Does the levy make notional service an even better deal?

[oysterman]

Given that public sector workers are suddenly paying more than twice as much in contributions to their basic pensions and that there has been no increase in notional service contribution rates, I reckon NSP is now the best value it has ever been. Anybody who will have less than full service at normal retirement age should seriously consider entering into an NSP contract as soon as possible. When they spot this anomaly they'll be bound to close it off. Unless, of course, the Dept. of Finance doesn't view this as an increased pension contribution but rather as a mechanism of cutting wages without describing it as such.

 

[Dreamerb]

What anomaly?

I'm not sure I understand the point you're making here. As far as I can see the value of NSP remains unchanged, and it won't affect the impact of the levy.

 

[oysterman]

Up until now an NSP purchaser has been paying x% of salary for his/her basic superannuation and y% to buy a few years notional service. Now he/she will be paying >2x% for the former but still only y% for the latter. Unless, of course, the government imposes a special levy for NSP purchasers - and succeeds in making it retrospective; my bet would be that they will just increase (very significantly) the notional service purchase rates - otherwise, they can't continue to represent this imposition as a levy.

 

[Dreamerb]

Nope, still not understanding your point. NSP is already on an actuarially calculated cost-neutral basis, whereas even with the levy added the contribution for the normal pension is not sufficient to fund the benefits. The issue is that the normal pension is becoming more expensive - but it's still extremely cheap for what it is.

 

[oysterman]

Where's the evidence that the current superannuation system is in deficit? By how much? Why do contribution rates need to be more than doubled? The truth is that the levy is not designed to plug an unquantified funding hole in the public service pension system, it is simply a method of achieving the €2bn current budget narrowing to which the government arbitrarily committed itself.

 

[Dreamerb]

Where's the evidence that the current superannuation system is in deficit? By how much? Why do contribution rates need to be more than doubled? The truth is that the levy is not designed to plug an unquantified funding hole in the public service pension system, it is simply a method of achieving the €2bn current budget narrowing to which the government arbitrarily committed itself.

I'm perfectly well aware that it is not to plug a hole in the public service pension system - but that's because it's all on an unfunded pay as you go basis. As such the question of deficit does not arise - but every single pensions expert, from the public or private sector, can tell you that the contribution civil and public servants make towards their pensions would not be adequate to fund such pensions. Rather out-of-date, but still informative, is this paper:
http://www.finance.gov.ie/viewdoc.asp?fn=/documents/psp/pensionsfinal.htm

That has nothing whatsoever to do with your initial post, which seemed to suggest that NSP is somehow better value now than it would have been anyway; from this I'd hypothesise that you aren't actually purchasing service, since you'd then realise how much more expensive this cost-neutral buy-back is than standard contribution rates.

In any event, it's not as though anyone has the option of NSP or pension contributions; the former augments the (compulsory) latter if and only if you qualify to purchase.

 

[MugsGame]

Given that public sector workers are suddenly paying more than twice as much in contributions to their basic pensions and

Public service "pension" levy is based on income bracket, not your NSP or pension contribution. So not sure how the levy affects the effective return on NSP?

 

[oysterman]

from this I'd hypothesise that you aren't actually purchasing service, since you'd then realise how much more expensive this cost-neutral buy-back is than standard contribution rates.

In fact I am paying for NSP - so, to me the argument re the relative value of standard superannuation versus NSP (now that the levy has been imposed) is not relevant i.e. I made my mind up that NSP was right for me a couple of years ago and, given that it now costs as much as it ever did, I'm not going to change my view (unless they find some way of increasing the cost of NSP to me.

My point is that somebody who is currently only buying actual servive but considering NSP may, in the past, have been put off when weighing up the cost of buying notional years versus actual ones. But the cost of purchase of actual years has now more than doubled with no increase likely (in the short term) in the price of buying notional years. This makes NSP seem like a better deal.

Value is always a relative concept - if good A doubles in price and good B stays at the same price then good B is now better value.

The fact that the public servant is forced to continue buying actual service (at now more than double the cost) should make more of them opt into NSP, in addition to buying actual service, since NSP now looks like better value.

 

[Dreamerb]

But the cost of purchase of actual years has now more than doubled with no increase likely (in the short term) in the price of buying notional years. This makes NSP seem like a better deal.

Value is always a relative concept - if good A doubles in price and good B stays at the same price then good B is now better value.

It doesn't fully apply in this case since good A is not substitutable by good B. Given that good B is substantially more expensive anyway, it just looks relatively less more-expensive, rather than actually less expensive. And since the price of the mandatory good A is increasing, leaving people with less by way of disposable income, I think it's a good bet that uptake of NSP will decrease, rather than increase.

 

[dafmurray]

The recommendation is that public servants contact their Salaries Departments with any questions relating to Pension Levy. It's clear that the Levy hasn't been thought through fully yet and the only reliable information will be through official Human Resources and Salary Depts. The Levy calculator on the homepage of Dept of Finance is pretty basic, but does appear to include tax relief (I think).