Which is better: deferring a PS pension but resigning or taking CNER?

D

Dave Vanian

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Someone wants to take early retirement from the PS and has a choice: -
  1. Resign now and defer taking their benefits until NRA or
  2. Take early retirement benefits now, reduced under CNER
Is there a general consensus that either one is better?

I know that everyone is different, but I'm wondering if there is any rule of thumb? Like, say the rule of thumb that says that you should take your State Contributory Pension at 66 if you qualify for a full one, rather than defer as the additional pension you'll receive by deferring will take years to catch up with the years of pension you've forefeited. Any similar guidance for this situation?
 
I can't reference it but I vaguely recall a calculation from some years ago. Based on average life expectancy from normal retirement age a retiree would do better on purely financial terms by going for the preserved pension. But that ignores many other factors.
 
It depends on how much service and pension you expect to get via both options.

For me, the sums say retire early and take the money right away. The extra 5 or 10 years of early retirement, even allowing for CNER loss in annual pension and lump sum, mean the break-even point versus preserved pension would be in my 70s.

I'd rather have those extra few years off, hopefully at good health, than miss the extra 000s from my 70s
 
TheJackal said:
I'd rather have those extra few years off, hopefully at good health, than miss the extra 000s from my 70s
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Yes, that is one of the factors other than straight financial calculations.

Also, early retirees can considerably offset any financial disadvantage if they can somehow make up the the number of PRSI contributions required for a full state pension, eg, if they have 32 years service at CNER but can get to (or near) 40 years worth of qualifying PRSI contributions. Or, I suppose, a partial state pension or a pro-rata pension for Class Ds.
 
Thanks for the input, both. This person has sufficient cash savings to be able to comfortably live on that if they defer starting the pension to avoid CNER reductions. The bit that I'm trying to figure out is if the additional pension got by avoiding CNER is worth giving up a few years' pension for. Or as @TheJackal puts it, where would the breakeven point be.

There's also a small private pension from an old job that can be utilised to maintain the PRSI record, supplement savings and use up tax credits.
 
Well TBF CNER is "cost neutral" in theory. If you are in poor health and likely to live less than life expectancy age, take it imo
Plus taking the lower pension amount now and keeping your savings may give you more flexibility down the road
I think it's actually a personal choice really and whether the CNER amount is enough to live on as you would like
Also If the CNER reduced amount keeps you in the lower tax bracket but the higher prserved amount might leave you paying @ 40% that's a factor too
 
Dave Vanian said:
The bit that I'm trying to figure out is if the additional pension got by avoiding CNER is worth giving up a few years' pension for. Or as @TheJackal puts it, where would the breakeven point be.
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I am a bird in the bush type of person and would be strongly inclined to take the CNER now.
I am not aware of any tables that sets out the actual data on breakeven and crossover points (but they may exist). Anyway, a set of tables would be needed depending on which PS scheme the person was retiring from, eg, normal retirement age of 60 or 65, standard pension scheme or fast accrual, coordinated (Class A PRSI) or uncoordinated? Also, would the person be eligible for a supplementary pension or not. And that is leaving aside the state pension/PRSI issue.
 
If you need the pension/lump sum/avcs to get you through from early retirement until the state pension kicks in then CNER is the way to go. I think CNER is designed to be cost-neutral based on a life expectancy of 83 (edit: 77) so if you 'plan' to live much beyond that then you are better off to defer, but if you think you will have a below-average or an average life expectancy then CNER is better. Having said that, as we know, peoples expenditure goes down as retirement goes on, so personally I would prefer to frontload money into my 50s or 60s rather than having more in my 80s or 90s.
 
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I am considering retiring in 2 yrs age 57.75 and opting to preserve my pension until my retirement age 60. At that stage my pension will be just over 44k so I would get diminishing returns for working on for the last 2.25 years.

I have an AVC and some savings which will be enough to keep me going for the 2.25 years - and I will pay very little tax on my AVC which will be approx. 20k per year.
 
outofmymind said:
I would prefer to frontload money into my 50s or 60s rather than having more in my 80s or 90s.
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An important consideration.
outofmymind said:
I think CNER is designed to be cost-neutral based on a life expectancy of 83
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I had understood them to be based on average life expectancy at normal retirement age. And the actuarial reduction tables were produced over 20 years ago now. I believe this life expectancy has increased in the meantime. If so, this would tilt the balance a little towards the preserved pension in purely actuarial terms.
But I think this is not a top factor in most individual decisions.
 
Saturn said:
I had understood them to be based on average life expectancy at normal retirement age. And the actuarial reduction tables were produced over 20 years ago now. I believe this life expectancy has increased in the meantime.
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Apologies, you are right. I just looked at my calculations and there is a break even of 77 years and 1 month on my figures. I thought that I had calculated it previously as 83, but maybe that was for deferring the state pension. I will edit my post above so as not to confuse.
 
Just looking at the CSO, the average life expectancy of a male 65 year old was 13.8 years in 1996, 16.6 years in 2006, and 18.3 years in 2016.
I can't locate the data for an equivalent 60 year old.
The CNER actuarial reduction tables were first published in a 2005 circular but I don't know when they were developed.
 
sidzer said:
I am considering retiring in 2 yrs age 57.75 and opting to preserve my pension until my retirement age 60.
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Claim JPRB for 9 months immediately after you cease employment. Then if possible get part time employment for 13 weeks, cease this employment and then claim 9 months of Jobseekers Benefit. The rate of JB payments for this will be based on your earnings two years prior to the JB claim start date.
It is likely that you would qualify for the full rate payments.
 
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