PS pension - choice about size of lump-sum vs size of pension

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Protocol

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I am looking at a PS pension scheme, which has two options for pension benefits.

(1) pension plus lump-sum (typical case)

Pension = (1/80)(yrs)(pensionable salary- 2x SPC)

where lump-sum is (3/80)(yrs) = a max of 1.5x final salary


(2) other option - no lump sum - bigger pension

Pension = (1/60)(yrs) (pensionable salary - 1.5x SPC)


I have not seen this choice before in PS pensions.

I am trying to weigh up the pros and cons of the two options.

I realise it is related to income tax / life expectancy, etc.

I welcome any comments, thank you.
 
Protocol said:
I have not seen this choice before in PS pensions.
Click to expand...
Neither have I. Is it in a semi-state?

Protocol said:
(1) pension plus lump-sum (typical case)

Pension = (1/80)(yrs)(pensionable salary- 2x SPC)

where lump-sum is (3/80)(yrs) = a max of 1.5x final salary


(2) other option - no lump sum - bigger pension

Pension = (1/60)(yrs) (pensionable salary - 1.5x SPC)
Click to expand...
Are you sure the parameters are right here? For someone on 100k they are better off under option 2 as early as five years after retirement which doesn't seem right. These things are usually designed to have a breakeven point after 15-20 years.

A typical public service post-95 pension is more like:

(1/80)*(yrs)*(pensionable salary)-SPC
Click to expand...

So for someone with 40 years on €100k it is (40/80)*(€100k)-€13k=€37k
 
I worked it out and you break even in cash terms at age 73 if you retire at 65 with 40 years service (final salary not relevant). After that Option B will get you more lifetime cash.

Tax is relevant here as with Option A you pay no tax on the lump sum whereas with Option B you get a higher annual pension but it's all taxable.

But if you are not stuck for cash Option B looks better. Life expectancy for an Irish male aged 65 is 18 years so you will more than likely do better with Option B as you will very likely live longer than 8 years.
 
Protocol said:
Pension = (1/60)(yrs)
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That is the maximum level allowed by Revenue. In regular PS schemes they allow this to be commuted to 3/80 lump sum plus 1/80 pensionable salary.

In PS schemes (such as the above) in which the benefits are "coordinated" with the State Pension (via Class A PRSI), Revenue allow the benefits to be topped up to the 1/60 of pensionable service maximum from an AVC fund (ie, ignoring the OACP deduction in the coordination formula).

 
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