Will State Pension ever go completely?

[S class]

If a public servant has long service, close to the 40 years, I often wonder the rationale for doing AVCs?

If they are paying tax at 40% on their earnings and are likely to be paying tax at 20% on their pension income it is very worthwhile.

They also allow a person the option of early retirement with an improved pension.

In many cases there will be some extra tax free lump sum available on top of their public sector pension lump sum.

Also some public service pensions are not very large and some extra pension income is desirable.

 

[JohnFlory]

Except that you are giving up money now and getting it back after retirement.
And IFI or Cornmarket charges would probably be more than the 20% tax savings.
So give up money now and get back less in 20 years? Money that could be used to pay down a mortgage earlier or put in a deposit account.
Take point that you don't need to go through these brokers but most people not financially literate enough to do it on their own.

 

[S class]

A 40% tax payer is giving up 60 euro now and getting investment return on 100 euro into the future. If they opt for high risk, high return funds the possible gains can be very large.

The excessive charges won't eat up all these gains.

Anybody who reads and posts here is probably unlikely to do business with high cost brokers.

 

[BlackandBlue]

Can you explain where you're getting 17 years from? I can't seem to figure it out. Maybe I'm overlooking something obvious?

Weird, could have sworn there was a reference to service length in the initial post yesterday when I replied to it.

 

[meadow]

If a public servant has long service, close to the 40 years, I often wonder the rationale for doing AVCs?

As others have said - calculate any shortfall you may have in your pension at retirement age and see if AVCs would help make up that shortfall.
If little or no shortfall, then no need for AVCs.

Hi @Protocol , could you explain this a bit more.

If you are getting tax relief on AVC contributions does it not make sense to make these contributions regardless of whether you have full service or not. I'm obviously missing something but I would have assumed that this would just boost your retirement income (ie you would receive your public service pension plus income from AVCs).

 

[ClubMan]

Weird, could have sworn there was a reference to service length in the initial post yesterday when I replied to it.

No worries. I don't think that the original post was edited. I just thought that I might be missing something obvious. Either way the extent of the original poster's service length and entitlement to the PS pension is definitely pertinent.

 

[EvenStevens]

To clarify I have 20 yrs service done. I started in 2005 so I am ESS scheme

 

[S class]

@meadow
Yes, you can get your public service pension + extra pension payments from an ARF or Annuity funded from AVCs.

You are also likely to get an extra top up to your public service tax free lump sum.

The arguement against making AVCs is basically saying that some working people who might be in a tight financial position could be stretching themselves to far by making AVCs.

If you are in a comfortable financial position while still in employment AVCs can be very beneficial.

Of course like everything in life there is an element of risk.
If you make AVCs and die before retirement you won't personally get the benefits of your working time investment.

However your spouse or anybody else could inherit your AVCs.

If you make it to pension age and have a good lifespan beyond, you can enjoy a better standard of living into your old age.

 

[ClubMan]

To clarify I have 20 yrs service done. I started in 2005 so I am ESS scheme

I am a public sector worker in my mid-40s and currently would get pension and state pension at 66 in retirement

So you're likely to have the full 40 years by the time you retire assuming that you remain on as a public servant.

 

[JohnFlory]

17 years service so most likely a post 1994 employee.

Can you explain where you're getting 17 years from? I can't seem to figure it out. Maybe I'm overlooking something obvious?

There was a different poster yesterday with a similar post on a different thread that had 17 years service

If a public servant has long service, close to the 40 years, I often wonder the rationale for doing AVCs?

The OP has a normal retirement age of 66 which strongly suggests they're post 2013 and on the Single Scheme.

He meant state pension at 66.

 

[Protocol]

To clarify I have 20 yrs service done. I started in 2005 so I am ESS scheme

What does ESS mean?

 

[EvenStevens]

What does ESS mean?

Education Sector Superaanuation Scheme -it’s people who joined before 2013 Single Scheme

 

[Brendan Burgess]

No Govt would survive abolishing the State Pension.

And the state will not survive if we don't.

 

[bkenn14]

And the state will not survive if we don't.

I suspect you have a self employed mindset of paying in around 4%
Most people seen from 15% and close on 19% of payroll deducted under prsi all of there working life
The State will not survive if it was to abolish the state pension for these people,
The OP in no 1 post is one of the people who will see the above % taken on his/her payroll slip since he/she started working,

 

[bkenn14]

No Govt would survive abolishing the State Pension.

I agree,
Some people underestimate how clued in people are to the amount of PRSI taken from payroll each week they don't mind paying in once the know a state pension will be payed out at retirement age,

 

[Dr Strangelove]

And the state will not survive if we don't.

Brendan this is a ridiculous contention.

Every developed country has a minimum income scheme for old people.

In Ireland I expect the state pension to decline in real terms and/or have tighter criteria attached but it will never be abolished.

 

[CharlieMac]

If i stay until 66 I'll have around €13k pension in the Single Scheme as compared to around €20k on the post 2005 Scheme at 65. Lump sum is also much worse.

Also no realistic option for buying service

@BIG-notorious There is a purchase and transfer option to "buy back" referable amounts on the single pension scheme. It's expensive but the option is there.

You could use an AVC fund to build your SPS benefits up to about half final salary (ok, this would include the state pension) and get the full Revenue allowed (?200k) tax free lump sum too.

 

[TomEdison]

Every developed country has a minimum income scheme for old people.

But not necessarily a social security-based system.

Australia, for example, has compulsory contributions to (non-state) pension funds, supplemented by a state pension which is means-tested.

There are broadly three mechanisms for providing income in retirement:

• a tax-funded payment (entitlement to which can be contribution-based, means-tested or universal)
• a payment from a non-state fund — savings set aside specifically for retirement (could be an employer-sponsored pension scheme or a personal pension plan)
• general savings

Most countries rely on some combination of these three methods (the "three-pillar system"). A contribution-based tax-funded pension is a significant element of the system in many countries, but not in all, so it's not inevitable that Ireland will always have one.

Having said that, once a country introduces one, they're very difficult to get rid of. Barring the total bankruptcy of the state, politially speaking you have to honour the pension entitlements promised in return for contributions already paid, and you will need future contributions to do that, so it's very hard to stop collecting contributions. So I don't think Ireland will move away from a contribution-based state pension. But, yeah, it could form a smaller part of the mix in the future, in comparison to the part it forms at present.

 

[bkenn14]

But not necessarily a social security-based system.

As already stated our social system/State takes a high % if you look at total payroll in any employment you will see close to one sixth of payroll goes to the state in prsi over the 20 years of Even Stevens employment,,

If there was to be no state pension most of the above contributions would need to fall away and be replaced by high taxation,
(most of the extra taxation will be paid by the very people calling for the state pension to be done away with,

 

[Brendan Burgess]

Brendan this is a ridiculous contention.

Every developed country has a minimum income scheme for old people.

In Ireland I expect the state pension to decline in real terms and/or have tighter criteria attached but it will never be abolished.

Hi Dr.

People are in denial about the state of the nation's finances. We have huge borrowing. And we have huge spending funded by artificially high CT receipts which could (and should) go at any time.

We are living way beyond our means and this comment, which is probably true,

No Govt would survive abolishing the State Pension.

shows how difficult it will be to get us to live within our means after years of living like lords.

Giving self employed people an inflation linked pension for life in exchange for 4% of their salary is bonkers. It will have to go.

Giving very wealthy people the COAP when they don't need it will have to go.

The time to address these issues is now, when we have some financial headroom, not when the international lenders again refuse to give us any more credit.

The country went bust during the financial crisis and had to be bailed out. They probably won't bale us out again.