# Teacher pension advice



## Thecaddie (14 Jun 2018)

Hi All,

My partner is a primary teacher and entered the public sector in 1997 for 2 years and then broke her service in 1999.

She returned to teaching in September 2004 following 5 years in the private sector. On returning she was informed that with recent rule changes coming into effect from April 2004 she would now be part of a new pension scheme (PRSI class A post April 2004). I understand that the benefits under the new scheme are not as attractive as the old scheme in that you cannot retire until 65 unless without penalty and that the new scheme splits the pension between the Dept. of Education and the state pension and therefore you need to wait until 68 to draw down this portion.

I have three questions for the forum.

1. Does anybody know of anyone who falls into a similar situation and missed maintaining their original pension scheme due to a break in service? Is there any point in pushing this with the dept.,?

2. Are there any other benefits of the original PRSI D pension that I am missing?

3. She currently has 14.5 years service (due to 3 years job sharing). Assuming that she wants to retire at age 60 years at which point she will have 33 years service (currently aged 41), what should she be doing now?

She is currently buying back 5 years notional service to avoid the penalties of early retirement but not doing an AVC. We have met cornmarket who told us the 5 year buyback was a bad idea and to buy AVC from them but this advice didnt surprise us but what is the correct approach.

Any help appreciated


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## Early Riser (14 Jun 2018)

Just a couple of points. 

You refer to Class D PRSI. However, I believe this only applies to public servants who joined prior to April 1995. If your partner joined in 1997 she should have been at Class A. Am I missing something? Are you sure she was on Class D? 

The main change for post 2004 entrants was  the raising of the minimum retirement age to 65 (with actuarially reduced retirement from 55). It had been 60.

There are advantages and disadvantages to both notional years and AVCs. It depends on what you are aiming to achieve. AVCs are subject to fees but allow greater flexibility at draw down, eg, to top up the tax free lump sum to the maximum allowed by revenue, or to purchase an ARF. However, if your aim is to increase your guaranteed annual pension you may be better with notional years. You can read more about the pros and cons of each in the booklet from the Pensions Authority at this link:

[broken link removed]


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## Thecaddie (14 Jun 2018)

Early Riser, yes you are correct she is class A. Thanks for the document I will have a read through.

From what you are saying do I understand correctly that paying both AVC and Notional service doea not make sense?


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## Early Riser (15 Jun 2018)

Subject to contribution limits (25% at age 40 - the limits increase at 50 and at 55) she could contribute to both if she wished. Her notional years contributions will mostly go to funding a larger guaranteed annual pension than she would otherwise have had. If she set up an AVC (conventional or PRSA) she could use the proceeds to top up her lump sum at retirement. If there is any surplus in the kitty after this she could transfer it to an ARF and draw it down at a rate that suits her.

You say she is aiming to retire at 60 - that will be on an actuarially reduced pension. The drawdown from the ARF (together with the lump sum) could be used to augment this until the State Pension kicks in at 68.

All this is on the basis that she can afford to pay this amount into the pension without unduly scrimping now. While I am for prudence, I'm not sure if it makes sense to sacrifice all of life's pleasures now for a future that may not materialise as we envisage it for whatever reason.


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## Thecaddie (15 Jun 2018)

Early Riser said:


> You say she is aiming to retire at 60 - that will be on an actuarially reduced pension. The drawdown from the ARF (together with the lump sum) could be used to augment this until the State Pension kicks in at 68.



Does this mean an actuarially pension is a reduced pension if she retires at 60 even though she has bought back years?


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## shelley levine (15 Jun 2018)

Buying notional service doesn’t reduce any penalties on early retirement. The notional years bought are in fact subject to those same penalties. Her retirement age is 65. The purpose of notional service is to increase your pension and lump sum at 65. If she retires at 60 she’s retiring under cost neutral early retirement and will get an actuarially reduced pension and lump sum and the 5 notional years will be actuarially reduced as well


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## Thecaddie (15 Jun 2018)

Thanks Shelley

Is there any reference to what the actuarily reduced pension will be?


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## Early Riser (15 Jun 2018)

Thecaddie said:


> Is there any reference to what the actuarily reduced pension will be



 Table here - see section on persons with a preserved pension age of 65:

https://circulars.gov.ie/pdf/circular/finance/2005/10.pdf

Just to add to Shelley's summary above. If your partner is funding her notional years by salary deduction, this will have been calculated on the basis of her continuing to work (and pay for the notional years) until she is 65. If she retires at 60 she will only have the number of notional years she has paid for by then - maybe 4.5.

The Dept of Ed has quite a good pensions section on its website. Your partner might want to explore it:

https://www.education.ie/en/Education-Staff/Services/Retirement-Pensions/


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## shelley levine (15 Jun 2018)

The notional years would also be subject to the cost neutral actuarial reduction so you wouldn’t get a proportionate amount. The 4.5 years approx stated would then be reduced by the cost neutral retirement factor


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## Gordon Gekko (15 Jun 2018)

In my experience, couples mistakenly tend to look at their pension benefits separately.

For example, one spouse can be overfunding whilst the other has the ability to fund his/her pension.


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## shelley levine (19 Jun 2018)

The problem with advice on ps pension benefits is there are now 4 different schemes depending on when you started in the system. Notional service was straightforward when there was just 1 D1/B1 scheme. If you were short a few years at 60 you could buy them from your employer to give full benefits in a cost effective manner. 
The change in PRSI class to A1 meant you were no longer buying a year of service, you were buying a year of co ordinated service with all the potential complications around supplementary and state pension, plus the employers realized it was too good a deal and increased the cost.
The increased retirement ages and introduction of career average benefits have further muddied the waters and indeed for the single service scheme it’s not currently available.
The OP has fallen into the trap of notional service = good with no understanding as to how it actually works and where it fits in to their overall financial planning.


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