Key Post: Superannuation: Civil and Public Service Pensions

[legend99]

Re: Superannuation: Civil and Public Service Pensions

thanks good doctor....have offer of public sector job...trying to decide what to do. if i take it I can buy back some years of service right...cause I'm nearly 30 and don't want to work til 70...
I also have 20k in my own private pension fund....suppose i just let there til I'm 65...

 

[DrMoriarty]

Re: Superannuation: Civil and Public Service Pensions

Not presuming to give you career advice, but...

You can always walk away from a public sector 'permanent'n'pensionable' if you find it doesn't suit you, or if you 'outgrow' the upper salary limit. After a few years, you could even apply for unpaid leave, try elsewhere, and keep your options open for 5 years (i.e. have the option to return to your own job). And yes, you can usually buy years of 'notional service', but the T&Cs are becoming less favourable every year (depending on the sector you're in), so act quickly.

There's lots of downsides/frustrations to working in the public sector, but they're kinda compensated for by the conditions and the job security. All depends on your circumstances... There's a lot of justified indignation out there about the results of the benchmarking exercise, but some of it is misplaced. I'm a common-or-garden Lecturer, and our grade was awarded a 3% increase, drip-fed over the last three years - woohoo! I can tell you from experience that the average workload/productivity increases required in return have far outstripped the payoff...

Can't offer any reliable advice about what to do with the €20K sitting in your existing pension fund, I'm afraid.

 

[legend99]

Re: Superannuation: Civil and Public Service Pensions

no, all advice taken.....i'm thinking very much the same myself....someone put it to me like this..."Its not something you have to take, but its something you can't really turn down"

 

[ajapale]

Re: Superannuation: Civil and Public Service Pensions

http://www.askaboutmoney.com/showthread.php?t=6256&postcount=9

The discussion is beginning to drift from the original question posed.

Here on AAM we have very little information regarding Civil and Public Service pensions. The two pension key posts we have explicitly exclude Civil and Public Service Pensions. Im hoping that some decent information concerning these pension schemes can be put together and compiled in a key post at some time in the future.

In the meantime it would be great if we could keep the general discussion below the line and keep this topic for the 'nuts and bolts' issues surrounding how these schemes work and what deductions and benefits state employees are entitled to.

Hi Legend and DrM,

I hope you dont mind but I have been pruning this thread and eliminating material with does not directly relate to the mechanics of Public Service Superannuation Schemes.

Im hoping it will develop into a key post to compliment the two we have on DC and private sector DB schemes already.

Ill leave your comments stand for a few days and then perhaps move them to the careers section.

ajapale

 

[DrMoriarty]

Re: Superannuation: Civil and Public Service Pensions

See your point, ajapale - please feel free from my point of view...

I agree that Protocol's/Sim One's and your own posts are valuable 'key post' material.

 

[legend99]

Re: Superannuation: Civil and Public Service Pensions

yea, just leave up my post confirming the 6.5% for sure, I guess thats all thats relevant!

 

[Slim]

Re: Superannuation: Civil and Public Service Pensions

It is good to see a thread which throws some light on this important subject. However, besides the technical aspects which are well set out above, does anyone think that a pension of 50% of final salary is enough? Bear in mind that public servants will not get the Contributory OA pension or Retirement Pension. My friend in the private sector will receive a pension of 66% of final salary PLUS the State pension at 65 or 66. In addition, he will get a tax free lump sum of twice final salary as compared to one and a half time sin the public sector.


I am a public servant who would happily start a PRSA if I could benefit from tax relief. Only yesterday I was advise that there is a tax efficient scheme, linked to PRSAs, that I can avail of so I am going to check this out.

Slim

 

[DrMoriarty]

Re: Superannuation: Civil and Public Service Pensions

Good points, Slim. Please post your findings; I'm sure they'll be of interest to many...

 

[Conan]

Re: Superannuation: Civil and Public Service Pensions

I think Slim's comparison is wide of the mark, for a number of reasons:
1. The Public Service pension is 50% of Salary (and no Social Welfare Pension), but they 150% tax free lump sum is additional (giving a total pension equivalent of 2/3rds Salary)
2. The Public Service pension is indexed in line with salary for the grade on retirement (so Benchmarking has been a real bonus for retired public servants)
3. Your private sector friend will not get 2/3rds Pension + a tax free lump sum. His total pension might be 2/3rds but any tax free lump sum taken results in a reduced pension (typically 50%).
4.The maximum tax free lump sum is 150% of salary - not twice salary
5. The pensions in the private sector can only increase at a maximum of CPI, not the salary increase for the job. This is significantly less than Benchmarking rates in the Public Service.
In my humble opinion, the Public Service pension arrangement is far more valuable than any available in the private sector, because of the pension indexation.

 

[RainyDay]

Re: Superannuation: Civil and Public Service Pensions

Bear in mind that public servants will not get the Contributory OA pension or Retirement Pension.

Doesn't this limitation only apply to public sector pension for those who joined pre-1995 and pay a reduced PRSI rate?

In my humble opinion, the Public Service pension arrangement is far more valuable than any available in the private sector, because of the pension indexation.

Very helpful post as ever, Conan - Is it possible to quantify this in any broad sense? E.g. for public sector & private sector employees on equivalent salaries, would would the difference be?

 

[DrMoriarty]

Re: Superannuation: Civil and Public Service Pensions

Is it possible to quantify this in any broad sense? E.g. for public sector & private sector employees on equivalent salaries, would would the difference be?

I guess you'd have to be able to predict, on the one hand, the long-term future performance of the (largely equity-based?) funds underpinning private sector pensions and, on the other, expected future salary increases in the various branches of the public sector - bit of a tall order!

My hunch is that Conan's point #5 re the 'inguesstimable' value of indexation is as good an appraisal as one could hope for. 'Course, much also depends on how long you stick around, after retirement... / (Irish males, in particular, have a worrying tendency to pop their clogs within 18 months of the "Golden Handshake"...) whereas a big lump sum/share options can be locked in.

As for the here-and-now — I'm one of those 'pre-'95ers', and tbh I'd gladly trade in my reduced PRSI rate for the (unreduced) benefits. I save a couple of hundred euro in PRSI each year, and put my hand in my after-tax pocket to a far higher tune because neither myself, my spouse nor my 5 kids are eligible for dental benefit (to name but one).

 

[sherib]

Re: Superannuation: Civil and Public Service Pensions

Another interesting thread DrM. I still don't understand PRSI etc but often wondered if people like Kevin Myers in the course of his not infrequent rants about public sector pensions ever realised that, little as pre 1995 PRSI contributions were/are, it is money down the national plug hole.

Reading the debate about private -v- public sector pensions I wouldn't disagree about the benefit of the index linked aspect, but it isn't all sunshine as some of us know only too well. As the saying goes, there's no free lunch!

One thing I did learn on AAM when people debated this on another thread is that while (?) all public sector employees now pay full PRSI, somehow it has been linked to the normal pension so the recipient doesn't end up with two pensions as occurs in the private sector; that is assuming a pension fund plus the non means tested state retirement pension. That expectation was too good to be true. I might have guessed that when my boat comes home I'll be at the Airport! Incidentally, as far as I know children in primary school have free access to dental care, including orthodontic if required. Some of these services are being eroded in recent years, but unless the Health Act is changed should still apply. Don't ask which section!

 

[oysterman]

Re: Superannuation: Civil and Public Service Pensions

while (?) all public sector employees now pay full PRSI, somehow it has been linked to the normal pension so the recipient doesn't end up with two pensions as occurs in the private sector; that is assuming a pension fund plus the non means tested state retirement pension. That expectation was too good to be true. I might have guessed that when my boat comes home I'll be at the Airport!

Post-1995 public sector employees pay a full PRSI contribution. Their contributory old-age pension is integrated into their occupational one so that they don't receive two pensions (as private sector workers do). While this makes it appear that pre-'95 state employees (paying the reduced rate of PRSI) are gaining since they receive the same total pension, the post-'95 state employees pay a reduced rate of contribution to their occupational pension.

My own view is that the benefits from paying the full PRSI contribution are less, however, than the cost of it to post-'95 state workers and that the pre-'95 people are better off. This is based on factoring in the security of tenure and benign treatment of the long-term ill worker which all state employees enjoy - this clearly reduces the likelihood of a state employee claiming the unemployment and/or disability benefits to which the full PRSI rate entitles a worker.

 

[DrMoriarty]

Re: Superannuation: Civil and Public Service Pensions

...the pre-'95 people are better off.

I still think it depends on individual circumstances (granted, my own probably aren't typical). For instance, apart from the costs of dental care* for seven, which can vary a lot from year to year, I also contribute a large-ish monthly sum to an income continuance scheme as a hedge against a long-term disability scenario, since my reduced PRSI status leaves me less well covered on that front, too. I don't have the figures to hand, but I'm pretty sure that — in my own case, at least, and for the moment — I'd be marginally better off paying the full PRSI contribution, if I had the option. Once my kids are older and less dependant, of course, that wouldn't necessarily continue to be the case.

* Hi Sherib — yes, I know that in theory the younger kids (still in primary school) have free access to dental care, including orthodontic. However — as you hinted yourself — the reality of waiting lists for orthodontic work and the infrequency of routine checkups at the local clinic mean that parents often end up paying for private care...

 

[legend99]

Re: Superannuation: Civil and Public Service Pensions

so if you ar a post 1995 employee you pay 6.5% Pension Contribution and you in addition pay the 6.5% PRSI. Now, the 4% of the PRSI you pay counts towards your pension as I understand you don't receieve 50% of you final salary + Contributory State Pension....
you recieve the value of the contriburtory State Pension + whatever is needed to top you up to 50% of your salary right? so you are making 10.5% contribution....so to be honest, good as the pension is, it doesn't come free and you are paying as much as a lot of people in private industry no???

 

[Conan]

Re: Superannuation: Civil and Public Service Pensions

Two further points:

1. The majority of private sector defined benefit schemes are "integrated" with the State Social Welfare Pension. This means that such members do not get the State pension plus a full 2/3rds of Salary. In effect such schemes simply top-up the State pension to an overall figure of 2/3rds (provided one has 40 years service by retirement).
2. Increasingly in the private sector the norm is defined contribution and in reality such schemes are not as generous as Defined Benefit.

 

[Sherpa]

Re: Superannuation: Civil and Public Service Pensions

Rainyday asked if it was possible to compare the relative value of a typical public service pension with a typical private sector one.


A recent paper by the Society of Actuaries in Ireland has attempted to do just that. They put a lump sum value on the pension entitlements and found that a public service pension (payable from 65) was worth 17 times final salary, whilst a typical private sector defined benefit pension was worth between 10.3 and 14.7 times final salary depending on the rate at which the pension is promised to increase.

Interestingly, a defined contribution plan with a 10% contribution rate was projected to deliver a pension worth somewhere between 4 and 6 times salary (depending on the assumptions used) for someone paying 40 years' worth of contributions.

The full details can be found at [broken link removed]

 

[oysterman]

Re: Superannuation: Civil and Public Service Pensions

so if you ar a post 1995 employee you pay 6.5% Pension Contribution and you in addition pay the 6.5% PRSI.

Not quite. Post-'95 public servants pay less than the 6.5% superannuation rate paid by their pre-'95 colleagues. The reduced rate of contribution accounts for the fact that they don't actually get the social welfare contibutory pension unless their public service pension is very low.

 

[RainyDay]

Re: Superannuation: Civil and Public Service Pensions

Many thanks, Sherpa. Just to clarify one point;

Interestingly, a defined contribution plan with a 10% contribution rate was projected to deliver a pension worth somewhere between 4 and 6 times salary (depending on the assumptions used) for someone paying 40 years' worth of contributions.

You're saying here that the pension lump sum is 4-6 times salary, not that the pension income per annum is 4-6 times salary (wouldn't that be nice?).

Can you explain what is meant by the '0% gap' and '2% gap' headings in that table?

 

[Sherpa]

Re: Superannuation: Civil and Public Service Pensions

Rainyday,

No problem.

The figures in the table represent the equivalent capital value of the pension benefits. In other words, what the total pension benefits which you could expect to receive are worth in lump sum terms as at the date of retirement (i.e. if there were a market in pensions, this is what someone should pay you at retirement to buy your future benefit entitlements from you).

For defined contribution schemes, this value will simply be the size of your 'savings pot' at retirement (for DB schemes, by contrast, it is the capitalised value of the pension payable). The 0% and 2% figures represent the projected size of this pot on two sets of assumptions - one assuming that investment returns are the same as salary growth (0% gap) and the other assuming that investment returns exceed salary growth by 2% p.a.

Hope this helps.