Treatment Of Pensionable Allowances - Which is more Favourable Calculation

november16

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Can anyone please explain the difference between how Variable Pensionable and Fixed Allowances, are calculated eg extract below gov.ie. If I am understanding the below correctly, it appears that Fixed is way more favourable and I don’t know why that would be.​

Fixed and variable allowances​

Whether a pensionable allowance falls to be included in an individual’s final pensionable remuneration for the purposes of calculating their pension benefits will depend on whether the allowance is ‘fixed’ or variable’ in nature. The method of calculating the value of allowances to include in an individual’s final pensionable remuneration also differs, depending on whether an allowance is fixed or variable in nature.

Fixed pensionable allowances​

A fixed allowance is generally one which is paid at a set rate and does not vary, for example based on an individual’s working pattern. A fixed allowance must generally be held at retirement in order to be considered for inclusion in an individual’s final pensionable remuneration.

The value of the fixed allowance to be included in an individual’s final pensionable remuneration will be based on the average annual amount of that allowance paid to the employee during the 3 years of reckonable service immediately preceding their last day of service.

Variable pensionable Allowances

A variable allowance may be considered for inclusion in an individual’s final pensionable remuneration, where it has been held in the 10-year period preceding, the individual’s last day of service.

The value of variable allowances to be included in an individual’s final pensionable remuneration will be based on an average of the variable pensionable allowances, received in the best 3 consecutive years, in the 10 years preceding retirement, uprated to the date of retirement. The most favourable 3-year period, resulting in the highest allowance amount, will be included in final pensionable remuneration. This method of calculation is known as the ‘best 3-in-10’ method and is further explained in Circular 10/2008.
It appears that that only a portion of the actual allowance is pensioned.

The variable calculations seem to be worked out on Nett amounts not the overall Annual Amount.

There does not appear to be a rationale as to why these allowance would be treated differently.
 
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