Hi. My spouse, in private sector employment, has a DB pension scheme similar to post 95 public service pension, whereby 40 years service will provide her with a pension worth half her salary (including the State Pension)
Due to work sharing etc she will not have 40 years service, projected at 35 years now.
Is there a calculator to estimate how much AVCs she should be investing in now, to compensate for the projected shortfall in service.
She is aged early 40s. Salary c €50k pa
I am assuming that, as in the PS, the pension is based on final salary.
If ,like the PS, there is a tax-free lump sum after retirement at 40 years then she will be short 15/80 * final salary in the lump sum. This is the main thing she needs to calculate, as this is the most she can take take tax free from the AVC fund. After that, she is really free to contribute what she can afford (taking account of age-related contribution limits and keeping all contributions eligible for 40% tax relief). Any balance in the AVC can be transferred to an ARF at retirement and drawn down at her discretion. It doesn't have to equate to her annual pension shortfall. It can be more or less than this.
If annual pension is calculated in the same as in the PS then she can get a rough estimate of her annual shortfall by this formula:
(Final salary * 5/80) - (State Pension * 5/40).
So say her final (and pensionable) salary is €54,000 and the State Pension rate is €14,000 then her annual pension shortfall would be (54,000 * 5/80) - (14,000 * 4/40) = 3,375 - 1,750 = €1,625pa.
However, as noted, the amount she puts into the AVC does not have to be constrained by this shortfall. But the most she could take tax free from the AVC on this final salary would be 54,000 *15/80 = €10,125. The rest she puts into an ARF and it is drawn down and taxed as income in the normal way.
If not then will the entitlement be half salary x 35/40 or c. 0.4375 of salary?
Not if it is a coordinated pension, as in the Public Service.
