in an AVC with a view to maximising the tax-free lump sum.

 

[Gordon Gekko]

Super, thanks