Early Retirement Questions!!!

[Early Riser]

Do early retirees get the supplementary piece? And do they get their lump sum "early"?

No supplementary before 60 for cost neutral early retirees. I think it does apply to compulsory retirees?

Lump sum (actuarially reduced) is paid at time of retirement.

 

[Gordon Gekko]

No supplementary before 60 for cost neutral early retirees. I think it does apply to compulsory retirees?

Lump sum (actuarially reduced) is paid at time of retirement.

Thanks Early Riser.

That's not great; unless you're on €200k a year, the lack of supplementary pension until age 60 is a major barrier to early retirement.

 

[Early Riser]

But does a 53 year old early retiree get the supplemantary piece to get him/her up to the right level?

Gordon, I have run a quick calculation in relation to your hypothetical 53 year old. The same assumptions as previously - pre-2005, Class A, Secondary Teacher (or similar), with 30 years service and final salary of €75000. Here is what I got:

Lump Sum : €73,800 (reduced)

Occupational Pension: €13,400 (reduced)

Supplementary (at 60): €9,320.

The actuarial reduction does make a fair difference and there is quite a gap before the Supplementary could kick in at 60 (if conditions met then , of course). If someone was seriously thinking along these lines then some form of AVC may be worth considering. The retiree could use it to top up the lump sum to revenue rules and use the balance to fund an ARF, which could be drawn down as annual income between 53 and 60 when income tax would be at its lowest. Might this work ?

Just to note - you suggested a full pension might be €37500 at 60. But this would require 40 years service, which is unachievable for someone going early at 53. So I have used 30 years service instead.

 

[Early Riser]

Thanks Early Riser - Those figures are much better / more enticing.

sidzer - Please see my edit to post 7 as I may have misled you regarding the ARF option in your circumstances. If you are considering AVCs I think PaddyBloggit's suggestion is a good one.

 

[sidzer]

sidzer Did you ask him the question you asked above in your OP and did he give you an estimate for cost neutral early retirement at 55 for a pre-2005 class A PRSI teacher ?

Also, did he explain the principle of The Supplementary Pension and how it is calculated in individual cases such as your own ? If he knew his stuff I am frankly surprised that you you came away with the understanding of your entitlements as indicated in your OP.



Did he give any factual basis for this speculation ? It is surprising given the the Supplementary Pension's purpose is not to leave Class A pensioners disadvantaged vis a vis Class D pensioners. If the Supplementary was to be abolished it would potentially open a chasm between the two.

My main question at the time was whether buying back years made sense v AVC. He did some calculations but they were scribbled down and hardish to follow!
At that time I did ask him about cost neutral early retirement but I he didn't give me a list of worked out scenarios. He was very much advising to see pension in a more holistic way - ie paying off mortage / having college funds set up etc. I naively thought he would say this is what you have to do ABC. He put me off buying back years - He said that I would have to live beyond 82 or 84 to make it financially worthwhile - he also put me off cornmarket! Instead saying that Zurich were a better fund option in his opinion.

He offered an opinoin about the Supplementary Pension - that it was not tied down in any legal way and that he felt that the government could default on it. His advise was plan to cover yourself if it is not going to be paid out! I was and I'm still shocked that it seems iffy.....

Thanks - again

 

[Early Riser]

Thanks,sidzer. That all makes sense.

Given the cost of future pensions, it does make sense to be prepared for some form of paring back -particularly if there is another economic shock. No one knows what form a paring back that might be. My own speculation (for what it is worth) is that it is more likely to be in the form of the Public Service Pension Reduction which was introduced across the board after the last emergency, ie, across the board cuts to pensions rather than singling out one particular category of retiree over another.But as of now I am not aware of any consideration to phase the supplementary out - and it would be a major issue if there were to be such a proposal.

I could offer no opinion of Zurich V Cornmarket, perhaps others could. I think there is another thread somewhere on the merits of AVCs V buying back years. Just a few brief observations.

Although AVCs do carry fees and commissions (and growth is investment-dependent) they are potentially more flexible at retirement, eg, to max up the tax-free lump sum to Revenue limits and to purchase ARF or AMRF, rather than an annuity. If I was committed to the latter I would probably go with buying- back years over AVCs. Do bear in mind that with buying back years, part of your contribution will be going into buying back the same number of years in the Spouse's and Children's part of the pension. This may, or may not, appeal to you! Deductions for this will either be by way of regular salary or from the final lump sum (some have been surprised to discover the latter).

Finally, if your life expectancy after retirement is relatively short, then being able to access funds via the AVC route is most appealing (for me, anyway). You do have to live long to be preferentially advantaged by buying back years. I don't offer any prognoses in this area!

 

[sidzer]

Thanks Early Riser. I have just recieved good news about a pension that I had paid into for 6.5 years before I entered the public service. I requested a statement about my deffered pension and it stated that the current amount is just over €12,000 p/a. and that it linked to the CPI but will not exceed 4%. I was surprised by the figure and quieried it and it was verified. This is payable at age 65. This will plug some of the the gap that I have in my pension provission albeit from age 65 and not 60.

Ta