Query re Early Retirement / Actuarial Reduction

G

Gordon Gekko

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Hi

Say I'm on €100k a year in the public sector, and with 40 years service under my belt at age 60, I can retire on a pension of €50k a year.

That €50k includes my State Pension.

I know that between 60 and State Pension age the State Pension piece is paid in a different way to make the pensioner whole.

What is the position with regard to early retirement on an actuarially reduced basis? For example, if it's (say) 67% of 3/4 of the original entitlement for a 50 year old, is the starting point still the €50k?

Many thanks.
 
Hi Gordon, I believe in the scenario you describe an employee paying a class D stamp would receive 3/4 of 50k multiplied by the actuarial reduction factor - I think its around 62% for age 50 if normal pension age is 60. So in that case it would be around 23250. For an employee paying a class A stamp it is more complicated because the pension is coordinated. I believe in this scenario that no supplementary pension is payable in advance of normal pension age, say 60 in this case. There is a formula used to work out the occupational part of the pension due in this circumstance and it is (3*COAP)*(Years Worked)/200 + (Final Salary - 3*COAP)*(Years Worked)/80. So in the case you describe, an employee paying the class A stamp would get a pension at 50 of (35880)*30/200 + (100000-35880)*30/80 = 5382 + 24045 = 29427. This would then be subject to the actuarial reduction factor of 62% to give a pension at 50 of 18244.

So you can see that there is some disparity between what an employee paying class D versus class A receives on actuarially reduced retirement. For the class A employee, provided they are not employed, they can then apply for a supplementary pension from age 60. This would be the difference between what a class D employee would receive at 60 if they hadn't opted for early retirement and what the class A employee would receive at 60, again assuming they hadn't opted for early retirement. I make this to be (37500 - 29427) = 8073. So I think (!) the class A employee will receive a total pension from age 60 of 18244 + 8073 = 26317. So even though the class A employee gets less pension between 50 and 60 in this case, they do better than the class D employee from 60-66/67 and actually when the class A employee reaches state pension age, I believe they will get the full COAP, losing the supplementary pension at that point, so their entire pension would be 18244 + 11960 = 30204. So, at state pension age, I believe the class A employee in this case would receive another "boost" to their overall pension, leaving them a good bit better off than their class D equivalent at that stage, who continues to receive 23250.

I believe these calculations are correct but please let me know if there is any discrepancies. Another contributor pointed out in the past that if the average age at death is taken into account, then overall the class D pension payout and class A pension payout match up very closely.
 
I concur with Japester's estimates approximately. Just one point though - in relation to entitlement to the full COAP at 67 (or 68 then), this would depend on the Class A retiree taking some steps to maintain his/her PRSI record after retiring at 50 (under current COAP criteria). Also these estimates relate to pre 2005 entrants.
 
japester for your comprehensive response and Early Riser for your endorsement and clarification,

Sincere thanks for your replies. We're looking at the numbers around my wife retiring at 50.
 
Sorry to resurrect this thread but I was hoping to sense check the numbers again if possible.

Someone on €100k who started in the public sector at age 20 pre 2004 but post 1995 and who wishes to retire at age 50.

It’s circa €18k from age 50, rising to €26k from age 60, and then to €18k plus State Pension from State Pension age.

It seems unfair that the retiree doesn’t get €26k from age 50. The fact that the State Pension is integrated into the Public Sector Pension shouldn’t matter. It’s almost like a double whammy.
 
My sums:

Class D pensioner at 60 with 30 years service would get pension of €37,500.
Class A pensioner at 60 with 30 years service would get pension of €26,650
Supplementary = 37500 - 26650 = €10850.

After actuarial reduction:

Class D at 50 would get €23,250
Class A at 50 would get €16,523

Class A at 60 would get €16523 + €10850 = €27,373 (D remains at €23,250).

Class A's Supplementary at 66 will change to State Pension. At what rate depends on their total PRSI record. If it stay at 30 years worth of contributions/credits it will be €10,850 - the same as the Supplementary. If they get the 10 extra years it will be full pension.
Of course the Class D taking early retirement at 50 could potentially get 15/16 years worth of State Pension also. But the Occ. Pension remains at €23,250 (without pay rise adjustments).
 
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But what about Class A retiring at 50 with 30 years’ service on €100k?
 
Gordon Gekko said:
But what about Class A retiring at 50 with 30 years’ service on €100k?
Click to expand...

That is what the above rough and ready calculation is based on (assuming State Pension rate of €14,470 and actuarial reduction factor of a round 62%).
Class A gets an actuarially reduced pension at 50 of €16,523. And potentially a Supplementary of €10,850 at 60.
 
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I have just been looking at Circular 12/2024 setting out revised arrangements for the Supplementary Pension. It contains disappointing news in relation to the Supplementary for Class A people taking CNER. It indicates (to my reading, at least) that the Supplementary will also be subject to the actuarial reduction factor.

This seems grossly unfair as, as unlike the occupational pension, it is not payable until normal retirement age.

In the above example of a retiree taking CNER at 50 there is no Supplementary payable until 60 and it would then be reduced to €6,727 (23,250 - 16253). So an equivalent Class D retiring at 50 would get a pension of €23,250 while the Class A would get €16,253 at 50 and only rising to €23,250 at 60.

The relevant paragraph in Section 17 states:
"The calculation of the OSP for such persons will take account of the actuarial reduction in the Occupational Pension. The amount of OSP is determined by reference to level of actuarially reduced non-integrated pension, as uprated at date of payment".
 
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