PRSI Class A v D, Notional Service and cost neutral early retirement.

[Dairy Mortar]

Hello!

A teacher, I am currently 56 and as I am seriously considering my early retirement options, I contacted both the DES and the PSRA for figures for each of the remaining four years to full pension. The seems to be a consiferable discrepancy between the figures I received.

My career is rather chequered. I was switched from PRSI Class D to A in 1995 for a break in service. I bought 11 years + 5 days of notional service and am currently paying fortnightly notional service contributions up to age 60 towards the shortfall of 3 years + 193 days.

It would seem that, in my case, as I have purchased notional service up to age 60 I would need to retire on a cost neutral basis on any of the four years prior to that? Is that the case?

If so, it is impossible for me to calculate my estimated earnings as most teachers might (particularly taking into account my notional service contributions by lump sum and currently on a fortnightly basis) for each of those years leading to full pension. I would, therefore, absolutely need a specialist to provide accurate figures for each year as I don't know how the penalty for retiring on a cost neutral basis diminishes as one approaches full pension.

Would you know the date on which legislation was passed to transfer employees from Class D to Class A - and if it is the case that I should be able to retire earlier (without the cost neutral penalty) if I were still on Class D PRSI? Should I query the transfer?

And, would you have any advice on my options to retire early on a cost neutral basis without the massive penalty that cost neutral entails?

Many thanks!

 

[Early Riser]

I am having difficulty following your post.

A teacher, I am currently 56 and as I am seriously considering my early retirement options, I contacted both the DES and the PSRA for figures for each of the remaining four years to full pension

What exactly did you ask ? What were the answers?

It would seem that, in my case, as I have purchased notional service up to age 60 I would need to retire on a cost neutral basis on any of the four years prior to that? Is that the case?

If you retire before normal retirement age for your scheme then you are looking at cost neutral early retirement. Your notional buy-back to 60 is irrelevant - except insofar as you will not have bought back the total amount of service you really intended.

You are in two pension schemes. You have preserved benefits from your original Class D service. What was "normal pension age" for this scheme. Generally for public servants it would have been 60. Is this so for you - or were there any special arrangements at the time for teachers?

You should be given two options at, or prior to, retirement. The first option is to take the benefits of your two schemes seperately. Or your can opt to have your service (A + D) aggragated and calculated in your current Class A scheme. If you do the latter I understand that there may be some requirement to pay back the Spouses and Children contribution element for the Class D years. This would be deducted from you lump sum (you can get tax relief on this, if applicable).

In general I do not think that there is much to be gained by aggragating the two pension together. But if you apply for retirement (whether cost-neutral now, or later at normal retirement age) you should be given a quote for both options. It should be a little easier to make a comparison then (though still not completely straightforward).

Have a look at Section 23 here: http://www.cspensions.gov.ie/faq2.pdf

Would you know the date on which legislation was passed to transfer employees from Class D to Class A - and if it is the case that I should be able to retire earlier (without the cost neutral penalty) if I were still on Class D PRSI? Should I query the transfer?

In general, Class D public servants have a retirement age of 60. So, unless there was specific provision in the scheme you were in for an earlier normal retirement date, then remaining on Class D would have made no difference in this regard.

The current provision is that someone with a break in service of 26 weeks or more is regarded as a "new entrant" - they are required to join whatever pension scheme is in place at that time and any service under an older scheme is "preserved". This has been in place at least 16 years but as to when this was first legislated for, I do not know, or what pertained prior to it. However, I do know that this situation of retirees with both Class A and Class D service is not at all new.

 

[Supermom]

I'm about to retire at age 58 under CNER having both Class D HSE and VEC , Class A (Section 38 Voluntary body)service but have been given an estimate which combines the two together. 26.333 years . Am wondering what are the advantages/ disadvantages of having them calculated separately.

 

[Early Riser]

I'm about to retire at age 58 under CNER having both Class D HSE and VEC , Class A (Section 38 Voluntary body)service but have been given an estimate which combines the two together. 26.333 years . Am wondering what are the advantages/ disadvantages of having them calculated separately.

Are they calculated as if they were all at Class A ? Or have they been calculated seperately as you served (at D and A) and the two figures combined? Usually (in the past anyway) you would have been given two estimates which you could compare. Did you not get two estimated figures?

You need to take into account what you intend to do post retirement. Are you a pre-2004 entrant (normal retirement age of 60) ? If so, do you envisage working elsewhere post-retirement, or are you likely to be looking to claim a Supplementary Pension at 60 relating to the part of your service at Class A ? Are you finishing up as a Class A ?

Overall though it is hard to envisage any advantage to having it all calculated as Class A, as opposed to having the two service periods calculated seperately and the figures combined. That would be my default option, pending comparison of the two estimates.

 

[Supermom]

Hi Early Riser,

Can I send my estimate to you by pm please.
Supermom

 

[Early Riser]

Can I send my estimate to you by pm please.
Supermom

Hi Supermum.
You should beware that I am not an adviser or financial expert. I just have some layman's knowledge of PS pensions from having navigated my own retirement and liased with some colleagues regarding theirs. So I think it is good to have any opinions or advice I might profer monitored and, as necessary, corrected in a public forum. There are probably others here who can guide you better than me. It might be better to post what you can here for feedback.
Having said that, I have no objection to a pm with the above caveats noted. I am not so sure how the Mods view it though. They tend to be very tough!

 

[Supermom]

Hi Early Riser, Thanks will post here.
I am a Pre 2004 entrant, have been given the following estimates which have been calculated separately as I served but not combined and also an estimate of them combined as Class A I think,


1. NHASS Scheme (Class A which I am retiring on) 8.26 years, Estimated cost neutral Lump Sum 13,717,90
Estimated pension 1,871.03 based on pensionable salary 46,468 2# OACP 25913net pensionable 20,555

2. Separately claim Class D Preserved Benefit from ETB at age 60 based on my age 57 & 204 days
Cost neutral Net lump sum estimate 27,747.53 Total Annual pension 9,352.42 based on 39,087 salary scale.

or
3. Retire early with combined 2 pensions 26.6886 NHASS Scheme it says Class A on the form.
44,322.86 lump sum
6045.34 annual pension

As I'm retiring early I intend claiming Jobseekers for 9 months I know I will be entitled to a Supplementary pension from age 60 but I haven't a clue about which option has the best overall outcome for me.

Any advice welcomed.

 

[Early Riser]

Hi Supermom,

Just a few queries.

You have served 8.26 at Class A. How long at Class D - or how long in total?

In either estimate did they give you an indication of your maximum Supplementary eligibility (unlikely) ?

In either estimate (more likely the combined pension at Class A option) is there an indication that there would be a deduction from the lump sum to cover some of the pension benefits?

2. Separately claim Class D Preserved Benefit from ETB at age 60 based on my age 57 & 204 days
Cost neutral Net lump sum estimate 27,747.53 Total Annual pension 9,352.42 based on 39,087 salary scale.

Could you clarify whether the figures are for a preserved pension (payable from 60) or for CNER ? You mention both preserved benefit and a cost-neutral lump sum of €27,747. Is the €9,352 a cost neutral annual pension or the preserved pension figure?

 

[Supermom]

Class D Preserved Benefit with ETB = 18.43 years at age 60 (2023)

Class A service which was jobshare but in full years is 8.26
Total years service is 26.6886

No indication given of maximum supplementary eligibility given.

Combined Pension -Yes it was mentioned that Spouse and Childrens may need to be purchased out of the lump sum but not quantified.


Yes my mistake it is a Class D Preserved Pension which I can draw down at age 60 (2023) NET Lump Sum €27,747.53 Total Annual Pension €9,352.42

Many thanks for any advice I find it so complex.

 

[Early Riser]

Hi Supermum,

I have had a look at your two options. I have made a couple of assumptions;

- I am assuming that in case of both options an actuarial reduction will be applied to any Supplementary from 60. This is uncertain, but in any event it shouldn’t greatly impact of the relative merits of one versus the other. If it is not applied your total pension will be a little higher.

- In either case you will meet the conditions to claim the Supplementary from 60.

- I did not look at any difference there might be in terms of survivor benefits.

Lump Sum

Option 1. Total tax-free lump sum = €41,666 ( €13,718 at 57.6 and €27,748 at 60).

Option 2. Total tax-free lump sum = €44,322 (all at 57.6) However, there will be a, as yet unquantified, deduction from this for survivor's benefit buy-back. You can claim tax relief on this amount from Revenue in your return.


Annual Pension

Option 1.

Pension income from 57.6 to 60 = €1,871

Pension income from 60 = €13,607 (Class A €1871 + Class D 9,352 + Supplementary €2384)

Option 2.

Pension Income from 57.6 to 60 = €6,045

Pension Income from 60 €13,743 (Class A €6,045 + Supplementary €7,698).

Based on the above, Option 2 (all benefit calculated as if at Class A) seems preferable for your circumstances. It would be different if you were planning on insurable employment after retirement. In that case there would be no Supplementary eligibility and Option 1 would probably be more attractive.

 

[Supermom]

Class D Preserved Benefit with ETB = 18.43 years at age 60 (2023)

Class A service which was jobshare but in full years is 8.26
Total years service is 26.6886

No indication given of maximum supplementary eligibility given.

Combined Pension -Yes it was mentioned that Spouse and Childrens may need to be purchased out of the lump sum but not quantified.


Yes my mistake it is a Class D Preserved Pension which I can draw down at age 60 (2023) NET Lump Sum €27,747.53 Total Annual Pension €9,352.42

Many thanks for any advice I find it so complex.

Hi Supermum,

I have had a look at your two options. I have made a couple of assumptions;

- I am assuming that in case of both options an actuarial reduction will be applied to any Supplementary from 60. This is uncertain, but in any event it shouldn’t greatly impact of the relative merits of one versus the other. If it is not applied your total pension will be a little higher.

- In either case you will meet the conditions to claim the Supplementary from 60.

- I did not look at any difference there might be in terms of survivor benefits.

Lump Sum

Option 1. Total tax-free lump sum = €41,666 ( €13,718 at 57.6 and €27,748 at 60).

Option 2. Total tax-free lump sum = €44,322 (all at 57.6) However, there will be a, as yet unquantified, deduction from this for survivor's benefit buy-back. You can claim tax relief on this amount from Revenue in your return.


Annual Pension

Option 1.

Pension income from 57.6 to 60 = €1,871

Pension income from 60 = €13,607 (Class A €1871 + Class D 9,352 + Supplementary €2384)

Option 2.

Pension Income from 57.6 to 60 = €6,045

Pension Income from 60 €13,743 (Class A €6,045 + Supplementary €7,698).

Based on the above, Option 2 (all benefit calculated as if at Class A) seems preferable for your circumstances. It would be different if you were planning on insurable employment after retirement. In that case there would be no Supplementary eligibility and Option 1 would probably be more attractive.

Many thanks Early Riser. This has been a great help. Happy New Year.

 

[Supermom]

Hi Early Riser,

You have laid out my options very clearly and I understand these figures are in and around what I will be entitled to up to age 68 what is the position after this please?

 

[Early Riser]

Hi Early Riser,

You have laid out my options very clearly and I understand these figures are in and around what I will be entitled to up to age 68 what is the position after this please?

It depends on your eligibility for State Pension and, if granted, at what rate. If your State Pension should be lower than the rate of Supplementary for which you are eligible then you can continue to claim Supplementary up to this amount, ie, to make up the difference.
If the State Pension rate equals or exceeds the relevant Supplementary rate then the Supplementary stops. You can get a State Pension rate higher than the previous Supplementary rate if your PRSI records so qualifies you.
I would suggest that you should endeavour to keep up your PRSI record post retirement. If your Jobseekers claim is approved you will get credits for the duration of the claim. And you may be able to stay "signed on" for credits subsequently. As you already have more than 260 Class A credits you should qualify for a pro-rata State Pension at some level (when combined with your D rates). The more full rate contributions you have the better.

 

[Supermom]

Thanks again Early Riser you are a great source of information and much appreciated.