Should I buy years or contribute to an AVC/PRSA?

Nothing specific, but there is certainly a general atmosphere of cutbacks in all areas. It wouldn't surprise me at all if this area were targeted, particularly for new purchases.
 
Update on this situation. My wife needs to make up a gap of 3.4 years at her minimum retirement age. Option 1 which she has been pursuing for 5 years is a PRSA. She has accumulated €46k approx. Tax relief has come back in at 41% plus PRSI, so that's not too bad. Value of fund is about what was put in at the moment. She has enquired of her HR department about Notional Service Purchase and to buy the years back will cost €73k lump sum or €4,400 p.a. for 12 years. That means that at 12 x 4,400 = €52,800 before tax relief. Why is the periodic payment so much less than the lump sum payment? Is it timing?

Secondly, would she be better off chucking the money into her PRSA or paying the NSP or both? The purchase of NSP will add €2,400 to annual pension and €7,200 to lump sum.

Any views on this? Slim
 
Hi Brendan, do you still recommend NSP , is it still a good option, I first entered the public service in 1994 but left for a period of time and last re entered in 2007, I believe that NSP became very expensive in the last no of years, (up to 12 thousand to but one yr?)I had signed up to do AVC's with one of the private company's endorsed by the union (INMO) but cancelled at the last minute as I had not read/heard the best reviews about them. Any advice. I am a nurse manager working part time earning 36 thousand per year.
 
Slim;
Looks like on your Nsp ,you would need to draw pension for over 14 years to make it worthwhile to pay the 4,400 each year.(am I right?)(I also assume they will not be downward modified)

Prsa,s/Avcs. Seem to be in recovery mode for the foreseeable future. So with good tax relief gives you an option fairly free of the vagaries of Public Service Pensions.

On balance I would be inclined to keep a (private) pot running. From all the coverage on Public Service Pensions , I can only see them decreasing in real terms.

Dragonboy;
The company that INMo uses had issues with overselling. That said a straight AVC with no hard sell on life cover etc makes sense in that most of the up front fees are waived ,so your Avc starts accumulating from day one.There are also good brokers who will give you good advice.Always good to have a (fund) outside of your Public ervice pension.
Tread carefully and do not sign until you are clear.
 
From my last discussion with good pension advisers, the pre-2006 rates for NSP are good value for money, but the current rates are not. You also have to factor in the risk that the Govt will change the rules, between the time you invest and the time you retire. You may not get back what you're expecting to get back.

If you're looking at AVCs, it's a good idea to look at a few providers, and make sure you understand the full charging structure.
 
Thanks Gerry & Rainyday,

I reckon that taking the extra lump sum into account, it would take just over 10 years to recoup. Having said that, the pension structure may be further eroded as Rainyday points out.

Current position is that she continues her PRSA. This can be left behind if, God forbid, something happens her. Also, we can do a number of calculations to avoid higher tax rate on retirement, i.e retire early etc.

Many thanks.

Slim
 
Hi all. I am new to this forum and I am sorry that I have nothing to contribute as I too am looking for advice. I started teaching in 2002 aged 24 with a full years contract on full hours (secondary teacher). I then went to oz for the school yr 2003-2004. As a result they are telling me that I cannot retire until I am 65. For the last three years I have been putting 2% into a PRSA. My current salary is €60300 - (I got an increment for previous work and I have a b post, also a masters). So while I know the PRSA is not massive and I am wondering whether I should increase it or buy some notional service. I really do not wish to work until I am 65 if possible!!!!! But if I am right and because of that yr break in oz I cannot retire any earlier even if I have notional service. Would that be correct. Has anyone any idea what is the best thing for me to do. All advice would be appreciated
 
Clints said:
Hi all. I am new to this forum and I am sorry that I have nothing to contribute as I too am looking for advice. I started teaching in 2002 aged 24 with a full years contract on full hours (secondary teacher). I then went to oz for the school yr 2003-2004. As a result they are telling me that I cannot retire until I am 65. For the last three years I have been putting 2% into a PRSA. My current salary is €60300 - (I got an increment for previous work and I have a b post, also a masters). So while I know the PRSA is not massive and I am wondering whether I should increase it or buy some notional service. I really do not wish to work until I am 65 if possible!!!!! But if I am right and because of that yr break in oz I cannot retire any earlier even if I have notional service. Would that be correct. Has anyone any idea what is the best thing for me to do. All advice would be appreciated
Click to expand...

Just to be clear, it's not that you 'can't retire early', it is that you can't retire early ON FULL PENSION. If you want to retire early, that's fine, your pension will be actuarially reduced to reflect the reduced years funding the pension and the extra years drawing the pension.

If you have spare cash that you are prepared to lock away for your retirement, your best bet is probably AVC contributions. The current rates for buying extra years aren't great value. There is also the risk factor of having all your pension eggs in one basket (the Govt). If you buy an AVC, you are spreading your bets a little.
 
Thanks a million rainy day for the help. I am aware of the penalties imposed for retiring early "cost neutral". I appreciate your input. An stated I am currently doing Avc's so maybe my contribution to those by the time I retire might soften the penalties. Thanks for the help
 
this is a fantastic thread, thanks to all who contributed into it with great info!

i changed career from finance into teaching and started full time in sept 2008. i was 28 at the time so i was going to be 3 and a bit years short of my full pension so i started paying into the nsp. now i'm 34 and i am looking into starting up an avc (not through cornmarket) with zurich or someone else just to have a few bob extra when i retire.

from what i've read here and in other places would i be right in thinking if i was to retire early (if given the option) then all the money i would have paid into the nsp would basically be lost as it is calculated to age 65??

if this is the case then should i stop paying it and pay it into the proposed avc instead?? this could be used to top up the missing portion from my full pension??

and i've read that some discount brokers can offer 105% allocation rate, what does this mean??
 
The only way notional service contributions can be "lost" is if the contributor ends up working past the age on which the notional service is based eg. if you worked to 66 then you would get no value for one of the NSP years you would have purchased...of course the solution to this is to decide sufficiently far in advance that you are going to work the extra period of time and simply cancel the NSP contributions at the appropriate moment.

If you retire earlier than the age on which your NSP is reckoned you get value for all the contributions you made but there is a proportional deduction on the number of years bought, based on not having completed the full amount of contributions required eg. a worker starts to buy 5 years at age 55 based on retirement age of 65 but s/he retires at 63 would have completed the purchase of 4 years.

All of this is explained in "the green book", entitled something like "Your superannuation questions answered" that you probably received when you joined the scheme...I can't find a link to it on the web but I'm pretty sure it's there somewhere.

As to your AVC >100% allocation question, I guess this has something to do with the broker charging you upfront but effectively refunding their ongoing commission; I don't know much about that side of the pensions industry.
 
From [broken link removed]

When can I draw down my AVC Investment Account?
You can only draw down your AVC benefits when you draw down your Superannuation benefits.

Is this true accross the board for (non-PRSA) public sector AVCs, or is this a feature of Cornmarket's teacher AVC in particular?
It seems like a huge drawback for would-be early retirees who would like to avoid "Cost Neutral Early Retirment" penalties on their public sector pensions.
 
trasneoir said:
From [broken link removed]

When can I draw down my AVC Investment Account?
You can only draw down your AVC benefits when you draw down your Superannuation benefits.

Is this true accross the board for (non-PRSA) public sector AVCs, or is this a feature of Cornmarket's teacher AVC in particular?
It seems like a huge drawback for would-be early retirees who would like to avoid "Cost Neutral Early Retirment" penalties on their public sector pensions.
Click to expand...
AVC benefits are tied in with main scheme ones ("additional") and can only ever be accessed at the same time.
 
oysterman said:
AVC benefits are tied in with main scheme ones ("additional") and can only ever be accessed at the same time.
Click to expand...

Hi. Does the same apply to a PRSA held by a public servant? It might be interesting if Mrs. S could draw on her PRSA for a few of years to mitigate actuarial adjustment to pension from public service. She has the option of taking her pension in 2018, actuarially reduced or defer taking her pension to mitigate the reduction.
 
Hi Slim. I don't know if it is different for a PRSA but for an AVC you have the option at retirement ( including actuarially reduced early retirement) of either purchasing an annuity or transferring to an ARF/AMRF. If Mrs S can transfer her PRSA fund to an ARF she can access it as she likes, subject to tax, USC and Class S PRSI. Her first priority, though, should be to maximize her tax-free lump sum. The AVC pot (and presumably the PRSA - not sure on this ?) can be used to top up the Superann lump sum to the maximum level allowed by Revenue.
 
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Cheers. The plan is definitely to transfer to an ARF. Just wondering if she can draw on the ARF for, say, 4 years before drawing her occupational pension, thereby mitigating the actuarial reduction?
 
Slim said:
Cheers. The plan is definitely to transfer to an ARF. Just wondering if she can draw on the ARF for, say, 4 years before drawing her occupational pension, thereby mitigating the actuarial reduction?
Click to expand...

Not really following you here, Slim.

Am I right in thinking that Mrs S will have reached actuarially reduced retirement age by 2018 and therefore she will be drawing her occupational pension (actuarially reduced) from that date ?
 
Slim - If Mrs S is thinking of opting for a preserved pension then I don't think she can access her PRSA AVC pot. As far as I know, it can only be accessed when drawing down from the main superann scheme. Open to correction on this one.

If she opts for actuarially reduced retirement she could leave her pot in an ARF untouched until 60. But from a tax viewpoint it would be advisable to max up on the tax-free lump sum first.
 
She will be a few years short of 60. I was wondering if she could preserve her benefits but draw on the ARF for a few years without drawing her occupational pension.

I think she must draw a minimum 4% pa from her ARF.

My understanding of cost neutral early retirement is that you have 2 choices, take the reduced pension now or preserve until minimum retirement age,no in between. Is that correct?
 
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