Actuarial Value of SPSPS

T

Tadhg22

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Specifically, I'd like to figure out the annual contributions a private sector worker would have to pay in order to access a pension scheme similar to the SPSPS. I'd have to imagine that the annual contributions would be higher than what is deducted under the SPSPS?
 
It's apples and oranges.

Public service pensions are great but much less flexibility about when you start drawing down and how much when you do. You get more certainty around your expected retirement income but no upside that you might get from leaving your wealth accumulate tax-free in equities for several decades.

You're also fully tethered to the Irish economic performance with a PS pension. There was a cut to these pensions in 2009 for a few years for example due to the economic crisis at the time.
 
NoRegretsCoyote said:
Public service pensions are great
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They are not so great if you are single and die within a few years of a retirement. In that case your pension dies with you regardless of how much or for how long your contributed (apart from your lump sum which you will have claimed on your retirement date)
 
Thanks for the reply and I appreciate that perspective. I note from private pension calculators I'd have to pay about €1200 a month or so to a private pension for an equivalent benefit?
 
Tadhg22 said:
I note from private pension calculators I'd have to pay about €1200 a month or so to a private pension for an equivalent benefit?
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Not sure where you got that figure from or what exactly you are comparing? As the first poster stated you may be comparing "apples with oranges" as there is huge variance in different types of public sector schemes for different categories of workers.
 
There is also the issue that many employees have an employer contributions to their fund. That's not part of your gross salary but is a cost to your employer and you see the benefit when you draw down the pension eventually.

There is no employer cash payment in a public service pension as of course there is no pension fund. It is still there implicitly though, you have a claim on future taxpayer funds and that cost can be discounted back to today.
 
Threadser said:
They are not so great if you are single and die within a few years of a retirement. In that case your pension dies with you regardless of how much or for how long your contributed (apart from your lump sum which you will have claimed on your retirement date)
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That is the same with any annuity public or private.
 
Threadser said:
So if a single private sector worker amasses a pension fund of €500,000 and dies 2 years post retirement what happens the fund?
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If there is no living spouse or child AFAIK it's taxed as income of the deceased in the year of death and then taxed under the CAT regime for the recipient.

Guidance is here.
 
Threadser said:
I genuinely didn't know that. So if a single private sector worker amasses a pension fund of €500,000 and dies 2 years post retirement what happens the fund?
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Did they use the funds to purchase an annuity - if so, then the funds are gone. Some annuity contracts may have a minimum payment period of 1 year or 2 years

If the fund was kept as a fund, an ARF, then it is still there

It's a gamble - am I going to outlive my fund or not?
 
Threadser said:
I genuinely didn't know that. So if a single private sector worker amasses a pension fund of €500,000 and dies 2 years post retirement what happens the fund?
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The people who die too young pay for the people who live too long. That has always been the way for annuities. People have always thought it was pure profit for the life company. It's not, it pays for those who outlive the actuarial life expectancy.


*Most annuities purchased on the open market have a guaranteed payment of 5 years. If you die in that period, they may maintain the payments for the remainder of the five years or pay you a net present value lump sum.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Threadser said:
Not sure where you got that figure from or what exactly you are comparing? As the first poster stated you may be comparing "apples with oranges" as there is huge variance in different types of public sector schemes for different categories of workers.
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The figure of approx €1200 gross per month in contributions to a private fund in order to generate a pension of €29000 including state pension comes from the calculator on The Pension Authority website.
I was trying to compare this to the 2013 SPSPS, whereby an annual contribution to generate a similar pension might he about €3000 gross (rough estimate, but certainly less than 1200 x 12 or € 12400 of annual contributions to a private fund). Furthermore, the Public sector worker with the SPSPS could pay into an avc to get the full benefit of tax relief at the 40% band. Even allowing for employer matching on the 12400 annual figure, the spsps still seems like a better deal, without even mentioning the lump sum?
 
Tadhg22 said:
The figure of approx €1200 gross per month in contributions to a private fund in order to generate a pension of €29000 including state pension comes from the calculator on The Pension Authority website.
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State pension is €13k so the private part is €16k.

Does the pensions authority say that for a whole career you need to contribute €1200 gross per month (€14,400 a year) for 40 years to generate a retirement income of €16k? That's nearly €600k with zero return which is far in excess of what would be needed to generate a €16k per month pension.
 
NoRegretsCoyote said:
You're also fully tethered to the Irish economic performance with a PS pension. There was a cut to these pensions in 2009 for a few years for example due to the economic crisis at the time.
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Yes, luckily the global economy did great from 2007-2009 and a non-PS pensions soared accordingly…
 
NoRegretsCoyote said:
State pension is €13k so the private part is €16k.

Does the pensions authority say that for a whole career you need to contribute €1200 gross per month (€14,400 a year) for 40 years to generate a retirement income of €16k? That's nearly €600k with zero return which is far in excess of what would be needed to generate a €16k per month pension.
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Per the Pension Authority, that's assuming one begins to contribute to a private pension at age 30 for a retirement at aged 66 and also assumes an nvestment return of 3.5% per year after expenses until 10 years before your retirement date.

www.pensionsauthority.ie

Assumptions

www.pensionsauthority.ie
 
Tadhg22 said:
Per the Pension Authority, that's assuming one begins to contribute to a private pension at age 30 for a retirement at aged 66 and also assumes an nvestment return of 3.5% per year after expenses until 10 years before your retirement date.
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What is assumed will happen in the 10 years pre retirement?
 
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