How to calculate which is better - buying notional service or investing alternatively

[Orga]

Hey folks,

I have a simple decision to make and would appreciate your help - basically do I opt for purchase of notional service to enable retirement at 60. If so I'll have to buy about 3yrs and a few months. It's a guaranteed scheme - as in I know what I'm getting on retirement - total cost after tax relief is 100 euro per month. How do I calculate if this is a good deal or not - what's the maths is my question? As in:

1. How do I calculate the return on my 100 per month for the next 25 years
2. How would I figure if another method of saving would give a better return??
Thanks in advance

 

[Brendan Burgess]

Re: How to calculate

Hi Orga

It's not by any means simple. I have always felt that the Trade Unions should do a document on this subject to help people make the decision. Instead, if you are a teacher, you will probably be sent to Cornmarket or some other broker and pay heavily for the advice

Brendan

 

[ajapale]

Re: How to calculate which is better - buying notional service or investing alternati

If you are buying notional service you need to consider how much it will cost you to buy each years service. Do you intend buying the notional service with a lumpsum or as a salary deduction over a number of years.

In addition you should understand the nature of the DB scheme in which you are buying the notional service. Get the scheme rules.

Are you in the civil service, or perhaps you are in the broader public service (guards, nurses, teachers, local authority, hse) or perhaps you are in the broader still commercial semi state public sector (ESB, Bord Gas etc). While there are similarities these schemes can vary widely in terms of their benefits and contibution rates.

When you retire is your pension indexed with pay parity, indexed with inflation, indexed at fixed %, discretionary incerases, no incerases)?

Specifically is the scheme funded or unfunded? If it is unfunded (most schemes in the public service) then what is your view that the govt will be able to meet their liability when it comes time for you to retire? If it is funded then what is the state of the scheme? Is is distressed or underfunded? What is the state of health of the business? (IFI, Irish Shipping spring to mind).

Also what age are you now and how many years service will you have when you reach normal retirement age? If you buy notional years now and go on to work a full 40 year career then your purchase of notional service will be wasted!

Be sure to read the key posts on DB schemes at the top of this forum.