Public Sector Pension - how much is it really worth?

M

Mary_K

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My public sector pension provides for a max pension of 50% of my final salary. Is this considered "good" in pension terms? Other than AVCs, can I take out an additional pension? I'm interested in putting a value on how much this pension would cost me in the private sector. Does anybody have any online annuity calculators?
 
Does the 50% include the state pension? The pensions board have a calculator. If I enter the details for a male 21 starting off, wanting a pension of 50% of €50K (€25K, of which €10K comes from the state), you have to pay contributions of 9%, rising to 15% at 36.
 
I'm a public sector worker, with a max pension of 50% (after 40 years reckonable service), I don't have an entitlement to a state pension as well - I'm aware that others who joined the public service in recent years may have.
For my max of 50%, I pay 6.5% contribution
 
The 50% is inclusive of the state pension. My contributions are based on my gross less a certain multiple of the current state pension. I understand that this is how all post April 1995 public sector joiners pensions work. I pay class A1 PRSI - the same as I paid in the private sector.
 
My understanding is that the Public Service pension package is made up of:
  • A pension of up to 50% of earnings, plus
  • A tax-free lump sum of up to 150% of earnings
  • In addition a Spouses Pension of 50% of the member's pension is also payable on the members death.
In total this is equivalent to a total pension package of circa 2/3rds salary. Private sector employees may get a pension of up to 2/3rds but any commutation for a tax free lump sum will reduce the pension (typically to 50%).

But the real bonus in the Public Service is the fact that the pension payments are indexed in line with salary for the job. So salary increases though Benchmarking also feed through into pension increases.

This contrasts with the Private sector where indexation of pensions in payment is much less common.

The Public Sector pensions bill is hugely expensive, but since it is largely unfunded, it is not subject to the normal minimum funding standards required in the real world. The cost of the Public Sector pension scheme (for an ever expanding number of employees) is a general taxation burden.
 
ClubMan said:
Presumably you mean a PRSI linked old age contributory pension (because you pay a public service class of PRSI that does not provide pension benefits) as opposed to the means tested non contributory pension?
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Yes, Clubman, they are the pensions I'm talking about - I just used the term "state pension" as it had been referred to by the earlier poster. Assuming full public sector pension (50% of retiring salary), it's unlikely that I'd qualify for the non-contributory means-tested pension, and as you rightly say, I don't pay the appropriate contributions to qualify for the State Pension-Contributory (though others may do so).
 
Mary_K said:
My public sector pension provides for a max pension of 50% of my final salary. Is this considered "good" in pension terms? ...........
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Hi Mary_K,

Pension arrangements vary greatly across the public sector spectrum. To answer your question one would need to know which public sector scheme you are a member of.

You could be a civil servant.

You could a public servant (excluding civil servants); there are differences in how the schemes operate for Guards, HSE, Local Authorities, Primary Teachers, Third Level Teachers, members of the Defence Forces and non revenue generating state agencies such as Fas etc.

Finally you may not be a public servant at all but working in public sector organisatins such as ESB, Bord Gas or a similar semistate organisation. (aside: these organisations are not covered by benchmarking)

While these schemes are based on the same model the rules, contribution rates and benefits vary, some times dramatically, across these public sector categories.

Some schemes are indexed with inflation, some are indexed with "pay parity", some not indexed at all and pensioners get increases at the discretion of the trustees.

Some schemes are 'funded' others are not.

Some schemes are contributory others are not.

Finally it may come as a surprise to some but many private sector organisations continue to offer DB type schemes to their employees.

aj
 
Thanks all. I'm a public sector employee in the higher education sector. As far as I am aware, the pension is funded by directly by the HEA. I have a good feel now that it is generous enough. Still wondering if I can start my own pension fund independently of my employers (and the AVCs they offer). Thanks again all.
 
I'd estimate to buy a public-sector index-linked pension paying 30k pa initially with a 90k lump-sum would cost at least €1 million.

For example, it has been estimated that Brian Cowen's pension would cost €5m+.
 
ajapale said:
Are the pensions of higher civil servants contributory?
and Judges?

aj
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Most civil servants 'higher' or not, recruited before 1 April 1995 do not make a contribution to their pension. However all civil servants recruited on or after 1 April 1995 do make a contribution to their pension.
 
The Standard Civil Service pension for A1 contributors (any civil servant who started after 1995) is calculated as follows

Final Salary X 1/80 X Number of Years (max of 40 yrs) = Pension
The Contributory OAP is paid seperately but the pension amount is reduced by the Contributory OAP

eg: 50,000 X 1/80 X 40 = 25,000 per year (Reduced by State Pension amount which is paid seperately)

Tax Free Lump Sum

Final Salary X 3/80 X Number of Years (max of 40 yrs)

eg. 50,000 X 3/80 X 40 = 75,000 Lump Sum

employee Contributions are slightly over 6% of gross salary.
 
Does this mean someone hired in the civil service (I believe public service schemes are similar) in the last 12 years who leaves service early will in some cases only get the standard OAP contrib pension.

For some inaccurate but easy figures - say a civil service salary is 40k so pension is 20k and the contrib OAP is 10k, if a civil servant works 20 years or less out of the 40 years career then they only get the OAP pension. (40000 X 1/80 * 20years - OAP = 0)

If someone only joins the public service at say 45 (if you ignore schemes to buy pension years) - they would actually end up with no pension to supplement the OAP one.

Is this a correct interpretation?

If so it means particularly that contractors on similiar schemes within the public sector (due to the hiring freeze there seems to be many in this category) may be wasting their pension contribution unless they're reasonably sure the contract will last 40 years or they get will made full time.
 
The salary is adjusted to allow for the fact that the Contributory Pension is payable as well.

So in your example, the Pensionable Salary would be:

40K - (10883.60*2) = €18,232.80 (the deduction is tweice the Single Pension State Contributory Pension)

So the pension would be 20 / 80 * €18,232.80 for someone that worked 20 years, in other words a pension of about €4,558 annual.

There would also be a tax-free lump-sum payable.
And they would receive the State Pension (Contributory).
 
ashambles said:
....

If so it means particularly that contractors on similiar schemes within the public sector (due to the hiring freeze there seems to be many in this category) may be wasting their pension contribution unless they're reasonably sure the contract will last 40 years or they get will made full time.
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I'm confused by this. Would a contractor not be a permanent employee therefore couldn't join the public sector pension scheme anyway?

My understanding, and I could be wrong. Is that tor people joining the Public Sector relatively late, I reckon you'll need to have either have a high salary or buy back years many years to get a decent pension out of the public sector pension. Of course you'll probably have an existing private pension from before joining the public sector. Once joined you could keep contributing to that and/or buy AVC's?

Which is more tax efficient would need careful study, and some professional pension advice.
 
The last page of this [broken link removed] by the Society of Actuaries in Ireland gives a good indication as to how the value of Public Sector pensions compares with Private Sector DB and DC schemes.
 
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