Roughly how much would I need to save in a pension to get Public Sector DB pension level benefits?

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gnf_ireland

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Quick question - although probably not a quick answer...

If I was say turning 27 this morning, and decided I wanted to pay into a private pension that would give me (after 40 years contributing) roughly 1.5 times my salary as a final payment and 50% of my final salary as some sort of monthly payments (whether ARF or Annuity), how much would I need to be putting into the fund ?

Would 25% of my salary reasonably fund this *subject to the usual caveats*? So 10% company contribution and 15% personal contribution? Or would I need to be higher at 30%/33%/40% ?

I appreciate rules are likely to change here, but lets assume the current rules continue with marginal tax relief availed at the higher rate on all of the contributions?
 
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What has that got to do with the State pension benefits? Or you referring to the proposed benefits under the auto-enrolment proposals?
 
Brendan Burgess said:
What has that got to do with the State pension benefits? Or you referring to the proposed benefits under the auto-enrollment proposals?
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@Brendan Burgess This has nothing to do with the proposed auto-enrollment proposals really, other than I feel the contributions don't go far enough.
The public sector pension benefits are probably a benchmark as to what a 'good' pension fund should look like, offering 50% salary once you retire after 40 years service. I think most should target something like this and wondering what it would take to fund this. I am just wondering at a high level how much it would cost to fund a pension similar to a public sector employee DB pension.

14% overall contribution seems a bit low, although better than nothing. I am just wondering if the proposals should not go further. I think it would be beneficial for people to understand that under 'certain reasonable assumptions' the projected pension entitlements at the end of the 40 years will be say 30% average salary and 1 x salary as a lump sum. Most people do not what 14% gives then at the end - but most would understand the comparison to the public sector DB pension.
 
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Be careful with language.

The State Pension is not the same as Public Service pensions.

Your title refers to State Pension, whereas you seem to discuss PS pensions, with the reference to 505 final salary pension?
 
Where does the 14% cont rate come from?

Note that PS contribution rate is 6.5%.

Then the PRD was introduced, at 10% / 10.5%.

So the headline contribution rate by staff is 16.5%, but please note that it is far more complex than that.
 
Protocol said:
Be careful with language.
The State Pension is not the same as Public Service pensions.
Your title refers to State Pension, whereas you seem to discuss PS pensions, with the reference to 505 final salary pension?
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Sorry, you are correct @Protocol - I have edited the thread title to reflect the fact it is public sector final salary pensions I am talking about
 
Protocol said:
Where does the 14% cont rate come from?
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This was from the Irish Times article on the proposals for auto-enrollment, linked below. I do accept this is only a proposal at the moment. It does not relate to what the Public Sector pay into their pension funds, as this is a separate discussion, for another day.

https://www.irishtimes.com/business...6-of-pay-put-into-mandatory-pension-1.3604345

>>In this scenario, from 2027, workers would see a total of 14 per cent of their gross pay going into a fund for their retirement.

If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.

Irrespective of this, I am still curious as to roughly what percentage of salary would a private sector employee would need to pay into a pension fund to receive a pension fund roughly the same as a public sector employee? I imagine its pretty high. I think it is a good benchmark figure to have when discussing pension contributions.

I am recently entered by 40's so pension discussions are coming up more and more :)
 
Also remember in your calculations, that the 50% of salary as the pension includes the State pension.

So if I work for 40 years in the public service, with a pensionable salary of 50,000€, I get a final pension of 25,000€, including the state pension of 12,000. So my actual pension from my employment is 13,000€.
 
Buddyboy said:
Also remember in your calculations, that the 50% of salary as the pension includes the State pension.
So if I work for 40 years in the public service, with a pensionable salary of 50,000€, I get a final pension of 25,000€, including the state pension of 12,000. So my actual pension from my employment is 13,000€.
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Yes and No to be fair. If someone was to retire at 62 after 40 years service they still get their full 25k pension, although the state pension does not kick in until between 66-68 ! The rising of the state pension age does not impact those with public sector pensions.
However, I do stress, this is not a discussion on public sector pensions or any sort of bashing. It is simply to understand how much would of my salary would I need to contribute to a pension over 40 years to get something equivalent !
 
gnf_ireland said:
If private sector employees contribute say 6%, and public sector employees are contributing say ~16%, then private sector employees cannot expect the same pension entitlements.
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Of course it won't. Auto enrollment is a DC scheme and the public service is DB. Auto enrollment isn't in any way to be compared with what public servants get (or private sector employees who are also members of DB schemes). It is to be a better position at retirement than those who have to wholly rely on the State pension of just under €12,700 a year. That can be quite a drop in earnings for a lot of people. Considering people can live for 20-30 years in retirement, that's a pretty poor retirement.

I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require contributions of €25,000 a year to fund that pension, so 50% of salary. The lump sum will cost €75,000.


Steven
www.bluewaterfp.ie
 
The answer to OP question lies in a very wide range. The main imponderable is how investment earnings will compare with inflation. To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation. The sums then become very simple.
So if you want 50% pension at 68 we might estimate that you and a dependent partner will need 25 years of that giving 12.5 earnings as a cost. Add in 1.5 lump sum and your target fund, inflation adjusted, is 14 times earnings. To accrue this over 40 years contributions would require a contribution % of 33%.
 
SBarrett said:
Of course it won't. Auto enrollment is a DC scheme and the public service is DB. Auto enrollment isn't in any way to be compared with what public servants get (or private sector employees who are also members of DB schemes). It is to be a better position at retirement than those who have to wholly rely on the State pension of just under €12,700 a year. That can be quite a drop in earnings for a lot of people. Considering people can live for 20-30 years in retirement, that's a pretty poor retirement.

I ran a quick quote on how much is required to provide a pension of €25,000 with a spouse's pension of €12,500 on death. Person on €50,000 at age 25 and retiring at 65. It would require

contributions of €25,000 a year to fund that pension, so 50% of salary. The lump sum will cost €75,000.



Steven
www.bluewaterfp.ie
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The thing that needs to be sorted I have posted hear in the past only to be shot down by people who should know better and don't take the time to understand how the government is shortchanging private sector workers when it comes to there employers and there own contributions

Back in 1995 the Government moved new public servants to the same prsi rates as private sector workers but the sting in the tail is the public servants contributions are guaranteed and the private sectors are not . the only way this can be solved is to ring fence enough contributions so the money is there to pay private sector workers when the come to retirement age,

The figure of 25000 euro (50% of salery} Steven used above is out by a mile

But leaving this aside for now and looking at the same funding arrangement as the public servant someone on 50000 euro looking to have close to the same pension as a public servant would get a present day pension of around 12700 euro contributory pension leaving them to fund another 12300 euro to bring them up to the same rate as a public servant ,
A few few years back it took around 100000 to buy a pension of 4000 per year with a small increase as the years go by
100000 euro would buy a pension for of around 3750 for life and 50% pension for a surviving spouse,
Private sector worker could take out an ARF which is what i did

I would have being on around 65000 when I retired I took 200000 euro tax free and I still finished up with over 50% of final salary including contributary pension

Company and employees contributions fell away short of the figure Steven is using ,
 
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In order to add something new to this topic, an interesting angle might be to look for a private sector scheme that provided a final salary benefit that wasn't in (major) deficit. What kind of levels of contributions were being made in order to fund it? Where the benefits were more or less similar. This would be a good proxy taking into account pension provider profit margin.
 
Duke of Marmalade said:
The answer to OP question lies in a very wide range. The main imponderable is how investment earnings will compare with inflation. To simplify matters and it is as good as any other guess we can assume that investment earnings match inflation. The sums then become very simple.
So if you want 50% pension at 68 we might estimate that you and a dependent partner will need 25 years of that giving 12.5 earnings as a cost. Add in 1.5 lump sum and your target fund, inflation adjusted, is 14 times earnings. To accrue this over 40 years contributions would require a contribution % of 33%.
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Hi Duke
I hope you don't mind me asking a follow up question just to be clear in my own mind if investment earnings matched inflation would you finish up with 50% of salary
In other words lets say the state pension gave you another 25% would you finish up with 75% of salary or did you leave the state pension out when you say 33% contributions

put another way lets say the state pension also matched inflation would you only need to contribute 16.5 % to finish up with 50% of final salary including state pension,

I understand that if you used a higher gross salary the state pension would be a lower % of final salary and if you used a lower salary the state pension % would be higher as i
It just happens that the example of 50000 euro the state pension would make up around 26% of final salary as of today,
 
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