AVCs v Notional Service.. Ten years to buy back..

I am a divorced lady who will have forty years 'done' by the time I'm 58. This includes nurse training in the early 90's and separately late 90's and teacher training in the early 00's. I do not know whether to buy back years through notional service or buy AVCs instead. I naturally want the least expensive option to pay in fortnightly deposits but also that my pension contributions will be passed on to my children in the event of my death.
Can anyone advise please and thanks.

Jumbled said:

I am a divorced lady who will have forty years 'done' by the time I'm 58.

Click to expand...

If you will have full service by 58 why are you thinking about buying back years? I am not sure you would have scope for notional service or buying AVCs unless you plan to retire early? My understanding is that the value in buying notional service really depends on how long you live post retirement, but probably best to consult an independent broker to get professional advice.

Apologies, what I meant was, I want to retire at 58 yrs having entered the public workforce 40 years previous but will only have worked for thirty years due to training, further education and travel. I want to buy ten years service towards my pension to retire at 58 but need my children to inherit my pension.

Jumbled said:

Apologies, what I meant was, I want to retire at 58 yrs having entered the public workforce 40 years previous but will only have worked for thirty years due to training, further education and travel. I want to buy ten years service towards my pension to retire at 58 but need my children to inherit my pension.

Click to expand...

If you are a class A PRSI public servant pensioner, i would definitly advise starting and paying into an AVC as your lump sum on retirement will be cut to 75% ie 30 yrs service on a 40 yr pension and you will be able to get the extra 25% form your AVC.
From my experience i definitly would not purchase notional service if you are a Class A prsi payee

Thank you for your response. Can I ask why you wouldn't purchase notional service in my situation please?

stoves1 said:

i would definitly advise starting and paying into an AVC as your lump sum on retirement will be cut to 75% ie 30 yrs service on a 40 yr pension and you will be able to get the extra 25% form your AVC.

Click to expand...

I would also be inclined to go the AVC route here as @Jumbled wants to ensure her children get all the benefits in the event of her death. They would be eligible for Survivor Pension benefits from the public service scheme but only until the age of 16 - or age 22 if in full time education. The exception would be if a survivor child is permanently incapacitated. But all the contributions to the AVC go into a fund (less fees) which would form part of her estate at death.

Just to note though that if @Jumble takes CNER at 58 she will not be able to take a full 25% tax-free of pensionable salary top up from the AVC fund. The eligible amount is also actuarially reduced - by how much depends on whether her "normal retirement age" is 60 or 65.
.

Thanks for response.
Can you tell me how I would know what the ' normal retirement age' is please. This is the beginning of my pension exploration, as I'm sure you can see !!

Normal retirement date varies depending on what date you entered the public service and what scheme you are currently in. If you entered the service prior to 31st March 2004 your normal retirement age is 60. Entrants from then until 31st Dec 2012 normal retirement age is 65 and the single scheme has a normal retirement age which is the same as the contributory state pension and depends on your date of birth. You can get this and lots of other information on www.publicservicepensions.gov.ie

Threadser said:

Normal retirement date varies depending on what date you entered the public service and what scheme you are currently in. If you entered the service prior to 31st March2004 your normal retirement age is 60. Entrants from then until 31st Dec 2012 normal retirement age is 65 and the single scheme has a normal retirement age which is the same as the contributory state pension and depends on your date of birth. You can get this and lots of other information on www.publicservicepensions.gov.ie

Click to expand...

For most people it is as straightforward as this. However for people (like @Jumbled) who have had one or more breaks in service over the years it can get complicated. Some people will have had pensionable employment in two (or even) three schemes with different conditions. There is guidance info here: https://assets.publicservicepension...embership_Determination_Guidance_Document.pdf

Hi Jumbled.

I opted to buy back notional service to make up my shortfall. I am buying back @11 yrs over a 10 year period - age 50 - 60. A financial advisor I met with said that I would need to live until I am over 83 to make it economically sensible.
For me it was all about security. When I retire I know that I will have enough money for the rest of my days - I don't have to worry about paying bills and I will be able to afford a number of holidays a yr etc. I am not particularly worried if I don't get out what I paid in - I am buying security - peace of mind.

The positives about NPS is that there are no fees for signing up or annual management fees - it is state guaranteed. The negative is that - just like your regular pension you can't pass it on to your children. And once you sign up there is no flexibility to reduce the amount you are paying in or take a payment holiday.
AVC's have some positives - they are more flexible - you can up your purchase or reduce or freeze easily. You can also pass on the money to your next of kin when you pass away. The negatives is that you can loose a lot of value due to a stock market crash or dip. You have to pay a fee for setting it up - you also have to pay annual management charges. The AVC is good in that you have control over the amount you draw down each year when you retire.

From my research there was no straight forward answer. It was all about security for me and almost 5 years in I am very happy with my decision. I think that if I had signed up for the AVCs instead I would have taken payment breaks and would not have as much money in it. I have learned to live with my wages and if I retire at 60 I will have more money than I am currently getting!

When I signed up I had to wait until my next birthday - this meant that I was waiting for over 6 months to get it going and I was eager to start saving. I also found that the HR person I was dealing with in my job hadn't a clue about NPS and I had to explain that to her and she took a long time to get back with answers. So if you are going for NPS you need to do a lot of reading and be ready to present information to your HR dept. if they tell you it is not an option - because they don't know about it.

I'm sure you will get a lot of very good advice here - I did.

Best of luck with your decision.

Jumbled said:

Thanks for response.
Can you tell me how I would know what the ' normal retirement age' is please. This is the beginning of my pension exploration, as I'm sure you can see !!

Click to expand...

What Ruffian and Threadser said is very important.

I am a teacher and know of two colleagues who left their jobs for study and travel and when they went back into teaching they were put on the new pension scheme (retirement age 65 not 60). AFAIK if you leave the PS for more than 6 months you will be put on the new pension scheme (post 2004 scheme) the exception is that you got formal leave or were out on sick leave or maternity leave.

Will you have at least 2080 prsi contributions at age 58. If not you should either claim jobseekers credits up to age 66 or set up an ARF from AVCs to gain extra prsi contributions.
Read this thread for more information.

Jumbled said:

Apologies, what I meant was, I want to retire at 58 yrs having entered the public workforce 40 years previous but will only have worked for thirty years due to training, further education and travel. I want to buy ten years service towards my pension to retire at 58 but need my children to inherit my pension.

Click to expand...

Does your PS pension scheme allow normal retirement at age 58?

AFAIK, in most cases that is not possible.

It may be possible in Defence Forces, Gardai, psy nurses, who don't have the normal 40 years timeframe, but who have fast accrual.

I think some teachers can retire pre 60, under certain conditions.

sidzer said:

The positives about NPS is that there are no fees for signing up or annual management fees

Click to expand...

That's like the DoF saying there are no fees on Deposit Accounts even though they know that there is a margin of circa 3% on the account.

Yes, I understand the need for some to buy certainty. That's why people buy annuities.

The reality is that someone (probably an actuary) sat down to work out the contribution rates at some stage - made a few assumptions on mortality rates, growt rates etc. - and arrived at a cost to the customer. That 'someone' wasn't employed to make the deal a no-brainer for all and sundry.

IMHO, if you can buy AVC at a low cost, understand that you're not buying a certainty but something that may give you greater flexibility and achieve a modest growth rate on the fund/s you invest in, then you really shouldn't be in a worse position at the end of the day. Plus, you could always buy an annuity with the maturity value if the rates were in your favour at maturity, or later if you ARFed it.

If you're in doubt, find out what the Notional Service will cost, simulate a modest growt rate (after charges) for that gross premium based on your own age/retirement term and then use an online annuity calculator to see what that fund value would (currently) buy. Then weigh up what you actually want/need from that fund.


Gerard

www.prsa.ie

Having done a lot of work etc on this ( unfortunately after i retired having purchased notional service) ask your public service employer and recieve in writing the following - If i purchased Notional Service will it count as service when my Supplementary Pension is being calculated?
If answer is no, then dont bother wasting your money.
As an aside when i purchased notional service it was from my next birthday circa (40), but during the economic crisis and USC applied to salary i cancelled my notional service purchase which could be done on your next birthday circa (48), i enquired about getting the money i paid back but couldnt be done, in the end, the money i had paid was converted into circa 3yrs service.

stoves1 said:

Having done a lot of work etc on this ( unfortunately after i retired having purchased notional service) ask your public service employer and recieve in writing the following - If i purchased Notional Service will it count as service when my Supplementary Pension is being calculated?
If answer is no, then dont bother wasting your money.
As an aside when i purchased notional service it was from my next birthday circa (40), but during the economic crisis and USC applied to salary i cancelled my notional service purchase which could be done on your next birthday circa (48), i enquired about getting the money i paid back but couldnt be done, in the end, the money i had paid was converted into circa 3yrs service.

Click to expand...

AFAIK it does count for Supplementary pension - see above snip from my wage slip

Any update on notional service effect on osp

Chatterbox said:

Any update on notional service effect on osp

Click to expand...

Notional Service does not count towards OSP.

For example, if you retire at normal pension age with 40 years of actual service your you are currently eligible for a Supplementary of approx €14,500.
If your pension is calculated as 30 years of actual service plus 10 years of notional service then you are eligible for a Supplementary of 14500 * 3/4.

You do not pay PRSI towards the 10 purchased years. However, it is possible for someone getting this lower Supplementary rate to later get the full rate State Pension (or at least a fuller rate one) if they meet the PRSI conditions for same at 66, eg, credits, voluntary contributions, PRSI paid before public service employment.

Hi Ruffian if Notional Service does not count towards OSP then what is the point of purchasing years, if retiring before normal contributory pension age ie 66?
You can be sure circa 90 to 100% of people like myself that purchased notional service, were never told that it doesnt count towards OSP,
so i believe if implemented their is a good case for both the unions and/or individuals to go to the pensions ombudsman, appreciate thoughts please

Hi Stoves, I think I recall from previous posts that you are in the garda pension scheme (or similar). If so, the terms and conditions differ from general public service service schemes - and I have no familiarity with the details. Perhaps the OSP element differs as you have a compulsory retirement age but I don't know.
In general, though, the point of purchasing notional service is to increase the Occupational Pension. PRSI contributions go towards the coordinated element (Social Welfare) and there is no PRSI paid in respect of the purchased years. I have no idea whether that could be argued with the Pensions Ombudsman.