Post 1995 Supplementary pension query

[DingDing]

I am due to retire Early October. So in the last month. I am talking to my manager tomorrow about continuing on a part time basis, probably a day a week, some weeks, some weeks with nothing and bursts of activity. It would be very irregular. and in the context of this I was looking into it. and the supplementary pension came up as part of the discussion.

So I am trying to understand the abatement as well as the pension.

The supplementary pension was a bit of a shock as 5 purchased years had such an impact till I got to retirement age.

It was not clearly explained at the time and when I purchased some of it to 65, I had intended to retire at 65. I purchased a later block WRT 60.

The 60 block could probably be challenged as I had no intention of working until state pension age.

The mis selling is a good point, but they did not give any pension estimate or workings at the time.

Another interesting point is that the pension administrators, while excellent are probably not competent WRT the minimum central bank requirements to sell financial products. i.e. they are not QFA's

 

[Ruffian]

As an example, assume I have 100,000 salary 30 years earned service and 10 years purchased service as an extreme example.
And the state pension is €14,469

So my pension is 40/80 * 100,000 - (14469*2) = 35,531 with the state pension of 14,469 bring my co-ordinated pension to 50,000 (Class D equivalent)

The shortfall is partially in this case made up by the supplementary pension.


So the supplementary pension is based on 30 years service, the earned service.

So its 100,000/80*30 = 37,500 less the pension of 35,531, so in this case the supplementary pension is 1,969.

Because the supplementary pension is calculated on the earned (30 Years salary), it is 1,969 instead of 14,469 if it was calculated on the 40 years service.

When I reach retirement age, assuming a full PRSI record, I will get the full state pension, bring my total pension up to 50,000

In the years between retirement and state pension age, there will be a significant reduction in the coordinated pension.

I think you are incorrect in this.

The Supplementary for 30 years of service using your salary example is (100,000 * 30/80) - (14,469 * 30/40) = €10,850. If you did not have your additional 10 purchased years your occupational pension would be €26,650 and then an additional €10,850 supplementary if eligible. With the additional 10 purchased years you get this supplementary amount on top of your occ pension of €35,531.

 

[DingDing]

This makes more sense. So the supplementary pension is the same whether or not you purchased service.

Its essentially the state pension reduces in relation to the earned service. Because in the calculation above which was the Pension Administrators caculation, I would have reduced my supplementary pension by purchasing service.

 

[DingDing]

Hi Ruffian, would you have a circular to explain this and I can go back to the pensions dept.

 

[Ruffian]

This makes more sense. So the supplementary pension is the same whether or not you purchased service.

Its essentially the state pension reduces in relation to the earned service. Because in the calculation above which was the Pension Administrators caculation, I would have reduced my supplementary pension by purchasing service.

The "state pension" can be something of a distraction. The calculation relates to the duration of pensionable service for which Class A PRSI was deducted and paid, ie, coordinated pension. The formula for calculating the coordinated occupational pension amount is:

(a) For that part of the officer’s pensionable remuneration which is less than or
equal to 31/3 times the current rate of CSP, 1/200th of pensionable
remuneration multiplied by the number of years of reckonable service
plus
(b) For any part of the officer’s Pensionable Remuneration which exceeds 31/3
times CSP, 1/80th of pensionable remuneration multiplied by the number of
years of reckonable service
A multiplier of 3.333333 (i.e. 6 decimal places) is used to calculate 31/3 times CSP.

The Supplementary Pension (if eligible) is the difference between this sum and the amount that would have been payable had the pension been uncoordinated (a Class D equivalent). The formula that both you and I used to calculate the pension earlier is just an informal one that gives a quick approximation.

Hi Ruffian, would you have a circular to explain this and I can go back to the pensions dept

I can't find a circular link. Some of the departments used to have explanatory documents but since all information was amalgamated within gov.ie they seem to have disappeared. This is an extract from a Department of Ed document:

The potential entitlement to any part of a co-ordinated pension arises under the following circumstances:
• A member has paid PRSI class A for a period of pensionable service.
• A member has purchased service at PRSI class A (substitute; unqualified; previously non-pensionable and part-time service (includes all PCW service).

Note the the second bullet point on the purchased service does not apply to you - as I understand that you purchased notional service rather that bought back actual service. No Class A would have been paid on that.

 

[DingDing]

Brilliant. Just getting the biro and calculator out now.

It was notional service I purchased

Sorry for the questions. So the formula above deals with the years where I paid class A and worked paying pension. ie is this the reasonable service and if so

Where does the notional service come in

 

[CorkHome2022]

Hi Ruffian, would you have a circular to explain this and I can go back to the pensions dept.

This is the relevant extract from the Superannuation's Handbook

 

[DingDing]

Thanks very much Ruffian and CorkHome. I applied Ruffians formula to my pay. The issue is How do I deal with the 5 years notional service I have purchased.

If I apply it to both my notional and actual service combined it comes out within a few pence of what I would have calculated using the Class D way.


So this means at 66, I will be identical to a class D person.


So the supplementary Pension, I divide that by 40 and multiply by my actual earned service. This will give me slightly less, but will sort itself out at pension age.


Apologies, Just trying to get a handle on it.

 

[Ruffian]

If I apply it to both my notional and actual service combined it comes out within a few pence of what I would have calculated using the Class D way.


So this means at 66, I will be identical to a class D person.


So the supplementary Pension, I divide that by 40 and multiply by my actual earned service. This will give me slightly less, but will sort itself out at pension age.

I don't quite follow what you are getting at here DingDing.

There are two separate calculations you need to do.
The first step is to apply the formula to your total total pensionable service (both actual service and notional purchased service). This should give you your actual Occupational Pension.
Secondly, apply the formula to your actual service only (say 30 years). Subtract this amount from what the uncoordinated pension (Class D) would amount to for the same (actual) service - 30/80 * pensionable pay. This should give you the Supplementary Pension amount. If you are eligible it is payable in addition to your Occ Pension as calculated in the your first step.

The Supplementary is not designed to be exactly the same as you would be receiving with the State Pension (or will receive when you get to State Pension age). It is designed so that you will not be disadvantaged relative to a Class D person for the same length of actual pensionable service. For someone with less than full (actual) service the Supplementary will always be less than the full State Pension - even though that person may later qualify for the full State Pension based on their total PRSI record.

 

[DingDing]

I don't quite follow what you are getting at here DingDing.

There are two separate calculations you need to do.
The first step is to apply the formula to your total total pensionable service (both actual service and notional purchased service). This should give you your actual Occupational Pension.
Secondly, apply the formula to your actual service only (say 30 years). Subtract this amount from what the uncoordinated pension (Class D) would amount to for the same (actual) service - 30/80 * pensionable pay. This should give you the Supplementary Pension amount. If you are eligible it is payable in addition to your Occ Pension as calculated in the your first step.

The Supplementary is not designed to be exactly the same as you would be receiving with the State Pension (or will receive when you get to State Pension age). It is designed so that you will not be disadvantaged relative to a Class D person for the same length of actual pensionable service. For someone with less than full (actual) service the Supplementary will always be less than the full State Pension - even though that person may later qualify for the full State Pension based on their total PRSI record.
A quick rough reckoner for the Supplementary amount is: Pensionable Class A Service/40 * Full Rate State Pension.

Thanks for your patience.

I think I have it sorted now. I have done both calculatons.

1. The pension based on both earned service and purchased service using your formula, so I have the pension and this agrees with the figure from our pensions office, this is my occupational pension.

2. I have carried out the second calculation based on the worked service.

I had just gone about it a different way, but the figures tally for both ways.

Thanks for your help and patience, I think I have it sorted now.

Fair play.

And I have the piece about the state pension also. So I will be better off when I retire, but I would have contributed to my PRSI record outside the public service and this is recognising this in a way I suppose.

I just looked at it, and I will get 1,700 more than the equivalent D employee when I get my state pension as I will get 40 40ths of my state pension piece.

M

 

[Ruffian]

I just looked at it, and I will get 1,700 more than the equivalent D employee when I get my state pension as I will get 40 40ths of my state pension piece.

Then I take it that you have less than 40 years of pensionable service (actual and purchased notional service combined)?

I don't think it is possible to get more that a Class D equivalent for 40 years of pensionable service. It would be possible for lesser years provided the Class A can qualify for the full State Pension.

 

[DingDing]

Yep, I have just under 30 years earned, and approx. another 5 purchased.

I spoke to the pensions administrator, I am the first with purchased service, class A to retire and claim the supplementary benefit under the new circular.

I also have a professional added years claim in also. So I am testing all the systems. They have re-calculated it and looked at it again and it is as you suggested in the first post last night.

Many thanks everyone for all the help.

3 1/2 weeks to go and counting.

 

[Ruffian]

3 1/2 weeks to go and counting.

Exciting times! I hope you get it all sorted.

I will be getting a supplementary pension and also my actual pension. Surely I am paying A stamps on this payment and this negates the need to sign for credits for the same period

I just noted this in one of your previous posts. Maybe you got this clarified in the meantime but just to point out that there is no PRSI on occupational pension income, nor on the supplementary pension. If you are aiming to keep building your PRSI record you will need another way to go about it, eg, credits.

 

[DingDing]

Thanks Ruffian, someone pointed this out to me. Not paying the PRSI gives me another boost to the pension. I have 43 years class A stamps already. I will probably work a day a week for the next couple of years and a bit of project work as well.

As it stands I have enough for the full contributory pension.

The pensions area in a minefield and I have learned so much over the past couple of months.

The day a week will knock 20% off the supplementary pension, the work will be through a private sector company so no pension abatement.

If my pension was abated, it would hardly be worth my while financially.

 

[CorkHome2022]

Thanks Ruffian, someone pointed this out to me. Not paying the PRSI gives me another boost to the pension. I have 43 years class A stamps already. I will probably work a day a week for the next couple of years and a bit of project work as well.

As it stands I have enough for the full contributory pension.

The pensions area in a minefield and I have learned so much over the past couple of months.

The day a week will knock 20% off the supplementary pension, the work will be through a private sector company so no pension abatement.

If my pension was abated, it would hardly be worth my while financially.

Remember that you will pay PAYE , PRSI and USC on your day a week work , so do the sums to see if you actually making it worth your while .

 

[DingDing]

Thanks @CorkHome2022, I will lose about 1/2 of it, I plan to try it for a few months to see. If it becomes too much hassle, I will stop it, Ill probably put it into an account for a holiday. I suppose I get to choose the parts of the job I enjoy for the day, as luckily something I got satisfaction from is what they need me to continue.

And the daily rate based on my previous pay is probably less than I would get in the private sector as well.

I will see where I am at Christmas. There may be better value working a day elsewhere.

I have finally worked out (approximately) how I stand WRT the new policy or claiming the jobseekers for 9 months.

The job seekers payment is €232 per week (for the 9 months)

For me based on earned service, the Supplementary pension is €10,806 based on 29.87 years earned service. is €207 per week. So for every years earned service you get €6.93 per week.

However I don't have the hassle of collecting the payment, or indeed not being able to travel. I will also be paying tax on the €25 difference as well. For me the after tax difference is worth it for the convenience.

There is a sweet spot around 33.5 years which would mean that you would be better financially on the supplementary pension than the jobseekers.

And depending on how you value the convenience, there is probably a sweet spot around 28-30 years where you are better off on the jobseekers, depending on how you value your time and convenience.

 

[CorkHome2022]

Thanks @CorkHome2022, I will lose about 1/2 of it, I plan to try it for a few months to see. If it becomes too much hassle, I will stop it, Ill probably put it into an account for a holiday. I suppose I get to choose the parts of the job I enjoy for the day, as luckily something I got satisfaction from is what they need me to continue.

And the daily rate based on my previous pay is probably less than I would get in the private sector as well.

I will see where I am at Christmas. There may be better value working a day elsewhere.

I have finally worked out (approximately) how I stand WRT the new policy or claiming the jobseekers for 9 months.

The job seekers payment is €232 per week (for the 9 months)

For me based on earned service, the Supplementary pension is €10,806 based on 29.87 years earned service. is €207 per week. So for every years earned service you get €6.93 per week.

However I don't have the hassle of collecting the payment, or indeed not being able to travel. I will also be paying tax on the €25 difference as well. For me the after tax difference is worth it for the convenience.

There is a sweet spot around 33.5 years which would mean that you would be better financially on the supplementary pension than the jobseekers.

And depending on how you value the convenience, there is probably a sweet spot around 28-30 years where you are better off on the jobseekers, depending on how you value your time and convenience.

Happy Retirement , I am gone in just over 18 months , the signing on gone so I am happy with that , not worth my while working unless I was to get over 250 a day and thats not going to happen so I can travel etc now that we will get a unified payment . Thats surely going to get the current Government a few votes.

 

[Mickey99]

Its true that people on Jobseekers are not criminals but you dont understand the point 99% of those getting locked up are and never will do an honest days work and as such to have to stand in line with the same people for a former Garda or Prison Officer having served their time is an insult to their dignity . The new arrangement will put an end to that .

I fully agree, after having worked for 30 or 40 years you have to sign on the dole, while you might not be in a queue, you will be in a queue in an office to have to sign on regularly for no reason other than bureaucracy. Just pay people their due pension. It's only for a few years and then there straight into the statutory pension. All this managing is just wasting money and resources, it's costing more to manage it than pay it out!.

Wouldn't it be better to pay for more nurses, doctors, teachers, Garda than paying clerks and managers to manage a bureaucratic pension systems with IT systems to boot!.

Instead of shortage of staff all the retirees will be sitting at home, when they could be doing part time work, paying taxes etc. Example COVID when retired nurses came back. After all the riots and ant immigrant rehtoric, Garda will be meeting these clowns in the slow offices for one reason or another. Another slap in the face for hard working people!

 

[Conan]

I fully agree, after having worked for 30 or 40 years you have to sign on the dole, while you might not be in a queue, you will be in a queue in an office to have to sign on regularly for no reason other than bureaucracy. Just pay people their due pension. It's only for a few years and then there straight into the statutory pension. All this managing is just wasting money and resources, it's costing more to manage it than pay it out!.

Wouldn't it be better to pay for more nurses, doctors, teachers, Garda than paying clerks and managers to manage a bureaucratic pension systems with IT systems to boot!.

Instead of shortage of staff all the retirees will be sitting at home, when they could be doing part time work, paying taxes etc. Example COVID when retired nurses came back. After all the riots and ant immigrant rehtoric, Garda will be meeting these clowns in the slow offices for one reason or another. Another slap in the face for hard working people!

To be clear. It’s not the “dole”, it’s Jobseekers. And in most cases the sign-on is once a year. Hardly a major embarrassment.

 

[CorkHome2022]

To be clear. It’s not the “dole”, it’s Jobseekers. And in most cases the sign-on is once a year. Hardly a major embarrassment.

Its irrelevant , as of August the supplementary pension is paid along with the work pension .