Pension for dummies

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bestsecretary

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Quick question first for me.

I'm a post 1995 civil servant. Permitted to retire at 65 with a DB pension. I will have 40 years by time I'm 65.

Is there any point and/or benefit in me starting up a private pension. I'm an Assistant Principal grade whose top of the scale will be approximately 78k
Thanks!
 
As a post 1995 civil servant (paying A Class PRSI ?) with potential of 40 years service you will get a 50% Pension (inclusive of State Pension) plus the max lump sum of 150% of Salary.
Other than you have another income source, the only “private pension” you could establish is by paying Additional Voluntary Contributions (AVCs) in order to increase your Civil Service occupational pension. With 40 years service you will get the maximum lump sum of 150% of Salary (currently tax free up to €200,000). So any AVCs will likely only increase your pension. So whilst you would get tax relief on such AVCs (perhaps at 40%), the resulting extra pension in retirement would (currently) be taxed at 40% + 4%USC. So not a very tax-effective investment strategy.
 
bestsecretary said:
Quick question first for me.

I'm a post 1995 civil servant. Permitted to retire at 65 with a DB pension. I will have 40 years by time I'm 65.

Is there any point and/or benefit in me starting up a private pension. I'm an Assistant Principal grade whose top of the scale will be approximately 78k
Thanks!
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Do you know if there is an option to take a higher pension if you don't take your 150% tax free ,
You also need to check that widows and orphans is already paid up some post 1995 is sometimes taken out of lump sum at retirement
if so you could fund it by avc,
I am sure some poster can confirm if it is possible to fund a higher pension seeing the state pension in included in in other words 50% of 78K is 39K when you take away state pension of lets say 12.5K your funded pension is 26.5K ,
 
If the OP is in the standard Civil Service scheme then the benefits are fixed at:
- A Pension of 1/80th for each year of service, so 50% with 40 years service, and
- A lump sum of 3/80ths for each year of service, so 150% with 40 years service.

So if the OP will have 40 years service, then he will get the max lump sum (unless he has some income that is non-pensionable).
However, technically he is not getting the Revenue maximum Pension, since in his case the 50% is inclusive of the State Pension. Technically he could get 50% of Salary + the State Pension. So he could use AVCs to fund additional pension equal to the State Pension. But questionable if this is tax effective.

The Civil Service scheme also includes a Spouses Pension of 50% of the members pension on death in retirement.
 
Conan said:
So whilst you would get tax relief on such AVCs (perhaps at 40%), the resulting extra pension in retirement would (currently) be taxed at 40% + 4%USC. So not a very tax-effective investment strategy.
Click to expand...

This is surely dependant, on personal
circumstances ? 40% is not neccessarily going to be the tax rate on a potential 39k annual pension, inclusive of state pension.

If their is a spouse, who may have unused Standard Rate Cut off for example, this could potentially be used to reduce, or eliminate the amount normally taxed at 40%.

But, even if this were the case, its only a 20% gain, plus any growth on the funds.
 
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fayf said:
This is surely dependant, on personal
circumstances ? 40% is not neccessarily going to be the tax rate on a potential 39k annual pension, inclusive of state pension.

If their is a spouse, who may have unused Standard Rate Cut off for example, this could potentially be used to reduce, or eliminate the amount normally taxed at 40%.
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The Government aim over the next few years is raise the 20% cut off point to a yearly income of 50000 ,

now is the time to pocket all the extra 40% tax breaks at a lower cut off point, every time the raise the cut off point people will be getting more of there pension breaks at 20% worth thinking about ,
The good news if the Government increase the cut off point to 50000 Euro ,Bestsecretary could have funded a AVC pot of over 400000 and finish up paying tax on all of his pension on the lower tax rate,
Now add in the fact if you go for an ARF you can take more out of the pension pot and get another tax break on medical /nurse home costs,
 
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It is a little optimistic i’d say, to think it will happen quickly.

In 2011 SRCO band was €32,800, over 8 years, it has only increased by a total of €1,500 to the 2019 amount of €35,300.

But good point, to avail of any 40% tax relief, while one can.

There is also the possibility, that pension tax relief will become restricted to 30% tax relief, which has been mooted several times.
 
fayf said:
It is a little optimistic i’d say, to think it will happen quickly.

In 2011 SRCO band was €32,800, over 8 years, it has only increased by a total of €1,500 to the 2019 amount of €35,300.

But good point, to avail of any 40% tax relief, while one can.

There is also the possibility, that pension tax relief will become restricted to 30% tax relief, which has been mooted several times.
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In the last Budget the Minister for finance set a target of E50000 this will become an election Issue I expect it well be taken on board by all of the main parties from now on,
I expect long term pension tax breaks will be targeted at the low to average tax payers,
Lots of people paying into a private pension finish up getting around 30% tax break,
 
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If the OP is in the standard Civil Service scheme there are two separate benefits:
- a pension based on 1/80th for each year of service, plus
- a lump based on 3/80ths for each year of service.

It’s not the case that you can build up an AVC pot to equal the 3/80this so as to avoid any reduction in the pension.
 
Conan said:
It’s not the case that you can build up an AVC pot to equal the 3/80this so as to avoid any reduction in the pension.
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I don't know much about pensions (just mine), that's way I said "may be able". Mine is DB based on 1/60th and I'm saving my lump in AVCs.
 
Conan said:
If the OP is in the standard Civil Service scheme there are two separate benefits:
- a pension based on 1/80th for each year of service, plus
- a lump based on 3/80ths for each year of service.

It’s not the case that you can build up an AVC pot to equal the 3/80this so as to avoid any reduction in the pension.
Click to expand...

some public servants pensions scheme are set up without funding the widows and orphans until retirement it then gets taken out of there lump sum ,have you not came across any in your time,
 
I'm still confused, sorry. I'm post 1995, so it's:
- a pension based on 1/80th for each year of service, plus
- a lump based on 3/80ths for each year of service.

is there any point starting a personal pension in light of this?
 
bestsecretary said:
I'm still confused, sorry. I'm post 1995, so it's:
- a pension based on 1/80th for each year of service, plus
- a lump based on 3/80ths for each year of service.

is there any point starting a personal pension in light of this?
Click to expand...
How many years to retirement, if you were retiring lets say in 2019 you could have built up a avc pension pot of 400000 along with your public servants pension ,
Read up on ARF there is lots posted on this site about them,
Are you a public servant or a civil servant,
 
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