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AVCs for SPSPS employees
Ivan Ahern discusses how the Single Public Service Pension Scheme could affect you at retirement
Table: Pension case study comparison of those who joined the public sector before April 1995 and after January 2013
If you started working in the public sector after January 1, 2013, then you are most likely in the Single Public Service Pension Scheme (SPSPS). Your pension entitle- ments would differ substantially compared to nurses or midwives who joined the public sector before 2013. Given this, it is important to prepare financially for your retirement. An addi- tional voluntary contributions (AVC) plan could make a big difference to your life- style and finances in retirement. How the SPSPS will affect you at retirement • You will receive a significantly reduced pension in comparison to your colleagues who are members of earlier pension schemes • If you choose to retire early, for exam- ple at age 60, you will have to wait up to eight years before receiving the State Pension (which is increasing to age 67 in 2021 and to 68 in 2028) • When you stop working, you will face a cut in annual income of almost 80%, meaning you may need to seek further employment in order to maintain your lifestyle. See panel on the right for an example. What to do about reduced benefits An additional voluntary contributions plan allows you to make additional contri- butions towards your retirement benefits. At retirement, you can use your AVC to ‘buy’ extra benefits (subject to Revenue limits), such as: • A tax-free lump sum (gratuity) • An investment in a retirement fund • AVCs are deducted from your payslip, so you get tax relief directly at source. For example, if you are a higher rate tax payer at 40%, for every €50 you invest in your AVC the actual cost to you is €30 • Unlike a savings plan, the money that you • An additional pension. Other benefits include:
Paul
Laura
Paul and Laura are in different pension schemes. They are both retiring at age 60, with 36 years’ service, on a salary of €60,000 per annum:
Joined public sector
Before April 1995 After January 2013
Income before retirement
€60,000
€60,000
Employer pension at age 60
€27,000
€10,670
State pension at age 68
€0
€12,965
Total pension at age 68
€27,000
€23,635 All figures are estimates
invest in your AVC cannot be accessed until you retire, which is a good thing. If you start an AVC today It’s important to note that with an AVC you can stop, start, increase or decrease your AVC payments whenever you want. Here is an example of the savings fund you could have at retirement if you start an AVC today: income of just €10,670 – over €16,000 a year less than Paul. When Laura reaches 68, the State Pension will close some of this gap but will still leave Laura approximately €3,500 worse off each year. These differences would total almost €200,000, if Laura receives the pension until the age of 88 Weekly contribution After 30 years €12.50 €36,602 €25 €73,611 €50 €148,887 Assumptions: 2% contribution charge, 1% annual management charge, assuming 4% investment growth per annum, contribution increases by 2% annually.The actual charges on your AVC may differ. For the eight years between retirement at age 60 and receiving the State Pension at age 68, Laura who is in the Single Public Sector Pension Scheme could be on an annual
For more information, you can contact Cornmarket at Tel: 01-4206794. Ivan Ahern is a director at Cornmarket Group Financial Services Ltd Cornmarket Group Financial Services Ltd. is regulated by the Central Bank of Ireland.A member of the Irish Life Group Ltd.which is part of the Great-West Lifeco Group of companies.Telephone calls may be recorded for quality control and training purposes. Warning: The figures quoted in this article are estimates only. They are not a reliable guide to the future performance of an investment. Warning: The value of an investment may go down as well as up. Warning: This product may be affected by changes in currency exchange rates. Warning: If you invest in this product you may lose some or all of the money you invest. Warning: If you invest in this AVC product you will not have any access to your money until you receive your superannuation benefits
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