periodic vs lump sum NS purchase

C

CGI53

Guest
I am currently purchasing notional years of service (15) by periodic deductions through payroll and I have two questions which I have yet to find an answer for...
1. Can I swap to the lump sum purchase option?
and
2. If it is possible, is it the most beneficial route?

I have some capital available and think that it might best be employed in this manner given the available deposit rates and the unpredictable nature of equity investment.

I hope this is the correct forum, if not apologies.
 
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CGI53 said:
Can I swap to the lump sum purchase option
Click to expand...
Not "swap" as such but you could cancel your regular purchase and apply for lump-sum purchase of the portion of your overall purchase not yet made by your regular contributions to date (or any amount up to 40 years minus the total normal entitlement you could expect to accrue up to normal retirement age and the notional service you've bought to date).

Should you? Lots of factors involved in that decision:

  • When did you start your current purchase? If the rates have increased since then you'd probably be better to stick with your current purchase.
  • Do you think you'll still be able to retire at what is currently your normal retirement age? If they raise the age do you reckon they'll refund any excess service purchased through notional service? (They already take superannuation contributions from those with in excess of 40 years service paid for already.)
  • Do you think they'll pay public service pensions as contracted to date?
I've gone from being the staunchest advocate of notional service to being highly sceptical of it. I simply don't believe the political establishment intends keeping its promises on public sector pensions, particularly to those still in employment.
 
Thank you for your reply, Oysterman
I started my purchase in October 2007 and pitched it at the maximum allowed under the scheme (plus 15 years at my age and service)...even so I will still only have 33 years at 65yo.

My ill informed thoughts are that if I could go down the lump sum route at this stage I would be able to make more flexible decisions about the extra disposable amount in my salary payments to take maximum advantage of any further tax efficient savings I would be allowed to make...I am 57 now and I don't believe that the periodic payments are making full use of the % of income allowable under the current tax regime...
 
Once you've maxed out your notional service purchase the only other tax efficient pension planning possible is by AVC or PRSA AVC purchase. Whether you're paying for notional service by lump sum or periodic deduction is not relevant - there is (at your age a very generous %age of income limit you can put into pension) a pot of money you can put into pension annually and it doesn't matter how you split it between NS and AVC, you can't exceed the maximum amount.

If I were you I'd be nervous about writing a very large cheque to the government today to pay for all your possible notional service in one chunk. You won't know what you're buying because all the indications are that public service pensions will be far worse than today in a couple of years time so you'd have paid a premium rate to get a worsening entitlement. At least if you're only paying by ongoing salary deduction you can cut your losses at some stage.
 
Sounds like good advice Oysterman, thanks for taking the time.
 

THis is an important issue. I'm buying an additional 12 years service through regular salary deductions, and I'm starting to wonder about whether I'll ever get the pension that I'm paying for.
 

It seems to me that the lump sum is far greater than the sum of all the periodic contributions, estimated +30% in my wife's case. Something to be borne in mind. Slim
 
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