Forward planning for Cost Neutral Early Retirement

2

2bmortgagefree

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Hi All,

I am in my late thirties so well off retirement but would like to retire somewhere between 55 and 60. I'm class A1 PRSI and joined public service in 2005 so I am classed as new entrant with normal retirement age of 65.

Salary is circa 45k rising to 50k and at age 55 I would have 32 years service. Two children aged 4 and 6 years. Partner is also public sector employee and similar salary level and we have mortgage of circa 100k with childcare costs of circa 500 per month before Covid19.

I have questions that hopefully some knowledgeable people on here might be able to help with

Can your public sector employer refuse to grant you cost nuetral early retirement or if you apply for it are you guaranteed to be approved for it?

If I avail of Cost Nuetral Early Retirement at say 55 do I get 58.2 percent of my pension straight away.

Also do I get 82.4 percent of my lump sum at that point.

What is the best way to bridge the gap in income from age 55 to 65. I probably will be in a position to contribute to an AVC of some sort in 6/7 years time when I am roughly 45.

i know it's a long way off and things change but the current situation has focused the mind about what is important in life so I am looking to the future.

Thanks

2bmortgagefree
 
2bmortgagefree said:
Can your public sector employer refuse to grant you cost nuetral early retirement or if you apply for it are you guaranteed to be approved for it?
No, unless dramatic events force changes in policy.

If I avail of Cost Nuetral Early Retirement at say 55 do I get 58.2 percent of my pension straight away. Yes

Also do I get 82.4 percent of my lump sum at that point. Yes.

What is the best way to bridge the gap in income from age 55 to 65.
Speak to a financial advisor such as SBarrett of this parish or similar but yes, PRSA/AVC would help supplement the shortfall.
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Thanks Slim.

Public sector employers and unions are poor to give this information.

I'm probably a few years away from contributing to an AVC but yes would speak to someone independent of Cornmarket before deciding what to do.

Appreciate your reply.
 
2bmortgagefree said:
Can your public sector employer refuse to grant you cost nuetral early retirement or if you apply for it are you guaranteed to be approved for it?
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I have never heard of a CNER application being refused. I do not believe your employer can refuse you, provided you meet the eligibility criteria set out in the circular (https://circulars.gov.ie/pdf/circular/finance/2005/10.pdf ). You should be fine based on your post. The only change would be if the Gov. were to withdraw the scheme at some stage. I think this unlikely - although the actuarial reduction figures possibly could change.

2bmortgagefree said:
If I avail of Cost Nuetral Early Retirement at say 55 do I get 58.2 percent of my pension straight away.

Also do I get 82.4 percent of my lump sum at that point.
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Yes, you get the above straight away - bar a possible administrative delay of several weeks, but it will be backdated. Bear in mind that if you retired on a salary of €50k after 32 years service that pension would amount to a lump sum of circa €49.5k and an annual pension of circa €5.75k. Should you then predecease your spouse he/she would be eligible for a survivors pension of about €7.5k.

2bmortgagefree said:
What is the best way to bridge the gap in income from age 55 to 65.
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You might also want to consider maintaining your PRSI record to receive a full State Pension (whatever the criteria may be then). Alternative employment might be one possibility.
As regards pension top-up, your options are between purchase of notional service, a conventional AVC or a PRSA-AVC. If you are thinking specifically of bridging the gap between 55 and 65 then one of the AVC options would be best as you can draw down the benefits flexibly. Based on your projected CNER pension you could draw down an annual amount tax free from an ARF* - (having topped up your lump sum to Revenue limits). This may also depend on your spouses taxable income at that stage.
This leaflet from the Pensions Authority might be of some use : [broken link removed] .

*Edit: Actually on current rules you would be snookered on the ARF. Your guaranteed pension on your CNER retirement is below the threshold for an ARF and you would be confined to an AMRF - at least up to €63,500. I think this has a maximum drawdown of 4% pa. Otherwise you would have just a small capacity for a lump sum top-up from an AVC fund. The rules on ARF/AMRF may change in the meantime but as currently set they limit your scope.
 
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Early Riser said:
Not until 65 - the "normal retirement age" for post 2004 entrants.
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Is that correct? I don’t know myself; I’m just double checking whether you’re sure. If someone avails of CNER, do they get the State Pension element of their public sector pension early as well, or is there a big shortfall?
 
Gordon Gekko said:
Is that correct? I don’t know myself; I’m just double checking whether you’re sure. If someone avails of CNER, do they get the State Pension element of their public sector pension early as well, or is there a big shortfall?
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Supplementary is only available from "normal retirement age" for the relevant scheme. It does not apply at the CNER point. The actuarial reduction is applied to the Occ Pension and this is all that is payable until "normal retirement age".

If a pre-2004 entrant takes CNER at (say) 55 they become eligible for Supplementary at 60. For post-2004 entrants it moves to 65. Should the State Pension (or some version of it) come back at age 65, as mooted by some Parties, then it may not be relevant for this cohort. If it goes up to 68, then it will be relevant.
 
I always forget how this works so thank you for the steer. Take the following example:

- Public servant starts in 2000 so Normal Retirement Age of 60
- Public servant retires at age 50 after 30 years’ service on a salary of €90k

As I understand it, the pension and lumps sum reduction factors are 62% and 82% respectively

Am I right in saying that the position is as follows:

- Preserved pension is 30/40 x 50% x €90k, i.e. €33,750, but that includes the State Pension of circa €13,000

- Lump sum is 30/40 x 1.5 x €90k, i.e.€101,250

- The lump sum is multiplied by 82% so the retiree gets €83k tax-free

- The pension gets multiplied by 62% to give €21k but that includes the State Pension of €13k. So the retiree gets €8k a year for 10 years and then €21k from age 60 comprising of the €8k plus supplementary pension of €13k

Is my understanding broadly correct?
 
Gordon, I'm afraid not.

The example you give is of a "coordinated pension". This is calculated as follows:
1/200 of pensionable salary up to a threshold of 3.33333 times the current State Pension (ie €43,039) for each year of service, plus
1/80 of pensionable salary above this threshold (ie, €46,961 in your example) for each year of service.

Doing the sums on this gives me €24,065 for the "preserved pension" in your example. Then applying the actuarial reduction (62.5%) gives a CNER pension of €15,016 at age 50.

To get an estimate for the Supplementary we need to calculate what the uncoordinated preserved pension would have been for someone in this position (salary * service/80). For your example this is €33,750. We subtract the coordinated preserved pension of €24,065 from this to give €9,685. This Supplementary Pension is payable from 60 for a pre-2004 entrant. Now the controversial bit - some employers have been applying the same actuarial reduction to this Supplementary even though it is only payable from "normal retirement age". I don't know when/how this will be resolved.

The Supplementary would correspond to the State Pension exactly only in the circumstance in which someone retires with full 40 years service. To be eligible for the Supplementary the person cannot be in insurable employment (or self-employment), and must not be receiving (or eligible to receive) a relevant Social Welfare benefit.

The tax free lump sum is as you have calculated it. For interest sake, should this person predecease their spouse, the survivor's pension would be approx €14.5k.
 
Thanks. It’s a tricky area to put it mildly.

I thought a pre 2004 entrant simply got 50% of their final salary if they do 40 years.

i.e. €45k for a €90k salary with a portion of that being the State Pension.
 
Gordon Gekko said:
Thanks. It’s a tricky area to put it mildly.

I thought a pre 2004 entrant simply got 50% of their final salary if they do 40 years.

i.e. €45k for a €90k salary with a portion of that being the State Pension.
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That can happen. If a pre 2004 retires with full forty years service they will get an Occupational Pension of 0.5 Salary - State Pension. They can apply for a Supplementary to the value of the State Pension until they reach the relevant age (provided they meet the eligibility criteria). So the combined total of €45K pension would apply in that scenario.
But the Supplementary and the Occ Pension are always calculated seperately and, where there is less than full service, the Supplementary will always be below the value of the State pension. CNER complicates it further.
 
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If you retire at 60/65 and you’re getting your full pension, do you get one payment a month or different payments from different sources?
 
Gordon Gekko said:
If you retire at 60/65 and you’re getting your full pension, do you get one payment a month or different payments from different sources?
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If you are getting both the Occ Pension and the Supplementary Pension then it will come as one combined payment per month/fortnight from your former employer's pension office.

As Conan has indicated, the person would first have to have exhausted Jobseeker's Benefit before applying for the Supplementary element. Going back to your earlier example, if this person fully retired at 50, then they probably wouldn't meet the eligibility for JB at 60. If so they could apply directly for Supplementary. However, they would have to have their lack of eligibility confirmed by the DEASP - there is a form to be filled.
 
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Would the person who retired at 50 not get JB at age 50? I know it only lasts 9 months.
 
POC said:
Would the person who retired at 50 not get JB at age 50? I know it only lasts 9 months.
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Yes, they could "sign on" (normal terms and conditions apply). There would also be Class A credits while signing.
Whether they claim JB or not at 50 would be irrelevant to their eligibility for Supplementary at 60.
 
allaround said:
would the supplementary part also be actuarially reduced on CNER?
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It would appear that employers in different sectors are interpreting this differently. It doesn't seem to make sense to apply an actuarial reduction as it is only paid from "normal retirement age" and not at the point of CNER.
 
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