Revenue Max Pension Benefits on Early Retirement in DB Scheme

[Ent319]

Say a DB Pension Scheme pays 50% final salary less the value of the state pension and a 150% lump sum on NRA. There’s a 50% dependents benefit and the pension is linked to the inflation index.

A member of the scheme wants to retire after 30 Years of Service. They’ll have acquired pension benefits equivalent to 3/4 of the pension they otherwise would have acquired before actuarial reduction.

Is it correct to say that if the member retired after 30 years of service, an AVC can be used to fund for:

- The 1/4 Pension lost by not working for an additional 10 years
- The 1/4 Lump sum lost by not working for an additional 10 years
- The equivalent capital value of the pension and lump sum that was lost through actuarial reduction
- The equivalent capital value of the state pension
- The equivalent capital value of 50% dependents benefit at final salary

This would be true 2/3 final salary.

OR

Can AVCs only ever be used to fund for gaps that would have existed had the scheme member worked till NRA?

In this case the AVC could be used to fund for:

- The equivalent capital value of the state pension
- The equivalent capital value of 50% dependent benefits at final salary

 

[Conan]

You cannot use AVCs to fund for potentially retiring early. Any AVC contribution must be based on the benefits potentially payable at NRA.
So your final section is correct. But even funding for the capital value of the State Pension would be significant. With a current State Pension of c€13,200, the capital value (ignoring any future increases) could be c€330,000.

 

[Ent319]

Thanks for the quick response Conan. Much appreciated.