Another Buy Back Years Questioner!

sidzer

Registered User
Messages
165
Hi folks,

I would appreciate some ideas and opinions on this please.

Teacher age 50 with 20 years service. I will be 10 years short for full pension age 60 when I retire. I have a pension from a previous employer - very good DB pension that is currently worth 12K / year payable from age 65 (Guinness).

I had started doing AVCs over the last 2 years and put 18K into an AVC fund. I have since decided that buying back notional service is probably better.

I could afford to buy back the full 10 years. This would mean that fro age 60 I will get the benefit of a full state pension with all its benefits. My issue is that from 65 I will be getting my Guinness pension too on top and that will probably be all taxed at the higher rate.

If I don't buy back any years I will have @22.5k / year from 60-65 and then at 65 I will have @34K which will keep me at the low tax rate. So if I Does buying back year not make sense if it means that you will be pushing yourself into the higher tax bracket. I could save the money that I am going to use to buy back years and use this to keep me going from 60 -65 instead!

Is this an obvious yes or no or is it more complex????

Thanks Sidzer
 
Note that it is impossible to know what the tax reliefs/bands will be like in ten years time.

The 18k/36k exemption for people over 65 may exist in ten years time, or it may not, who knows?



Many people would feel that a PRSI State pension + a (30/80) PS pension + 12k a year DB pension from Diageo is plenty.

If I had that, it would be enough for me.



Also, if a bit of your income is taxed at higher rates, so what? It will have a very small upward effect on your effective tax rate, that's all.
 
One of the differences between AVCs and buying back years is that with AVCs you can use the accumulated AVC fund entirely to boost your tax-free lump sum. So if there is a difference between the maximum lump sum allowed by Revenue and the lump sum you will receive from the superannuation scheme, you can bridge that gap with AVCs. If there is such a gap, you could be withdrawing all your AVCs tax-free. You can't do that when buying back years - you will get additional lump sum AND pension whether you want the additional pension or not.

That said, this only works IF there is a gap between the Revenue-maximum lump sum and the superannuation lump sum. If there isn't and if any additional pension contributions are likely to be taxed at the high rate in retirement, I'd be inclined to agree with Protocol and perhaps use disposable income for other purposes outside of pensions.

The broker you deal with for your AVCs should be able to do the calculations for you.

Regards,

Liam
www.ferga.com
 
I could afford to buy back the full 10 years. This would mean that fro age 60 I will get the benefit of a full state pension with all its benefits. My issue is that from 65 I will be getting my Guinness pension too on top and that will probably be all taxed at the higher rate.

If I don't buy back any years I will have @22.5k / year from 60-65 and then at 65 I will have @34K which will keep me at the low tax rate.

You will not get the State Pension at 60. This is currently payable at 66 and due to rise to 68 in 2028. You will be eligible for your public service Occupational Pension at 60, plus a Supplementary Pension until you reach state pension age (provided you meet the eligibility criteria for the Supplementary, which presumably you will).

So with 30 years service the €22.5k at 60 is presumably comprised of approximately €12.8K Occupational Pension and €9.7K Supplementary Pension. There will also presumably be a lump sum of approximately €68K tax free. You will subsequently get your €12K Guinness pension at 65.

Based on these figures there may be advantages with continuing the AVC route. The maximum lump sum allowed based on your salary would be €90K. Therefore you would have scope to top up your tax free lump sum by about €22K (90 - 68) from your AVC. If you transferred your remaining AVC fund into an ARF you could draw it down annually between 60 and 65 at a level that would keep you within the lower tax band - about €13K annually based on current bands. This would nicely bridge the gap until the Guinness pension kicks in. So you would have scope for an AVC fund of about €90K in today's terms without being exposed to the top tax rate (again in today's terms).

Note that you would currently need a guaranteed income of €12.7K to avoid having to put money into an ARMF before an ARF. So you would just about make it on today's rules. Who knows what will apply in 10 years?!
 
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Thanks protocol, LD and Early Riser. That is brilliant information and advise. This site is a life saver and really appreciate you taking the time to post up your answers.
 
How can you "buy back" years that you never worked in public service? I thought you could only buy back time where you worked less than full-time hours. I am in similar position to original poster. I worked in U.K. for 12 years and it would be great news if I could buy those years because I will not have full service even if I stay until 65.
 
Notional Service purchase is aimed at bridging the gap in service between actual service and potential service to maximum retirement age subject to a maximum of 40 years. You may be able to purchase NS of 12 years depending on your age but it's the difference between actual retirement age and maximum retirement age that you can buy.
 
How can you "buy back" years that you never worked in public service? I thought you could only buy back time where you worked less than full-time hours. I am in similar position to original poster. I worked in U.K. for 12 years and it would be great news if I could buy those years because I will not have full service even if I stay until 65.

Are you in the Single Scheme (post January 2013 entrant) or in one of the older schemes ? If it is one of the older schemes then see Chapter 14 of the linked document for an outline of notional service purchase, and also Appendix 2 for the maximum amount of notional service that can be purchased, depending on your circumstances.


The purchase of notional service in the Single Scheme is more complicated (in so far as I even understand it) and, in my opinion, not as attractive.
 
Hi folks - I have a question about the Supplementary pension which I'd appreciate if someone could clarify for me please

The following is one of the conditions for qualifying for the supplementary pension:

'He/she does not enter other employment which involves the payment of a social insurance contribution'


I have a rental property - does the income from this 'classify as other employment which involves the payment of a social insurance contribution?

Thanks -Sidzer
 
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