Should I buy years or contribute to an AVC/PRSA?

Discussion in 'Public sector pensions' started by Brendan Burgess, Aug 6, 2007.

  1. Slim

    Slim Frequent Poster

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    Complainer, that's interesting. Is there any evidence that the new government may target the Superannuation Scheme, for established public servants I mean? Slim
     
  2. Complainer

    Complainer Frequent Poster

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    Nothing specific, but there is certainly a general atmosphere of cutbacks in all areas. It wouldn't surprise me at all if this area were targeted, particularly for new purchases.
     
  3. Slim

    Slim Frequent Poster

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    Update on this situation. My wife needs to make up a gap of 3.4 years at her minimum retirement age. Option 1 which she has been pursuing for 5 years is a PRSA. She has accumulated €46k approx. Tax relief has come back in at 41% plus PRSI, so that's not too bad. Value of fund is about what was put in at the moment. She has enquired of her HR department about Notional Service Purchase and to buy the years back will cost €73k lump sum or €4,400 p.a. for 12 years. That means that at 12 x 4,400 = €52,800 before tax relief. Why is the periodic payment so much less than the lump sum payment? Is it timing?

    Secondly, would she be better off chucking the money into her PRSA or paying the NSP or both? The purchase of NSP will add €2,400 to annual pension and €7,200 to lump sum.

    Any views on this? Slim
     
  4. dragonboy

    dragonboy New Member

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    Hi Brendan, do you still recommend NSP , is it still a good option, I first entered the public service in 1994 but left for a period of time and last re entered in 2007, I believe that NSP became very expensive in the last no of years, (up to 12 thousand to but one yr?)I had signed up to do AVC's with one of the private company's endorsed by the union (INMO) but cancelled at the last minute as I had not read/heard the best reviews about them. Any advice. I am a nurse manager working part time earning 36 thousand per year.
     
  5. Gerry Canning

    Gerry Canning Frequent Poster

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    Slim;
    Looks like on your Nsp ,you would need to draw pension for over 14 years to make it worthwhile to pay the 4,400 each year.(am I right?)(I also assume they will not be downward modified)

    Prsa,s/Avcs. Seem to be in recovery mode for the foreseeable future. So with good tax relief gives you an option fairly free of the vagaries of Public Service Pensions.

    On balance I would be inclined to keep a (private) pot running. From all the coverage on Public Service Pensions , I can only see them decreasing in real terms.

    Dragonboy;
    The company that INMo uses had issues with overselling. That said a straight AVC with no hard sell on life cover etc makes sense in that most of the up front fees are waived ,so your Avc starts accumulating from day one.There are also good brokers who will give you good advice.Always good to have a (fund) outside of your Public ervice pension.
    Tread carefully and do not sign until you are clear.
     
  6. RainyDay

    RainyDay Frequent Poster

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    From my last discussion with good pension advisers, the pre-2006 rates for NSP are good value for money, but the current rates are not. You also have to factor in the risk that the Govt will change the rules, between the time you invest and the time you retire. You may not get back what you're expecting to get back.

    If you're looking at AVCs, it's a good idea to look at a few providers, and make sure you understand the full charging structure.
     
  7. Slim

    Slim Frequent Poster

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    Thanks Gerry & Rainyday,

    I reckon that taking the extra lump sum into account, it would take just over 10 years to recoup. Having said that, the pension structure may be further eroded as Rainyday points out.

    Current position is that she continues her PRSA. This can be left behind if, God forbid, something happens her. Also, we can do a number of calculations to avoid higher tax rate on retirement, i.e retire early etc.

    Many thanks.

    Slim
     
  8. Clints

    Clints New Member

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    Hi all. I am new to this forum and I am sorry that I have nothing to contribute as I too am looking for advice. I started teaching in 2002 aged 24 with a full years contract on full hours (secondary teacher). I then went to oz for the school yr 2003-2004. As a result they are telling me that I cannot retire until I am 65. For the last three years I have been putting 2% into a PRSA. My current salary is €60300 - (I got an increment for previous work and I have a b post, also a masters). So while I know the PRSA is not massive and I am wondering whether I should increase it or buy some notional service. I really do not wish to work until I am 65 if possible!!!!! But if I am right and because of that yr break in oz I cannot retire any earlier even if I have notional service. Would that be correct. Has anyone any idea what is the best thing for me to do. All advice would be appreciated
     
  9. RainyDay

    RainyDay Frequent Poster

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    Just to be clear, it's not that you 'can't retire early', it is that you can't retire early ON FULL PENSION. If you want to retire early, that's fine, your pension will be actuarially reduced to reflect the reduced years funding the pension and the extra years drawing the pension.

    If you have spare cash that you are prepared to lock away for your retirement, your best bet is probably AVC contributions. The current rates for buying extra years aren't great value. There is also the risk factor of having all your pension eggs in one basket (the Govt). If you buy an AVC, you are spreading your bets a little.
     
  10. Clints

    Clints New Member

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    Thanks a million rainy day for the help. I am aware of the penalties imposed for retiring early "cost neutral". I appreciate your input. An stated I am currently doing Avc's so maybe my contribution to those by the time I retire might soften the penalties. Thanks for the help
     
  11. bungaro

    bungaro Frequent Poster

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    this is a fantastic thread, thanks to all who contributed into it with great info!

    i changed career from finance into teaching and started full time in sept 2008. i was 28 at the time so i was going to be 3 and a bit years short of my full pension so i started paying into the nsp. now i'm 34 and i am looking into starting up an avc (not through cornmarket) with zurich or someone else just to have a few bob extra when i retire.

    from what i've read here and in other places would i be right in thinking if i was to retire early (if given the option) then all the money i would have paid into the nsp would basically be lost as it is calculated to age 65??

    if this is the case then should i stop paying it and pay it into the proposed avc instead?? this could be used to top up the missing portion from my full pension??

    and i've read that some discount brokers can offer 105% allocation rate, what does this mean??
     
  12. oysterman

    oysterman Frequent Poster

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    The only way notional service contributions can be "lost" is if the contributor ends up working past the age on which the notional service is based eg. if you worked to 66 then you would get no value for one of the NSP years you would have purchased...of course the solution to this is to decide sufficiently far in advance that you are going to work the extra period of time and simply cancel the NSP contributions at the appropriate moment.

    If you retire earlier than the age on which your NSP is reckoned you get value for all the contributions you made but there is a proportional deduction on the number of years bought, based on not having completed the full amount of contributions required eg. a worker starts to buy 5 years at age 55 based on retirement age of 65 but s/he retires at 63 would have completed the purchase of 4 years.

    All of this is explained in "the green book", entitled something like "Your superannuation questions answered" that you probably received when you joined the scheme...I can't find a link to it on the web but I'm pretty sure it's there somewhere.

    As to your AVC >100% allocation question, I guess this has something to do with the broker charging you upfront but effectively refunding their ongoing commission; I don't know much about that side of the pensions industry.
     
  13. bungaro

    bungaro Frequent Poster

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    thanks oysterman, you've answered a lot there for me, appreciate it
     
  14. trasneoir

    trasneoir Frequent Poster

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    From http://www.cornmarket.ie/product/The-teachers-AVC-scheme

    When can I draw down my AVC Investment Account?
    You can only draw down your AVC benefits when you draw down your Superannuation benefits.


    Is this true accross the board for (non-PRSA) public sector AVCs, or is this a feature of Cornmarket's teacher AVC in particular?
    It seems like a huge drawback for would-be early retirees who would like to avoid "Cost Neutral Early Retirment" penalties on their public sector pensions.
     
  15. oysterman

    oysterman Frequent Poster

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    AVC benefits are tied in with main scheme ones ("additional") and can only ever be accessed at the same time.
     
    trasneoir likes this.