Pension limits when working simultaneously for public and private sectors

[poorrelative]

Hi All

I will reach normal retirement age in 2034 with 32 years service. I am funding an AVC to bring lump sum to 150% since I won't have 40 years. I also have a pension from a company I started 10 years ago on the side which I will probably work in until 65. My public sector salary is currently 60k and my company salary is 30k. I understand that as a public servant my pension is capped at 50% final salary and a 150% lump sum, if 40 years. But is this only for the public sector part of my salary or is it a combination of both public and private i.e. 150% of 90k and 50% of 90k? Since I will have 150% lump sum for public sector part because of the AVC does this mean that I can't take 25% lump sum from my private pension? I will also receive full UK state pension at 67 of about 10k pa....how does this effect the limits of no more than 50% final salary?
Thanks in advance for any advice.
PR

 

[LDFerguson]

Treat the two jobs as two separate employments. So you are limited to 50% final salary / 150% lump sum based on your €60,000 public service salary. Your private company salary and pension arrangements are not related to your public service benefits. While there are overall limits on salary (€115,000) and maximum lump sum (€200,000) from all sources, you don't look like you'll be breaching these which keeps things simpler. In short, one won't affect the other.

If it's an Occupational Pension Scheme you have set up in respect of your own company, as well as the 25% lump sum option, you also have two alternative methods of calculating the retirement lump sum: 3/80 of salary for each year of service with your company or a higher scale which takes into account your other pension scheme benefits. You should probably go back to your pension scheme broker to get them to run the calculations for all three methods to establish which method works best for you.

There are other planning points that might be relevant here e.g. increase your salary in your private company after you have retired from the public service for three years which then affects the calculations of lump sum from that pension scheme at retirement.

I will also receive full UK state pension at 67 of about 10k pa....how does this effect the limits of no more than 50% final salary?

The UK state pension doesn't affect these limits.

Regards,

Liam
www.FergA.com

 

[poorrelative]

Treat the two jobs as two separate employments. So you are limited to 50% final salary / 150% lump sum based on your €60,000 public service salary. Your private company salary and pension arrangements are not related to your public service benefits. While there are overall limits on salary (€115,000) and maximum lump sum (€200,000) from all sources, you don't look like you'll be breaching these which keeps things simpler. In short, one won't affect the other.

If it's an Occupational Pension Scheme you have set up in respect of your own company, as well as the 25% lump sum option, you also have two alternative methods of calculating the retirement lump sum: 3/80 of salary for each year of service with your company or a higher scale which takes into account your other pension scheme benefits. You should probably go back to your pension scheme broker to get them to run the calculations for all three methods to establish which method works best for you.

There are other planning points that might be relevant here e.g. increase your salary in your private company after you have retired from the public service for three years which then affects the calculations of lump sum from that pension scheme at retirement.



The UK state pension doesn't affect these limits.

Regards,

Liam
www.FergA.com

Thanks a million Liam for the info. Little concerned by the €115 salary cap as I may breach this in future years.

 

[LDFerguson]

Thanks a million Liam for the info. Little concerned by the €115 salary cap as I may breach this in future years.

It's not the end of the world if you do. It just makes things a bit more complicated. Let's say you went up to €70,000 public and €50,000 private income. You carry on treating the €70,000 public income as normal, using up your full limits on this salary for AVCs. But you then must assume that your private company salary is only €45,000 for the purpose of calculating how much you could put into your own company pension scheme.

 

[poorrelative]

OK thanks I definitely need to talk to my pension provider

 

[Conan]

The €115,000 salary cap only impacts personal contributions. There is no similar limit on the contributions your company can invest. The limits for Company contributions can be much more generous, depending on your salary from that role.

 

[poorrelative]

The €115,000 salary cap only impacts personal contributions. There is no similar limit on the contributions your company can invest. The limits for Company contributions can be much more generous, depending on your salary from that role.

Thanks Conan - got it. I've been looking into executive pensions and from my understanding if I plan to retire at 60 then once I am 55 the company can contribute up to 400% of my salary so instead of paying myself 50k and contributing 10% to a pension (5% personal and 5% company) I could pay myself 10k as salary and contribute 40k to pension. Here there would be no personal contributions at all so no concerns about €115k limit. Also the 40k contributions will be exempt from tax, PRSI and USC totalling 52% relief instead of only 40% relief from personal contributions.

 

[LDFerguson]

from my understanding if I plan to retire at 60 then once I am 55 the company can contribute up to 400% of my salary

I haven't seen this before, but looking at it, it looks like a rule of thumb. The real calculation is more complicated than that - you can fund for no more than a pension of 2/3 of your retiring salary, assuming certain conditions are met. In practice somebody has probably calculated that it would typically take a person of 55 a contribution of 400% of salary to achieve this. But be wary of simply using this rule of thumb as accurate for your specific circumstances. I would recommend that you get someone to calculate the maximum percentage for your particular requirements as it may or may not be 400%.