Max DC fund

In an occupational pension scheme, say someone has a salary of €30K and 20 years' service at retirement and no other benefits. S/he could have a pension of €20k p.a.

What I want to know is what is the max DC fund that s/he could have at age 60 (without being deemed to be over-funded). In calculating this max fund amount, does (a) gender and (b) marital status matter?

The limit (known as the standard fund threshold) is currently €2m.

Age, gender and marital status are of no relevance in this regard.

jasdpace@gmail. said:

In an occupational pension scheme, say someone has a salary of €30K and 20 years' service at retirement and no other benefits. S/he could have a pension of €20k p.a.

What I want to know is what is the max DC fund that s/he could have at age 60 (without being deemed to be over-funded). In calculating this max fund amount, does (a) gender and (b) marital status matter?

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There are several revenue funding calculators available to establish the max annual contribution. What I think you are asking is what is the maximum fund allowed that is derived ultimately by the cost of securing the most expensive annuity available at age 60 so inflation protection and spouses pension.

One way to estimate this would be to look at the current annuity rate available from say Irish life’s pension planet and work out how much money you’d need to give them to get €20kpa.


The reason this works is that you are allowed to use actual commercial annuity rates (rather than Revenue funding tables) in the final years up to retirement in order to squeeze in additional contributions.

The problem with this approach is it really only works for a 60 year old today since annuity rates will change in the future which will yield a different result.

Max DC fund allowed with salary of €30,000 and 20 years service at 60:

Married man: €648,000
Married woman: €600,000
Single man: €488,000
Single woman: €550,000

Kevin
www.thepensionstore.ie

Whilst there is an overall fund limit of €2m ( in reality a little higher), there is another limit of a gross pension of 2/3rds salary. So if you are assuming a salary of €30k and a pension of €20k (and if we assume an attaching contingent spouses death in retirement pension and some indexation of Pension in payment) then the Revenue would value such using a multiplier of c30. So a fund value of c€600,000.

Conan said:

Whilst there is an overall fund limit of €2m ( in reality a little higher), there is another limit of a gross pension of 2/3rds salary. So if you are assuming a salary of €30k and a pension of €20k (and if we assume an attaching contingent spouses death in retirement pension and some indexation of Pension in payment) then the Revenue would value such using a multiplier of c30. So a fund value of c€600,000.

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Mistake to call the SFT a “limit” since revenue will allow funding for a fund of 3m or 4m if salary and service supports it. You just get “fined” if you draw down the benefits over the SFT.

Thanks for replies.

Per the Irish Life site, based on 3% p.a. indexation and 100% reversion, it looks like the fund for a married person is circa €800k (and the order of the couple male/female of female/male makes negligible difference). This also assumes that the couple are of similar enough age........i.e. no toy boys or gals in sight! (Maybe the annuity would need to be greater than 20k for that?!)

Follow-up questions:

1. The ILAC site doesn't show the rates for inflation-linked annuities - how are these priced now relative to a fixed annual increases of 3%? Is there a site that shows these?

2. In another thread, (which prompted this thread), a poster claimed that the allowable fund for a single person at the point of retirement could be increased somehow beyond the max annuity cost for a single person and still be within Revenue limits. His argument being, if I understand it correctly, that the max allowable fund for a single person should be greater than the max annuity cost (based on max benefits) for a single person as an individual could always marry post retirement. This is obviously particularly relevant in the ARF world. I understand and am persuaded by his argument - I just don't know if it's correct!

And so my question is....are we categorically saying (as inferred from Kevin's post) that the Rev max allowable fund for a single person at the point of retirement is the max annuity cost for a single person? If so, is this written anywhere?!

Sarenco said:

The limit (known as the standard fund threshold) is currently €2m.

Age, gender and marital status are of no relevance in this regard.

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Are you having a laugh?? In case you're not, this is simply not correct in the context of my question.

jasdpace@gmail. said:

Thanks for replies.

Per the Irish Life site, based on 3% p.a. indexation and 100% reversion, it looks like the fund for a married person is circa €800k (and the order of the couple male/female of female/male makes negligible difference). This also assumes that the couple are of similar enough age........i.e. no toy boys or gals in sight! (Maybe the annuity would need to be greater than 20k for that?!)

Follow-up questions:

1. The ILAC site doesn't show the rates for inflation-linked annuities - how are these priced now relative to a fixed annual increases of 3%? Is there a site that shows these?

2. In another thread, a poster claimed that the allowable fund for a single person at the point of retirement could be increased somehow beyond the max annuity cost for a single person and still be within Revenue limits. His argument being, if I understand it correctly, that the max allowable fund for a single person should be greater than the max annuity cost (based on max benefits) for a single person as an individual could always marry post retirement. This is obviously particularly relevant in the ARF world. I understand and am persuaded by his argument - I just don't know if it's correct!

And so my question is....are we categorically saying (as inferred from Kevin's post) that the Rev max allowable fund for a single person at the point of retirement is the max annuity cost for a single person? If so, is this written anywhere?!

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The Revenue limit is determined at the time of retirement. It is WRONG to say that for a single person you can assume that they could always marry post retirement. The calculation is made based on the member’s situation at retirement. The Revenue Pensions Manual lists a series of valuation multiples (chapter 25). For someone retiring from a DB scheme with a pension of €20k, this is valued at €600k (a multiple of 30 for a retirement age 60) . This is only used to determine when the member’s benefit exceeds the PFT (Personal Fund Threshold).
Whether the DC fund exceeds Revenue benefit limits is based on the annuity value (as Kevin has outlined), and age and sex is taken into account. But since the residual fund value might be invested into an ARF, you cannot assume that a single person might marry post retirement in order to boost the maximum fund value (since the potential for a Spouses Pension is a contingent benefit, ie it might never happen).

Marc said:

Mistake to call the SFT a “limit” since revenue will allow funding for a fund of 3m or 4m if salary and service supports it.

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Well, Revenue describe the SFT as a “limit”.

jasdpace@gmail. said:

Are you having a laugh?? In case you're not, this is simply not correct in the context of my question.

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No.

You asked what is the maximum allowed DC fund.

But perhaps you meant something else.

Honestly, that's a bit sad, Sarenco

This is what I said.....verbatim!!

jasdpace@gmail. said:

What I want to know is what is the max DC fund that s/he could have at age 60 (without being deemed to be over-funded).

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All I can say is that other posters like Marc and Kevin knew what I meant. They know their onions and scallions. Do you think that when quoting his figures, Kevin was somehow unaware of SFT/PFT limits? Also, there is, currently, an associated multi-page thread dealing with max funding (max AVC funding) in occupational pension schemes which may help the penny to drop if it's stuck! Rather than reduce the focus of that thread, I purposely set up this thread to tease out some particular points.

Specific Question: Do you realise that, in occupational schemes, you can be over-funded without being anywhere near the SFT/PFT? [Indeed, the reason for setting the annuity at €20k p.a. was so that people would not go down the fund threshold rabbit hole!]

Conan said:

The Revenue limit is determined at the time of retirement. It is WRONG to say that for a single person you can assume that they could always marry post retirement.

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Thanks Conan. And thanks for engaging. I'm just trying to establish the definitive position.

jasdpace@gmail. said:

And so my question is....are we categorically saying (as inferred from Kevin's post) that the Rev max allowable fund for a single person at the point of retirement is the max annuity cost for a single person? If so, is this written anywhere?!

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I understand your position from the other thread but is this written anywhere?

Let me expand.

If I had a company and an employee who was single at the point of retirement, I could make a promise upon his retirement that I will pay him a pension of €x p.a. for life and, in the event of him being married at the time of his death, that I would continue to pay this pension to his then spouse.

1. Do you agree that this is possible for an employer to make such a promise?
2. Do you agree that such a promise has a capital value?*
3. Do you agree that the capital value in point 2 is likely to be more than the annuity cost for a single person (i.e. where there is no reversionary pension for a spouse)?

If you agree to the above points, why then is the capital value for a single person restricted to the amount as per point 3 and not point 2 for max funding purposes?

*We can debate separately the calc basis for this.

jasdpace@gmail. said:

Honestly, that's a bit sad, Sarenco

This is what I said.....verbatim!!


All I can say is that other posters like Marc and Kevin knew what I meant. They know their onions and scallions. Do you think that when quoting his figures, Kevin was somehow unaware of SFT/PFT limits? Also, there is, currently, an associated multi-page thread dealing with max funding (max AVC funding) in occupational pension schemes which may help the penny to drop if it's stuck! Rather than reduce the focus of that thread, I purposely set up this thread to tease out some particular points.

Specific Question: Do you realise that, in occupational schemes, you can be over-funded without being anywhere near the SFT/PFT? [Indeed, the reason for setting the annuity at €20k p.a. was so that people would not go down the fund threshold rabbit hole!]

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Your response is out of order to be honest. Go pay for your advice. Not sure why Marc, Conan, Kevin or anyone else would engage with someone who posts the above...

jasdpace@gmail. said:

Thanks Conan. And thanks for engaging. I'm just trying to establish the definitive position.



I understand your position from the other thread but is this written anywhere?

Let me expand.

If I had a company and an employee who was single at the point of retirement, I could make a promise upon his retirement that I will pay him a pension of €x p.a. for life and, in the event of him being married at the time of his death, that I would continue to pay this pension to his then spouse.

1. Do you agree that this is possible for an employer to make such a promise?
2. Do you agree that such a promise has a capital value?*
3. Do you agree that the capital value in point 2 is likely to be more than the annuity cost for a single person (i.e. where there is no reversionary pension for a spouse)?

If you agree to the above points, why then is the capital value for a single person restricted to the amount as per point 3 and not point 2 for max funding purposes?

*We can debate separately the calc basis for this.

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No insurance company will set up an annuity for a spouse's pension that doesn't exist. You will have to make the promise the employee that you will pay a spouse's pension and it is a matter of contract law to be enforced. And seeing as we could be looking at decades before the actual event is triggered (if they do get married in the meantime), there is a high likelihood that it will never be enforced and the contract would be meaningless and worthless.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)