Over-Providing for Pension! What does ths mean..

S

sidzer

Registered User
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I have just read in another post in AAM someone cautioning about being careful not to over-provide for pension.

1. Can anyone explain what this means? Is it not a simple what you put in you take out? And therefore the greater your provision the greater the benefits later...

2. As a state employee if I set up an AVC (PRSA) is this not totally separate from my state pension? Or is my state pension effected by my personal AVC s?

Any steer on this would be most welcome..

S
 
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For Occupational Pension Schemes (which would include superannuation schemes for State employees) there's an over-riding maximum pension that you are allowed to take. In very broad strokes, it's 2/3 your salary at retirement, with provisions built-in for escalation during payment and spouse's pension.

If a combination of the superannuation benefits plus any AVCs result in a pension that exceeds these limits, you're over-funded.

This is totally separate from the State Contributory Pension, which is based on your PRSI contributions, and is irrelevant in this context.
 
Thanks LD Ferguson..

I thought that a PRSA is a private matter and does not cross paths with the state pension... That I could have 40/80 state pension plus whatever I have accumulated through a PRSA!!!!

Are PRSAs only for people who won't have the full 40 years service on retirement? So that the PRSA makes up any shortfall?

Thanks S
 
The over-riding rules are the ones laid down by Revenue for all Occupational Pension Schemes. In practice, State superannuation schemes don't usually provide for the maximum Revenue-allowable pensions even at 40 years service. So there's scope to improve using an AVC or AVC PRSA.

Although an AVC PRSA is a contract between you and the PRSA company, it is still governed by the maximum funding rules.
 
I thought that a PRSA is a private matter and does not cross paths with the state pension... That I could have 40/80 state pension plus whatever I have accumulated through a PRSA!!!!
Click to expand...
Your PRSA and state pension are seperate matters Afaia at retirement age you are entitled to
1. the full state pension
2. plus your jobs pension
3. plus PRSA - a pension is normally bought from the funds available (this may have changed)
2 and 3 are added together to make sure they do not exceed revenue guidelines
afaia the final employer through their advisors take control of all pensions excluding the state pension to ensure you do not exceed revenue guidelines

An AVC is in addition to your pension from your job. It can be used to increase the benefits available to you on retirement. The max you can take is 2/3 of your salary your spouse can also qualify a full pension ie 2/3 of your final salary.

Are PRSAs only for people who won't have the full 40 years service on retirement? So that the PRSA makes up any shortfall?
Click to expand...

Many defined benefits schemes only allow for 1/2 or 2/3 of your company pension to be payable as a spouses pension or do not allow for a spouses pension at all.
BIK payments - you can also increase your pension by the amount of the BIK
Lump sum payments - Many DB schemes allow for the payment of a lump sum on retirement with a reduced pension. With an AVC you can take a lump sum up to 1.5 times salary without it affecting your annual pension

I'm sure there are others but can't think of them now.

If you think you are overproviding you should contact your pensions advisors
 
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The OP is a public servant, it appears.

They have ample scope for funding a PRSA before overfunding becomes an issue even for a pensioner with the maximum 40 years service i.e.

1. 50% pension + 150% lump sum involves the commutation of 16.67% pension for the lump sum (versus the Revenue 66.67% maximum pension). Revenue accept that 16.67% is too high.

2. Public service pensions pay a surviving spouse only 50% of the original pension. Revenue allow 100%. [This is a very expensive feature to fund - a search of annuity rates will give some idea of how costly it is.]

3. Allowances and promotions gained in the last 3 years of service will not be fully pensionable.

4. The employee may have other non-pensionable income.

5. Revenue in fact permit 66.67% PLUS the OACP. The OACP is integrated into the pensions of post-1994 hired public servants and is not payable to those hired before that date. All can fund the value of the OACP themselves. [This applies also to private sector workers where integration of the OACP is a feature of many defined benefit schemes.]

Net, it does seem that it's very unusual for a public servant to confront the overfunding issue.
 
Thanks folks...

Just when I thought I was getting a handle on this stuff....

I don't suppose the sales men of cornmarket or marsh will tell me I am over-providing... So I need to talk to someone in the department of ed before I set up a PRSA - to find out what extra capacity I can fill...

S
 
There is usually plenty of scope, a good broker should be able to calculate exactly how much as a % of salary you can contribute without "over-providing".
 

between funding for your pension and the spouses pension i highly doubt youd come anywhere close to overfunding given the caps on contribution levels based on your age salary etc
 
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