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Basic Pension Q's
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30-07-2014 3:56pm#1Apologies if asked before but I couldn't see a sticky on the basics of pensions - I'll qualify for my company's pension scheme in a few months so I'm looking to understand the area head of that time. As it stands, I'm coming from an understanding of nothing, having never really looked at it before. So on that I have a few very basic questions I'd be grateful if someone could answer;
- Is pension income taxable under normal tax deductions i.e. when the calculators quote "€40,000 annual income" based on hypothetical inputs, is that 40k before tax? Thus netting roughly €2500 per month.
-If your company limits the % amount you can put towards it each month, is your next best option AVCs?
-Related to that, can you put in e.g. €400 into an AVC each month and is that taken pre-tax, so effectively "costing" you €200?
-Is there another mechanism I'm missing that I should be considering e.g. special savings funds that have different rates of tax / interest if used for pensions?
-Why is no one (in the private sector) panicking about not having a pension and simultaneously not up in arms about how little return you get from defined contributions vs the public sector model which seems (from little research) to require putting in much less to the Single Pension Scheme to get e.g. €40k p.a. out? Getting even a "modest" pension of 40k in a private sector scheme is going to take some serious grafting to get the required pot of ~€1.2m, if it's even at all possible..0
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thirtythirty wrote: »-Why is no one (in the private sector) panicking about not having a pension and simultaneously not up in arms about how little return you get from defined contributions vs the public sector model which seems (from little research) to require putting in much less to the Single Pension Scheme to get e.g. €40k p.a. out? Getting even a "modest" pension of 40k in a private sector scheme is going to take some serious grafting to get the required pot of ~€1.2m, if it's even at all possible..
You make a fair point but you may be surprised to know that even public sector workers don't realise the benefit they have in that pension scheme of theirs relative to people in the private sector. The cynic may say that it suits them to pretend to be ignorant of the benefit so it doesn't get factored into pay negotiations when doing things like benchmarking against pay rates in the private sector but I know from personal experience that they genuinely don't realise how much better off they are.
The general ignorance of occupational pension schemes extends to both private and public sector workers. Most people in the private sector don't realise how disadvantaged they are and most public sector workers take it for granted that everyone retires on a 2/3 pension.
On why people in the private sector aren't yet up in arms, the move from DB to DC schemes only started about 20 years ago so there isn't yet a stream of private sector people retiring in their 60s and discovering that their DC pot can't buy them anything like the pension they were expecting to live on in their old age.0 -
Join Date:Posts: 17316
The general ignorance of occupational pension schemes extends to both private and public sector workers. Most people in the private sector don't realise how disadvantaged they are and most public sector workers take it for granted that everyone retires on a 2/3 pension.
On why people in the private sector aren't yet up in arms, the move from DB to DC schemes only started about 20 years ago so there isn't yet a stream of private sector people retiring in their 60s and discovering that their DC pot can't buy them anything like the pension they were expecting to live on in their old age.
Any idea on how many d.b. actually retire on 66.67% pension before lump sum?
Any idea on what these "TOP HAT" pensions actually cost?
Recent changes away from "final salary" in the case of p.s. pensions will significantly reduce the costs.
Consider someone who gets a very late promotion and salary increase. Under the old rules for every €1000 p.a. salary increase a pension of up to €666.67 would have been payable, even if the salary increase had been within days or weeks of retirement.
Have you any inkling of the maximum pension funding rates allowed by Revenue? 100%+ of salary isn't uncommon, and the scales allow for much higher rates dependent on timeframes and circumstances.
A senior employee in the private sector can emerge with a very package on retirement, comprising of cash, pension, avc's, options etc.
It just requires proper planning and advice, none of which is available free from well intentioned but manifestly unqualified folk on the internet.0 -
Henry Ford III wrote: »Recent changes away from "final salary" in the case of p.s. pensions will significantly reduce the costs.
The changes you mention will 'significantly' reduce the costs starting in 40 years time when the people recruited to the public sector under the new rules start to retire.Henry Ford III wrote: »Consider someone who gets a very late promotion and salary increase. Under the old rules for every €1000 p.a. salary increase a pension of up to €666.67 would have been payable, even if the salary increase had been within days or weeks of retirement.
The rules for public sector pensions which have applied for at least the past 30 years say that your pension is calculated based on your grade(s) over the last three years of your service so a promotion 'within days or weeks of retirement' will have no effect on your pension.
And in the private sector I can only quote the rule which applied in the company I worked for which said that your (DB) pension would be based on your average salary for the last three years of your service so there was no scope to increase the pension of someone within weeks of their retirement.Henry Ford III wrote: »Have you any inkling of the maximum pension funding rates allowed by Revenue? 100%+ of salary isn't uncommon, and the scales allow for much higher rates dependent on timeframes and circumstances.
The exception doesn't prove the rule. Bloated pensions engineered by fat cat CEOs with the willing acquiescence of puppet non-executive directors are not valid examples of what applies to the majority of workers in the private sector. The maximum funding rates allowed by the Reveune was of no benefit to the former workers in Waterford Glass who were left with nothing.Henry Ford III wrote: »It just requires proper planning and advice, none of which is available free from well intentioned but manifestly unqualified folk on the internet.
I trust you've included yourself in that category, based on your uninformed comments above.0 -
Join Date:Posts: 17316
The changes you mention will 'significantly' reduce the costs starting in 40 years time when the people recruited to the public sector under the new rules start to retire.
The rules for public sector pensions which have applied for at least the past 30 years say that your pension is calculated based on your grade(s) over the last three years of your service so a promotion 'within days or weeks of retirement' will have no effect on your pension.
And in the private sector I can only quote the rule which applied in the company I worked for which said that your (DB) pension would be based on your average salary for the last three years of your service so there was no scope to increase the pension of someone within weeks of their retirement.
The exception doesn't prove the rule. Bloated pensions engineered by fat cat CEOs with the willing acquiescence of puppet non-executive directors are not valid examples of what applies to the majority of workers in the private sector. The maximum funding rates allowed by the Reveune was of no benefit to the former workers in Waterford Glass who were left with nothing.
I trust you've included yourself in that category, based on your uninformed comments above.
DB schemes are also referred to as Final Salary schemes. The calculation of F.S. is far from universal.
Under the new p.s. rules entrants can retire potentially almost immediately. New members may extend to 40 years service, but equally may not.
Different rules apply to many schemes, so in isolation yours isn't very relevant.
You've failed/been unable to answer the specific queries I raised, so I won't engage with you further here, and will leave the readers draw their own conclusions.0 -
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Well all's I know is that I would take a DB or "average salary" pension over a DC one in a heartbeat.
I'm going to end up putting a significant portion of my wages into my DC for the rest of my life, as well as topping up an AVC when I can, and be fully dependent on the markets not collapsing between now and then in order to even hope of getting *maybe* a €35k pension. I'll still run the risk of coming away with nothing at the end of it. That seems like a bad card to me!0 -
thirtythirty wrote: »Well all's I know is that I would take a DB or "average salary" pension over a DC one in a heartbeat.
I'm going to end up putting a significant portion of my wages into my DC for the rest of my life, as well as topping up an AVC when I can, and be fully dependent on the markets not collapsing between now and then in order to even hope of getting *maybe* a €35k pension. I'll still run the risk of coming away with nothing at the end of it. That seems like a bad card to me!
I actually like the certainty that defined contribution provides.
A defined benefit scheme is only worth as much as its underwriter...a bank? A state? No thanks.
I'm 100% invested in equities and I know that they should deliver around 7% per annum over my long time horizon.
So I base my calculations on growth of 5% to be prudent.0 -
thirtythirty wrote: »Well all's I know is that I would take a DB or "average salary" pension over a DC one in a heartbeat.
I'm going to end up putting a significant portion of my wages into my DC for the rest of my life, as well as topping up an AVC when I can, and be fully dependent on the markets not collapsing between now and then in order to even hope of getting *maybe* a €35k pension. I'll still run the risk of coming away with nothing at the end of it. That seems like a bad card to me!
If your opted in for life styling then your funds should move from risky assets to less risky and in time to bonds as you get closer to retirement.
When you say you want a 35k pension, did you pluck this number out of the sky or have you being looking into the projections of your fund.
The idea of anyone taking DB is not straight forward, how many schemes are under funded atm, how many DB schemes still exist?
DC Scheme - your in control.
DB Scheme - Employer in control.0 -
There are tax breaks at the minute for 65+thirtythirty wrote: »- Is pension income taxable under normal tax deductions i.e. when the calculators quote "€40,000 annual income" based on hypothetical inputs, is that 40k before tax? Thus netting roughly €2500 per month.
who get double the tax credits of younger folks
there is also a tax break of a lower rate of usc for 70+
This is a qualified yes.thirtythirty wrote: »-If your company limits the % amount you can put towards it each month, is your next best option AVCs?
There should be no good reason for your company to limit the amount of savings you put into a DC scheme, even if they will only match up to a small %age. But the scheme might limit it and so you may have to put extra savings into a prsa
You can put extra savings into a company pension scheme, or a prsa. the revenue set limits to how much savings you can get tax relief on, which depend on your age.thirtythirty wrote: »-Related to that, can you put in e.g. €400 into an AVC each month and is that taken pre-tax, so effectively "costing" you €200?
as another poster said nopethirtythirty wrote: »-Is there another mechanism I'm missing that I should be considering e.g. special savings funds that have different rates of tax / interest if used for pensions?
Wait till you understand the govt is gonna steal 0.75% of your savings each year, and the question will boggle you even more.thirtythirty wrote: »-Why is no one (in the private sector) panicking about not having a pension and simultaneously not up in arms about how little return you get from defined contributions vs the public sector model which seems (from little research) to require putting in much less to the Single Pension Scheme to get e.g. €40k p.a. out? Getting even a "modest" pension of 40k in a private sector scheme is going to take some serious grafting to get the required pot of ~€1.2m, if it's even at all possible..
The opinion shapers in the media are all on essentially state backed DB schemes or are self employed contractors who have non pension fund pensions,
like a nest egg, or a second house bought pre celtic tiger, or something.0
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