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

There are two options for early retirement - either cost neutral (also referred to as "actuarially reduced") to be drawn down immediately, or a preserved pension to be drawn down at normal (minimum) retirement age. There is no in between.

If she opts for the preserved pension I don't think she can access her PRSA AVC pot until her preserved pension age (presumably 60).

She can access the pot immediately if she opts for cost neutral early retirement. After age 60 (from year of 61st birthday specifically) she has to draw a minimum of 4% from the fund - but not before this.
 
Thanks a million, ER, that fits in with my understanding of the schemes. However, I didn't know this
"After age 60 (from year of 61st birthday specifically) she has to draw a minimum of 4% from the fund - but not before this."

Can I clarify, even if she takes CNER from age 55, she can hold off on drawing down ARF until 60?
 
Slim said:
Can I clarify, even if she takes CNER from age 55, she can hold off on drawing down ARF until 60?
Click to expand...

Yes, she can hold off from drawing down anything from the ARF until 60. But she must transfer the money from the AVC to the ARF when she is retiring (if opting for the ARF route). She can use some of the money from the AVC fund to top up her tax-free lump sum to revenue limits at retirement (or, indeed, all of it if revenue limits allow) - this is the most advantageous from a tax point of view. The remainder of the fund is then transferred to the ARF.
 
Many thanks, Early Riser, that is very useful information. I have written to her prsa provider to seek guidance on the process. Thanks again. Slim
 
Hi all,

I am currently looking at buying notional service as I will be 10 years short at 60.

I got some figures from HR and then asked them if those costs are from gross or net pay and the text below was their response!


Re Periodic Contributions: Salaries Section would deduct 0.35% of gross WTE salary and 2.60% of Nett WTE salary (ie Gross less 2 x Annual OACP Rates) per fortnight for each year to be purchased from next Birthday until retirement on reaching your 60th Birthday.
​
​
The Lump Sum calculation is based on % of Gross Salary.

while it shows me how the costs are calculated to buy back years it doesn't really answer my question!

Is it that the .35% payment is from gross and is therefore taken before tax is applied and then after tax a futher 2.60% is taken off from the net? This would mean that you are not getting tax relief on the largest portion of the payment.

Any help would be much appreciated.

Thanks - Sidzer

 
[QUSide.idzer, post: 1635637, member: 26145"]
Hi all,

I am currently looking at buying notional service as I will be 10 years short at 60.

I got some figures from HR and then asked them if those costs are from gross or net pay and the text below was their response!


Re Periodic Contributions: Salaries Section would deduct 0.35% of gross WTE salary and 2.60% of Nett WTE salary (ie Gross less 2 x Annual OACP Rates) per fortnight for each year to be purchased from next Birthday until retirement on reaching your 60th Birthday.
​
​
The Lump Sum calculation is based on % of Gross Salary.

while it shows me how the costs are calculated to buy back years it doesn't really answer my question!

Is it that the .35% payment is from gross and is therefore taken before tax is applied and then after tax a futher 2.60% is taken off from the net? This would mean that you are not getting tax relief on the largest portion of the payment.

Any help would be much appreciated.

Thanks - Sidzer


[/QUOTE]
Hi Sidzer. The 'nett' in question does not refer to after tax but after deduction of 2xOACP. So annual salary less c.€36k x 2.6%.
 
I'm due to retire in 5 years time and looking to up my public service pension, which is based on just under 19 years. (In line with general trends, my previous, substantial, private sector defined benefit pension scheme was scrapped, cash taken out to the company by new buyers, and now I am left with a puny AVC).

I have been diligently reading (again) this very valuable but rather dense thread, and it seems now that the tide of opinion has turned against buying notional service. Is that a reasonable conclusion?

Should I just go with what the brokers seem to be saying and take the AVC route? It's difficult to get objective advice. My employer says to consult a financial adviser. My financial adviser is most likely on commission... and, as observed early in this thread, there are few who seem to understand the complexity of public service pensions.
 
keepon said:
I have been diligently reading (again) this very valuable but rather dense thread, and it seems now that the tide of opinion has turned against buying notional service. Is that a reasonable conclusion?

Should I just go with what the brokers seem to be saying and take the AVC route?
Click to expand...

I do not know about actuarial comparisons, but otherwise there are disadvantages and advantages to both routes. So, to some extent, it depends on your priorities.

With notional service you know exactly what benefit you will get as a proportion of your pensionable salary, the benefit is guaranteed for life and there is an index link (partial, at least) to salary. And all your pension purchase goes towards pension - there are no fees or charges. The value of notional years increases the longer you live (or your spouse lives) into retirement.

With AVCs you have more control over your pension pot. This may be attractive for you as you will have only 24 years service at reirement, so your lump sum from the main scheme will be 72/80 of pensionable salary. You could use your AVC fund to top this up with another 48/80 of pensionable salary tax free. Any remainder can be transferred into an ARF and drawn down as income at a rate that suits you. However, there will be fees and charges attached to an AVC (and to a subsequent ARF).

They are not necessarily mutually exclusive. It would theoretically be possible to fund an AVC only up to the approximate level of the tax free lump top up at retirement while also contributing to notional years. It depends on how much you have available to contribute between now and retirement. (The lump sum top up is undoubtedly good value).

If you haven't come across it yet it might be useful to have a look at this Guide from the Pensions Authority : [broken link removed] .
 
Thanks for that ER. It clarifies things considerably!

I'll actually have only 19 years service at retirement -- this includes buying back temp service of 5 years out of my lump sum. Can I ask how you arrive at the 72/80 calculation so that I can apply it to 19 rather than 24?

My separate AVC is currently at €120,000. I looked at transferring it across, but the cost/penalties were prohibitive.
 
keepon said:
I'll actually have only 19 years service at retirement -- this includes buying back temp service of 5 years out of my lump sum. Can I ask how you arrive at the 72/80 calculation so that I can apply it to 19 rather than 24?
Click to expand...

Sorry, I misread - I thought you had 19 years served and 5 to go.

Anyway, the lump sum is calculated as 3/80 of pensionable remuneration for each year of service. So for 19 years you should get a lump sum of 57/80 of pensionable remuneration from your main scheme. However, if you have just 19 years of pensionable service it complicates matters somewhat. Under Revenue rules you need at least 20 years service to be able to top up the lump sum to 120/80 from an AVC. The maximum allowed for 19 years is 108/80. So, as things stand, you could use an AVC to add 51/80 to your tax free lump sum.

However, if you were to buy back at least one year through "Notional Service" I assume you would then qualify for the full 120/80. Assuming you had 20 years service (19 actual and 1 "notional") you would get 60/80 from the main scheme and could top up by another 60/80 from an AVC. I am actually not certain that notional service counts for this purpose but I assume that it does.

Edit: I deleted the calculation for pension purchase annual benefit as it was incorrect. Each year of notional service would yield 1/200 of pensionable remuneration below 3.33333 times State Pension (currently approx €43,000), plus 1/80 of that portion of pensionable income which exceeds this threshold.
 
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Brilliant. Thanks again. Lots to chew over there. We had been warned off notional service because of its cost, but it looks like it might have a role here.
 
My wife is a civil servant, aged 52. She can retire at 65 with 33 years of the 40 years she would need for a full pension.

Currently, her department is pushing AVCs as the way forward for her to add value to the pension she would receive for 33 years of service.

Is it still possible to buy NSPs? (No mention of them as an option has been made to her.) If it is possible to still buy them, at what cost?

If it is possible to do so, would it be possible to buy more so that she could retire earlier than 65? (Admittedly, each year earlier would reduce her potential 33 years by one year.)

If it is no longer possible to buy NSPs, what is the view of AVCs? What alternatives are there to these?

Sorry for so many questions.

Many thanks in advance.

D.
 
My understanding is that it is still possible to buy Notional Service, but the cost might seem expensive. It’s important to remember that with NS you are buying both extra Pension and Lump Sum. It is certainly worth asking what the cost would be to buy 7 years.
But I would be inclined to focus initially on maximising the lump sum, because any additional lump sum is tax free (up to a total of €200,000). The only way to focus on exclusively maximising the lump sum is to build up an AVC fund to bridge the gap between what 33 years will give (c99/80ths) and the maximum of 120/80ths ie 150% of Final Salary.
 
Conan, thanks for the reply.

And, if my wife decided that she wanted to, say, retire at 60, would putting a lot into AVCs be a better route? In short, is the AVC route more flexible?

Finally, is it true that contributions to NSPs can only begin at next birthday? The reason I ask is because she's 52 this Saturday, so if she didn't begin an NSP by the end of this week, would she have to wait until next November, thereby losing a year?

Thanks again.

D.
 
If she retires early (say 60), then her benefits will be reduced - both Pension and Lump sum. But if she goes the NS route but cannot afford to buy all 7 years then she is potentially leaving some Lump Sum behind (3/80ths for each year short of 40 years).
AVCs are more flexible in that you potentially could use all of the AVC fund to bridge any shortfall in the lump sum. If there is still an excess over and above what is used to maximise the lump sum, then that can be invested into an ARF (or used to buy an extra annuity/pension).
I’m not sure about the start date for buying NS. She should check this out with her Employer.
 
Dinarius said:
And, if my wife decided that she wanted to, say, retire at 60, would putting a lot into AVCs be a better route? In short, is the AVC route more flexible?

Finally, is it true that contributions to NSPs can only begin at next birthday? The reason I ask is because she's 52 this Saturday, so if she didn't begin an NSP by the end of this week, would she have to wait until next November, thereby losing a year?
Click to expand...

NSP deductions always used to start at the purchaser's next birthday, and I don't expect this has changed lately. From The Superannuantion Handbook:
"periodic deductions from salary commencing on the officer’s next birthday following the exercise of the purchase option and ending at age 60 or 65, as appropriate;"

I agree with Conan that AVCs generally offer considerably more flexibility, especially where early retirement is concerned. You may find this analysis from the Pensions Authority useful: [broken link removed]

Finally, the cost/ contribution rates for notional service purchase are in the tables at the end of this document: https://circulars.gov.ie/pdf/circular/finance/2006/04.pdf
 
I am more confused now than when I started reading this thread :)

I have a question. I have a close relative who is a teacher since 1993. She is 50 now and wants to retire at 55, but did a few years subbing at the start of her career. She also has about €100K in AVCs with cornmarket. Her husband is private sector and is also 50 and wants to retire at 55. He has about €500k in AVCs. They also have investment propertywith very little mortgage left and their own mortgage is paid off too.
They asked me for advice but I realize after reading this that i am unable to give it to them and would probably be totally wrong in any advice I give them.

So a different question from me, so that I can steer them.
How much would it cost them to sit down with an independent financial advisor to lay out all of their options for them?
 
PaxmanK said:
I have a question. I have a close relative who is a teacher since 1993. She is 50 now and wants to retire at 55
Click to expand...
I can't answer your question about an advisor. But just to note that pre-2004 teachers can take normal retirement (ie, no actuarial reduction) from 55 onwards provided they have at least 35 years service. The 35 years can include credit for pre-service training.
Otherwise it is 60 for normal retirement for pre-2004.

 
This is a superb thread. Fair play to the likes of Early Riser and Conan who understand this stuff.

If someone earns €100k a year, they’re 42, they’re a pre-2004/post-1995 entrant with an NRA of 60, and they’ll have 39 years’ service at age 60, approximately how much would it cost to purchase the missing piece via a single lump-sum?

And am I right in saying that if they just work to age 61, they’ll get their full pension/lump sum?
 
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