Comparing public sector db pension and private dc

roytheboyo

Registered User
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Hi,
I am working in public service, paying pension related deduction etc.
I am considering an offer from private co, with dc pension.
is there any way of roughly comparing both.
Age, 41, pay 80k approx, new role 90k with less pension. any rule of thumb I could use.
 
roytheboyo;

I will make some comments and expect you will get much better views.

1. Defined, in Public service is as good as it normally gets. ie Half Salary @65.
2. At 65 you will need a fund in a Dc of circa 17,000 for each 1,000 pension.eg a Public service pension of k30 ,would need a saving in Dc fund circa 600,000.
3. At 67? you will qualify for Old age contributary pension, presently k12.
4. To get to K30 , you will have contributary k12 and need Dc fund circa 360,000 in todays terms to make up the K18.........................................................................................
I do not know what you/company will put into Dc scheme .
Normally no where near enough .
........................................

Hence;You have a lot of balancing to do and I suppose today with all the gloom you have to be defensive.
...........................................................................................
So a stab @ a Rule of Thumb.
To make up difference in State Defined V PAYE scheme ,you need 17,000 for each 1,000 you could reasonably expect from public service, on anything in excess of contrbutary state pension presently k12.
 
Just to point out that half-salary for a public service pension is only payable if the employee has 40 years reckonable service. Not all staff may reach 40 years service depending on their work pattern.

The calculation is 1/80th salary for every year's reckonable service.

This is for pre-1995 public service employees, it gets a bit more complicated for post-1995 employees who pay full PRSI and may have an entitlement to a State Contributory pension as well.
 
You should also bear in mind that on retirement from the Public Sector & if you have completed 40 years you are entitled to a tax free sum equivalent to 1.5 times your final salary.

Less than 40 years & you are looking at a pro rata amount.
 
It is very difficult to compare the two. The following are the features of the public sector pension:
- the potential pension is up to 50% of Salary (after 40 years)
- the pension in indexed in payment in line with salary for the role
- in addition, on your death in retirement your surviving spouse would get a pension of 50% of your pension
- in addition to your 50% pension you would also get a retirement lump sum of up to 150% of salary
- the public sector pension is unfunded, it is paid out of taxation. So assuming the State does not go bankrupt (which will be a major disappointment to Profs Lucey and Gurdhiev) your benefits should be reasonably safe.
- the real cost of providing the public service pension is probably of the order of 30% of salary per annum

Looking at your private sector DC scheme the main issue is:
- what total contribution (employer + employee) will be invested per annum and what pension income will that provide at retirement.

Unless your DC contribution is high, it is unlikely to exceed the benefits provided by the public sector. I disagree with Gerry Canning in terms of the multiplier comparison. €1,000 PFT public sector pension would probably require circa €35,000 to buy an equivalent open market annuity (with attaching benefits).

In either case you may get a State Social Welfare Pension (assuming they are still payable when you get to age 68.

In pure pension value terms it will be hard to beat the public service pension. However you also need to take into account your future salary prospects in the private sector versus the public service and the job security.
 
- the public sector pension is unfunded, it is paid out of taxation. So assuming the State does not go bankrupt (which will be a major disappointment to Profs Lucey and Gurdhiev) your benefits should be reasonably safe.
This risk is worthy of serious consideration. While things are looking good today, one never knows what is ahead. Pensioners in Greece got some pretty savage cuts to their pension.

There is also a separate but related risk that arises from the unfunded nature of the public pension. A current or future Government change change your benefits at the stroke of a pen.

On the other side of a private DC pension, you are exposed to the risk (and opportunity) of market performance, but at a minimum, you know that your fund is your own.
 
the public sector pension is unfunded, it is paid out of taxation.
The public service (public and civil service) pension is unfunded. The public sector encompases commercial semi state companies (ESB, Bord Gas etc) who operate funded superannuation schemes.
 
Hi,
I am working in public service, paying pension related deduction etc.
I am considering an offer from private co, with dc pension.
is there any way of roughly comparing both.
Age, 41, pay 80k approx, new role 90k with less pension. any rule of thumb I could use.



Just a query - can you opt out of a PS pension?
 
Roy, I'm +1 with Gerry's comments in general. What this boils to is the need to compare different scenarios so it's a modelling exercise. If I were you (and I was close enough once) I would get an actuary to model it for me. An internet search should get you to a list of consulting actuaries in Ireland. There are also issues inherent to the modelling which relate to tax treatment of different pension funds/arrangements and which are dependent on your circumstances. I would be less concerned about issues relating to the nature of how pensions are funded because issues with that would suggest serious imbalances in the State's funding position and would, in my view, be associated with market imbalances which would also affect any private market-invested pension funds, possibly to a greater degree. If it were me, the main considerations would be:
1. which way lies the greatest opportunity and what is the scale of this opportunity
2. which path will mean that I'm happy, and fulfilled at work

Best of luck
 
Well, apart from whatever amounts the government sees fit to take away as a pension levy...

Yes, that's true - Governments can and will apply to taxes to all kinds of assets and income in the future.
 
I presumed he meant he was opting out which is why I asked.

I am considering an offer from private co, with dc pension.
is there any way of roughly comparing both.
Age, 41, pay 80k approx, new role 90k with less pension. any rule of thumb I could use.

The op is considering taking up employment in an organisation which offers a dc plan. His current employer operates a db scheme.
 
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