# Should Public Servants also take out Private Pensions?



## TheJackal (18 Oct 2011)

Most public servants will retire with a reasonably good pension, if they have a good number of years service & finish on a reasonably good pay grade.

But would it actually be worth paying into say an AVC aswell to top up your pension income?

For example, a public servant retiring with the full 40 years at age 60 on 90K/yr will receive an annual pension of 45K and a once off, tax-free lump sum of 135K.

Any additonal contributions to a private AVC would earn 41% tax relief.

The fund may rise a small bit over its duration 
(from last night's show private pensions have only risen 1% per annum on average over the past 10 years - not sure if this 1% growth is after factoring in the management fees, etc or not, but I'd say not!)

But upon retirement, I don't think there would be any tax-free lump sum possible from their private pension pot (as you received your public service pension lump sum tax-free - I'm open to correction on this!)

And you will also likely be paying 41% on your annual pension income due to the 45K public servant pension putting you over the threshold.

So I don't see there being any benefit in an AVC for public servants if they have a good number of years service & finish on a reasonably good pay grade.


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## Firefly (18 Oct 2011)

TheJackal said:


> Most public servants will retire with a reasonably good pension,



Personally, if I was under 50 and in the public sector I would be putting funds into my own pension after watching the Pensions program last night. It was likened to a ponzi scheme where those retired are dependant on those working. With people living longer and the recent expansion of the public sector, it seems inconceivable to me that taxpayers in the future will be able to meet these retirement costs as well as the public sector wage bill of the day. Only my 2c


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## DerKaiser (18 Oct 2011)

I'd save additional money for retirement, but in a bank as it would make no sense to do so through an AVC from a taxation point of view in those circumstances.


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## suzie (24 Oct 2011)

My partner works in the public sector where their union is now talking about AVCs due to recent rule changes (whereas in the past it wasnt favourable).

Had a quick took at a brochure and it highlighted their fees/charges, ie bid/offer spread of 5% and a single premium charge of 3%.

So if my partner decides to do a AVC for 2010, does the above mean only 92% of the AVC will go to the investment funds? Are these charges above the typical industry norm?

Thanks
S


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## ClubMan (24 Oct 2011)

suzie said:


> Had a quick took at a brochure and it highlighted their fees/charges, ie bid/offer spread of 5% and a single premium charge of 3%.
> 
> ...
> 
> Are these charges above the typical industry normal?


You don't say what the ongoing annual management fee is and I don't understand the "single premium charge" but I still suspect that you could easily get lower charges than those by shopping around - e.g. a lower and possibly 0% bid offer spread and an annual management fee of c. 1%. Unless things have changed significantly since I last looked at this in detail...? Obviously the charging structure is just one item to be considered when shopping around. You also need to consider fund selection, customer service etc.


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## oysterman (24 Oct 2011)

suzie said:


> My partner works in the public sector where their union is now talking about AVCs due to recent rule changes (whereas in the past it wasnt favourable).
> 
> Had a quick took at a brochure and it highlighted their fees/charges, ie bid/offer spread of 5% and a single premium charge of 3%.
> 
> ...


To get the best deal on fees s/he would most likely have to look at setting up a PRSA AVC vehicle as opposed to the group AVC scheme negotiated by the union. There are threads elsewhere on AAM about these.


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## Slim (25 Oct 2011)

TheJackal said:


> Most public servants will retire with a reasonably good pension, if they have a good number of years service & finish on a reasonably good pay grade.
> 
> But would it actually be worth paying into say an AVC aswell to top up your pension income?
> 
> ...


 
I think you mean a PRSA as a public servant who would have 40 years service at minimum retirement age would not be allowed to pay AVCs. The difference is that a pension company can demonstrate that a public servant who will receive the maximum tax free lump sum of 150% of final salary can still qualify for a PRSA and take a further 25% of the PRSA at retirement tax free and then use an ARF or vested PRSA to look after the rest and draw it down at will. It means that the 150% of final salary falls short of max allowable tax free lump sum. Don't ask me to do the maths.


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