Public Sector Single Scheme Vs Occupational Pension Scheme

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lledlledlled

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Hi,

I am working in the Private Sector.
Aged 38, started paying into Employer's scheme 2yrs ago. Employer contribution 10%, my contribution 5%. Salary €65k.

Wife has Public Sector pension. Started teaching full time in 2012 so hoping she got in before the Single Scheme started - awaiting confirmation from Cornmarket.

I am considering a new role which comes with Public Sector Single Scheme pension. Point #1 on the 'Non-Contributory Salary Scale' is €58,307.
Point #1 on the 'Contributory Salary Scale' is €61,282.

I have two main queries:

1. Which scale would i start on? At a complete guess, i'm thinking the better scale may be for existing Public Servants maybe??

2. How would my new Public Sector Pension compare with my existing Occupational Scheme? I realise we'd need to make some assumptions in terms of stock market fluctuations which impact my existing scheme but not the PS scheme. Is the fact that the PS scheme is Defined Benefit so significant & valuable that is is likely to be the more attractive pension overall?

Note: i currently work in an industry which fluctuates broadly in line with the Irish economy so while my annual income is currently rising steadily, this may not always be the case. I suppose this is one of the factors i need to weigh up when comparing public with private sector employment.

Any comments much appreciated
 
In the civil service, the "non-contributory" salary scale is for staff who are in the pre-1995 pension scheme. These staff pay reduced rate PRSI, and receive all of their pension from the civil service.
The "contributory" salary scale is for staff who are in the post-1995 pension schemes. These staff pay full rate PRSI, and their pension will be a combination of a civil service pension and State Pension. The higher gross salary tries to ensure that staff earn roughly the same, whether pre- or post-1995.

It's likely you'll start on the contributory scale.

Can't answer your second query, sorry.
 
gipimann said:
In the civil service, the "non-contributory" salary scale is for staff who are in the pre-1995 pension scheme. These staff pay reduced rate PRSI, and receive all of their pension from the civil service.
The "contributory" salary scale is for staff who are in the post-1995 pension schemes. These staff pay full rate PRSI, and their pension will be a combination of a civil service pension and State Pension. The higher gross salary tries to ensure that staff earn roughly the same, whether pre- or post-1995.

It's likely you'll start on the contributory scale.

Can't answer your second query, sorry.
Click to expand...

Great, thanks for your response. Good news that I should be on the higher of the two scales. It should then 'only' take me a year to get back to my present salary, although I haven't taken into account any bonuses or pay rises which would likely come with staying in my current position.
I'm assuming bonuses aren't common in the public sector.

Hopefully other posters on here might lend some advice on comparing the two pensions.
 
The reason you are on the higher scale is because you are paying more for your pension though, so unfortunately it's not really all that much good news!

I am pretty sure bonuses don't exist in most of the public service anyway - it depends on the part though probably.
Your public service pension assuming 30 years service up to 68 would be around 37.5% of your career average salary and 1.125% of your career average salary as a lump sum. So try to estimate your career average salary and take it from there.
 
gravitygirl said:
Your public service pension assuming 30 years service up to 68 would be around 37.5% of your career average salary and 1.125% of your career average salary as a lump sum. So try to estimate your career average salary and take it from there.
Click to expand...

Are you sure about that? The Single Scheme is a coordinated pension scheme. As such I don't think that 30 years will deliver 37.5% of career average earnings.

OP - Have you had a look at the Single Pension Scheme Booklet (you can google it)? It gives an outline of how the benefits are calculated.
 
lledlledlled said:
Great, thanks for your response. Good news that I should be on the higher of the two scales. It should then 'only' take me a year to get back to my present salary, although I haven't taken into account any bonuses or pay rises which would likely come with staying in my current position.
I'm assuming bonuses aren't common in the public sector.

Hopefully other posters on here might lend some advice on comparing the two pensions.
Click to expand...

Don't forget the public sector tax (ASC), you know, for that gold plated career average pension
 
gravitygirl said:
The reason you are on the higher scale is because you are paying more for your pension though, so unfortunately it's not really all that much good news!

I am pretty sure bonuses don't exist in most of the public service anyway - it depends on the part though probably.
Your public service pension assuming 30 years service up to 68 would be around 37.5% of your career average salary and 1.125% of your career average salary as a lump sum. So try to estimate your career average salary and take it from there.
Click to expand...

Ok, taking those %'s and using the figures on the salary scale, assuming i stay on the same salary scale for my 30yr career, i'm calculating calculating career average salary of €82,623, giving Annual Pension of €30,984 plus lump sum of €92,951.

€31k per year in retirement doesn't sound much at all. Am i calculating this correctly?
Would i be entitled to the full State Pension on top of this? An additional €12k?

I've read most people try aim for annual retirement income of 70% of final salary. The final point on the scale is Point #11 @ €88,160. 70% of this is €61,712, so i'd be a long way short.

I must be doing something wrong. I know PS pensions have taken a hit over the last few years but i was still of the impression that they were better than their private sector counterparts, and one of the reasons people might consider PS positions??
 
Early Riser said:
Are you sure about that? The Single Scheme is a coordinated pension scheme. As such I don't think that 30 years will deliver 37.5% of career average earnings.

OP - Have you had a look at the Single Pension Scheme Booklet (you can google it)? It gives an outline of how the benefits are calculated.
Click to expand...

Hi, yes i've downloaded the booklet but the calculation isn't straightforward.

I suppose the main query i have is if i were to accept this PS position, am i likely to suffer financially in retirement as a result. I accept my current Occupational Scheme is subject to equity fluctuations, but allowing for average growth?
I would be reluctant to accept the position if it is likely to have a significant negative impact on my retirement.

Is the conventional wisdom still that Public Sector pensions are more attractive than private sector? Is so, does the advantage only apply if one were to have more than a 30yr PS career?
 
gravitygirl said:
Your public service pension assuming 30 years service up to 68 would be around 37.5% of your career average salary and 1.125% of your career average salary as a lump sum. So try to estimate your career average salary and take it from there.
Click to expand...

That's 1.125 times your salary not 1.125 per cent of it.

lledlledlled said:
Is the conventional wisdom still that Public Sector pensions are more attractive than private sector? Is so, does the advantage only apply if one were to have more than a 30yr PS career?
Click to expand...

This is impossible to answer in the abstract as defined benefit and defined contribution pensions are fundamentally different.

PS pensions used to be good for someone who got a lot of end-of-career promotions as they made contributions on lower salary but took advantage of a (high) final salary for pension. But this is no longer the case as single scheme is on a career average basis.

Your public service pension basically depends on how the Irish economy is doing in 40 years, your private sector pension basically depends on how equity markets do over the next 40 years. Also tax treatment by future governments which is impossible to know.

To my eye it's not bad to have a bit of DC and DB in retirement so you are hedged against bad performance by either of them. But by the looks of it you have a pretty small pension pot for your age.
 
Don't forget the very generous tax credits in retirement. Obviously tax can change, but pensioners are rarely touched.

Tax credits and reliefs for people over 65

There are some tax reliefs specifically for people aged over 65. This page also gives an overview of other tax reliefs that may be relevant.
www.citizensinformation.ie www.citizensinformation.ie

Consider as well the expenses you won't have in retirement that you are paying for now from salary. Future proof your living accommodation as you age to ensure it is very inexpensive to maintain. And the PS pension is guaranteed. The peace of mind for that alone is worth something!

However, don't just look at the pension element of the role. Consider the difference in culture and perhaps speak to people who work there. It is a world apart. Particularly in terms of the availability of flexibility, it can really vary from amazing to awful.

And if you have any spare cash you still have time to benefit from tax relief on 2018 pension before 31st Oct.
 
lledlledlled said:
Hi, yes i've downloaded the booklet but the calculation isn't straightforward.

I suppose the main query i have is if i were to accept this PS position, am i likely to suffer financially in retirement as a result. I accept my current Occupational Scheme is subject to equity fluctuations, but allowing for average growth?
I would be reluctant to accept the position if it is likely to have a significant negative impact on my retirement.

Is the conventional wisdom still that Public Sector pensions are more attractive than private sector? Is so, does the advantage only apply if one were to have more than a 30yr PS career?
Click to expand...
I can't judge the comparison but the Single Scheme is disadvantaged compared to older schemes by being based on career average earnings rather than final salary.

I have done a rough calculation for someone with career average earnings of 62k (CPI adjusted) and 30 years service. Approx annual pension of 13k and tax free lump sum of 70k. Of course this does not allow for increments and promotions in your public sector role but it may give you some idea of benefits. (Note someone retiring on 62 k would not get this - their CPI adjusted career average would have to be 62k).

Your State Pension would be in addition to this.There are also opportunities for AVCs.
 
NoRegretsCoyote said:
That's 1.125 times your salary not 1.125 per cent of it.



This is impossible to answer in the abstract as defined benefit and defined contribution pensions are fundamentally different.

PS pensions used to be good for someone who got a lot of end-of-career promotions as they made contributions on lower salary but took advantage of a (high) final salary for pension. But this is no longer the case as single scheme is on a career average basis.

Your public service pension basically depends on how the Irish economy is doing in 40 years, your private sector pension basically depends on how equity markets do over the next 40 years. Also tax treatment by future governments which is impossible to know.

To my eye it's not bad to have a bit of DC and DB in retirement so you are hedged against bad performance by either of them. But by the looks of it you have a pretty small pension pot for your age.
Click to expand...

Interesting point on hedging with some DC and some DB. If it isn't straightforward to call which would be the better option in my case, i'm assuming neither one holds a huge advantage over the other.

I'm also assuming that there isn't a massive difference between paying into either scheme for a 30yr period against paying into say DC for 10yrs vs DB for 20yrs. Surely in the latter case, the combined total of the two pensions won't be far off the total annual retirement income from either pension type based on paying into it for 30yrs. If anything, the latter option would be somewhat hedged.

I am conscious that my pension pot is on the small side for my age. ATM we're directing any spare cash towards mortgage overpayments in the expectation that monthly mortgage repayments will be at a reasonable level by the time our kids reach secondary school, when we'll then save surplus cash towards their 3rd level. That doesn't leave many years left to focus on topping up pension pots - approx 10yrs only. Wandering off topic here a bit but the worry here is that i have no idea what my salary will be like between ages 58 and 68 - it could be high due to years of experience or low due to wanting to slow down workload.
My current Occupational scheme seems good though, with employer paying 10% salary contributions. I also have a small amount in a scheme from years ago so need to see what the combined value of these are.

Part of the attraction for me of being in a DC scheme is exposure to the stock market. Pensions seem to be the only means of investing in equities in a tax efficient manner.
 
Smoneen said:
All of the public sector schemes have quite good pension estimator tools available online. Take a look at this one for the Single Pension Scheme. It might be of some use to you.

For pre-2004 service the pension modeller is available at
Click to expand...

Thanks for the link.

I've plugged on the figures (very roughly) and if i'm doing it right, it's giving me €20,800 annual retirement income. That's even worse than i had calculated above.

Are figures like this really all you get from 30yrs of contributions at an average salary of €80k? Surely it's more than this?
 
CAE of 80k suggests a 40k pension, incl SPC, after 40 years.

So that's approx 28k + 12k SPC.

So 20,800 + 12k means 32,800 after 30 years service.

Sounds correct to me, although my calculations are rough.
 
misemoi said:
Don't forget the very generous tax credits in retirement. Obviously tax can change, but pensioners are rarely touched.

Tax credits and reliefs for people over 65

There are some tax reliefs specifically for people aged over 65. This page also gives an overview of other tax reliefs that may be relevant.
www.citizensinformation.ie www.citizensinformation.ie

Consider as well the expenses you won't have in retirement that you are paying for now from salary. Future proof your living accommodation as you age to ensure it is very inexpensive to maintain. And the PS pension is guaranteed. The peace of mind for that alone is worth something!

However, don't just look at the pension element of the role. Consider the difference in culture and perhaps speak to people who work there. It is a world apart. Particularly in terms of the availability of flexibility, it can really vary from amazing to awful.

And if you have any spare cash you still have time to benefit from tax relief on 2018 pension before 31st Oct.
Click to expand...

Hi,
I'm absolutely considering all aspects of the role, not just pensions. I'm very conscious of the potential change in variety & flexibility which i currently enjoy. The role itself really appeals to me though.
The pensions area is a little more difficult to compare in my mind though, so i thought AAM was a good place to start.
 
Protocol said:
CAE of 80k suggests a 40k pension, incl SPC, after 40 years.

So that's approx 28k + 12k SPC.

So 20,800 + 12k means 32,800 after 30 years service.

Sounds correct to me, although my calculations are rough.
Click to expand...
Correct Protocol, except the assumed SPC for 30 years service would also be adjusted by 0.75 - so about 10k. That leaves 20,800 + 10k = 30,800 which is about right. ( Of course someone may actually get the full SP if they have a contribution record built up from elsewhere - as the OP has.)

OP your calculation of 20800 looks about right to me on a figure of 80k. Remember that you would have to have a career average of 80k to get this. That would suggest a CPI adjusted final salary of 90k+ if your looking at a starting salary of 62k now.
 
Early Riser said:
Correct Protocol, except the assumed SPC for 30 years service would also be adjusted by 0.75 - so about 10k. That leaves 20,800 + 10k = 30,800 which is about right. ( Of course someone may actually get the full SP if they have a contribution record built up from elsewhere - as the OP has.)

OP your calculation of 20800 looks about right to me on a figure of 80k. Remember that you would have to have a career average of 80k to get this. That would suggest a CPI adjusted final salary of 90k+ if your looking at a starting salary of 62k now.
Click to expand...

Final point on the scale is €88,160. Some of the later points on the scale (i.e. the highest ones), will remain the pertinent salary for many of the 30yr career whereas the initial points (i.e. lower salary points) are for one year only. So i estimated the 80k average based on that.
It won't be too far off.

I'm still trying to get my head around the fact that i'll probably need to live of €30k per annum for the last 20-odd years of my life! I honestly thought an comfortable pension was going to be one of the big advantages of moving to Public Sector. I'm wondering now whether pension is an advantage at all, apart from the fact that the (small) figure is guaranteed.
 
lledlledlled said:
Final point on the scale is €88,160. Some of the later points on the scale (i.e. the highest ones), will remain the pertinent salary for many of the 30yr career whereas the initial points (i.e. lower salary points) are for one year only. So i estimated the 80k average based on that.
It won't be too far off.

I'm still trying to get my head around the fact that i'll probably need to live of €30k per annum for the last 20-odd years of my life! I honestly thought an comfortable pension was going to be one of the big advantages of moving to Public Sector. I'm wondering now whether pension is an advantage at all, apart from the fact that the (small) figure is guaranteed.
Click to expand...
Yes, Given the cliche of the " gold plated pension" people are often surprised. PS pension benefits have been falling over the years, post 2004 and, again, with the Single Scheme.

Nevertheless, things aren't that bleak. You probably have been paying PRSI for several years already so you should qualify for a full State Pension which along with the 20k odd from the Occ Pension would amount to around 33k. Tax and USC deductions at this level are much lower and there is no PRSI so net take home does not reduce by as much as it might seem.
You might get a promotion or two along the way also to bring you onto a different payscale! Also you could easily top up your lump sum gratuity from AVCs along the way. Under current rules a final salary of 88k would allow a tax free lump sum of 132k which is not a bad nest egg. You could also fund further for an ARF if so inclined but don't forget to live first and pay the mortgage , etc.

Anyway, good luck with the decision!
 
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