Single Public Service Pension Scheme - A Good Deal?

[Cinnamonjam]

Hi all - would love to get some views/help on this. I'm trying to decide whether to accept a position in the civil service or not. One of the big benefits that's supposed to go with a public service job is the pension, but I'm not really sure the deal is that great. Maybe someone can help me unravel what it really means?

So, I'd be part of the new single public service pension scheme. From what I can make out, I'd get 0.58% of my gross wage, every year, towards my pension. That sum is then linked to consumer price index, and the yearly sums are added together to make the final pension sum. So, for an EO, on the current scale (27-43k) that amounts to about 9.5k in total (in todays money terms i.e. 160euro in year 1, 170 in year 2 etc. etc.), after 40 years service. It seems to cost between 5-8% of my salary (depending on what point on the scale I'm at, and inclusive of pension levy). I've tried to compare this with private pension on pensionsauthority.ie, but I'm not sure how accurate that is... it seems to assume something regarding a 50% pension from my spouse upon death?, and also seems to be based on 4% growth per annum, which sounds small for a pension scheme I think?

So, I'm still wondering, is the single public service scheme a good deal? Compared to what I'd achieve on a private scheme? Or is the age of the golden public pension gone?
Thanks in advance for any help.

 

[Steven Barrett]

Hi

I've just read the booklet on the Single PS pension scheme for work I am doing with a client. It certainly isn't straight forward and I have no idea how I am going to calculate the benefits payable at retirement!

The pension is split into 2:

0.58% of pensionable remuneration up to a ceiling of 3.74 x OAP (currently €45,000)
PLUS 1.25% of pensionable remuneration above that level

Example
Pensionable salary of €100,000
Year 1 income 0.58% of €45,000 = €261
1.25% of €55,000 = €687.50
Total = €948.50
This amount is then index linked by CPI up until retirement.

This is done each year.

Your old age pension is also taken into account, so you can deduct the OAP from the pension payable from the PS.
The retirement age is also linked to that of the OAP payment

At present - age 66
2021 - 67
2028 - 68
Compulsory retirement at age 70


Contributions are also split in 2:

3.5% of net pensionable remuneration
3% of pensionable remuneration

Pensionable remuneration - basic pay
Net pensionable remuneration - pensionable remuneration less 2 times OAP


I only read this booklet this morning so I haven't had time to do the maths on the benefits. Lots of assumptions will have to be used on calculating the benefits payable.



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

 

[ppmeath]

Your old age pension is also taken into account, so you can deduct the OAP from the pension payable from the PS.

This is incorrect.

The retirement age is also linked to that of the OAP payment

This is correct - for the first time post 2013 Public Sector workers pensions are now linked to the State Contributory Pension (there is no such payment as an OAP anymore), previously they were not and this has apparently caused huge confusion in the PS.

The pension is split into 2: 0.58% of pensionable remuneration up to a ceiling of 3.74 x OAP (currently €45,000) PLUS 1.25% of pensionable remuneration above that level

The pension has been "split" since 1995 both the funding and and the payment, from the booklet:

"Integration
The Scheme is integrated with the social welfare State
Pension Contributory (SPC) in two ways:
(i) Pension accrual rates take account of the availability
of the SPC at retirement.
(ii) Pension contribution rates take account of the fact
that SPC benefits provide part of the retirement
income."


It is an "integrated " pension. The formula 3.74 (previously 3.333333) is a way to offset the part of the salary that should be taken care of by the State Contributory Pension, that the employee has contributed to by way of PRSI Class A contributions, on attaining "minimum retirement age".

PRSI is taken from the gross pensionable pay and a personal pension contribution taken from the net pay.

On calculating the final pension it is also split.

For example - a post 1995 pension calculation should look like this on a 45k salary with an entitlement of 40/80ths on "attaining minimum retirement age":


45k salary
Weekly SCP: €233.30
Annual SCP: €12,131.60
3.333 times annual SCP: €40,438.66
1/200th of salary below 3.333 SCP for 40 years: 40438.66/200*40 = €8,087.73
1/80 of salary above 3.333 SCP for 40 years: (45000 40438.66) / 80 * 40 = €2,280.67
Total = 10,368.40

This is the "occupational part of the pension" however, the 40/80th entitlement is 22,500 the "shortfall" is €12,131.60

This is what has to be "integrated" to make up the final pension - and this is a great source of confusion in places where it should not be.

 

[ppmeath]

I've just read the booklet on the Single PS pension scheme for work I am doing with a client. It certainly isn't straight forward and I have no idea how I am going to calculate the benefits payable at retirement!

Aren't the "benefits" defined? Aren't they still 50%, not of final salary, but of their salary averaged over their entire career? So it will be impossible to figure this out, because you (or they) won't know what they will end up at when they reach retirement.



Example A
In Year 1 a new recruit earns €25,000. This yields a
referable amount (a sum-towards-pension) of €145
using a 0.58% accrual rate (up to €45,000)2.
Thereafter that €145 is indexed to the CPI (All Items).
Assuming 2% inflation annually and 40 years to
pension age, the €145 will grow to about €320 at
retirement

This is €12,800 after 40 years - plus whatever the State pension is because the 0.58% rate is allowing for the PRSI contribution, which will ultimately take care of the other part of the pension.

Of course the employee won't be on €25,000, even if they stay in the same position (increments and increases through the years), this will increase.

Does that seem too simple?

 

[Slim]

Aren't the "benefits" defined? Aren't they still 50%, not of final salary, but of their salary averaged over their entire career? So it will be impossible to figure this out, because you (or they) won't know what they will end up at when they reach retirement.



Example A
In Year 1 a new recruit earns €25,000. This yields a
referable amount (a sum-towards-pension) of €145
using a 0.58% accrual rate (up to €45,000)2.
Thereafter that €145 is indexed to the CPI (All Items).
Assuming 2% inflation annually and 40 years to
pension age, the €145 will grow to about €320 at
retirement

This is €12,800 after 40 years - plus whatever the State pension is because the 0.58% rate is allowing for the PRSI contribution, which will ultimately take care of the other part of the pension.

Does that seem too simple?

I think your calculations are correct in that example but I'm not sure where the 50% comes in. Is the final pension not simply a total of all the referable amounts, but the referable amount for subsequent years may be a little higher but the inflation will have less time to work on them so a simple 40x€320 does not work. Also, the notion of '40 years' is now redundant. It's whatever service the public servant clocks up from entry until, at least 66 and probably 70 in our chosen examples.

My calculation of a Clerical Officer entering at age 20 and working unbroken service until aged 70 starting on €31k and increasing by the scale, no promotion, arrives at a pension at 70 of €16.5k, not allowing for inflation or CPI at all. To this would be added approx €12k in today's terms as SCP.

 

[ppmeath]

Hi Slim,

I think your calculations are correct in that example but I'm not sure where the 50% comes in.

The calculation in Example A is from the booklet, the 50% is the Defined Benefit that the PS employee is entitled to on retirement.

Previously this was based on final salary to a max of 40 years.

Now it has changed to "career" averaged salary - with no cap on years service (Compulsory retirement at 70).

My calculation of a Clerical Officer entering at age 20 and working unbroken service until aged 70 starting on €31k and increasing by the scale, no promotion, arrives at a pension at 70 of €16.5k, not allowing for inflation or CPI at all. To this would be added approx €12k in today's terms as SCP.

That isn't the pension - that is amounts towards the pension - that being 50% of the salary:

http://www.per.gov.ie/en/minister-h...ons-single-scheme-and-remuneration-bill-2011/

"This is a significant change from the current position where the pension is based on ‘final salary’ at retirement. The Minister said that “this is a fairer approach to pensions; your pension reflects your career average earnings as opposed to your final salary.”"

How did you arrive at the €16.5k? If you used the 0.58% contribution, then on top of the €16.5k is the State Contributory Pension.

You don't seem to have allowed for any pay increases in 50 years!!

 

[Slim]

Hi Slim,



The calculation in Example A is from the booklet, the 50% is the Defined Benefit that the PS employee is entitled to on retirement.

Previously this was based on final salary to a max of 40 years.

Now it has changed to "career" averaged salary - with no cap on years service (Compulsory retirement at 70).




That isn't the pension - that is amounts towards the pension - that being 50% of the salary:

http://www.per.gov.ie/en/minister-h...ons-single-scheme-and-remuneration-bill-2011/

"This is a significant change from the current position where the pension is based on ‘final salary’ at retirement. The Minister said that “this is a fairer approach to pensions; your pension reflects your career average earnings as opposed to your final salary.”"

How did you arrive at the €16.5k? If you used the 0.58% contribution, then on top of the €16.5k is the State Contributory Pension.

You don't seem to have allowed for any pay increases in 50 years!!

Hi PP. One of us is misunderstanding the SPSPS. According to page 3, para 1,A
"Upon retirement, the total value of pension and lump sum referable amounts previously earned and adjusted for applicable CPI increases are payable to the retiring Single Scheme member."

My interpretation of this is that each year's referable amount is added to preceding years and amounts to the pension payable on retirement. In my calculations, I ignored pay rises and inflation to keep it simple and give an idea of the value in today's terms. Max salary of the CO is €37,341. I see no 50% of salary mentioned anywhere in the guide. Edit: my calculations end up with pension after 50 yrs of €10,090 not €16.5k as stated above. To this is added the SCP. Am I wrong?

 

[ppmeath]

Hi PP. One of us is misunderstanding the SPSPS. According to page 3, para 1,A
"Upon retirement, the total value of pension and lump sum referable amounts previously earned and adjusted for applicable CPI increases are payable to the retiring Single Scheme member."

From circular 9/2015:

ii. “Net pensionable remuneration” = pensionable remuneration LESS twice the Contributory State Pension (CSP), expressed on a full-time basis
The CSP is currently €230.30 per week, equivalent to €12,017.05 per year.
So a member with pensionable remuneration of €40,000 has net pensionable remuneration (expressed in annual terms) of €15,965.90:
€40,000 – (2 x €12,017.05) = €15,965.90
(Net pensionable remuneration is only relevant to the calculation of contributions, not benefits.)

From the booklet:

"Benefit structure
The Scheme provides: A pension and retirement lump sum based on career average pensionable remuneration." (Not the contributions).

Previously the pension (and lump sum) were based on "final salary" and the "defined benefit" was 50% (based on years service to a max of 40 years) of that pensionable salary.

http://www.per.gov.ie/en/minister-h...ons-single-scheme-and-remuneration-bill-2011/

"moving to the calculation of pensions on the basis of “career average” earnings – this is a change from the current position where the pension is based on ‘final salary’; it is a fairer and more equitable system and one which is progressive in application in that it affects the pension paid to those who have high earnings especially in late career (e.g, a civil servant promoted to top management later in their career) more than the pension for those who may have a relatively ‘flat’ career progression (e.g. nurses, teachers);"

 

[Slim]

I'm not sure what you are demonstrating there. Perhaps we are at cross purposes. Under the Single scheme, there is no 50% of final salary, just accumulated 'referable amounts' which added together make up the pension. No limit bar service to age 70.

 

[ppmeath]

I'm not sure what you are demonstrating there. Perhaps we are at cross purposes. Under the Single scheme, there is no 50% of final salary, just accumulated 'referable amounts' which added together make up the pension. No limit bar service to age 70.

Hi Slim,

It's so confusing, but I had a good read over and my "simple" calculation above, was actually wrong because I have myself confused the 40 year service cap to the defined benefit and I used the referable amounts to calculate the pension - now, my understanding is as follows:

The defined benefit has always been 50% of final salary, the "new" scheme is a continuation of the "old" scheme after being adapted - but the benefits didn't change.

There are 4 strands of the same scheme where the benefits have always remained exactly the same.

Strand I - Pre 1995. Pension of 50% of final salary to max 40 years - . Minimum retirement age (Age at which benefits become payable) - 60, compulsory retirement age 65.

The "benefit" is defined, the formula has changed.

Strand II - Post 1995 - pre 2004. PRSI benefits integrated with occupational scheme - benefit 50% final salary to a max of 40 years. Minimum retirement age 60 and compulsory retirement age 65.
Strand III - Post 2004 - pre 2013. As above, except the "minimum retirement age" raised to 65 no compulsory retirement age.
Strand IV - Post 2013 - Pension no longer based on final salary, but career average and specific contributions throughout career based on salary, minimum retirement age now linked to State Contributory Pension age - compulsory retirement age of 70.


"Purpose of circular
3. This circular has two related purposes:
i. It sets out, based on the 2012 Act, how the future-payable money amounts of pension and retirement lump sum (“referable amounts”) accrued by Single Scheme members should be calculated by Relevant Authorities."

"Calculation of contributions
9. For most standard accrual members of the Single Scheme, the contribution regime, including rates, is similar to that which applied to new staff who commenced in their workplace before the start of the Single Scheme. In particular, the Single Scheme’s partitioning of the member contribution into two elements based on pensionable and net pensionable remuneration respectively mirrors the composition of the member contribution in many predecessor schemes. Note however that the Single Scheme has no “Spouse’s and Children’s” contribution as such (though it does provide for survivor benefits)."

10. While contributions are compulsory for all members, these contributions play no part in the calculation of Single Scheme benefits (pension and retirement lump sum)."


16. During each year of employment, Single Scheme members accrue “referable amounts” of money towards (separately) their pension and retirement lump sum. These referable amounts are generated by applying set percentages (accrual rates) to the member’s pay. This money-based accrual of benefits in the Single Scheme is fundamentally different from the service (time) basis of accrual which characterises earlier (“pre-existing”) public service pension schemes.

17. Single Scheme referable amounts accumulate year-on-year while a member remains in pensionable public service employment, and are uprated annually by reference to increases in the Consumer Price Index (CPI). Calculating how much pension and lump sum a Single Scheme member builds up is therefore not a one-time operation at retirement; instead it is an ongoing exercise requiring employer attention throughout the member’s career.

My interpretation of this is that each year's referable amount is added to preceding years and amounts to the pension payable on retirement. In my calculations, I ignored pay rises and inflation to keep it simple and give an idea of the value in today's terms. Max salary of the CO is €37,341. I see no 50% of salary mentioned anywhere in the guide. Edit: my calculations end up with pension after 50 yrs of €10,090 not €16.5k as stated above. To this is added the SCP. Am I wrong?

This is where we both erred, it amounts to the contributions paid towards the pension, not the make up of the pension - this is just the contribution element.

The SCP has already been taken into account, so it isn't added after, it is already "integrated" into the PS scheme.

So as the pension is based on the "career averaged salary", if that is €37,341 (in your example above) then it is 50% of this so €18,670.15, of that the State Contributory pension takes care of €12,131.60 and the balance is taken care of by the employer - in this case €6,538.90 and a lump sum of 1 1/2 times the career average salary.

 

[Slim]

Hi PP. I don't agree. My calculations were always based only on Strand IV members. The 'referable amount' is the amount of pension to be paid to the member on retirement, for each year of service having been updated by CPI, with no maximum. Therefore, after 40 years on CO scale, no CPI or pay rises, this equates to €7.9k, to which the retiree may add the SPC, €12k in today's terms. Admittedly, this equates to €19.9k which is more like 54% of Final Salary.

 

[ppmeath]

Hi PP. I don't agree. My calculations were always based only on Strand IV members. The 'referable amount' is the amount of pension to be paid to the member on retirement, for each year of service having been updated by CPI, with no maximum. Therefore, after 40 years on CO scale, no CPI or pay rises, this equates to €7.9k, to which the retiree may add the SPC, €12k in today's terms. Admittedly, this equates to €19.9k which is more like 54% of Final Salary.

You are not disagreeing with me Slim, you are disagreeing with how the scheme operates.

"Purpose of circular
3. This circular has two related purposes:
i. It sets out, based on the 2012 Act, how the future-payable money amounts of pension
and retirement lump sum (“referable amounts”) accrued by Single Scheme members
should be calculated by Relevant Authorities. This calculation process is ongoing
throughout a member’s career; it is not a one-time exercise at retirement. Calculation
of the contributions payable by members is also covered (as is refund of those
contributions, which may arise on occasion)."

10. While contributions are compulsory for all members, these contributions play no part in
the calculation of Single Scheme benefits (pension and retirement lump sum).

You are saying that these referable amounts - or the contributions are the amount of the pension that is paid, while the scheme is telling you that they play no part in calculating the benefits?

 

[Slim]

You are not disagreeing with me Slim, you are disagreeing with how the scheme operates.

"Purpose of circular
3. This circular has two related purposes:
i. It sets out, based on the 2012 Act, how the future-payable money amounts of pension
and retirement lump sum (“referable amounts”) accrued by Single Scheme members
should be calculated by Relevant Authorities. This calculation process is ongoing
throughout a member’s career; it is not a one-time exercise at retirement. Calculation
of the contributions payable by members is also covered (as is refund of those
contributions, which may arise on occasion)."

10. While contributions are compulsory for all members, these contributions play no part in
the calculation of Single Scheme benefits (pension and retirement lump sum).

You are saying that these referable amounts - or the contributions are the amount of the pension that is paid, while the scheme is telling you that they play no part in calculating the benefits?

No. The contribution by the member is 3.5% of Net Pensionable Remuneration and 3% of Pensionable Remuneration. The referable amount is the amount of pension payable to that officer on retirement in respect of that year's earnings(indexed by CPI of course). The sum of all referable amounts equals the pension payable on retirement, nothing to do with what was contributed.

 

[ppmeath]

No. The contribution by the member is 3.5% of Net Pensionable Remuneration and 3% of Pensionable Remuneration.

Yes, and here is the example given.

Example (a)
Member working full-time on a salary of €28,000.
This member has
- pensionable remuneration of €28,000, and
- net pensionable remuneration of €3,965.90 (i.e. pensionable rem. LESS twice CSP).
The member’s contribution (expressed in annual terms) is as follows:
€28,000 x 3% = €840.00 (3% of pensionable remuneration)
€3,965.90 x 3.5% = €138.81 (3.5% of net pensionable remuneration)
€978.81
The member works full-time, so no work pattern adjustment arises.
Total annual contribution: €978.81

The sum of all referable amounts equals the pension payable on retirement, nothing to do with what was contributed.

So what are the referable amounts then?

 

[Slim]

You have set out the 'contributions'. No matter how much you contribute, your pension will be the sum of the 'referable amounts', i.e. .58% up to €45,229 etc. For each year, an amount is calculated, in your example, 28k x .58% = €162.40 for year 1. Index link that and add .58% of year 2 etc. Total that all up and that is the pension payable on retirement.

 

[ppmeath]

Ah, so if we go back to my post here:

"Example A
In Year 1 a new recruit earns €25,000. This yields a
referable amount (a sum-towards-pension) of €145
using a 0.58% accrual rate (up to €45,000)2.
Thereafter that €145 is indexed to the CPI (All Items).
Assuming 2% inflation annually and 40 years to
pension age, the €145 will grow to about €320 at
retirement"

Do you add each year individually from €145?

I think I am with you - thanks so much.

 

[Slim]

Ah, so if we go back to my post here:

"Example A
In Year 1 a new recruit earns €25,000. This yields a
referable amount (a sum-towards-pension) of €145
using a 0.58% accrual rate (up to €45,000)2.
Thereafter that €145 is indexed to the CPI (All Items).
Assuming 2% inflation annually and 40 years to
pension age, the €145 will grow to about €320 at
retirement"

Do you add each year individually from €145?

I think I am with you - thanks so much.

Yes, that's my understanding of it. It ain't easy!

 

[ppmeath]

Hi Slim, thanks - I completely got side tracked from that post.

I think that because they have to do it year by year that it will be pretty straightforward once it kicks in.

 

[CormacKeogh]

Hi, A related question about Single Pension Scheme 2013. I hope someone can help. A colleague is considering joining the public service after they have already qualified for a full Contributory Pension form the state - say 40 years of contributions, does that mean that by taking a public service job they are gaining NO additional benefit, above the Contributory pension, from joining the SPS until the value of my contributions would bring them above the return value of the Contributory pension ?

For an income of approx €94K how many years would it take me to get more than €243 (the contributory pension) per week back ?

C

 

[Conan]

The State Pension (based on A Class PRSI contributions) is entirely separate from any occupational pension paid from either the a Public Service or a civil Service.
If your colleague will have 40 years plus of A Class contributions, then they will likely qualify for the full State Pension (currently €243 per week).
If they join the Public Service (and pay A Class PRSI) this won’t increase their ultimate State Social Welfare Pension, but presumably they will build up an additional occupational pension via the new SPS.
The two are separate.