Single Public Service Pension Scheme - simple explanation?

mard9

I'm considering taking up a post in the public sector and trying to understand the Single Public Service Pension Scheme and its benefits. If anyone can help would really appreciate it.

In the booklet (I don't have enough posts here to include the link but it's at singlepensionscheme.gov.ie)

Using the Tom example:

Contributions per month = €187.47 (pg 13 in booklet)

Benefit built up each month (pg 18 in booklet):

Lump Sum = €150.00, Pension = €24.04

Why is the contribution more than the benefits?

Shuffl_in

The €24.04 is paid annually after retirement.

dotsman

From what I can see in this example;

• Tom contributes 187.47 x 12 = €2,249.64 over that 1 year of employment. This is tax deductible, so it really only costs him €1,350.

In return for that minor contribution, when he retires, he is guaranteed to receive (adjusted for inflation):

• A lump sum of €1,800 tax free and
• 24.04 x 12 = €288.48 per year.

Let's assume Tom lives for 15 years after retiring. That means he will receive €1,800 tax free plus €4,327.20 (288.48 x 15) in annual payments (all adjusted to match inflation). If he lives longer (i.e. beyond the average age), he will receive even more.

It is the best €1,350 Tom ever spent!

mard9

Thanks @dotsman! That's great, that explanation helps a lot.

combat14

https://www.boards.ie/discussion/comment/119375311#Comment_119375311

bear in mind that the old age pension is included as part of (not additional to) this public sector pension so not as good as portrayed here

also contributions are obligitory i.e. worker can't invest in stock market themselves

no option to match contributions by employer

and no gaurantee employer will declare they cant afford to pay or wont pay down the road

dotsman

https://www.boards.ie/discussion/comment/119378184#Comment_119378184

bear in mind that the old age pension is included as part of (not additional to) this public sector pension so not as good as portrayed here

The State Contributory Pension is a separate scheme to this and is dependant on meeting the acceptance criteria, just like everybody else. If you have made the relevant PRSI contributions, you will get the State Contributory Pension on top of the figures above. So it is is as good as portrayed here.

also contributions are obligitory i.e. worker can't invest in stock market themselves

Yes, the contributions are obligatory. But that is a good thing, as it ensures that everybody will qualify for a pension. It is quite possible that obligatory pension contributions are going to come in for everyone, not just the public sector, as we (and every country) is facing a pension crisis, as too many people are not bothering to plan for their retirement until it's too late, and just assume the state will provide for them when they retire.

Everybody is free to invest in the stock market. I'm not sure what you are getting at here.

no option to match contributions by employer

There is no option to "match", because it would make no sense. This is a Defined Benefit Scheme and not a Defined Contribution Scheme. The obligatory contributions mentioned above can be considered the closest thing to "matching", but at a far better rate than when matching under a Defined Contribution Scheme. If you wish to make additional contributions to increase your retirement income, you can of course go down the AVC route.

and no gaurantee employer will declare they cant afford to pay or wont pay down the road

em... The employer is the state. That's as guaranteed as you can get. If the state can't make the payment, the person (and everybody in Ireland) has far bigger things to worry about.