Hello,
Happy New Year. Like plenty of others, one of my resolutions is to get my pensions house in order, and I would be grateful for a steer on my queries below. I have read several of the key posts in this forum, but I find it a challenging topic to get my head around!
Current situation
Many thanks to anyone who reads and responds – it is appreciated.
Happy New Year. Like plenty of others, one of my resolutions is to get my pensions house in order, and I would be grateful for a steer on my queries below. I have read several of the key posts in this forum, but I find it a challenging topic to get my head around!
Current situation
- Salary €130,000pa. Not on an incremental scale, but can reasonably expect promotion to circa €145,000pa within 3 years, plus whatever across-the-board inflationary increases we receive.
- Age 37.
- Employee of State body since early 2021.
- Career average defined benefit scheme very similar to the Single Public Service Sector Scheme, but it is a bespoke scheme for my State body employer, administered by Mercer.
- Previously employed in private sector and I have a Zurich PRSA worth circa €100k which is invested in the default high risk fund which is predominantly equities, no longer able to contribute to it and paying management fees of 1% per annum.
- As my mortgage is at a comfortable level and I have an emergency cash fund, I would like to make additional contributions to my pension, initially at a small level just to get into the habit of it, and building up slowly but surely.
- As I understand it, I have 3 options: (1) purchase years of notional pensionable service, (2) make AVCs to an investment fund(s) of my choice, or (3) make AVCs in a New Ireland PRSA.
- I investigated Option 1 with Mercer and was surprised at the cost of purchasing years of notional pensionable service. To purchase one additional year, I was quoted circa €48k as a lump sum payment/1.24% of salary per annum to age 65. I thought this was expensive, but I don’t fully understand the calculations involved. I assume it is an actuarial calculation relating to my age, gender, length of service, salary etc. I understand the various advantages of Option 1 e.g. no ongoing management fees and certainty of outcome (i.e. outcome not dependant on performance of equities etc). Is there any advantage to purchasing notional service by way of lump sum versus by way of ongoing contribution? I assume purchasing by way of lump sum makes financial sense if salary increases are expected.
- I also don’t understand the difference between Options 2 and 3 above. Is it just that in Option 2, I select my own investment fund(s), but in Option 3, New Ireland makes that choice? Option 3 seems more straightforward, but is there anything else I should be aware of? I don't know the fees involved yet, but I assume I could go execution-only for a better rate if I am happy selecting my own fund(s) and with the additional hassle of not paying via payroll and having to set it up myself on My Revenue etc.
- I understand that I will obtain tax relief on my AVCs provided that they, when combined with my normal pension scheme contributions, do not exceed revenue limits of 20% of earnings (increasing to 25% when I turn 40), subject to maximum earnings of €115,000. 20% of €115,000 is €23,000. At the moment, according to my payslip, I pay circa €12.5k per annum between ASC and DB Cont Scheme. So, am I correct in saying that I will obtain tax relief on my AVCs only to the extent that I pay no more than €10.5k per annum? By way of example, if I start with a modest AVC of €250 per month, will it cost me €150 per month (i.e. €250 less 40%?)?
- Is there anything obvious I am missing here? Given the cost of purchasing the notional pensionable service, I am leaning towards purchasing AVCs, starting with a modest monthly AVC, with a view to looking again at notional pensionable service in a few years.
- For flexibility and so as to ensure that all my pension eggs are not in the same basket, I am leaning towards keeping the Zurich PRSA separate from my current scheme, rather than transferring it in, given that it would presumably only purchase two additional years of notional pension service for me based on my quote above. Any thoughts/suggestions on this?
- Any other thoughts/suggestions very welcome!
Many thanks to anyone who reads and responds – it is appreciated.