Pension Statement - Entitlements???

[gweebarra]

Just received my pension statement for the last year. I am in an occupaitional defined contribution scheme.

Therefore, I assume I will only be able to avail of an annuity mortgage as well as a certain tax free lump sum. I cannot purcahse and ARF unless I have some of the fund in AVC's etc.

The projected fund will be worth Eur 850,000.

It then tells me that my pension entitlement will be Eur 40,000 per annum, assuming the whole fund is used to purchase the annuity and none is taken as a tak free lump sum.

How is this calculated?

I was under the impression that I could choose to receive up to 2/3rd's , assuming 10 years of service.

I could also take 150% of of my final pensionable salary
as a tax free lump sum, assuming 20 years of service.

Is this not the case?

How are they working out an entitlement of Eur 40,ooo per annum based on a fund of Eur 850,000?

Also, is this projected fund low for someone in their early 30's?

 

[Guest]

> Therefore, I assume I will only be able to avail of an annuity mortgage as well as a certain tax free lump sum. I cannot purcahse and ARF unless I have some of the fund in AVC's etc.

I presume you meant annuity and not annuity MORTGAGE above?! For information about your options on retiring check the rules of your scheme and the Pensions Board FAQs and booklets:

www.pensionsboard.ie/faq_doc.asp?id=3
www.pensionsboard.ie/publ...id=2&CID=2

> How is this calculated?

The small print should say. Probably based on the assumptions that you continue to contribute to your pension fund at the same level (possibly indexed for inflation), that growth at some assumed level (6%?) will take place (which is not guaranteed by any means) and that you live for a certain period of time after retirement. Bear in mind that such projections are purely illustrative and may not bear any resemblance to what will actually happen!

> I was under the impression that I could choose to receive up to 2/3rd's , assuming 10 years of service.

What do you mean? Retire on 2/3rds of your final salary based on some conditions? The PB site should explain this stuff as well.

> I could also take 150% of of my final pensionable salary as a tax free lump sum, assuming 20 years of service.

Never heard of the 150% of final salary as a taxfree lump sum point myself. I have heard of being able to take 25% of the final fund in this way though and then buying and annuity with the remainder or perhaps investing it further in an ARF/AMRF.

> Also, is this projected fund low for someone in their early 30's?

Depends on many factors so there's no easy answer.

If you are in any doubt about this stuff even after reading the sources above then you should consider getting independent, professional advice:

 

[Conan]

Retirement Benefits

Since you are in a Defined Contribution plan you are not promised a fixed benefit e.g 2/3rds Final Salary etc. Rather the contributions (by employer and you) are invested to accumulate to retirement age and at that stage you can take some of the fund as a tax-free lump sum and the balance must be used to buy an annuity (a pension for life).
The tax free lump sum is normally calculated at 3/80ths of Final Salary for each year of service. So after 40 years service one can get 150% of Final Salary as a tax free lump sum (in fact Revenue rules allow 150% provided at least 20 years service by retirement).
After taking the tax free lump sum the balance must be used to buy an annuity. I suspect the annuity figures you were quoted were merely estimates based on certain assumptions.I suspect that the illustration simply assumed an annuity rate to convert your projected fund into an annuity at say 65. For example, a sinle life annuity (payable on your life only) with indexation of 3% p.a. would give a current rate of circa 5.6% (i.e. evey €100 capital would give an annuity of €5.6 p.a.)
In order to avail of ARF facility (i.e. instead of having to buy an annuity) you must fall into the 5% shraeholder category. The ARF facility is not available to "mere" employees.
If you invest AVCs then this fund can be used to invest in an ARF at retirement.