Actuarial valuation DB Pension

Fortune said:
because their income is inflation linked.
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No it’s not. It is linked by custom and practice to public service pay increases which are sometimes higher and sometimes lower than inflation. There is no direct inflation-linking anywhere for Irish public service wages or benefits. I have considerable professional expertise in this.

Fortune said:
Are you saying an annuity isn't an asset?
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What I’m saying is that a public service pension is not tradeable and shouldn’t be directly compared to a purchasable product like an annuity.

Likewise I don’t take too seriously estimates of future pension liabilities of the state. The state can only ever pay retirees what it can levy by way of taxes on workers. As we saw in 2009 and 2010 when the state cut pensions for public service retirees and workers alike.
 
Ruffian said:
Surely he was talking about the Public Service Occupational Pension? The State Pension (payable to all Class A employees, PS or not) is a completely different thing.
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He was talking about the public service occupational pension but the point I am making is that most employees with Class A contributions will have a guaranteed state pension from age 67 ,therefore the amount they would need to buy in annuity would be less that amount to have an income of €35,000 from that age. Very simplistically from age 60 they would have to fund in full for the index linked payment of €35,000. but this would drop to needing to fund for €20,000 as they would receive €15,000 from the state pension from age 67. Obviously these amounts are approximate and would change with inflation. I understand that D rate prsi payers are not entitled to a state pension.
 
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If his example was of a teacher retiring with 40 years service at age 60 (probably unusual) then his indication of a pension of €35,000 would probably not be far off for a Class A. For the few for whom this would apply would pensionable remuneration (including allowances) not be far off €100,000? If so, maybe he was not including the State Pension at all?
 
Dr Strangelove said:
and public sector pay by 20%.

Inflation as measured by by CPI was 20%.
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So public sector pay and pensions have increased by exactly the same amount as inflation. But you're arguing that public sector pensions aren't inflation linked. If it walks like a duck...

Threadser said:
But the point I was making is that there isn't a state contributory pension entitlement on top. Most people buying an annuity will have a state pension from age 67 currently on the basis of 1080 A rate contributions only. The cohort of public servants who are class D PRSI payers have no entitlement to the state pension or those who pay class A have a state pension included in their teacher's pension. What would the estimated value of the state pension paid over 15 years for a 67 year old male be? Should this not be subtracted from the headline 1.8 million quoted? I have no expertise in pensions but the amount quoted just seemed very large.
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I'd imagine that the figures used were deliberately using the most expensive possibilities to make whatever point was being made at the time. As I said, I don't generally agree with using extreme examples to make any point, but that's just me. One could argue that Class A, 1995 onwards public servants on a scheme that is integrated with the State Contributory Pension will get their public service pension and the State Contributory Pension. So the example used was putting a value on the public service pension element only.

Threadser said:
He was talking about the public service occupational pension but the point I am making is that most employees with Class A contributions will have a guaranteed state pension from age 67 ,therefore the amount they would need to buy in annuity would be less that amount to have an income of €35,000 from that age. Very simplistically from age 60 they would have to fund in full for the index linked payment of €35,000. but this would drop to needing to fund for €20,000 as they would receive €15,000 from the state pension from age 67. Obviously these amounts are approximate and would change with inflation. I understand that D rate prsi payers are not entitled to a state pension.
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I agree. So the example person used would need to be on a salary of roughly €100,000 at retirement with full service so that their pension would be €50,000 including the State Contributory Pension. Rough figures again. And the person would need to be retiring at 60.

It's not a great example to be using unless the presenter had reason to believe that there would be plenty of people in that cohort in the room, or perhaps plenty of Class D folk on €70,000 per year.
 
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Threadser said:
Very simplistically from age 60 they would have to fund in full for the index linked payment of €35,000. but this would drop to needing to fund for €20,000 as they would receive €15,000 from the state pension from age 67.
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To put numbers on your point, I did a rough annuity calculation based on the person retiring at 66 (age of State Contributory Pension) and just funding for the €20,000 per year, with the spouse also being 66. Otherwise the same assumptions as above. Required fund drops to €729,000. So again, I'd reckon that the person who used the €1.8M example was deliberately using the most extreme example they could come up with, to make their point, whatever their point was.
 
Thanks so much for the clarification on this. That figure makes much more sense to me. I appreciate and am very glad that I will qualify for my teacher's pension but I think the fact that class D public servants do not qualify for the state pension is often overlooked when comparisons are made.
 
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@LDFerguson - according to the INTO, the average age of retirement of a primary school teacher is 58. Most teachers of that age would then receive a pension of 37/80ths of their final salary. Could you run some numbers on this and tell us what would the fund be (approximately)?
 
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Powderfinger said:
according to the INTO, the average age of retirement of a primary school teacher is 58. Most teachers of that age would then receive a pension of 74/80ths of their final salary. Could you run some numbers on this and tell us what would the fund be (approximately)?
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Untrue, the INTO ran the event I was at last week and the most common age teachers retire is currently 60 as per department of education statistics. The estimate of 35 years service was used as it is rare now for anyone to stay 40 years teaching unless they have superhuman stamina! Teaching is a female dominated profession so many will have taken years out/or job shared when children were young or they were caring for elderly parents. Hence the use of 35/80th as an example of a likely pension on a final salary estimate of €80,000 and a pension of €35,000. Many teachers will have more than this and many will have less but this was seen to be a realistic example to use.
 
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@Threadser You are playing with the figures yourself - you're not suggesting that those who took years out of the workforce should get a pension for those years? Teachers (and for many it is a very - and increasingly demanding - job) currently retiring have an excellent pension. Those coming after them less so. but I suspect even that may look generous given what's forecast to happen to the dependency ratio in the years ahead.
 
Powderfinger said:
You are playing with the figures yourself
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I am not playing with any figures as these were the figures used in the INTO seminar I attended. I am also not suggesting that someone who is out of the workforce should get a pension for those years, The example you used of a teacher retiring at aged 58 with 37 years service is unrealistic. For that to be the case, the teacher you mentioned would have had to work continually from age 21 till their retirement. For the reasons I mentioned in the post above this rarely happens. Also, this teacher would have qualified in the late 1980s when there were few permanent teaching jobs. Most teachers who qualified in that era would have broken service for periods where they worked as a substitute teacher and were not paid for holidays etc. The Pre 95 teachers pension is good for sure, but there is no entitlement to the state pension. Post 95 is a co-ordinated pension which includes state pension entitlement.
 
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