Is PRSA AVC a better option than purchasing Notional service in this instance?

[willbee]

Hello all again, This area has generated alot of interest again lately and I've been looking it up alot on AAM, where all threads and posts are very informative. Well done to all.
But I have n't seen a similar situation to mine on AAM yet. So here goes.
I started teaching when I was 22.I'm now 35. I intend to have the option to retire at 55yrs of age. ( 33yrs teaching + 2yrs for 4yr degree course). So to increase my pension benefit I have been paying into a Marsh AVC for the last 10 yrs, (€9k of a fund there now)which I am about to change to a Low cost Eagle Star PRSA. Is this wise?
I was also on to my employer (VEC) to purchase 2.6 years if I wanted to retire at 60, on full pension, they quoted me €61,166 for 2.6 yrs. (1.17% of Salary 'til I reach 60)Some of which I can claim back on tax I'm sure. Is NSP that expensive??
What are peoples views on this, should I forget about the NSP, or just increase contribution to a PRSA AVC? All replies appreciated.

 

[mula]

Hello all again, This area has generated alot of interest again lately and I've been looking it up alot on AAM, where all threads and posts are very informative. Well done to all.
But I have n't seen a similar situation to mine on AAM yet. So here goes.
I started teaching when I was 22.I'm now 35. I intend to have the option to retire at 55yrs of age. ( 33yrs teaching + 2yrs for 4yr degree course). So to increase my pension benefit I have been paying into a Marsh AVC for the last 10 yrs, (€9k of a fund there now)which I am about to change to a Low cost Eagle Star PRSA. Is this wise?
I was also on to my employer (VEC) to purchase 2.6 years if I wanted to retire at 60, on full pension, they quoted me €61,166 for 2.6 yrs. (1.17% of Salary 'til I reach 60)Some of which I can claim back on tax I'm sure. Is NSP that expensive??
What are peoples views on this, should I forget about the NSP, or just increase contribution to a PRSA AVC? All replies appreciated.

how long do you think you will live?

 

[willbee]

Mula, All I am trying to do is have the option there for me to retire at 55 if I need it, if I feel 'up to it' at 55 I would continue to 60 and get the full state pension. Already, I have had work colleagues and recently retired colleagues who have 'passed away' without getting to enjoy a retirement, because ,in my opinion, they couldn't retire early as they had n't their pension 'sorted'. Despite all the slagging about the holidays and what not, us teachers are doing a very stressful job that does take its toll!

 

[mjb]

Am teaching 30 years this year and intend to retire at 55 or 56.[in 3 or 4 yrs time] I will have 33 yrs service at 55 same as you. Am buying 2 years notional service by periodic deduction from age 60 and have an avc with Marsh which i have recently increased for the final few years. God willing am doing what you are planning to do. Hope this helps

 

[willbee]

Am buying 2 years notional service by periodic deduction from age 60

Thanks for the reply MJB, Can I ask are you taking much of a reduction in your teacher's pension and final lump sum by going at 55/56?
Also probably a daft question, is it true that you will have to live on your AVC (or ARF) only, from 55 until you reach age 60, then you get the teachers' pension?

 

[oysterman]

Thanks for the reply MJB, Can I ask are you taking much of a reduction in your teacher's pension and final lump sum by going at 55/56?

There's no reduction provided you have 35 years service and are minimum 55yo (no longer true for new recruits but that's not relevant here).

Of course the amount of your pension is based on pensionable years actually worked so if somebody aged 55 who has worked 33 years (and 4 year degree making up the other 2 years to get to 35) will qualify for 33/80's pension and 99/80's lump.

Also probably a daft question, is it true that you will have to live on your AVC (or ARF) only, from 55 until you reach age 60, then you get the teachers' pension?

No, if you satisfy the conditions I mention above you can get your pension paid immediately on retirement.

If you don't fall under 35/55 you can stop working and defer your pension until 60 but in this case I don't think you can draw down anything from your AVC until the occupational pension is paid (to the best of my knowledge).

 

[LDFerguson]

If you don't fall under 35/55 you can stop working and defer your pension until 60 but in this case I don't think you can draw down anything from your AVC until the occupational pension is paid (to the best of my knowledge).

That's correct - any AVC or AVC PRSA must be drawn at the same time as benefits from the main scheme.

 

[willbee]

Thanks for all the replies. It clears up alot of my queries. I have one more and sorry for going on a bit. If I buy a year back, through Notional Purchase and still take early retirment at say, age 55 satisfying the 35 yrs service, I will take the 33/80s pension and 99/80s lump sum Plus the actuarially reduced pension on the year purchased through the NSP. Is this the Case? Will I get the benefit of this NSP year at age 55 or will I have to wait til age 60? Thanks to everyone once again.

 

[oysterman]

Are you paying for the notional service by lump sum or by regular deduction from salary?

 

[willbee]

Hello Oysterman, I've been given the option to buy 2.6yrs at a total price of €61K lumpsum or €1637/month, payments for the rest of my teaching career. Or I could buy one year for €23K lump sum or €629/month for the rest of my teaching career. I dont know what I will do yet. Have you any advice?

 

[cord]

Hello Willbee, just looking at the figures you quoted. I think you mentioned that you would like to retire at 55, some 20 years time? I hope to do the same in 10ish years time. You were quoted 23k to buy one year, while I was quoted 28k. But I was quoted €1500 per year for periodic payement, not (€629x12) €7548 ? I felt that my payements should be the more expensive ones?

 

[oysterman]

Hello Oysterman, I've been given the option to buy 2.6yrs at a total price of €61K lumpsum or €1637/month, payments for the rest of my teaching career. Or I could buy one year for €23K lump sum or €629/month for the rest of my teaching career. I dont know what I will do yet. Have you any advice?

If you pay by lump sum and retire before 35/55 kicks in, the value of the notional service you will be entitled to will be actuarially reduced in line with the reduction in your actual purchased service. If 35/55 has kicked in, there would be no reduction.

If you purchase by regular deduction and retire early there will be, pari passu, the above reduction plus a pro rata reduction for the fact that you will not have completed the notional service purchase up to your chosen retirement date for the notional service purchase (60 or 65).

As to which option you should take, I wouldn't dream of advising you. Either is a massive financial commitment.

Is notional service for you?

You're 35 years of age now. You're considering buying what might be regarded as a small additional pension benefit (i.e. an extra 2.6/80s of final salary in pension plus 7.8/80s lump sum) to be drawn down in at least 20 years for what looks like a lump sum that you could extract some serious benefit from now (or an ongoing deduction from salary that you'll really feel). You might never live to enjoy it.... And so on for the argument against.

The argument for buying the notional service is one you've clearly already formulated since you've gone to all the trouble to get the numbers.

Me? I'm a fan of notional service in theory but please sit down and crunch all the numbers before you commit. Only you will know if it's the course of action for you.