Army pension at 41, now working in the public service

B

Bananabob

New Member
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4
Hi all,

I'm sure you are sick to the back of your teeth with these queries but I'm way out of my depth.

I'm 41 and in receipt of an army pension, worth €17,904 per annum. I am now employed in the public sector on just over €60k per annum.

I suppose I have two basic queries,

1. Once I reach state pension age, do I retain my army pension, or does it cease?
2. I'm considering investing my army pension directly into a private pension fund, to draw down if I make it to 68 (or for my wife, if I dont).

I would be grateful for any advice on the above, or if there is something I have not considered.

Cheers!
Bb
 
Bananabob said:
1. Once I reach state pension age, do I retain my army pension, or does it cease?
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I have never come across the Army Pension scheme before but I had a quick scan of this :https://assets.gov.ie/37137/88a252edc50847a185f5a30cbd7ce3fa.pdf.
It seems the pension consists of two element. First, a flat rate which is based on retiring rank and on 21 years of service. According to the document this flat rate is for life. The second element relates to pensionable pay at retirement (which includes any allowances) and on any service beyond 21 years. On my reading of the document, this second element continues until State Pension age only.

Bananabob said:
I'm considering investing my army pension directly into a private pension fund, to draw down if I make it to 68 (or for my wife, if I dont).
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I don't get this. As I understand it there is no "fund" for the defence force pension. It is a defined benefit scheme paid out of the public exchequer.
 
I'm assuming that you're now in the Single Public Service Pension Scheme. Your contribution to that is very roughly 5% of salary. Your ability to claim tax relief on pension contributions is limited to 25% of your salary, inclusive of what you're already paying. (You cannot make pension contributions and claim tax relief against pension income.) So, very roughly, your upper limit is 25% of €60,000, less the 5% you're already paying: about €12,000 per year.

Whether or not this is a good idea depends on your personal financial circumstances, expected tax rate in retirement etc.
 
Early Riser said:
I have never come across the Army Pension scheme before but I had a quick scan of this :https://assets.gov.ie/37137/88a252edc50847a185f5a30cbd7ce3fa.pdf.
It seems the pension consists of two element. First, a flat rate which is based on retiring rank and on 21 years of service. According to the document this flat rate is for life. The second element relates to pensionable pay at retirement (which includes any allowances) and on any service beyond 21 years. On my reading of the document, this second element continues until State Pension age only.



I don't get this. As I understand it there is no "fund" for the defence force pension. It is a defined benefit scheme paid out of the public exchequer.
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Hi thanks for the reply, and your efforts.

Yeah I think once I reach state pension age, my army pension reverts to a 21 year rate, which is only €500 a year less.

Great, so I will be able to avail of both.

I suppose in my second query, the word "fund" was misused. I meant moreso if I used my army pension as payment into a private pension until I reach 68 or so.
 
LDFerguson said:
I'm assuming that you're now in the Single Public Service Pension Scheme. Your contribution to that is very roughly 5% of salary. Your ability to claim tax relief on pension contributions is limited to 25% of your salary, inclusive of what you're already paying. (You cannot make pension contributions and claim tax relief against pension income.) So, very roughly, your upper limit is 25% of €60,000, less the 5% you're already paying: about €12,000 per year.

Whether or not this is a good idea depends on your personal financial circumstances, expected tax rate in retirement etc.
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Hi, thanks for the reply, much appreciated.

Yeah this is all foreign to me I'm afraid. So I'm not paying into a pension at present (bar PRSI) but I am availing of the single PSPS, I think thats what it was.

I see, so its not really sensible/viable to use my current pension payments, to pay into a private pension.

Thanks for your time all, I will get in contact a financial advisor for more options.

I appreciate the help!

Cheers
Bb
 
Bananabob said:
So I'm not paying into a pension at present (bar PRSI) but I am availing of the single PSPS, I think thats what it was.
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If you're a member of the single scheme, there is a personal contribution from you. You should see it on your payslips.

Bananabob said:
I see, so its not really sensible/viable to use my current pension payments, to pay into a private pension.
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Hang on. I didn't say that. Based on the figures you've provided, it's not efficient for you to recycle the full amount of your army pension back into another pension plan, as you won't get tax relief on the full amount. It may well be a good idea for you to put a lesser amount into supplementing your public service pension, but it would require an in-depth look at your overall financial position to determine whether or not that would be prudent. Among the things that would need to be taken into consideration would be...

  • What level of lump sum and pension income will you be likely to have from the Single Scheme at retirement?
  • Will you (and your spouse, if applicable) be likely to be paying tax at the higher rate when you retire? That's a key point. As a very general rule, if you're likely to be paying tax at the high rate when you retire, then the argument in favour of contributing large amounts into AVCs is weakened.
  • Would there be any risk that your benefits from the Single Scheme + AVCs for 25+ years + fund growth for 25+ years would exceed Revenue maximum limits?
These are not rhetorical questions. I don't know the answers in your particular circumstances. I'm just making the point that they're the sort of questions that you would need to tease out with whoever's advising you on the possible AVCs, before signing on the dotted line.
 
Bananabob said:
I see, so its not really sensible/viable to use my current pension payments, to pay into a private pension.
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You should leave aside your current pension income for now. As you are a member of an occupational pension scheme at the moment (PS Single Scheme) you need to link any additional pension contributions to this - you can't start a seperate pension. The way to do this is via an AVC - an Additional Voluntary Contributions linked to the Single Scheme. You can only draw down on these AVCs when you draw down the main scheme benefits. If you left the PS for something else at a later stage you would have to stop payments into the AVC at the same time.

At your age (40-50) the most you can pay into a pension is 25% of pensionable income. You indicate that your pensionable income is €60k, so that is €15k. Then you have to take from this whatever you are currently paying towards the Single Scheme - let's just say that is €3k annually. If so, you could pay up to €12k annually into an AVC and avail of tax relief. The only relevance of your current pension income to all of this is that it provides you with a financial cushion to enable you to take this level of deduction from your current salary - something that another employee might baulk at. Your current pension cannot be transferred directly into another pension.

There are loads of providers of AVCs. There is likely to be one (usually Cornmarket) who has an arrangement with your current employer and can set up an AVC seamlessly through salary deduction. But some people find their charges excessive. Other providers offer what is known as a PRSA-AVC - essentially the same but the contribution is done through your bank account and not through salary deduction.

As LD has pointed out, you will need to consider whether paying this amount into a pension scheme makes financial sense in the long term. You may need to take advice on this.
 
Early Riser said:
There are loads of providers of AVCs. There is likely to be one (usually Cornmarket) who has an arrangement with your current employer and can set up an AVC seamlessly through salary deduction. But some people find their charges excessive. Other providers offer what is known as a PRSA-AVC - essentially the same but the contribution is done through your bank account and not through salary deduction.

As LD has pointed out, you will need to consider whether paying this amount into a pension scheme makes financial sense in the long term. You may need to take advice on this.
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To be fair, Revenue have made it pretty seamless for AVC contributors to adjust their tax credits by uploading the PRSA2 Certificate via 'My Account', see here

Yes it's an extra step, but well worth it if you're making savings on the (up to) 5% contribution charge.

Gerard

www.prsa.ie
 
LDFerguson said:
I'm assuming that you're now in the Single Public Service Pension Scheme. Your contribution to that is very roughly 5% of salary. Your ability to claim tax relief on pension contributions is limited to 25% of your salary, inclusive of what you're already paying. (You cannot make pension contributions and claim tax relief against pension income.) So, very roughly, your upper limit is 25% of €60,000, less the 5% you're already paying: about €12,000 per year.

Whether or not this is a good idea depends on your personal financial circumstances, expected tax rate in retirement etc.
Click to expand...
Hi, thanks for the reply, much appreciated.

Yeah this is all foreign to me I'm afraid. So I'm not paying into a pension at present (bar PRSI) but I am availing of the single PSPS, I think thats what it was.

I see, so its not really sensible/viable to use my current pension payments, to pay into a private pension.

Thanks for your time all, I will get in contact a financial advisor for more options.

I appreciate the help!

Cheers
Bb
 
Bananabob said:
I see, so its not really sensible/viable to use my current pension payments, to pay into a private pension.
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They are not separate pots of money - stop thinking of it this way!

You have an income which is comprised of a DF pension and a PS salary.

Take your total gross income (€77k or so) and decide whether you want go make AVCs or not. Don't obsess over which part is DF pension and which part is salary. It is one big pot. As other posters have pointed out there is scope for contributions of about €12k pa which is fully tax relieved.

If you work to 65 I think you will have a very decent income between DF pension, 25 years of SPSPS, and a contributory state pension. We have no knowledge of your assets and outgoings of course, but a lot of AVCs may be overkill.
 
Early Riser said:
Has the issue of Pension Abatement come up? (Appendix E in the document in my earlier post)?
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Well spotted! If it hasn't arisen already, then it may well do so at a later stage. The OP would do well to clarify their situation on this, before the amount of overpaid pension - if there is one - becomes significant.
 
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