Purchase of Notional Service or PRSA?

[Baron Von Tease]

Hi, I am 49 and employed full time as a Clerical Officer with a Local Authority. I will have 18 years of service this year. I am finally coming out the other side of a divorce, my only child is now 18 and in College in Dublin, but luckily his mother moved away to Dublin also and we don't have the massive outlay of paying student rent. Consequently the cost of maintenance etc has come down a lot and for the first time in more than a decade I have a little disposable income and can breathe financially again. I rent and live alone and accept I will be renting for the rest of my life. I have minimal savings at the moment following the end of my marriage etc but am finally able to save again. However, I am lucky enough to have a public service pension to look forward to at retirement and want to maximise this as much as I can. I would like to retire at 60, as i have things i want to do that I had to postpone when our marriage hit the skids (I know you make plans and the universe laughs! however). Last year i began a PRSA with Irish Life through Corn Market but have been wondering if this was the best option for me. At the time my initial enquiry was about buying back years, however, looking back the guy from Cornmarket didn't address any other options and I feel now was obviously only interested in pushing the product he had to offer. I began with only a minimal contribution of about 1.5% but now looking to either increase the PRSA or go with Purchase of Notional Service instead. I am at the top of my pay scale. I understand tax relief on these contributions would be at 20%? At 60 I would have about 28.5 years pensionable service and would be hoping to maximise my pension as much as possible by buying back 10 or 12 years. I'd be very grateful for any advice and clarity on my options. Cheers!

 

[Early Riser]

I can't say which is better value. Apart from value, there is the question of what you want to achieve. Purchasing notional years will mainly benefit you if you are aiming to increase your guaranteed pension income for life after retirement. If you survive a long time this could be very good value. If not, it won't - although there may be a peace of mind benefit in the meantime. Notional years will also give you a marginal increase in your tax free lump sum, depending on the number of years purchased. You can work out approximately how much you will gain with notional years by playing around with the Pension Modeller here :http://www.cspensions.gov.ie/calculators.asp .

One major advantage of AVCs is that it allows you to maximise your tax free lump sum at retirement. With 28.5 years service your tax free lump sum in your pension will be 85.5/120 * pensionable salary. However, Revenue allow you to take 120/80 * pensionable salary. So you could use the money in the AVC to increase your tax free lump sum by 34.5/120 * pensionable salary. Any balance would usually go to an ARF/AMRF.

With 18 years service I am assuming you are a pre -2004 public servant. If post 2004 you would be considerably disadvantaged by retiring at 60. Also, if pre 2004 you may be entitled to a Supplementary Pension between retirement and State Pension age.

Two other thoughts. 18 years service suggests you joined at 31. Do you have any service prior to this which wasn't pensionable at the time, eg temporary, probationary, etc. If so this can be bought back now. If available, this is considerably cheaper than notional years and is certainly good value.

Finally, notional years and AVCs are not necessarily mutually exclusive, provided you don't exceed Revenue's annual tax relief contribution limits.

 

[Baron Von Tease]

Thank you Early Riser for the comprehensive reply. It has been very helpful. I suppose, ideally, I'd like to both maximise both my pension and the tax free lump sum, if it wasn't too prohibitively costly. Given that I will be renting indefinitely, I have to factor that cost into my retirement plans, so I definitely want to increase any guaranteed pension.
Yes, I joined the public sector in 2001. Prior to that I had several years working in the private, and paid into company pensions at that time. However, when I left the Private Sector I took a refund of the pension contributions, which I used to help fund our move out of Dublin.
I'll get some figures re; the cost of PNS from my employer and take it from there. Thanks again for the help.