# Roughly how much would I need to save in a pension to get Public Sector DB pension level benefits?



## gnf_ireland (4 Sep 2018)

Quick question - although probably not a quick answer...

If I was say turning 27 this morning, and decided I wanted to pay into a private pension that would give me (after 40 years contributing) roughly 1.5 times my salary as a final payment and 50% of my final salary as some sort of monthly payments (whether ARF or Annuity), how much would I need to be putting into the fund ?

Would 25% of my salary reasonably fund this *subject to the usual caveats*? So 10% company contribution and 15% personal contribution? Or would I need to be higher at 30%/33%/40% ?

I appreciate rules are likely to change here, but lets assume the current rules continue with marginal tax relief availed at the higher rate on all of the contributions?


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## Brendan Burgess (4 Sep 2018)

What has that got to do with the State pension benefits?  Or you referring to the proposed benefits under the auto-enrolment proposals?


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## gnf_ireland (4 Sep 2018)

Brendan Burgess said:


> What has that got to do with the State pension benefits? Or you referring to the proposed benefits under the auto-enrollment proposals?



@Brendan Burgess  This has nothing to do with the proposed auto-enrollment proposals really, other than I feel the contributions don't go far enough.
The public sector pension benefits are probably a benchmark as to what a 'good' pension fund should look like, offering 50% salary once you retire after 40 years service. I think most should target something like this and wondering what it would take to fund this. I am just wondering at a high level how much it would cost to fund a pension similar to a public sector employee DB pension.

14% overall contribution seems a bit low, although better than nothing. I am just wondering if the proposals should not go further. I think it would be beneficial for people to understand that under 'certain reasonable assumptions' the projected pension entitlements at the end of the 40 years will be say 30% average salary and 1 x salary as a lump sum. Most people do not what 14% gives then at the end - but most would understand the comparison to the public sector DB pension.


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## Protocol (4 Sep 2018)

Be careful with language.

The State Pension is not the same as Public Service pensions.

Your title refers to State Pension, whereas you seem to discuss PS pensions, with the reference to 505 final salary pension?


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## Protocol (4 Sep 2018)

Where does the 14% cont rate come from?

Note that PS contribution rate is 6.5%.

Then the PRD was introduced, at 10% / 10.5%.

So the headline contribution rate by staff is 16.5%, but please note that it is far more complex than that.


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## gnf_ireland (4 Sep 2018)

Protocol said:


> Be careful with language.
> The State Pension is not the same as Public Service pensions.
> Your title refers to State Pension, whereas you seem to discuss PS pensions, with the reference to 505 final salary pension?



Sorry, you are correct @Protocol - I have edited the thread title to reflect the fact it is public sector final salary pensions I am talking about


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## gnf_ireland (4 Sep 2018)

Protocol said:


> Where does the 14% cont rate come from?


This was from the Irish Times article on the proposals for auto-enrollment, linked below. I do accept this is only a proposal at the moment. It does not relate to what the Public Sector pay into their pension funds, as this is a separate discussion, for another day. 

https://www.irishtimes.com/business...6-of-pay-put-into-mandatory-pension-1.3604345

_>>In this scenario, from 2027, workers would see a total of 14 per cent of their gross pay going into a fund for their retirement.
_
If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.

Irrespective of this, I am still curious as to roughly what percentage of salary would a private sector employee would need to pay into a pension fund to receive a pension fund roughly the same as a public sector employee? I imagine its pretty high. I think it is a good benchmark figure to have when discussing pension contributions.

I am recently entered by 40's so pension discussions are coming up more and more


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## Brendan Burgess (4 Sep 2018)

gnf_ireland said:


> I have edited the thread title to reflect the fact it is public sector final salary pensions I am talking about



Ah, now I see the point of your post. 

Brendan


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## gnf_ireland (4 Sep 2018)

Brendan Burgess said:


> Ah, now I see the point of your post.


Apologies - I sometimes forget I need to be more specific at times


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## Buddyboy (4 Sep 2018)

Also remember in your calculations, that the 50% of salary as the pension _includes _the State pension.

So if I work for 40 years in the public service, with a pensionable salary of 50,000€, I get a final pension of 25,000€, including the state pension of 12,000. So my actual pension from my employment is 13,000€.


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## Páid (4 Sep 2018)

This topic was hotly discussed recently in this thread - https://www.askaboutmoney.com/threads/the-truly-shocking-cost-of-state-pensions.200678/


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## gnf_ireland (4 Sep 2018)

@Páid  thanks for that - I will have a read of it. 

Recently as in two years ago


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## gnf_ireland (4 Sep 2018)

Buddyboy said:


> Also remember in your calculations, that the 50% of salary as the pension _includes _the State pension.
> So if I work for 40 years in the public service, with a pensionable salary of 50,000€, I get a final pension of 25,000€, including the state pension of 12,000. So my actual pension from my employment is 13,000€.



Yes and No to be fair. If someone was to retire at 62 after 40 years service they still get their full 25k pension, although the state pension does not kick in until between 66-68 ! The rising of the state pension age does not impact those with public sector pensions. 
However, I do stress, this is not a discussion on public sector pensions or any sort of bashing. It is simply to understand how much would of my salary would I need to contribute to a pension over 40 years to get something equivalent !


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## Early Riser (4 Sep 2018)

gnf_ireland said:


> Yes and No to be fair. If someone was to retire at 62 after 40 years service they still get their full 25k pension



Only if they joined the PS before 2004.


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## Páid (4 Sep 2018)

gnf_ireland said:


> @Páid  thanks for that - I will have a read of it.
> 
> Recently as in two years ago


In the context of pensions, two years is recent.


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## Steven Barrett (4 Sep 2018)

gnf_ireland said:


> If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.



Of course it won't. Auto enrollment is a DC scheme and the public service is DB. Auto enrollment isn't in any way to be compared with what public servants get (or private sector employees who are also members of DB schemes). It is to be a better position at retirement than those who have to wholly rely on the State pension of just under €12,700 a year. That can be quite a drop in earnings for a lot of people. Considering people can live for 20-30 years in retirement, that's a pretty poor retirement. 

I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require contributions of €25,000 a year to fund that pension, so 50% of salary. The lump sum will cost €75,000.


Steven
www.bluewaterfp.ie


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## Duke of Marmalade (4 Sep 2018)

The answer to OP question lies in a very wide range.  The main imponderable is how investment earnings will compare with inflation.  To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation.  The sums then become very simple.
So if you want 50% pension at 68 we might estimate that you and a dependent partner will need 25 years of that giving 12.5 earnings as a cost. Add in 1.5 lump sum and your target fund, inflation adjusted, is 14 times earnings. To accrue this over 40 years contributions would require a contribution % of 33%.


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## RETIRED2017 (4 Sep 2018)

SBarrett said:


> Of course it won't. Auto enrollment is a DC scheme and the public service is DB. Auto enrollment isn't in any way to be compared with what public servants get (or private sector employees who are also members of DB schemes). It is to be a better position at retirement than those who have to wholly rely on the State pension of just under €12,700 a year. That can be quite a drop in earnings for a lot of people. Considering people can live for 20-30 years in retirement, that's a pretty poor retirement.
> 
> I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require
> 
> ...



The thing that needs to be sorted I have posted  hear  in the past only to be shot down by people who should know better and don't take the time to understand how the government is shortchanging private sector workers when it comes to there employers and there own contributions

Back in 1995 the Government moved new public servants to the same prsi rates as private sector workers but the sting in the tail is the public servants contributions are guaranteed and the private sectors are not . the only way this can be solved is to ring fence enough contributions so the money is there to pay private sector workers when the come to retirement age,

The figure of 25000 euro (50% of salery} Steven used above  is out by a mile

 But leaving this aside for now and looking at the same funding arrangement as the public servant someone on 50000 euro looking to have close to the same pension as a public servant would get a present day pension of around 12700 euro contributory pension leaving them to fund another 12300 euro to bring them up to the same rate as a public servant ,
A few few years back it took around 100000 to buy a pension of 4000 per year with a small increase as the years go by
100000 euro would buy a pension for of around 3750 for life and 50% pension for a surviving spouse,
Private sector worker could take out an ARF  which is what i did

I would have being on around 65000 when  I retired I took 200000 euro tax free and I still finished up with over 50% of final salary including contributary pension

 Company and employees contributions fell away short of the figure Steven is using ,


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## Itchy (4 Sep 2018)

In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.


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## RETIRED2017 (4 Sep 2018)

Duke of Marmalade said:


> The answer to OP question lies in a very wide range.  The main imponderable is how investment earnings will compare with inflation.  To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation.  The sums then become very simple.
> So if you want 50% pension at 68 we might estimate that you and a dependent partner will need 25 years of that giving 12.5 earnings as a cost. Add in 1.5 lump sum and your target fund, inflation adjusted, is 14 times earnings. To accrue this over 40 years contributions would require a contribution % of 33%.


Hi Duke
I hope you don't mind me asking a follow up  question just to be clear in my own mind if investment earnings matched inflation would you finish up with 50% of salary
In other words lets say the state pension gave you another 25% would you finish up with 75% of salary or did you leave the state pension out when you say 33% contributions

put another way lets say the state pension also matched inflation would you only need to contribute 16.5 % to finish up with 50% of final salary including state pension,

I understand  that if you used a higher gross salary the state  pension would be a lower % of final salary and if you used a lower salary the state pension % would be higher as i
It just happens that the example of 50000 euro the state pension would make up around 26% of final salary as of today,


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## Duke of Marmalade (5 Sep 2018)

Yes I ignored State OAP


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## RETIRED2017 (5 Sep 2018)

Itchy said:


> In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.


Back around 1984/5 I knew of a company who set up a defined benifit scheme for direct workers and there supervisors the vast majority back then and to this day would be earning around the same wages as a grade 3 public servant ,  it was a new company back then employees  would have being from 18  no one would have being older than thirty five most aged 24to 25
The advice back then from an Irish company looking at the age profile was that 9% of salary would provide a pension of 50% of final salary +one and a half times lump sum,

They also got advice from a company based in Munich Germany In the End the took the advice given by this company which was 12% of salary + the company paid  the management fees,

the last time it was audited it was not in deficit,
There are a few things which would have helped keep it from falling in deficit that I can think of right now

one all income is included overtime

To retain staff and skill set which is very important to then down through the years the offered over time rather than increase staff which added to the fund

The advice back then from the Munich advesor was the law in Germain allowed direct employees who had contrubited for 30 years into the state pension system were allowed to retire at 62 instead of 65 if the were having problems doing there job because of there age the fund was padded to allow for this if the same laws were brought for workers in Ireland,

There are others which I will post later on when  I get a chance


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## RETIRED2017 (5 Sep 2018)

Duke of Marmalade said:


> Yes I ignored State OAP


 Thanks Duke
I was expecting you had ,for people retiring today on  50000  if the had contributed 12% for the past 40 years and were not ripped off  on fees they would have more ehan a public servant if they included the state pension as of today, (if I use the Dukes figures around 15/16% )

For people under 50000 euro it would be less than a total of !2%

For people over 50000 euro it would take more than 12%


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## gnf_ireland (5 Sep 2018)

Páid said:


> In the context of pensions, two years is recent.


Fair enough, but in the context of internet forums its ancient 
By the way read the thread - lots of interesting detail in it between the arguments ! If only there was a reasonable way to clean-up and summarise some of these threads once the 'fighting/debate' eased off ! It would make them much easier to read in hindsight


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## gnf_ireland (5 Sep 2018)

SBarrett said:


> I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require contributions of €25,000 a year to fund that pension, so 50% of salary. The lump sum will cost €75,000.



@SBarrett  Steven I would assume this relates to current annuity rates, which I assume most people would accept are pretty low all things considered. I do wonder how advisable/practical it would be for a DC pension to purchase an annuity in the current environment. Surely the ARF model, while riskier, is better suited to a large portion of the DC pension cohorts ?



Duke of Marmalade said:


> The main imponderable is how investment earnings will compare with inflation. To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation. The sums then become very simple.


@Duke of Marmalade  I understand what you are saying here, and there is an uncertainty around investment earnings versus inflation. However, surely over a 20-40 year period, most pension funds would beat inflation. Using 0% growth in real terms, it does skew the numbers massively as we would lose the benefit of compounding -making the calculation look a lot more extensive than it realistically should be. However, I do accept it is probably a conservative estimate



Itchy said:


> In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.


Any idea where this sort of information could be sourced ?


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## gnf_ireland (5 Sep 2018)

RETIRED2017 said:


> Back around 1984/5 I knew of a company who set up a defined benifit scheme for direct workers and there supervisors the vast majority back then and to this day would be earning around the same wages as a grade 3 public servant , it was a new company back then employees would have being from 18 no one would have being older than thirty five most aged 24to 25
> The advice back then from an Irish company looking at the age profile was that 9% of salary would provide a pension of 50% of final salary +one and a half times lump sum,
> 
> They also got advice from a company based in Munich Germany In the End the took the advice given by this company which was 12% of salary + the company paid the management fees,



Thanks and noted ! Very interesting observation !


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## Steven Barrett (5 Sep 2018)

gnf_ireland said:


> @SBarrett  Steven I would assume this relates to current annuity rates, which I assume most people would accept are pretty low all things considered. I do wonder how advisable/practical it would be for a DC pension to purchase an annuity in the current environment. Surely the ARF model, while riskier, is better suited to a large portion of the DC pension cohorts ?



You asked for the cost of providing a pension, not an ARF. I ran a quote using one of the life companies quotation systems. That's €25,000 in today's money, the system takes inflation into account so you have 40 years of inflation to factor in. 


Steven
www.bluewaterfp.ie


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## RETIRED2017 (5 Sep 2018)

gnf_ireland said:


> Thanks and noted ! Very interesting observation !


I suspect there are posters who give advice on this site who would have being involved in the payout of  both defined benefit and defined contributions funds to people now retiring where the contribution would have being around 9% Which was the advice given back around 1985 to fund over 40 years
The would also have seen the Actuaries Valuation of funds and the  advice given who might share there views,

gnf_ireland
The main reason defined benefit schemes were closed was because of a change in the law putting the liability of a defined benefit scheme onto the Company books  which made them harder to sell and lowered the value of the company ,
Because of the change in the law there would be people on hear who would be involved in closing down defined benefit schemes in surplux and opening up defined benefit schemes in there place where the contribution would have being around 9% again there would have being a actuaries valuation on the defined benefit fund so the funds could be shared out correctly,

the advice given in 1985 which proved to be correct was defined benefit worked where it was set up to cater for a section of  work force where the life long  pay scale stayed the same or within a certain range and ratio,


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## RETIRED2017 (6 Sep 2018)

"gnf said

_>>In this scenario, from 2027, workers would see a total of 14 per cent of their gross pay going into a fund for their retirement.
_
If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.

I suspect you  missed the bit where protocol said it is a bit more complex than that the 6.5% protocol used is the contributions paid in  by teachers which was always away higher than the rest of the public service then you have to allow for the fact this contribution is not paid on the contributary pension section,in other words you would be paying to fund 12300 of final salary not 25000 the would also be paying a lower amount to cover the lunp sum and spouse pension if the died before there spouse,

Then when you look at the PRD part the first 28750 euro is exempt if you take your figure of salary of 50000 you would pay 2125 euro or 4.25% (not the 10% headline rate protocol Quoted) ,
On a salary of 38750 euro which would be the salary of a grade 3 public servant you would pay a PRD of 1000 euro or 2.5 %(not the headline rate protocol Quoted of 10%)

Reading between the lines it looks like the government are planning to cap the amount paid in some where below 50000 euros in present day terms and employees who pays in 6% +employer + state conts  for a total of 14 % for 40 years should finish up  including state pension with the same pension as a public servant hired after 2004 finishing up on a final salary  capped some where short of 50000 in todays terms both would be contributing around 6% when you take the complex protocol  was on about out of it,

I would not be surprised if the government plan to use the new pension system to part fund future public servants pensions seeing the have upped the contributions from 2019 , this would help solve the  so called time bomb of unfunded pensions,

gnf said
Irrespective of this, I am still curious as to roughly what percentage of salary would a private sector employee would need to pay into a pension fund to receive a pension fund roughly the same as a public sector employee? I imagine its pretty high. I think it is a good benchmark figure to have when discussing pension contribution is not paid on the part

14% should be more than enough seeing state are setting the management fee  lower than most schemes out there at present ,

If FG do this FG will get back in on there own and FF will finish up with around the same amount of seats as Labour have at present,

 former and present  supporters of FF will see for the first time FF TDs/ Ministers/leaders  never really looked after the long term interest of the people public and private sector who work to pay there wages and pensions,

 FG would  be the new Home for the former homeless FF supporters


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