Roughly how much would I need to save in a pension to get Public Sector DB pension level benefits?

[Duke of Marmalade]

Yes I ignored State OAP

 

[RETIRED2017]

In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.

Back around 1984/5 I knew of a company who set up a defined benifit scheme for direct workers and there supervisors the vast majority back then and to this day would be earning around the same wages as a grade 3 public servant , it was a new company back then employees would have being from 18 no one would have being older than thirty five most aged 24to 25
The advice back then from an Irish company looking at the age profile was that 9% of salary would provide a pension of 50% of final salary +one and a half times lump sum,

They also got advice from a company based in Munich Germany In the End the took the advice given by this company which was 12% of salary + the company paid the management fees,

the last time it was audited it was not in deficit,
There are a few things which would have helped keep it from falling in deficit that I can think of right now

one all income is included overtime

To retain staff and skill set which is very important to then down through the years the offered over time rather than increase staff which added to the fund

The advice back then from the Munich advesor was the law in Germain allowed direct employees who had contrubited for 30 years into the state pension system were allowed to retire at 62 instead of 65 if the were having problems doing there job because of there age the fund was padded to allow for this if the same laws were brought for workers in Ireland,

There are others which I will post later on when I get a chance

 

[RETIRED2017]

Yes I ignored State OAP

Thanks Duke
I was expecting you had ,for people retiring today on 50000 if the had contributed 12% for the past 40 years and were not ripped off on fees they would have more ehan a public servant if they included the state pension as of today, (if I use the Dukes figures around 15/16% )

For people under 50000 euro it would be less than a total of !2%

For people over 50000 euro it would take more than 12%

 

[gnf_ireland]

In the context of pensions, two years is recent.

Fair enough, but in the context of internet forums its ancient
By the way read the thread - lots of interesting detail in it between the arguments ! If only there was a reasonable way to clean-up and summarise some of these threads once the 'fighting/debate' eased off ! It would make them much easier to read in hindsight

 

[gnf_ireland]

I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require contributions of €25,000 a year to fund that pension, so 50% of salary. The lump sum will cost €75,000.

@SBarrett Steven I would assume this relates to current annuity rates, which I assume most people would accept are pretty low all things considered. I do wonder how advisable/practical it would be for a DC pension to purchase an annuity in the current environment. Surely the ARF model, while riskier, is better suited to a large portion of the DC pension cohorts ?

The main imponderable is how investment earnings will compare with inflation. To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation. The sums then become very simple.

@Duke of Marmalade I understand what you are saying here, and there is an uncertainty around investment earnings versus inflation. However, surely over a 20-40 year period, most pension funds would beat inflation. Using 0% growth in real terms, it does skew the numbers massively as we would lose the benefit of compounding -making the calculation look a lot more extensive than it realistically should be. However, I do accept it is probably a conservative estimate

In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.

Any idea where this sort of information could be sourced ?

 

[gnf_ireland]

Back around 1984/5 I knew of a company who set up a defined benifit scheme for direct workers and there supervisors the vast majority back then and to this day would be earning around the same wages as a grade 3 public servant , it was a new company back then employees would have being from 18 no one would have being older than thirty five most aged 24to 25
The advice back then from an Irish company looking at the age profile was that 9% of salary would provide a pension of 50% of final salary +one and a half times lump sum,

They also got advice from a company based in Munich Germany In the End the took the advice given by this company which was 12% of salary + the company paid the management fees,

Thanks and noted ! Very interesting observation !

 

[Steven Barrett]

@SBarrett Steven I would assume this relates to current annuity rates, which I assume most people would accept are pretty low all things considered. I do wonder how advisable/practical it would be for a DC pension to purchase an annuity in the current environment. Surely the ARF model, while riskier, is better suited to a large portion of the DC pension cohorts ?

You asked for the cost of providing a pension, not an ARF. I ran a quote using one of the life companies quotation systems. That's €25,000 in today's money, the system takes inflation into account so you have 40 years of inflation to factor in.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[RETIRED2017]

Thanks and noted ! Very interesting observation !

I suspect there are posters who give advice on this site who would have being involved in the payout of both defined benefit and defined contributions funds to people now retiring where the contribution would have being around 9% Which was the advice given back around 1985 to fund over 40 years
The would also have seen the Actuaries Valuation of funds and the advice given who might share there views,

gnf_ireland
The main reason defined benefit schemes were closed was because of a change in the law putting the liability of a defined benefit scheme onto the Company books which made them harder to sell and lowered the value of the company ,
Because of the change in the law there would be people on hear who would be involved in closing down defined benefit schemes in surplux and opening up defined benefit schemes in there place where the contribution would have being around 9% again there would have being a actuaries valuation on the defined benefit fund so the funds could be shared out correctly,

the advice given in 1985 which proved to be correct was defined benefit worked where it was set up to cater for a section of work force where the life long pay scale stayed the same or within a certain range and ratio,

 

[RETIRED2017]

"gnf said

>>In this scenario, from 2027, workers would see a total of 14 per cent of their gross pay going into a fund for their retirement.

If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.

I suspect you missed the bit where protocol said it is a bit more complex than that the 6.5% protocol used is the contributions paid in by teachers which was always away higher than the rest of the public service then you have to allow for the fact this contribution is not paid on the contributary pension section,in other words you would be paying to fund 12300 of final salary not 25000 the would also be paying a lower amount to cover the lunp sum and spouse pension if the died before there spouse,

Then when you look at the PRD part the first 28750 euro is exempt if you take your figure of salary of 50000 you would pay 2125 euro or 4.25% (not the 10% headline rate protocol Quoted) ,
On a salary of 38750 euro which would be the salary of a grade 3 public servant you would pay a PRD of 1000 euro or 2.5 %(not the headline rate protocol Quoted of 10%)

Reading between the lines it looks like the government are planning to cap the amount paid in some where below 50000 euros in present day terms and employees who pays in 6% +employer + state conts for a total of 14 % for 40 years should finish up including state pension with the same pension as a public servant hired after 2004 finishing up on a final salary capped some where short of 50000 in todays terms both would be contributing around 6% when you take the complex protocol was on about out of it,

I would not be surprised if the government plan to use the new pension system to part fund future public servants pensions seeing the have upped the contributions from 2019 , this would help solve the so called time bomb of unfunded pensions,

gnf said
Irrespective of this, I am still curious as to roughly what percentage of salary would a private sector employee would need to pay into a pension fund to receive a pension fund roughly the same as a public sector employee? I imagine its pretty high. I think it is a good benchmark figure to have when discussing pension contribution is not paid on the part

14% should be more than enough seeing state are setting the management fee lower than most schemes out there at present ,

If FG do this FG will get back in on there own and FF will finish up with around the same amount of seats as Labour have at present,

former and present supporters of FF will see for the first time FF TDs/ Ministers/leaders never really looked after the long term interest of the people public and private sector who work to pay there wages and pensions,

FG would be the new Home for the former homeless FF supporters