# PRSA or Defined Contribution



## J.P. (28 Apr 2007)

Hi, 

I have read the emany excellent replies on AAM re. this debate - I would very much welcome your views in relation to my own situation, outlined  below.

I’am planning to change jobs in the coming weeks, to join a privately owned company. My current personal circumstances are : Married, with two kids (16 & 14), single income (salary 40K), no mortgage.

I have 24 years service with my current employer, who operates a Defined Benefit pension scheme. Under the rules of the scheme, on leaving this employment. my accrued retirement benefit with the current employer ( 24/60th  x  Salary at date of leaving employment  x  24 (years service at time of leaving employment) ) the value of my benefit will be increased annually by 4% or the CPI, which ever is the lower, up until my normal retirement age.  I also have an AVC fund , current value is 20K, under this pension scheme. I will reach normal retirement age in 2025 .  

My new employer does not operate a Defined Benefit scheme, but is willing to contribute 10% of my salary (45K)  either into a defined contribution pension scheme or PRSA, whichever is my preference . 

Given the above , I would welcome your views re. the following :


What is my best option to proceed with a PRSA or DC pension with the new employer ? I understand PRSAs offer more flexibility re. what one can do with the funds on reaching  retirement age ?
 

Hoping inflation does not erode the value of my accrued retirement benefit from my old employer's DB scheme  (this is a concern) , whatever option I choose, it will be to try and breach the gap in what would have been my full pension entitlement under the old DB scheme, which amounts to a gap of 16/60th  of final salary , if I had stayed with my current employer. I don’t expect that I will be able to create a fund value large enough to bridge this gap completely, but if I were to contribute 10% of salary + my new employers 10% for the next 18 years, what sort of fund value / pension income could I expect to generate from both options i.e. a PRSA or DC pension ?
 

Whatever option I choose, when I add on the state pension, can I expect to have a reasonable income on reaching retirement age ?
 
Many thanks, 

JP.


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## aidan119 (29 Apr 2007)

JP

Don't forget that by leaving your DB scheme are will probably be losing disability insurance, and life cover for yourself and spouse. You need to calculate the cost of buying this cover yourself if your new employer does not offer it. It's not cheap.

Have you checked that all your 24 yrs service are pensionable service ? Many schemes don't allow you in until you are 25 so service previous to that is not included.

By the time you retire its likely that the same flexibilty will be given to DC schemes. Currently there is a major lobby for this by the Assoc of pension Funds 
http://www.iapf.ie/NewsPressReleases/IAPFPressReleases/2007/PressreleaseTitle,1502,en.html

Assuming all else equal then mainly you need to consider the charges.

You can estimate your pension fund using the pension board website.


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## kirvos (29 Apr 2007)

mm


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## Guest126 (30 Apr 2007)

Kirvos - that info is incorrect.

When leaving a DB the usual formula is: t / n * A

Where A is the pension is you could have expected at normal retirement age - 25/60 in your case.

t = the years you actually completed - 18 in your case

n = the years you would have completed to normal retirement - 25 in your case

So: 25/60 * 18/25 = 18 / 60 I do not know who is giving you that strange info!!


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## kirvos (2 May 2007)

mm


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## Guest126 (2 May 2007)

Kirvos - the OP is not referring to early retirement.

I think you are?

That is a totally different kettle of fish.

The OP is trying to find out the deferred pension, not the early retirement pension.

I showed the calc for a deferred pension...not for an early retirement pension.

The early retirement pension would always be lower than the deferred pension.


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## kirvos (2 May 2007)

mm


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## Guest126 (2 May 2007)

Kirvos - the calculation of the deferred pension is set out in the Pensions (Amendment) Act 2002.


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## kirvos (5 May 2007)

mm


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## Guest126 (7 May 2007)

Hi kirvos - the Pensions Act governs all Occupational Pension Scheme rules...so yes it would govern your scheme...Part III Section 27 - 39 is what you want to look at.


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## LDFerguson (18 Jun 2007)

Hi CapitalCCC, 

Reading the post above, it appears that Kirvos' DB scheme has imposed a penalty within the scheme rules for leaving early.  By counting back from NRA, the penalty gets bigger for shorter service, which is logical.  

I don't think either the Pensions Amendment Act or the Pensions Act preclude a trustee from imposing penalties for early leaving?


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## Guest126 (18 Jun 2007)

The Preserved Pension on leaving service (by definition this happens before NRA) is set-out in Pensions Act - it stipulates how it should be calculated - I am surprised you are not familiar with it.


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## LDFerguson (18 Jun 2007)

Rather than simply making reference to the Acts in general, or sections thereof, can you quote text from either Act that precludes a scheme Trustee from imposing a penalty on early leaving?

The full texts can be cut and pasted into your reply from www.irishstatutebook.ie


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## Guest126 (19 Jun 2007)

LD - no offence - but I work in pensions & so do you...I think it is up to you to get familiar with the statutory preserved pension calculation under the Pensions Act (as amended).

The statutory preserved pension is the MINIMUM benefit on early leaving.


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## LDFerguson (19 Jun 2007)

Can I be any clearer? Kirvos has outlined the rules of his scheme's method of calculation. You seem to think that the method contravenes either the Pensions Amendment Act 2002 or the Pensions Act 1990. You started by referring to the Pensions Amendment Act 2002 and then when queried about which section of the 2002 Act you changed your mind and referred to a chunk of the Pensions Act 1990 (Part III Section 27 - 39).

I am familiar with both Acts and a lot more besides and as I have said twice already I am not aware of anything within them that specifically precludes the Trustees of Kirvos' scheme from utilising that method of calculation. 

But in this instance I would be delighted to be proven wrong as it would be to the benefit of Kirvos. So I am asking you again - can you prove me wrong, by actually posting the text from either Act that says that the Trustees of Kirvos' scheme cannot use the method of calculation he outlines above?


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## Guest126 (20 Jun 2007)

LD - I presume you have noticed that the Sections straddle both the 1990 Act and the 2002 Act.

Part A of the Second Schedule of Part III of the Pensions Act, 1990 clearly shows how the preserved benefit in respect of a defined benefit scheme has to be calculated.

There is no trustee discretion in relation to calculation of the basic preserved pension.

The early retirement pension may be lower then the basic preserved pension - but I am referring to the basic preserved pension and this can unequivocally not be reduced for any reason below the formula set out in the Second Schedule.

You seem to be confusing the preserved pension with an early retirement pension - they are not the same thing.


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## LDFerguson (21 Jun 2007)

Yes this is correct.  

The scheme rules must not contravene the Act.  

In the example that Kirvos posted above, they don't.

I've no idea why you think I'm confusing preserved pension with early retirement pension.


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## Guest126 (25 Jun 2007)

Sorry for delay in replying - away on holidays.

The example kirvos gave is a clear breach of the Second Schedule calculation.


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## kirvos (26 Jun 2007)

To CapitalCC and LD ferguson, 

Feel  a total ass for wasting time and being utterly wrong/incorrect. Fed wrong info  on pension. Confused early retirement  pension calculation with deferred pension. Totally different, the former of course , being paid earlier and longer, will be a lower amount. CapitalCC calculation of benefit is correct as oulined above

What can i say. total muppet springs immediately and appropriately to mind.
Off to the dunce's corner to reflect.
Kirvos


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## Guest126 (26 Jun 2007)

Kirvos - absolutely no worries, all of the jargon is a minefield, thanks for "coming clean"!


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## LDFerguson (26 Jun 2007)

Don't be hard on yourself - as CCCC says, there's a lot of jargon involved.


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## kirvos (29 Jun 2007)

To CapitalCC and Ld Ferguson, 
On further checks, our pension administrator  has affirmed to a colleague/union rep my original point about the reduction/clawback as outlined earlier by me ( but since removed from posts today) on deffered penion in my DB scheme.
Next week, will secure from him the relevant documentation re same, so we have some 'ammo' to work with.
Will hold off til I see this in black n white, and can forward same to you lads. Thanks for your forebearance in this  thread.
Kirvos


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## kirvos (2 Jul 2007)

Please disregard my most recent/previous post. Pension administrator has clarified again. My original point would only be relevant for service of over 40 years, because max benefit is restriced by Revenue to 40/60 of finishing salary.
So, at last, I'm  up to speed, as it were. 
This is my last posting on this issue. Phew. Happy days for CapitalCC and colleagues.
Regards Kirvos


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## Guest126 (3 Jul 2007)

Thanks Kirvos - I hope that you get your fair share from your employer's pension plan!


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## South (6 Jul 2007)

How come CapitalCCC got banned?


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