Late entrant to teaching pension

T

Timetomove

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I should know this but would love clarification. I entered the public sector pension scheme in 2018 and hope to have 16 years in this scheme up to retirement.
I also have a previous pension fund from a private sector employer, not huge but it's something.
Assuming I have the full 2080 credits, some from private sector, some from public sector, will I qualify for the full contributory state pension at 66 as well as whatever I am entitled to from my teaching pension and private pension?
If I have 16 years teaching fulltime, no breaks, what is the formula to calculate my entitlement under the new pension scheme? Is it 16/40 x 50% of average salary?
Finally there are gaps in my prsi credits, how can I get these corrected and can I do that now and if so, how?
Thanks in advance for any info/advice
 
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Timetomove said:
Assuming I have the full 1040 credits, some from private sector, some from public sector, will I qualify for the full contributory state pension
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If your combined total of paid contributions from work, voluntary contributions, Long-Term Carer's Contributions, HomeCaring Periods and credited contributions is at least 2,080, you will get the maximum State Pension (Contributory) rate. If it is less than 2,080, you will qualify for a reduced rate of pension.

Apply for your Social Insurance Record to see what paid contributions and credited contributions you currently have on your record. That can be done here.

The Statement should total up the reckonable contributions you currently have. If you work for another 9 years you can add 468 (9 years x 52 Class A stamps) contributions to the total (i.e. assuming you retire in 2034).

Timetomove said:
what is the formula to calculate my entitlement under the new pension scheme? Is it 16/40 x 50% of average salary over 16 years?
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The best way to conceptualise it is that full service Single Scheme members (i.e., with 40 years service) will have retirement income of 50% of their career average salary (including the State Pension).

For instance, a member with 40 yrs service and a career average salary of €55,000, will receive an occupational pension from the Single Scheme of c.€12,500 p.a.

With 2,080 PRSI stamps after 40 years of work, they will also receive a State Pension of €15,043.

Therefore, their occupational pension combined with the State Pension will give them a retirement income of €27,500 (~50% of career average salary).

In the case of estimating your entitlement under the scheme using a rough formula, it would be more precise to use 16/40 x 50% x [ average salary less (2 x State Pension) ].

Another rough way to estimate your occupational pension would be to refer to your most recent Annual Benefit Statement and get the 'Referable Amount' earned towards your pension in the year and multiply that by the number of years left to retirement and then add that to the 'Accumulated Retirement Pension at year end' figure.

There are more nuances to it than the general info above as there are inflation rate adjustments and salary growth rates etc. You'll also have a Lump Sum benefit too.

All Single Scheme members should be familiar with the Scheme Booklet and also refer to the Estimator Tool if needed.
 
I'm looking in to this myself now. I'm trying to figure out my accumulated pension entitlements on the Single Scheme and also my scope for making AVCs. As a guide I'm using formulas in the Single Scheme thread and trying to build a spreadsheet calculator for it.

@AAAContributor (or anyone else) would you know the answers to these questions?

Q1: Calculating the capitalised value of 2/3rd Final Salary:
According to Revenue, provided they have completed at least 10 years of service, public sector workers can accumulate pension benefits up to max 2/3rds of their final salary at normal retirement age (NRA). For Single Scheme members I think that the NRA is currently 66.

When calculating the capitalised value of 2/3rds final salary at NRA I use the formula:
Capital Value = 2/3 * Final Salary * Capitalisation Factor
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The Capitalisation Factor (CF) comes from Table 1 in Chapter 5 of Revenue Pensions manual.

What if I worked beyond 66? Do I still use the CF as though I am 66? Why does that table go to 75?

Q2: Calculating the capitalised value of Single Scheme pension benefits someone could accumulate between now and their retirement:
I'm looking at the Single Scheme FAQ from May 2023 where in Pt 38 it states:

This is the formula used in the Single Scheme thread to calculate a capitalised value of Single Scheme pension benefits someone could accumulate between now and their retirement:
X = (Current Salary / 2) – (Current Annual value of Max Contrib State Pension)
Capitalised value of referable pension from now to 66 = X * 0.025 * (Number of years till you reach age 66) * 25
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"25" is the valuation factor for someone retiring at age 66 from Appendix 1 of the DPER-Circular-Letter-27.06.2014

However this formula, and what is mentioned in the above comment, is based on a 40-year service time frame and doesn't use the actual method by which Single Scheme members accumulate benefits as per Point 29 in the Single Scheme FAQ from May 2023: 0.58% of Gross Salary up to 3.74 times the Max CSP + 1.25% of Gross Salary in excess of that threshold.

In this case does it not matter how pension benefits are actually accumulated under the single scheme because when estimating the max allowed pension benefit that can be paid-out to PS workers (yet) another Revenue Max rule applies from Pt 6.4 in Chapter 6 of the Pensions Manual which limits regular pension payments to 1/2 final salary and Lump sum to 1.5 times final salary? So the formula above based on assumed 40-years service is correct in calculating the Max benefits one could accumulate on the single Scheme?

Grateful for any help.
 
CharlieMac said:
@AAAContributor (or anyone else) would you know the answers to these questions?
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I'll have a go!

Simply put, I think what you are trying to achieve from your exercise is:

1. Make sure that the capital value of your pension benefits will be under the Standard Fund Threshold (SFT), as this will factor into any decision to contribute AVCs (and it's useful to know if Chargeable Excess Tax will be a consideration for you), and

2. Ascertain your scope for making AVCs, so that you are within Revenue funding limits.

The capitalisation factor to use for the first exercise above is in the Table in Paragraph 9 of Revenue Pensions Manual - Chapter 25. The capitalisation factor to use for the second exercise is in Revenue Pensions Manual - Chapter 5.

SFT
If I were you, assuming you are a good distance out from retirement, I would use the Single Scheme Estimator Tool to estimate what your annual pension and lump sum will be at NRA (say 66).

Next, to find the capital value of these benefits, multiply the estimated pension by the age-related factor for age 66 of 25 and add your lump sum estimate (plus any other retained pension benefits you may have).

Unless you have (or will have) a very senior role and long service, the SFT shouldn't be an issue. If you are still a long way out from retirement, some sensible earnings growth assumptions will need to be made to estimate what the SFT could be at your point of retirement (in order to compare against the future value of your pension benefits from the Estimator Tool).

AVC Funding
Secondly, to test your funding scope for AVCs, the easiest thing to do is to go to your Public Sector AVC Scheme company or PRSA AVC financial adviser to do that check for you. If you are determined to do it the hard way, I'd follow Example 3 on Page 9 of Revenue Pensions Manual - Chapter 5 and plug in your own numbers:

- use your current salary for the Rev Max salary (assuming you'll have 10+ years of service) and capitalise appropriately,

- take your accumulated annual pension benefit from your latest Single Scheme Annual Benefit Statement to insert in the 'Pension' column on Line 2 (don't worry about the 'Pensionable Salary' and 'Benefit' columns - you've bypassed the need for these), and capitalise appropriately,

- use your accumulated lump sum from your latest Single Scheme Annual Benefit Statement for your 'Gratuity' figure,

- insert AVCs made to date (if any), and

- follow the calculation methodology to get your scope.

I'd imagine that after you do a mirror calculation with your figures and relevant cap factors, you'll have plenty of current funding room for AVCs.

CharlieMac said:
Why does that table go to 75?
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It goes up to 75 to accommodate a range of retirement ages - nothing to do with the State Pension age or the NRA of the Single Scheme.
 
Thank you, this is really helpful.

I think I have a pretty good idea about the formula to use it's just what age-related Capitalisation Factor (CF) to use.

Firstly for putting a Capital value on 2/3rd final salary. The NRA of the Single Pension Scheme is 66 so do I use the CF for age 66 or what if I end up retiring at age 70? In that case do I use the CF for age 70?

I ask because from reading Ch6 of the Pensions manual it states.

The capital value of 2/3rds final salary is the chief determinant in working out a PS workers scope for building an AVC fund. If I end up retiring at age 70 and so have to use a CF for age 70 in this calculation then my scope for making AVCs is a lot less than if I could use the CF for age 66 which is the NRA for the Single Pension Scheme.
AAAContributor said:
- use your current salary for the Rev Max salary (assuming you'll have 10+ years of service) and capitalise appropriately,
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If I plan on retiring at age 70 do I use the CF for 70 or is it still 66?
 
CharlieMac said:
what if I end up retiring at age 70? In that case do I use the CF for age 70?
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Yes. You don't have to take your Single Scheme (and AVC) benefits at the NRA of 66. You can defer access to 70 if the terms and conditions of your employment allow. If you are planning at the moment to go to 70, use the CF for 70 for the purposes of the exercise, or split the difference between 66 and 70 and use, say, the factor for 68 and just keep things under review.


When you are comparing the two Revenue maximum benefit values are you using an increased salary for the age 70 calculation so that you are comparing like-with-like with the age 66 calculation?

For instance, with a salary of €60k, the 2/3rd benefit is €40k. Capitalised at 27.6 (for a married male, NRA = 66) gives a figure of €1,104,000.

However, if you were going to age 70, factoring in, say, 3% salary growth in the intervening years, the salary you would be working off would be €67,533 (not €60k), 2/3rd = €45,022, capitalised at 24.4, gives a Rev Max of €1,098,537. Not much of a difference there.

This is very academic though - it's not as if you'll be able to fund in one go. Get started on your contributions (if it's right for your financial circumstances), make sure you are within the limits for tax relief and get your broker or intermediary to do a funding check. Rinse and repeat as the years go by.
 
You're right, that makes sense to increase the projected final salary if retiring a few years later, although I might expect/hope for something more like a salary increase of 2% per year. In this case the drop off in AVC funding gap might be covered by an increase in accumulated SPS pension benefits.

Appendix 1 of the DPER-Circular-Letter-27.06.2014 has another list of valuation factors to capitalise PS pension benefits accumulated or yet to accumulate. That circular uses language that makes it more clear how they are to be used:
The legislation provides that defined benefit pension entitlements crystallising after 1 January 2014 will be valued for SFT or PFT purposes by the use of capitalisation factors varying with the age of the beneficiary at the date of crystallisation.
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I found the wording in chapters of the pension manual more open to different interpretation.
The aggregate benefits payable on retirement to an employee who retires at normal retirement age after 40 or more years' service... should not exceed two-thirds of final remuneration on retirement..
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So I thought that meant the CF factor to be used, in valuing 2/3rds of final salary, would have to be the CF factor for the age of the NRA for your pension scheme... hence 66 for the SPS.

Anyway it seems I was wrong and you use the CF for whatever age you are at retirement same as with how the Valuation factors in the 2014 Circular are used.

I'll go with your advice, thank you!
 
AAAContributor said:
the case of estimating your entitlement under the scheme using a rough formula, it would be more precise to use 16/40 x 50% x [ average salary less (2 x State Pension) ].
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Thanks so much for your detailed response. Can I just ask why the State pension is x2 in your formula? I'm obviously missing something.
So if my average salary over 16 years is €50k, would my entitlement under the scheme be 6,250? This added to 12, 500 state pension giving 18,750 being half of 16/40ths of average salary?
 
Timetomove said:
Can I just ask why the State pension is x2 in your formula?
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The offset multiplier in the formula above is a function of the retirement benefit to be provided.

For instance, if an Occupational Scheme is designed to provide a retirement package of 2/3rds of salary (including the State Pension), then the offset multiplier for the occupational pension calculation would be 1.50 (i.e. 1/0.6667).

If the Single Scheme wants to provide a package equal to half of salary, then the multiplier would be 1/0.50 = 2.
 
Can I volunteer my calculation of annual pension benefit, from the PS pension scheme only, using the suggested final salary in the OPs last comment...

As they will have > 10 yrs service they can start the calculation as though they are entitled to half final salary so...

€50,000 / 2 = 25000
But this 25,000 includes the state pension so...
25,000 - 12,500 = 12,500

12500 is the pension the OP could build up by paying in to their PS pension scheme IF they had full service on retirement.

Since they will have 16 years then...

16/40 * 12,500 = €5,000

€5,000 is annual amount of pension the OP will accumulate on their PS pension scheme.

Did I get it right or wrong?!

If the OP is a member of the Single Pension Scheme then the formula for accruing benefits is actually different but as I understand it the Revenue allowed max is half final salary as stated in Ch 6 of the Pensions manual. And the formula Revenue use for calculating if accrued benefits are within the max limit is based on the rule of 40ths as above.
 
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16 years teaching means not enough time to reach the top of the (very long) teachers payscale

Pension lump-sum

3.75% * each year's FT gross pensionable salary (for each year)

I think 50k is too low as an average salary, but I will use it.

Lump-sum = (3.75% of 50k) * 16 years = €30,000 lump-sum
 
Pension benefit

CSP threshold = 3.74 *(52.18 * €289.30) = 56,457.82

0.58% * 50k for each year

290pa for each year * 16 years = €4,640 pension
 
And I think they could use AVCs to "buy back" SPS pension up to max €5000. As per Revenue rules (Ch6) on max allowed PS pension in my calc above?

Would likely have scope to build up AVCs beyond this also.
 
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