Apparently I owe my employer thousands in pension arrears !!

boatbuilder

Ok, this is crazy.

I worked from 2003 until 2008 for a certain VEC as a part time tutor.
I filled in time sheets and got paid accordingly, with no pension deductions or option to join the public sector pension scheme. In fact I tried and they wouldn't let me join it.

In 2008, I got a permanent job with the same VEC and since then have paid the pension contributions, widows and orphans etc etc.

In June 2010, I got a phonecall from the VEC HR department, telling me that I owe them €3000 in pension arrears for the years 2003-2008 and that if I do not pay it immediately, they will charge me interest on it until I retire and the total will be taken out of my lump sum pension plus the widows and orphans contibution will be calculated on my final salary as well.

Has anyone ever heard of this or am I the victim of a VERY nasty clause in the department of education's pension policy?

So to summarise, they want me to pay them now for pension contributions from 7 years ago that was not allowed to pay at the time and was never aware I would have to pay in the future.

I am consulting with a pensions advisor, but thought I would out it here to get peoples opinions too.

coylemj

If they are saying that you can effectively buy 5 years of pensionable service for 3,000 euros then I can assure you that that is a complete no-brainer, get the money from somewhere and pay it, you will never get such a bargain in your entire life again.

Public sector pensions are effectively inflation-proof, nobody in the private sector can afford to provide a pension that will never lose it's purchasing power so go for it. I know they've been playing with the numbers recently but it is still a gilt-edged pensions scheme that nobody in the private sector can compete with.

Say you retire with 30 years service in 2038, you will get a pension of 50% (30/60) of your final salary. With the additional five years they are saying you can buy, that pension will instead be 35/60 or 58.33%. Now take 8.33% of your salary today and ask yourself this question: How much would it cost me to buy an annuity that paid me 8.33% of my current salary, index-inked for the rest of my life? Believe me 3,000 euros wouldn't come anywhere near it.

coylemj

Don't forget that as pension contributions for past years you will be able to get full PRSI and PAYE relief on that 3,000 euros so it will probably cost you just over 1,500 if your marginal rate of PAYE is 41%

wmpdd3

Pay it as fast as you can before they decide they wont let you. I probably paid €3000 of my last 10 years pension contributions just in costs! It's a good deal.

Consult your union or an independent financial advisor, if not sure.

boatbuilder

Thanks.

Unfortunately they are not giving me five years of service for 3000.
They added up all of my part time hours that I worked during the 5 years and came up with a figure of 3.54 years that I have to pay for.

To be honest, I don't mind paying it in the medium term when I can afford to, but its the fact that this is compulsory that shocks me, especially when really IMO they should have been taking it out of my pay on a monthly basis when I was a part timer.

I suspect though that its probably a good deal but I don't know enough to recognise it as such. It is very bad timing to ask me to pay €3000 :eek:

coylemj

The money they are looking for is probably based on the old public service superannuation contribution which is probably just a few percentage points. It was recently calculated that to buy a pension similar to the public service, a person in the private sector and his employer would need to contribute a grand total of 40% of gross salary as a pension contribution so believe me, you are getting a pretty good deal by any standards though I recognise that it doesn't suit you to be landed with this bill on your lap right now.

rainbowtrout

Are the VEC going to back date that time to 2003 for your pensionable years? To me it's a steal at €3000 and I would be determined to find it from somewhere.

More importantly perhaps for you in the future, if it is backdated to 2003 and that you joined the public service in 2003 and you are recognised as having completed 8 pensionable years at the end of this academic year you will have better options for retirement at the other end.

Those that started in public service after April 1st 2004 must work until they are 65. Those that were in public service before this date can retire at any point from 60 onwards and receive their pension. You may not have 40 years at that age but at least you'll have choice.

3.5 years for 3k sounds good to me tbh, you should pay it

boatbuilder

rainbowtrout wrote: »

Are the VEC going to back date that time to 2003 for your pensionable years? To me it's a steal at €3000 and I would be determined to find it from somewhere.

More importantly perhaps for you in the future, if it is backdated to 2003 and that you joined the public service in 2003 and you are recognised as having completed 8 pensionable years at the end of this academic year you will have better options for retirement at the other end.

Those that started in public service after April 1st 2004 must work until they are 65. Those that were in public service before this date can retire at any point from 60 onwards and receive their pension. You may not have 40 years at that age but at least you'll have choice.

I started in September 2003 part time, so I will definately follow that up with the VEC.

rainbowtrout

boatbuilder wrote: »

I started in September 2003 part time, so I will definately follow that up with the VEC.

http://www.cspensions.gov.ie/modellers.asp

Have a look at this pensions modeller for civil service. While it's not designed for teachers, it essentially does the same thing as their conditions and changes to conditions are based on the same dates (pre/post 95, pre/post 2004).

Stick in your dates and see what it tells you, the wage really isn't important but the retirement dates can be useful.

I personally can't see how they wouldn't backdate to the time you started in 2003

highgiant1985

coylemj wrote: »

Don't forget that as pension contributions for past years you will be able to get full PRSI and PAYE relief on that 3,000 euros so it will probably cost you just over 1,500 if your marginal rate of PAYE is 41%

I don't think this is correct? I'm open to correction on this but I had thought if it occurs this year regardless of when the payment/deduction relates to that the rules for this year apply.

Maybe a pension deduction is different but for say a salary arrears payment (i.e. if you had been underpaid) e.g. if you recieved arrears due from 2002 in the current tax year (pretend we are in 2010 to make it easier for me as I'm not as familiar with the USC yet) then income levy/PAYE and PRSI would have been paid on that arrears as at the current years rates 2010. Pension levy is the exception however in that the Dept of finance came out to clarify that it depends on the period the arrears is due from. i.e. If the arrears happened pre Pension levys existence then you would pay no pension levy on it otherwise you would so you could end up with arrears of 10,000 but only have to pay pension levy on 2,000.

Therefore in the OP case he would get PAYE relief of 41% this year as the payment/deduction occurs this year
(OP - a reason for you to pay it this year if so as this relief is being reduced from next year) but that he would pay PRSI on his gross amount. i.e. hes lost out on the pre 2011 benefit of PRSI relief for superann deductions.

All this said OP you would be crazy not to pay the 3,000 to buy back your years service. I would contact who ever came to you on this and negtioate a way to pay it back over the year however to allow you to spread the pain (pay it all back this year to get the max benefit though)

Kennie1

highgiant1985 wrote: »

I don't think this is correct? I'm open to correction on this but I had thought if it occurs this year regardless of when the payment/deduction relates to that the rules for this year apply.

Maybe a pension deduction is different but for say a salary arrears payment (i.e. if you had been underpaid) e.g. if you recieved arrears due from 2002 in the current tax year (pretend we are in 2010 to make it easier for me as I'm not as familiar with the USC yet) then income levy/PAYE and PRSI would have been paid on that arrears as at the current years rates 2010. Pension levy is the exception however in that the Dept of finance came out to clarify that it depends on the period the arrears is due from. i.e. If the arrears happened pre Pension levys existence then you would pay no pension levy on it otherwise you would so you could end up with arrears of 10,000 but only have to pay pension levy on 2,000.

Therefore in the OP case he would get PAYE relief of 41% this year as the payment/deduction occurs this year
(OP - a reason for you to pay it this year if so as this relief is being reduced from next year) but that he would pay PRSI on his gross amount. i.e. hes lost out on the pre 2011 benefit of PRSI relief for superann deductions.

All this said OP you would be crazy not to pay the 3,000 to buy back your years service. I would contact who ever came to you on this and negtioate a way to pay it back over the year however to allow you to spread the pain (pay it all back this year to get the max benefit though)

You are correct in everything that you have said, the only way that you can back date tax/Prsi relief for the previous year is by way of an AVC (or if your self employed) and this can only be done before the 31 Oct.

Kennie1

coylemj wrote: »

Public sector pensions are effectively inflation-proof, nobody in the private sector can afford to provide a pension that will never lose it's purchasing power so go for it. I know they've been playing with the numbers recently but it is still a gilt-edged pensions scheme that nobody in the private sector can compete with.

Say you retire with 30 years service in 2038, you will get a pension of 50% (30/60) of your final salary. With the additional five years they are saying you can buy, that pension will instead be 35/60 or 58.33%. Now take 8.33% of your salary today and ask yourself this question: How much would it cost me to buy an annuity that paid me 8.33% of my current salary, index-inked for the rest of my life? Believe me 3,000 euros wouldn't come anywhere near it.

Please ignore the above figures as they are totally wrong. PS/CS schemes operate on an 1/80 basis for pension benefits and a 3/80 basis for Tax Free Lump Sum (TFLS) benefits so if you have 30 years service you would get 30/80 as a pension i.e.
Salary = €50000
€50000/80 = €625 pension for each years service
€625x 3.5 years extra service= €2187 pension a year

(€50000/80)*3= €1850 TFLS for each years service

So for 3.5 years service costing you €3000 of gross salary, you get an extra €6562 TFLS and an extra €2187 per year in your monthly pension.

Now thats a no brainer!!!

rainbowtrout

Further to the above post, just to put the €3000 in context. I can retire when I am 62 years and 9 months approximately having completed 40 years. If I want to retire early at 60, and buy back the 2 years and 9 months using the pensions modeller it will cost me €53,000 as a once off lump sum payment. :eek: