Purchase of Single Scheme Pension benefits with AVCs - Pros and Cons

C

CharlieMac

Registered User
Messages
60
Hello,

I am 48 and in the Single Pension Scheme for about 2.5 yrs.

I have been playing with the Single Scheme Calculator to try and work out how much DB pension I could end up with.

This calculator makes some assumptions such as that I will be entitled to the full state pension at 66. In fact the normal retirement age for people such as myself is due to rise to 68 in a few years and even if I work until I am 70 I will still be four years short of qualifying for the full state pension.

Nonetheless the calculator is better than nothing I suppose.

It tells me that at 66 yrs of age my DB pension will be €13,221 with a €60k lump sum added to the state pension which they estimate will be €14,470 but I reckon by 66 I will be due around 32/40 of that or €11,576. So together this is around €24,800 annual pension. I'm thinking I need to bump this up!

At the moment I don't have any AVCs but am about to start one up. I will max it out from day one and aim to continue until I retire (approx 22 years until 70), likely with Cornmarket through my union Forsa and 100% in "Indexed World Equities Fund". For this I have been using a brilliant Net cost of AVCs calculator by @gort_gráinneog.

I have read through, several times, the excellent thread: "The Single Public Service Pension Scheme" by @Ent319. In it he/she gives great detail about AVCs and The Single Scheme Purchase Facility.

I am fairly risk averse and would love the guarantee of maximising my DB pension using the Single Scheme Purchase Facility.

Regarding the purchase of additional Single Scheme Pension benefits @Ent319 concludes:

I played around with this Single Scheme Pension Purchase calculator. It is telling me I can buy €13,130 of extra pension "referable amounts" and that would cost me about €321,000. Again this assumes my normal retirment age is 66 when I know it will change to 68 and anyway I am seriously considering working until the max possible age of 70.

My question:
I really like the idea of having a bigger DB pension and paying for it in a tax efficient way via an AVC. I'm not sure about this but I suspect my DB pension might be better value than any annuity on the market. I don't think the Government have a ceiling on how much they will increase public sector pay at times of rising inflation whereas you have to set up an annuity with a fixed amount of annual % increase to account for inflation, that might not be enough and cannot be changed, and that greatly increases the cost of the annuity or reduces it's amount.

As @Ent319 alluded to in his thread I am trying to decide should I set up TWO AVCs. Pay in to one to build up enough (but hopefully NOT more than) needed to buy back all the extra Single Scheme DB Pension benefits I am eligible to (at retirement) and then use another AVC to keep adding to and maybe convert that to an ARF on retirement.

But I am unsure is this wise? With two AVCs I will have far less power of compounding achieved through accumulation into a single fund. And then do I save in to two AVCs concurrently or just max out one until I think I have enough in it (or it will mature to enough by the time I retire, e.g: I would need €321k currently but that will likely rise I suppose?) to buy out all the referable amounts available to me to max out my DB pension at which time I would only then start the second AVC?

Maybe it is better to only have one AVC and put everything in to that and forget about "buying back" that Government backed inflation safe DB/annuity because the AVC fund may have time to grow big enough to earn me more down the line anyway? As @Ent319 mentions an AVC cannot be split to use part to purchase the extra DB Pension and the rest in to an ARF. I think this is very inflexible by the way. I suppose I could "cash out" the one AVC but I would have to pay tax on it then and again on any pension benefits I "bought back" when they are paid to me later on... am I right about that?

Any thoughts much appreciated. In particular could @Ent319, or anyone else, comment on what @Ent319 meant in the comment above: "... if it was worth it at that point." What is meant there? What would make it not worth it?

Thanks.
 
Last edited:
The person age is now and in future set to 66.
You will qualify for pension at age 66, but you can deferr up to age 70.
 
Heya Charlie, glad you enjoyed the thread. Just a few thoughts:

* There won't be any adverse affect on compounding by splitting your AVCs across two pots. Assuming you're investing in the same funds, the only thing that might affect it slightly is if fees were different for each pot or by having more money in one pot (e.g. the Forsa AVC pot) you can get a reduction in fees you wouldn't get in the other pot. Notably, the AMC on the Forsa AVC pot will reduce the more money you have in at after the €40,000 and €140,000 stages. I am current investigating the fees associated with various funds under the Forsa AVC option.

* If you were to go for the transfer facility option, you could start your "main" AVC now in equities and then set up the "side" AVC to transfer to the single scheme 6-8 years out from retirement and split it something like 20/40/40 cash / bonds / equities, maximising relief levels. It might ultimately be easier just to use the purchase facility in the run up to your retirement and buy benefits and claim the tax relief (you would forego potential growth you could have gotten in an AVC in this case). Or maybe you could do a modest preload of the side AVC now and then leave it to compound until you're close to retirement and then do a transfer and purchase combination. A lot would depend on what of you expect your cashflow to be like in later years and whether you'd be able to make up the shortfall in what buying the Single Scheme benefits would cost out of your salary, and of course, the price of buying benefits from the facility at the time.

* Pension drawdown mechanics are a bit beyond me, but I think you have to purchase / transfer into the facility before you retire. Once you retire I think you would have to take / use both AVCs at the same time. I also think this would preclude you from taking one AVC pot to purchase benefits from the facility later on.

* The advantages and disadvantages of buying annuities are beyond me. Rates vary based on prevailing interest rates and it may make sense to buy them when you retire or it may not. @Marc has lots of posts on annuities.
 
Last edited:
My relation had two AVCs.

One was with Irish Life through the PS employer, broker was Cornmarket.

The other was a PRSA-AVC with a different broker and assurer.

The contributions to them may have stopped at retirement, but the maturing of the funds, and the transfer into an AVC happened at two different stages.

The accumulated funds in the AVC was transferred to an ARF ator soon after retirement.

However, the funds in the PRSA-AVC were added to the same ARF three years later.
 
It may be possible to vest / combine AVC pots / PRSA AVCs etc… but I don’t think it follows that you are allowed to buy additional benefits from the purchase / transfer facility after you have already retired. Under the 2012 Act / regulations I think you might be considered a “former scheme member”, but best to check with HR.
 
Thanks both. I'm afraid I'm still bamboozled about this.

If I went this route my intention would be to buy the full amount of pension years possible (referable amounts) before I retire since from my reading that is how it must be done.

I am probably over thinking this but I wonder could I use the PRSA to "purchase by way of transfer" all the referable amounts I am allowed to before I retire and be able to keep contributing to my AVC PRSA after that until I do retire?

Would my separate PRSA be considered "linked" to my Single Pension Scheme because I used it to buy back referable amounts from that pension scheme? In that case would I HAVE to access both the PRSA and the AVC PRSA at the same time and therefore only be able to do so when I am retiring?

This thread touches on that topic and @Conan mentioned:

"If the AVC is linked to her Public Sector scheme, then YES she must access the AVC fund at the same time that she accesses her main pension."
Click to expand...

Lastly, I'm interested what anyone thinks in general about "buying back" DB pension benefits? According to the Single Scheme calculator it will cost me about €320k to buy €13,000 more annual DB pension. Seems expensive for what I would get? If I was bullish about the world economy maybe it makes more sense to put that money in to an ARF instead and invest it all in equities? @Brendan Burgess was advocating this recently: Pensioners should have 100% of their retirement funds in equities.

In that case I might have a far bigger pot at my disposal and could always later buy an annuity from a number of different providers. The Irish Life Annuity Calculator is quoting €13,900 annual payout for a 70 yr old on a €320k fund with 3.25% year-on-year increase for inflation. So I don't know if the HSE pension buy-back "annuity" is any better value than you could get elsewhere and using AVCs to pay for it might actually be limiting and more costly?

Cheers.
 
Last edited:
CharlieMac said:
could I use the PRSA to "purchase by way of transfer" all the referable amounts I am allowed to before I retire and be able to keep contributing to my AVC PRSA after that until I do retire?
Click to expand...
You can continue to make contributions to your AVC PRSA while you are still in this Public Sector employment.

Any AVCs or AVC PRSAs that you contributed to using earnings from this Public Sector employment will be linked to your Single Pension Scheme.

You can only access any AVCs or AVC PRSAs linked to your Public Sector employment after you retire.

I delayed for a few months beyond my retirement before taking my AVC benefits. This didn't cause any problems.

As stated by Protocol you could delay access to your AVC PRSA beyond the access time of your AVCs.

This is probably not strictly allowed, but the AVC PRSA provider might not persue you to take benefits from it.

I delayed taking benefits from my AVC PRSA for about a year beyond my retirement date. This was purely due to not bothering to deal with it and eventually getting around to it a year later.

This didn't create any problems.
 
Last edited:
Thanks @S class. OK, so it doesn't matter how many PRSAs I might have then. If I do not declare earnings from any other source it will be assumed that I am using earnings from my public sector employment to make the AVCs and so all will be linked to my Single Pension Scheme.

So if I create a separate PRSA to fund buying back pension years and it is considered to be linked to my Single Pension Scheme then I could only use it to purchase additional pension benefits by transferring its value to my Single Pension Scheme at the time of my retirement? Same as my AVC PRSA.

Do you have any views on using a PRSA or an AVC PRSA to purchase additional Single Scheme pension benefits? Good idea? The calculator is estimating I would need to pay about €320k to buy €13,000 more annual DB pension.
 
Yes you can have as many AVC PRSAs as you like.

If you had other earnings you would need a separate PRSA set up for those earnings.

I never considered buying extra service years.

I retired early with a little over 1 year short of 40 years service.
I was pre 95 so I opted for an ARF to gain extra class S contributions to boost my Contributory pension benefits.

It's marginal whether it's best to buy years or take out an Annuity or an ARF.

I liked the flexibility of an ARF and the fact that it could be passed on after my death.
 
I don't know the answer to this.
Cornmarket or Forsa should be able to provide that information.
 
You should be able to transfer in the value of a PRSA AVC before you retire. One of main reasons the transfer facility exists is to allow people to consolidate their previous / other pension pots into their public service pension. If you want to get into the weeds a bit more on this stuff the DPER circular underpinning the transfer / purchase facility is here.

As to the value of the transfer / purchase facility, I'm skeptical of this and I would prefer to leave my options open. If you already have a "large enough" pension from the Single Scheme + State Pension when you retire, an ARF weighted towards equities is a more attractive proposition (although I don't think I'd ever have an ARF 100% in equities due to sequence of returns risk + imputed distributions). The desire to pass something on to your family may also lead to an ARF being more favourable. If your goal is to guarantee you have a set standard of living in retirement, the purchase / transfer facility and / or annuities may be a more attractive proposition but this depends on what rates are like at the time I guess and your individual circumstances.
 
Last edited:
In any event, your focus for the next 10-15 years probably needs to be on accumulating wealth for retirement rather than worrying about how you're going to spend it. You don't have to choose just one option and a combination of an ARF / Annuities / Purchasing Benefits / Transferring in Benefits might suit your needs closer to the time.
 
Thanks both. I assure you I am not dreaming of what I will spend my retirement funds on but rather if I will have enough to retire on at all.

I will only have max 22 of 40 yrs HSE service, so my DB pension will be modest, and only 36 of 40 years Prsi contributions. Whereas neither of you perhaps needed to consider buying back pension years due to having or expecting to reach full or near full service I won't have that luxury and will need to consider it more closely. For that reason I think I need to make the correct decision from the outset of starting AVCs about if I need to pay in to one AVC only or set up two separate ones. If the later then one AVC to fund buying back pension years and the other to convert to an ARF.

@S class
I've been reading a lot of your posts on funding retirement. Very helpful. I noticed you retired with an AVC and a PRSA AVC. Do you mind me asking what was the difference between those two funds and why did you have two rather than putting everything in to one AVC?
 
I originally started with an AVC PRSA. This is a long story, but basically my employer refused to allow me access to their AVC scheme. I made a complaint through the Pensions Ombudsman and my employer was found to have engaged in malpractice.

A few years later when my employer was better informed (probably as a result of my complaint) I started making AVCs into the employer scheme.

I decided to join this scheme as the fees were slightly less than the AVC PRSA and for the convenience of deductions at source.

I kept both schemes operating until I retired.

The AVCs were deducted at source and run by Canada Life and then by Irish Life.

My AVC PRSA was paid by making monthly Direct Debits or yearly lump sums from my bank account.
This was run by Zurich.

I later transferred my AVC PRSA to an execution only broker and then this had lower fees than the AVC scheme.

After a few years Canada Life reduced their fees and then the AVCs were slightly less than the AVC PRSA.

Keeping both systems operating was very useful as it enabled me to learn a lot about how each system worked and which one was better value.

I liked the fact that my employer did not have any knowledge that I was able to afford to make extra pension contributions in addition to those that were deducted at source.
An AVC PRSA can be set up without any input from the employer and the employer has no rights to be informed of it's existence.

When I retired, my extra tax free lump sum capacity was calculated by the AVC provider, Irsh Life. When I took benefits from my AVC PRSA , Zurich did a recheck of my extra lump sum capacity and found that there was approximately 4k extra available. Irish Life seemingly had not used the best revenue allowable lump sum calculation method.

So being in two systems was advantageous.
 
You must log in or register to reply here.
Menu
Log in
Register