66% max of final salary

[LexLuthor]

I read recently about a revenue rule whereby pension at retirement must be less than 66% of final salary. I am thinking of AVCs and am concerned about this.

Does this apply to defined contribution schemes in the private sector?

- What happens if for some reason my salary is very low in my final year before retirement? will this have a huge affect on my pension?

 

[Conan]

Under Revenue rules the maximum benefits which may be provided on retirement out of a pension funds are:

• Personal pension of 2/3rds Final Salary (subject to having completed at least 10 years service by retirement)
• Spouses pension on your death in retirement (leaving a surviving spouse) of 100% of your pension.
• Pension indexation up to CPI

In relation to the definition of Final Salary, this can be either of:

1. Final years salary
2. Average salary over last 3 years
3. Average salary over any 3 consecutive years in the last 10 years.

In reality it would be very difficult (particularly in a DC scheme) to end up with a fund which would provide a benefit package in excess of Revenue limits. Based on current annuity rates, it would cost circa 40 times the annuity. So a pension of €50,000 p.a. from age 60 (with the spouses and indexation) would require a fund of circa €2m.

 

[LexLuthor]

Thanks for this. Does anyone have a link to where the final salary definition is officially stated?

In reality it would be very difficult (particularly in a DC scheme) to end up with a fund which would provide a benefit package in excess of Revenue limits

I don't see this as the case however. If I go to to calculator on pensionsboard.ie, and punch in

gender:male
current age: 34
current salary: 50K (say)
current value: 0
target: 66.66%

then it says this can be achieved by contributing 23% which would be possible if the company contributes 5%.

 

[Conan]

The Pensions Board figures allow for a spouses pension of 50% (whereas the Revenue limit is 100%) and post retirement indexation of 2% (whereas CPI is possible).
In reality I know of very few DC schemes where you have a total contribution of 23%. In your example, the Company are paying 5% and yes you could contribute up to a total of 20% (being over age 30), but I dont see that providing benefits in excess of Revenue limits.