Advice please on how to enhance my pension-with 6yrs to retirement!

[jonfog]

I have six years remaining to retirement at 65. I will be entitled to the state retirement pension. I am also in an occupational pension scheme from which I will receive a small pension of possibly €70 per week, depending on income at time of retirement- which probably won't be much more than it is now given the 'current economic climate' that we are constantly hearing about .
Is there anything to be gained by taking out an AVC or PRSA at this stage- is 6 years too short a time in which to accumulate any worthwhile benefits?
Is there anything at all that I can do to enhance my income at retirement?

I have been with An Post for 27 years now and will have 33 years service on retirement. I pay the full A1 prsi contribution, therefore I will not be entitled to the full occupational pension under the An Post superannuation scheme. The fact that I will be entitled to a full state pension means that twice the amount of the state pension will be subtracted from my pensionable remuneration when my pension entitlement is being calculated.
For example, if my pensionable remuneration at retirement is, say, €32,000,
then twice the state pension - €23920 approx is subtracted leaving
€8080 as the base remuneration for pension calculation.

The pension is computed as follows:
33X€8080X I/80 leaving me with an annual pension of roughly €3333 p.a.
Paltry or what?
So you can understand why I am anxious to enhance my income at retirement.
Any advice please?

 

[Billo]

twice the amount of the state pension will be subtracted from my pensionable remuneration when my pension entitlement is being calculated.

Are you sure it is twice the amount. Have you got a booklet which says so ?

 

[LDFerguson]

You've two options: -

(1) If there is an option in An Post to buy back years superannuation scheme, you could bring yourself up to the maximum 40 years. However with six years to go the cost may be prohibitive. You'd need to check with An Post. If the option is open to you, you should take it as it provides guaranteed income.

(2) You can make Additional Voluntary Contributions either through a scheme already in place in An Post or through an AVC PRSA of your own choosing. Based on the figures you provide, Revenue maximum tax-free lump sum would be €48,000. An Post superannuation gratuity would be €9,999. So you could fund for an additional tax-free lump sum of up to €38,000 using AVCs.

If your pension from An Post plus the State Pension are going to be your sole sources of income in retirement, you may be exempt from tax on your pension, in which case you could also fund for additional pension using AVCs.

All above is based on current legislation, which may change in the next or subsequent Budgets.

Liam D. Ferguson

 

[jonfog]

Unfortunately Billo, it is true. The Superannuation Scheme was drawn up long before the Celtic Tiger years of prosperity increased the State pension.

Thanks Liam for your advice. There is an option for buying service which I intend looking into but I think the cost is, as you say, prohibitive. There is an AVC scheme administered by Halligans. Unfortunately they were not too illuminating when I made some inquiries of them. Are AVC investments thriving in the present financial uncertainty- have people lost money on their pension investments?

 

[LDFerguson]

Many pension funds (particularly ones with high equity content) fell in value in 2007 and 2008. They recovered some since around March 2009. They had gone up fairly steadily in the four or five years prior to 2007. I've no doubt they will go up again when the current turmoil settles down as short-term volatility is an integral part of almost any long-term investment.

That said, as you've only six years to go until retirement, you might want to consider low-risk funds, or funds which contain a guarantee that they can never drop in absolute value. Such funds won't grow very quickly, but you'll still have your tax relief.

When comparing AVCs with AVC PRSAs, you should make sure you understand charges, i.e. how much of your money is actually going into your fund, especially if you're picking a low-risk fund.