Separate contributions from occupational pension scheme

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MMATTAMM

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I am currently a member of a private sector defined benefit pension scheme.
I am 33 years old and have 10 years paid into this scheme. The fund is fully funded.

The company I work for also offers a supplemental DC pension where I can contribute additional funds and the company will match the first 2% contributions. Since last year and between my DB and supplemental DC scheme I have been maxing out the 20% contribution limit for my age. (I pay tax at the higher rate). I currently have €30,000 in this fund, 100% equities allocation.

I am interested in early retirement potentially at age 55. However the rules of the company pension state that when I retire I must draw down both pensions at the same time. While the penalties for early retirement from the DB scheme are not called out specifically in the pension documentation (will be subject to actuarial assessment at the time), I believe they are quite penal.

Would it be better to stop contributing my max allowance to the supplement DC pension and reduce this to 2% contribution to avail of the employer contribution? I could then set up another PRSA separate from my occupational scheme, which I would be free to draw down from age 55 and leave my occupational pension untouched until 65 to avoid early retirement penalties?

Is this possible/does this make sense?
 
If you are a member of an occupational pension scheme and have an attaching AVC fund, you must draw down both at the same time, whether at normal Pension age (say 65) or on early retirement. This is a Revenue requirement. Generally, early retirement is subject to Employer agreement and obviously the early retirement pension will be reduced due to:
- less contributions invested
- pension payable earlier and for longer
So this can reduce the pension significantly particularly if you wanted to retire at age 55.

However in relation to AVC contributions (supplemental pension) you cannot contribute at such a rate that when added to your main DB scheme the overall benefits might exceed a Revenue limits in terms of benefits. And you cannot make such supplemental contributions on the basis that you might retire early. You have to assume that you will stay until normal retirement age.

In terms of a separate PRSA I don’t think this is possible unless you have a separate source of pensionable income. If your only source of income is from your employment then contributions must be linked to that employer scheme. So whether making an AVC into some form of supplemental scheme or separate contributions to a “stand-alone PRSA AVC” , the overall benefits must be linked and taken at the same time.
I think you need to take professional pension advice. Talk initially with whoever advises your Employer/ Trustees.
 
Thanks Conan for taking the time to reply. Seems as though I will have to draw down all pensions at once so might as well continue my contributions to the supplementary scheme. (I'm aware that total contributions to all pensions must come under the 20% revenue limit.)
 
The 20% Renenue limit is merely for tax relief purposes. However you also must ensure that you are not “overfunding” based on the combination of the DB and the supplementary element. That’s why you need to check that the level supplementary contributions will not result in providing overall benefits in excess of Revenue benefit limits by age 65. And you cannot assume early retirement in making that calculation.
So maybe just check with your Company’s pensions consultants.
 
Hi MMATTAMM,

Conan is a pension's expert - as can be seen from the quality of his reply.

Just a few additional comments that strike me regarding pension contributions - i.e. not commenting on broader financial considerations:

1. What are the chances of your DB plan being still alive when you get to 55? My guess is that it is substantially more likely to be wound-up between now and then! (Frankly, can't understand private sector employers underwriting such promises).

2. If scenario 1 comes to pass, then your concern regarding the compulsion to take all benefits at the same time may be rendered mute. Even if the plan is not wound-up, you would hope that by that stage, the policy makers would have got their act together and removed this archaic and nonsensical requirement (to take all benefits from the same employment at the same time......it's really such a stupid requirement).

3. I suspect you earnings are above average! What is, unhelpfully, unknown is the position with the lifetime limit on pension funds (currently c. €2m). Whilst 1 and 2 above support pension funding, for high earners, the lifetime limit needs to be watched. The problem is that no one knows what the limit will be in the future - which hinders one's ability to plan.
 
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Thank you both for the replies. I hadn't considered the overall revenue benefit limits as my salary, while above average perhaps, is certainly not high at 62000. I do live relatively frugally though I guess.

The DB scheme has already been downgraded from final salary to career average in the last couple of years. And could of course be wound up in time

To be honest up until now I have been concentrating most on paying down my mortgage which I now belief I will be able to clear next year. Hence my focus has turned to my pension payments and whether I could potentially fund an early retirement.
 
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