PRSA AVC Choice for Current Situation

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Shreddit

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Currently 42 and plan to retire at 68. A little late to the game getting a PRSA AVC setup. Interested in whether I’ve missed anything with where I’ve landed on what I’ll do. New to selecting a pension product/fund, head's a little fried from reading posts and documents. I’ve attempted to do projections as best I can using current data/figures, though these could change over the years.

Current Situation
HSE Employment
  • Single Scheme (SPSPS) with 33 years of full service at retirement and final salary ~€120k.
  • Calculated career average earnings (increments included): €99,796
  • Projected SPSPS Referable Pension: €41,166
  • Projected SPSPS Lump Sum: €123,498

PRSI
  • Projected PRSI Contributions: 2,080
  • Yearly State Pension: €15,043.60

Projected Pension
  • SPSPS + State: €56,209.60 yearly
  • SPSPS Lump Sum: €123,498

PRSA AVC Plan
The above leaves €76,502 to max out the €200k tax free lump sum. SPSPS doesn’t allow AVCs and the value appears terrible for buying ‘additional benefits’. So best is to start a PRSA AVC. Minimum I can afford is €333 a month before tax relief, so cost to me €200 per month.

As best I can understand everything for someone in my shoes, with 33 years ahead, I should be:
  • Seeking a passive investment strategy
  • Select a fund that is 100% equities and has some emerging markets exposure (~20%).
  • Overtime gradually shift this 20% EM to developed world equities, and then closer to retirement shift to bonds.
  • Choose a PRSA AVC that provides 100% allocation, has as low an AMC as possible, and has no policy fees
  • If I’m selecting the funds then go with execution only.

A couple of PRSA AVCs that I’ve been considering are:
  1. 80% into Royal London BlackRock Developed World Equity Index Fund and 20% into Royal London BlackRock Emerging Markets Equity Index Fund.
  2. 80% into Zurich Indexed Global Equity (Blackrock) and 20% into Indexed Emerging Market Equity Fund (BlackRock)
  3. 100% into Standard Life Vanguard Global Index Fund

Option #1 appears to have the lowest fees, so I was planning to go with that. Am I missing anything obvious in this thinking given my situation? Maybe a can of worms question, but I’ve seen comments about paying off mortgage as an alternative priority over pension, but mortgage payments are comfortable.
 
You might not be able to use AVCs to max out to a 200k lump sum. The maximum tax free lump sum available to you will be calculated using your final salary (or two other methods in post #13 in the link below). This could be less than 200k.

You can use any surplus AVCs remaining after achieving the maximum tax free lump sum available to you, to buy an ARF or an Annuity.

Most of the information in this link in relevant to all public sector schemes.

AVC information for pre 95 Public Sector employees.

Can these employees make AVCs ? Yes. They can make AVCs based on non pensionable wage payments and to make up for any shortfall if they don't have the full 40 years service at retirement age. They can also make AVCs to fund for the revenue allowed 100% surviving spouses pension. The public...
www.askaboutmoney.com
 
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Shreddit said:
SPSPS + State: €56,209.60 yearly
Click to expand...

I don't think this is correct, have a look at this thread:

Single public service pension scheme and the state contributary pension.

Is there a relationship between the single public service pension scheme and the state contributory pension. For example, an the annual pension under the Single scheme is 40K. If the contributory was 10K, do you receive 40 in total, with only 30K being paid from the single scheme. What happens...
www.askaboutmoney.com

The two pensions are integrated. You will only be able to add your state pension entitlement for proportion of years contributions outside your public service to the SPSPS pension.
 
Shreddit will have 33 years service and 2080 Prsi contributions.

When they retire 33 years of the 40 year full COAP will be included into their public sector pension.

They will then be entitled to 7 years worth of the COAP as a extra on top of their public sector pension.
 
Thanks @S class. But for clarity, and as is stated in that linked thread and clear from the Single Scheme Booklet...


I suspect that the OP has used the Single Scheme Estimator Tool to estimate what SPS pension benefits he/she will be entitled to at retirement:
  • Projected SPSPS Referable Pension: €41,166
  • Projected SPSPS Lump Sum: €123,498
The OP will get €41,166 in addition to their State Pension entitlement.
 
Perhaps @Shreddit will confirm where they got that estimate of €41,166 from?

The Estimator Tool might not give €41,166 as the projected SPSPS Referable Pension. Using this rough formula... 33/40 * 1/2 * 100,000 = 41,250 <-- that number would indeed include the state pension as stated by @messyleo.

On the point about the SPS Benefit statement...

If you are in the SPS you get a benefit statement every year. This shows the benefits accrued. The formula used to calculate those benefits takes in to account the state pension but the numbers on that benefit statement are what you will receive in addition to the state pension.

If you are in the SPS have a go at the Estimator Tool linked above. It gives a summary of the SPS Pension and lump sum benefits you will be entitled to and these numbers are presented separately from the state pension amount.

What's more interesting for the OP is that as they will have 33 years service at retirement their scope for making AVCs will be more limited than someone retiring with less years of service. More scope if they are married and want to fund a full spouse survivor pension for instance. Their retirement strategy might well include an element of paying down the mortgage and also investing outside their pension (e.g: ETFs or individually held shares) in addition to making AVCs. But more useful advice in that regard would emerge from a post to the Money Makeover thread.
 
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I can't thank posts yet it seems, but thanks for all the input. First off, apologies, somewhere along my attempts to understand all of the complexities I ended up combining the SPS and SPC, and then later added the SPC again forgetting that had already been done. The correct combined figure is the €41,166. Quite a bit lower than I expected.

The other correction I need to make is my max lump sum, which won't reach the €200k limit, as I'm limited by my salary.

@CharlieMac Could you say a bit more on why the AVC route is more limited for me? I am married, but my partner entered the HSE pre-2013 and has the Superannuation Scheme, and will have a similar salary.
 
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Hi Shreddit. Sounds like you will have plenty of low risk DB pension in retirement.

Well you still have lots of scope to make AVCs (D). But public sector workers are limited in the size their AVC fund can grow. That amount is the actuarial capital equivalent of a pension equal to 2/3 Final Salary at retirement (A) OR the Standard Fund Threshold whichever is the lower MINUS the value of SPS benefits that can be accumulated between now and retirement (B) and MINUS the value of already accumulated SPS benefits (C). D = A - (B+C).

The Single Pension Scheme thread has lots of useful info in particular about how to work out what is your scope for making AVCs. I made a spreadsheet off the information in this post attached here if you would like to give it a try. I cannot guarantee it is correct but I'm fairly confident in it - famous last words! In the "Max Value in an AVC" tab you just fill in or set a value into any cell that has an asterisk. Actually I would welcome anyone's feedback.
 

Attachments

  • Calculating Max Allowed Value in an AVC Fund_AAM.xlsx
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@CharlieMac Thanks for the steer. I just tried your spreadsheet and it's giving me 1,343,939 as the "Scope for AVCs". Is that a € figure, so I could generate a maximum 'pot' of €1.3m in PRSA AVCs?

Very straightforward to use spreadsheet. Very helpful. Only minor query is whether there is a figure I should be adding in place of the green highlighted "70,000" for the salary in cell Q13 for the "Max Value in an AVC" worksheet?
 
Yes that's a euro amount. The AVC scope also goes up as your final salary increases so you could go back to that calculator every year like when your latest SPS benefit statement comes out, update it with your latest SPS benefits, salary and current CSP too.

There's a huge difference between being married and not. So another plus for you!

Put your current salary in Q13 and it estimates what it "might" be in each of the next few years. But that's just guesswork tho based on public sector salaries roughly always getting revised upwards to match long term inflation levels.

There's another calculator in that SPS thread by @gort_gráinneog which shows the max amount of AVCs you can make each year given age and salary... what it would cost you and how much will actually go in to your AVC fund after the benefit of tax relief is included with your contributions.

You could max out your tax relief by making AVCs and it would still take you a long time to reach your AVC funding limit. Obviously your wife has the option to do the same. It's a great way to build wealth.

But you have time. On your salary and age and invested wisely it's probably very achievable to reach your estimated AVC funding limit by the time you retire.

Glad it helped and thanks for the feedback.
 
How was I wrong @Fortune ? Are you thinking about limits on tax relief on contributions, like age and max income (€115,000)? I was referring to the limit on how big Revenue will allow an AVC fund to grow, for private sector workers. If you have more than one AVC fund of course they all need to be added together and included with any other pensions one might have.
 
Thanks for clarifying Fortune. Section 6.4 of Chapter 6 in the Revenue Pensions Manual states that the 2/3rds final salary rule applies to any employer pension scheme, private or public. I've updated my comment above.

I suppose the only time the 2/3rds final salary rule would not apply is if your employer did not have any pension scheme and you are just making AVCs in to a PRSA. Then only the SFT would apply.

I've had to read that chapter 6 (and 5) many times and found it hard to know when the Revenue pension rules apply to both DC and DB schemes and when the rules effectively apply to DB schemes only. It seems the first paragraph in section 6.4 applies to DC and DB whereas the second paragraph applies to DB only.
 
CharlieMac said:
your employer did not have any pension scheme and you are just making AVCs in to a PRSA. Then only the SFT would apply.
Click to expand...
They would just be contributions rather than AVCs. There's a limit to the tax relief on those contributions based on salary and age, but otherwise only the SFT applies.
 
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