Pre-Retirement Buy Back Years

[Ribem]

Hi,
I plan to retire from the Public Sector (University lecturer) at the end of Feb 2012 before the reduced salary pension comes into play. I'll have 27.2 years of pensionable service at this date (3.7 of this was bought back in the past few years). As I'll be 56.3 years old then, I'll be on a reduced pension. I have an option now of buying back another 1.9 years now at outright cost of €8820. Does it make financial sense to go ahead with the 1.9 years buy back - will they be counted in the reduced pension calculation?
Thanks

 

[oysterman]

Impossible to give a view on the information provided.

Your HR department can provide you with the numbers i.e. what would your lump sum and annual pension be with and without the additional buyback.

You then need to factor in the tax relief to figure out the net cost to you of the €8820.

After that it's all down to how long you live but you can amuse yourself by subtracting the addition to your lump sum due to the extra buyback from the net cost of the buyback and dividing the answer by the increase in your annual pension following the buyback. That gives you a very rough view of the payout period of the investment (not factoring in things like the discounted present value of future income and possible salary-related future pension increases).

It's all good fun. Enjoy your retirement.

 

[Ribem]

Thank you Oysterman. The key thing is that the bought years are added to the final calculation. A colleague suggested that this applies only post 60 years old? Am in confused amusement doing the sums as you suggest! Also the Civil Service Pensions Modeller is getting addictive.

 

[oysterman]

The key thing is that the bought years are added to the final calculation. A colleague suggested that this applies only post 60 years old?

To the best of my knowledge you get value for them immediately on retirement, albeit on a discounted basis if you're retiring early.

By the way, make sure you perform the payout calculation on the basis of after-tax income and remember that you may well be a lower-rate taxpayer in retirement than you were when in employment which makes the notional service purchase a better deal i.e. you get the tax relief for the purchase at the higher rate but only pay tax on the benefit at the lower rate.

 

[Complainer]

I have an option now of buying back another 1.9 years now at outright cost of €8820. Does it make financial sense to go ahead with the 1.9 years buy back

You'll need to factor in the risk that the Govt will not honour its debt to you in the future. If the Govt defaults, then presumably pensioners will not get their future entitlements.