New Public Sector scheme and purchase of ‘Service’ etc.

world201812

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As a post 2013 entrant and long time lurker on the issue of public service purchase of notional service or equivalent for us recent entrants, I was alerted to this bit of news on purchasing notional service, or referable amounts as it is called now.


Anyhow, I’m trying to make sense of the 40 page document and interested in getting some other opinions on it. How does it look? Is it value for money?

I have a few questions.

In terms of eligibility, it refers to ‘must have completed vesting period’……

Am I right in thinking for example, if I joined Public Sector in January 2019, then it would be January 2021 before I could purchase years/referable amounts?

In terms of transferring in previous pensions from previous employers, my read of the document is you don’t need to be in the scheme for two years to transfer in a ‘pot’ from previous place?

Also, is my normal retirement age 67 or 68, or 66?

Any input greatly appreciated.
 

Early Riser

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Interesting that a scheme has been put in place.

You must be a member of the Scheme (paying into it) for 24 months for "vesting". You have to have completed this to be eligible for purchase.

Your normal retirement age depends on your date of birth, as follows:
Born before 01/01/1955 - 66
Born on or after 01/01/1961 - 68
Born between the above dates - 67.
 

world201812

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Thanks Early Riser.
I’ve had another look at this, and reckon although you can’t purchase referable amounts, you can in fact transfer in ASAP, as in ‘The arrangements outlined above come into force on 1 October 2019’.
The reason I say this about transferring in sums is the booklet says the following…..
John is not vested, but he is eligible to transfer benefits into the Scheme. There is no requirement for a Scheme member to be vested at the time of transfer, but they must have the potential to become vested before reaching their NRA.
Based on the above I can transfer in a PRSA on 01/10/19, irrespective of how short a time I have been in the public sector.?
There does appear to be limits in terms of the lump sum you can transfer in.
I’ve been trying to a calculation on the limit I can transfer over, without any joy, does anyone know of any public sector pension experts who could assist? obviously a pension company would charge for this…
The booklet also says…
John can choose to use the transfer payment to purchase only pension referable amounts, only lump sum referable amounts, or a combination of both (e.g. use €5,000 to purchase pension and €10,000 to purchase lump sum).
On the above, the pension referable amounts is what exactly, annual payments pension wise once retired as in a figure divided by 52 to work out how much per week?
To further complicate matters, if you are late entrant, wanted to avail of the chance to purchase retirement benefits /transfer retirement benefits accrued in, what impact would this have if you wanted to retire early on cost neutral from 55, where can one go for calculations/projections?
 

Early Riser

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506
I’ve had another look at this, and reckon although you can’t purchase referable amounts, you can in fact transfer in ASAP, as in ‘The arrangements outlined above come into force on 1 October 2019’.
The reason I say this about transferring in sums is the booklet says the following…..
John is not vested, but he is eligible to transfer benefits into the Scheme. There is no requirement for a Scheme member to be vested at the time of transfer, but they must have the potential to become vested before reaching their NRA.
Based on the above I can transfer in a PRSA on 01/10/19, irrespective of how short a time I have been in the public sector.?
There does appear to be limits in terms of the lump sum you can transfer in.
I know very little about the Single Scheme so I am in no position to advise. In relation to this new provision to both purchase notional service and to transfer in benefits from other approved pension structures, I would have thought that one or more of the public sector trade unions would conduct some sort of value for money analysis on behalf of their members. As it is very new, maybe they will do so. If you are a member it would be worth enquiring - and pushing.

My reading of the Circular is the same as you - you can transfer in without being a vested member (but you could not purchase service/referable amounts until vested). It seems you can do this from 01/10/2019. Yes, there is a limit on the amount you can transfer in. Also, if transferring in, you have to transfer the full amount of whatever is in the selected transfer kitty. If there is more in the kitty than the permitted limit then any excess is lost. So it is important to determine both your limit and the amount in your chosen kitty. (On the other hand, it seems that if someone had a number of previous pensions - kitties -they could stagger the transfer of each over a number of years so as not to exceed the limit in any year. Or that is my reading anyway).

As regards the calculation of your own transfer limit, have you tried applying the formulas shown in Example 3 to your own circumstances? If you are not in the scheme for a full year then it is based on the "annualised amount" of your pensionable remuneration. As regards the "pension referable amounts" you might purchase, these go towards your annual pension in retirement (and/or spouse's pension) but at what value exactly I am not clear. You can purchase both "pension referable amounts and "lump sum referable amounts".
There is the Single Scheme Estimator (https://singlepensionscheme.gov.ie/for-members/scheme-information/single-scheme-estimator-tool/) but this has not been adjusted to take account of this new purchase scheme - presumably it will be in time.

Sorry I can't be of more help.
 

Lookingforadvic

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World201812..Sorry to hijack your query but could I ask you for some advice too.

I left industry 4 years ago (have deferred pension +PRB too)..and retrained as teacher. Was thinking if this circular would apply to me.I have been subbing/mat cover/ job share during and since receiving my teaching qualification (subbed while trained as teacher too and been employed since qualification also). I suspect I do have 9-15 years left teaching before NRA, wondering WHY this might be of benefit to ME.

If I purchase or/and transfer, what are the advantages in general terms compared to leaving my PRB and deferred pension as they are? As a new entrant to the public service, I am finding this stuff a nightmare to comprehend....
 

Early Riser

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If I purchase or/and transfer, what are the advantages in general terms compared to leaving my PRB and deferred pension as they are? As a new entrant to the public service, I am finding this stuff a nightmare to comprehend....
Not in this situation myself, but those are key questions. I suppose the advantage of purchasing service is the generic one of the tax relief available. Given that purchases carry full relief at the marginal rate it appears a fairly obvious winner. The question then becomes one of whether to purchase notional service or to go the AVC route.

But what might be the advantages of transferring in existing pension benefits ? Particularly as the Single Scheme is not a "final salary" scheme? I wouldn't be rushing to do this until some sort of actuarial analysis was available. I would have thought that this is where the trade unions could be helpful - given that the Single Scheme is complex anyway.
 

Lookingforadvic

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Thanks Early Riser...the TU perhaps should be by next port of call..my first time ever in a TU..so I'm quite apprehensive of their focus and expertise!!!! Might reach out to an Authorised Financial Advisor subsequently..
 

Early Riser

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I doubt your TU will give you individual advice, Lookingforadvic. But they should be providing a generic analysis of these new scheme options, with pros and cons.
 

world201812

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Hi Early Riser,
Many thanks for this information.
You have been very helpful.
I will get on to the Trade Union as you suggest.
On this, you have to transfer the full amount of whatever is in the selected transfer kitty. If there is more in the kitty than the permitted limit then any excess is lost
If someone had say 30k in a previous PRSA/Pension, and the most I could transfer in was 15k, I presume I could split the 30k pot into two through the provider, say Irish Life, and that way I could make a ‘clean’ transfer in?
On the calculation, yes, I will also seek advice via the trade union.
 

Early Riser

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If someone had say 30k in a previous PRSA/Pension, and the most I could transfer in was 15k, I presume I could split the 30k pot into two through the provider, say Irish Life, and that way I could make a ‘clean’ transfer in?
On the calculation, yes, I will also seek advice via the trade union.
The short answer is that I don't know. But these extracts from the circular seem to indicate that they will not accept split transfers :
"All transfer values relating to a previous employment,PRSA or BoB/PRB must always be included in the purchase of referable amounts by way of transfer. No split transfers are permitted.For this reason, Scheme members should be aware that in cases where the transfer value exceeds the cost of purchasing the maximum amount of pension/lump sum referable amounts permitted for the individual member under this Circular, this would result in the balance of the transfer value being lost to the member"
"Taking account of the limits set out in this Circular and the rule that no split transfers are permitted, members should pay particular attention, with the help of independent financial advice if necessary, to the sequence of purchase contracts, where both actual purchase and purchase by way of transfer are anticipated by a member; "


As mentioned in an earlier post, I suspect that the TU will not give you individual financial advice - but they should be asked to produce a generic advisory on the provisions of this circular.

Given that the Single Scheme pension is not based on final salary what do you see as the advantage of transferring in your previous pension - unless you think that the other pension is in danger of being wound up? Why not purchase notional years or go with AVCs, either of which attract generous tax relief?
 

world201812

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Thanks Early Riser.
Apologies, I hadn’t spotted about the split transfers.
The other pension I was thinking of transferring in is an Irish Life PRSA which is the accumulation of a couple of previous pension pots, one of which as you allude to, stemmed from a scheme that was wound down, changed from DB to DC whereby things got messy.
Basically, my ‘other’ pension is sitting a PRSA.
I understand AVC’s attract generous tax relief, and something I might be better off considering.
In terms of ‘Why not purchase notional years’, do you mean referable amounts or as the document references? Or something else? My understanding is notional years can’t be purchased.
 

world201812

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Update on this... might need your insight again Early Riser and co!

Appears more relevant information has been posted on the single scheme site as here, including a handy calculator.

https://singlepensionscheme.gov.ie/

I have been trying to get my head around the slide on page 89. Of this..

https://singlepensionscheme.gov.ie/wp-content/uploads/2019/06/20190618-Single-Scheme-Townhall.pdf

It refers to Purchase payments may qualify for tax relief; so my read on this is as if you are transferring in an existing pension/PRSA, no tax relief is available as you likely availed of it?

Also based on the below, are they saying if you make an ‘Actual purchase facility’ payment are once two years in the scheme, do you qualify for the 40% rebate or equivalent from Revenue?

If so, Is purchase exclusive of the 20% per annum that you can do as AVC, which is what I am doing anyhow, or is it part of it, if that makes sense?

So if earning 40k, under 40 years of age, putting 14% on top of say 6% standard into a PRSA, if you then want to purchase referable amounts via the Single Scheme, should you reduce standard PRSA AVC payment of 14% to keep with 20% limit? Or not?

What is Large purchases may not be fully tax-relievable all about?

Also, how do I figure out if I am better purchasing Lump Sum or annual payment?

If I transfer in from elsewhere before I am out of vesting period, but have potential to make up the nine years, it is lump sum only I can avail of?

I am joining the scheme in mid-30’s, with a pipe dream of possibly being able to avail of cost neutral early retirement at 55 odd, so maybe a factor for consideration.
 
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Early Riser

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I haven't had a chance to read that document. But I'd be confident that the tax relief for pension contributions includes both AVCs and and "actual purchase" into the main scheme. If you are between 30 and 39 that is 20% total - all of your pension contributions combined.

By the way, to get the 40% rebate you would have to be paying tax at 40% in the first place. If your salary is €40K and you want to contribute 20% (€8K) are you paying 40% tax on all of that in the first place? I think the 40% tax band only kicks in at €35.3K for a single person. That would only leave a balance of €4.7K at 40%.

It makes total sense that transfers from an existing pension scheme would not qualify for further tax relief.
 
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