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Teachers' pensions/AVCs/notional service/salary protection
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Hi
Have been paying into AVC with Cornmarket for nearly 9 years now. Have just over 30k paid in and its valued at just over 37k at the moment. In two minds whether to continue contributions or to stop with the contributions. I am aged 37. Started teaching in 2006.
Anyone able to give me some advice on what I should do.0 -
All depends on why you want them and how you want to use them0
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A thread on pensions/AVCs/salary protection etc might answer many questions other teachers have.
I couldn't get clear advice on this minefield (and the pension calculations) so I paid an independent financial advisor who specialises in public service pensions etc for his advice. People here might be interested in his perspective, and have other perspectives on it.
He looked at my various cover under ASTI-arranged schemes with Cornmarket/Irish Life, as well as at the unconnected idea of buying notional service:
1) Proposal to buy notional service (for years I didn't work): Financially, very bad value for money, and very inflexible as you are penalised if you leave before 65 years of age. Strong no.
2) Making existing older service pensionable: financially, a very good idea to pay to make this service pensionable. I got old statements of service from ETBs etc and the DoES has given me a quote on making them pensionable and transferring them.
3) Convertible Term Life Assurance (Irish Life): he said this was a fine policy and not to bother changing it.
4) ASTI Salary Protection Scheme: strongly advised keeping this. Said this ASTI scheme is very good, although in his view the TUI negotiated a slightly better one.
5) ASTI AVC (with Irish Life): He strongly advised me to get out of this scheme, pointing out their annual fee is bigger than competitors. Moreover, as he put it, "the ads say past performance is not a reliable indicator of future performance, but would you expect a C student to get an A in the Leaving Cert? I'd give Irish Life's Fund Managers a 'C'. Zurich and Standard Life have much better records. Over the course of your AVC these differences add up to a lot." Because the Cornmarket AVC uploaded fees at the start I'm just going to cut my loses and he will set up an individual AVC with a better performing fund (he also said he can set the AVC up in such a way that I will have much more freedom to manage it, something I never had with the ASTI AVC). The downside in changing is that it is not taken directly from my salary as the ASTI AVC was, so I'll have to get the tax back another way (he said it's easy to set up an alternative method). Furthermore, he said because I'm still young I can afford to be a bit more risky with my AVC, and reverting to a more conservative position when I get nearer retirement.
Does anybody have any perspectives or advice on these issues?
I think you should get a second opinion.
I have never heard of a case where a genuine independent adviser advised getting an AVC scheme instead of purchasing notional service.0 -
2) Making existing older service pensionable: financially, a very good idea to pay to make this service pensionable. I got old statements of service from ETBs etc and the DoES has given me a quote on making them pensionable and transferring them.
What exactly does this mean? It all sounds a bit waffley. Whatever service you've done with ETBs/DoES counts towards pension and increments. Why would you have to make them pensionable.0 -
rainbowtrout wrote: »What exactly does this mean? It all sounds a bit waffley. Whatever service you've done with ETBs/DoES counts towards pension and increments. Why would you have to make them pensionable.
Although nowadays membership of the pension scheme is compulsory it wasn't always the case....hence purchasing or what was known as buying back years....
I know myself....started in mid 90s and i was taken to one side by an older and wiser colleague and advised to get into the pension scheme asap...and did....but still took a few months to enrol...and luckily had been warned about this and bought back the service at the time
I'm open to correction but it may have been because I was temporary whole time before permanent....and had to wait until I was permanent to join.... And looking back now how fortunate I was compared to those starting off today....
But that's another story0 -
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themusicman wrote: »Although nowadays membership of the pension scheme is compulsory it wasn't always the case....hence purchasing or what was known as buying back years....
I know myself....started in mid 90s and i was taken to one side by an older and wiser colleague and advised to get into the pension scheme asap...and did....but still took a few months to enrol...and luckily had been warned about this and bought back the service at the time
I'm open to correction but it may have been because I was temporary whole time before permanent....and had to wait until I was permanent to join.... And looking back now how fortunate I was compared to those starting off today....
But that's another story
True, but the OP is Post 2004, so it's not even an option for them, so why would a financial adviser be suggesting it is???0 -
rainbowtrout wrote: »True, but the OP is Post 2004, so it's not even an option for them, so why would a financial adviser be suggesting it is???
Being cynical....because the advisor read it/heard about it at a conference once......
The best advice I would give anyone is get a pension statement from the department....they are really good but it will take a bit of time to get....and armed with that...which will spell out exactly where you stand then head off to get advice....I got mine in connection with a mortgage application....and I'd like to think I am fairly financially literate...but was surprised to discover I can access my pension when I am 56..... having enough service done to meet 55/35 which is actually 55/33
Not that I'll be able to afford to......
For all Cornmarket's faults...and there are many....they do specialise in public service details0 -
themusicman wrote: »Being cynical....because the advisor read it/heard about it at a conference once......
The best advice I would give anyone is get a pension statement from the department....they are really good but it will take a bit of time to get....and armed with that...which will spell out exactly where you stand then head off to get advice....I got mine in connection with a mortgage application....and I'd like to think I am fairly financially literate...but was surprised to discover I can access my pension when I am 56..... having enough service done to meet 55/35 which is actually 55/33
Not that I'll be able to afford to......
For all Cornmarket's faults...and there are many....they do specialise in public service details
I'm not sure teachers have to even go that far. All teachers fall into one of four categories, Pre 95, 95-2004, 2004-2011, Post 2011. A teacher should be able to work out which category they fall into, work out how when they will have full service done, and then look up when they are able to retire based on which category they fall into.
I have these kind of conversations in my staff room regularly, and I've been asked 'how do you know this stuff' and when I say I read up on it on the union website/circular on pensions/I googled it I'm often met with 'Oh I can't be bothered with any of that stuff/ I wouldn't understand any of that. It's apathy a lot of the time.0 -
rainbowtrout wrote: »I'm not sure teachers have to even go that far. All teachers fall into one of four categories, Pre 95, 95-2004, 2004-2011, Post 2011. A teacher should be able to work out which category they fall into, work out how when they will have full service done, and then look up when they are able to retire based on which category they fall into.
I have these kind of conversations in my staff room regularly, and I've been asked 'how do you know this stuff' and when I say I read up on it on the union website/circular on pensions/I googled it I'm often met with 'Oh I can't be bothered with any of that stuff/ I wouldn't understand any of that. It's apathy a lot of the time.[/QUOTE
I can't disagree with you about apathy
But in a world of partial hours contracts having the definitive position as to your pension status would be the least you'd need in order to get proper financial advice0 -
I think you should get a second opinion.
I have never heard of a case where a genuine independent adviser advised getting an AVC scheme instead of purchasing notional service.
You could be correct; as I said in the op I was looking for other perspectives. However, first he said because they're years I never worked, they would be much more expensive than buying service which I had worked for but had never paid into a pension. I brought the quote from the DoES for buying notional service to the meeting so he was using their figures.
His second point was perhaps more convincing. He asked me do I expect to be teaching at 65. I answered No and he explained that with the DoES notional service offer there is a very strong penalty if you leave before that time [from the DoES letter: 'Please note that should you enter into a contract to purchase service by periodic deductions and should you retire/leave teaching before the termination of the contract, the amount of notional service purchased may be actuarially reduced. Please refer to Circular 0129/2006 - Actuarial Reduction Factors, pages 24 & 25 ([url=https://www.education.ie/en/Circulars-and-Forms/Active-Circulars/cl0129_2006.pdf]table 13 here[/url] is the relevant one for people retiring at 65 - you'd only get 74.8% of your pension if you decided to retire at 60 rather than 65)]
He said buying notional service could be worth it if I worked until 65 and lived a long time in retirement. (this poster on AAM indicates the sort of penalties levied if you go before 65)
The AVC, on the other hand, had much more flexibility and I could still maximise tax allowances. True, it doesn't have the security a NSP would bring as it is dependent on the markets. I may still go for notional service at some point in the future but its inflexibility/penalties for retiring before 65 are the big turn-off at present.0 -
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rainbowtrout wrote: »What exactly does this mean? It all sounds a bit waffley. Whatever service you've done with ETBs/DoES counts towards pension and increments. Why would you have to make them pensionable.rainbowtrout wrote: »True, but the OP is Post 2004, so it's not even an option for them, so why would a financial adviser be suggesting it is???
Here's the letter. It refers to service in an ETB school in 2010:
'I refer to your application to have service with above mentioned organisation [an ETB] transferred to the Secondary Teachers Superannuation Scheme.
[ETB] has confirmed your service as follows.... This service was not reckonable for pension purposes at the time. In order to make this service pensionable and transfer it to the Secondary Teachers' Superannuation Scheme it will be necessary for you to pay a total contribution of.... This amount includes contribution to Spouses and Children's Scheme.
Please note that this contribution must be paid within a period of 1 month from the date of this letter. If not paid within this time limit, compound interest will accrue.
If you wish to proceed with this transfer of service, you should forward a cheque for... made payable to the Accountant, Department of Education & Skills, to this Section by... at the latest.'
In fairness to the financial advisor, I had bought this service (and other public service work) back just before I met him, having been advised by the DoES pensions' department to follow up all work in previous schools and get a statement from each of how much it would cost to transfer service for superannuation purposes. As I said in the op, he thought this was a very good idea.0 -
themusicman wrote: »Although nowadays membership of the pension scheme is compulsory it wasn't always the case....hence purchasing or what was known as buying back years....
I know myself....started in mid 90s and i was taken to one side by an older and wiser colleague and advised to get into the pension scheme asap...and did....but still took a few months to enrol...and luckily had been warned about this and bought back the service at the time
I'm open to correction but it may have been because I was temporary whole time before permanent....and had to wait until I was permanent to join
I, too, was temporary wholetime when working in that ETB so perhaps they didn't take a pension contribution because I was only temporary? (although the DoES said I don't need to pay anything for superannuation purposes to have DoES paid subbing in a community school in 2008 recognised - i.e. I seem to have paid it at the time.)0 -
You could be correct; as I said in the op I was looking for other perspectives. However, first he said because they're years I never worked, they would be much more expensive than buying service which I had worked for but had never paid into a pension. I brought the quote from the DoES for buying notional service to the meeting so he was using their figures.
His second point was perhaps more convincing. He asked me do I expect to be teaching at 65. I answered No and he explained that with the DoES notional service offer there is a very strong penalty if you leave before that time [from the DoES letter: 'Please note that should you enter into a contract to purchase service by periodic deductions and should you retire/leave teaching before the termination of the contract, the amount of notional service purchased may be actuarially reduced. Please refer to Circular 0129/2006 - Actuarial Reduction Factors, pages 24 & 25 (table 13 here is the relevant one for people retiring at 65 - you'd only get 74.8% of your pension if you decided to retire at 60 rather than 65)]
He said buying notional service could be worth it if I worked until 65 and lived a long time in retirement. (this poster on AAM indicates the sort of penalties levied if you go before 65)
The AVC, on the other hand, had much more flexibility and I could still maximise tax allowances. True, it doesn't have the security a NSP would bring as it is dependent on the markets. I may still go for notional service at some point in the future but its inflexibility/penalties for retiring before 65 are the big turn-off at present.
That 74.8% was used to calculate how many years would be given back to the secretary in the example if she purchased 4 years to go at age 60. The table said at age 60 it would be 74.8%. When that is multiplied by 4 it gives 2.992 years which is what is given in the example. It said the secretary would have 30 years of service at age 60, so by buying back 4 years it would be calculated as 2.992 years of pensionable service, giving her a total of 32.992 years of reckonable service.
Table 13 refers to service purchased (NSP) not your entire pension.
As for the first bit that is in bold, that just makes mathematical sense. If you enter into an agreement to buy back X amount of years, for Y amount of money over Z amount of years, and you decide to retire earlier than that, then you won't have made all the payments to buy back X years, so the numbers of years bought back will have to be reduced to reflect the amount made by payments and the new age of retirement.0 -
Not sure if it's Co Dublin VEC that people started with in the mid 90s. I was TWT with them but my pension payment wasn't taken at the time because of a work to rule in wages section. They didn't start taking payments from new employees.
I subsequently got a letter 3 or 5 years on asking me to pay back what I should have paid so it's all straight now. Presumably I got only the letter because I was still working for them at that stage and they were able to take the payment via deduction at source.0 -
You could be correct; as I said in the op I was looking for other perspectives. However, first he said because they're years I never worked, they would be much more expensive than buying service which I had worked for but had never paid into a pension. I brought the quote from the DoES for buying notional service to the meeting so he was using their figures.
His second point was perhaps more convincing. He asked me do I expect to be teaching at 65. I answered No and he explained that with the DoES notional service offer there is a very strong penalty if you leave before that time [from the DoES letter: 'Please note that should you enter into a contract to purchase service by periodic deductions and should you retire/leave teaching before the termination of the contract, the amount of notional service purchased may be actuarially reduced. Please refer to Circular 0129/2006 - Actuarial Reduction Factors, pages 24 & 25 ([url=https://www.education.ie/en/Circulars-and-Forms/Active-Circulars/cl0129_2006.pdf]table 13 here[/url] is the relevant one for people retiring at 65 - you'd only get 74.8% of your pension if you decided to retire at 60 rather than 65)]
He said buying notional service could be worth it if I worked until 65 and lived a long time in retirement. (this poster on AAM indicates the sort of penalties levied if you go before 65)
The AVC, on the other hand, had much more flexibility and I could still maximise tax allowances. True, it doesn't have the security a NSP would bring as it is dependent on the markets. I may still go for notional service at some point in the future but its inflexibility/penalties for retiring before 65 are the big turn-off at present.
A public service pension is only worth it if you live a long time in retirement.
Think of all those people you work with who die in service, they are paying into the common scheme and pay the pension of those who make it to retirement!!!
The reduction in value of the notional added years is because you won't have paid the full amount. It doesn't apply if you buy them in lump sum format.
All that being said, I am not saying you are wrong. Someone like me who was pre-95, a public servant but not in teaching, could afford to leave at 50 with over 30 years service, take another job and work towards the State contributory pension and put some money into a riskier pension scheme, so it takes all sorts.0 -
'If you wish to proceed with this transfer of service, you should forward a cheque for... made payable to the Accountant, Department of Education & Skills, to this Section by... at the latest.'
After I paid the DoES money a couple of weeks ago to transfer the above teaching service that I had never paid into a pension, the DoES sent me a letter last week acknowledging the payment and attaching a separate letter to give to the Revenue Commissioners.
I scanned that letter and uploaded it to the MyAccount section of the Revenue website. This morning I see from my online banking details that they refunded 32.8% of the total money I gave to the DoES into my bank account.
So, if you think you might have done service in any area of the public service at anytime in the past but not have paid into the pension scheme at that time, follow it up as it's very much worth paying for it now.0 -
What's the exact criteria to be on the pre 2004 scheme again ?
I'm fairly certain I am but have contacted the dept numerous times and got nothing back !
I just received a comprehensive email back from the Department this morning stating my status. I sent the email a few weeks ago, and a reminder to them about two weeks ago. So maybe it would be worth your while sending a reminder again.I wish to confirm that you are classed as a New Entrant as you were appointed to a teaching position after 1 April 2004. I am attaching Circular Pay 09/04 which covers New Entrants.
You are not currently a member of the Single Pension Scheme. Under that scheme, pension and retirement lump-sum are based on career averaged pay. You would become a member of the Single Pension Scheme (which came in to effect on 1 January 2013) if you had a break in teaching and returned following a break of at least 26 weeks. See Circular 0007/2013 attached which deals with the Single Pension Scheme..
I trust this clarifies the position for you.
That answered all my questions. It doesn't look like I'll ever be taking a break of more than 25 weeks! What a penalty that every New Entrant should be wise to (although I wonder now if technically it's a break from the public service rather than from teaching for 25 weeks; if I moved to another area of the public service would I keep my "new entrant" status in terms of pension or is this status specific to the DoES?)0 -
I just received a comprehensive email back from the Department this morning stating my status. I sent the email a few weeks ago, and a reminder to them about two weeks ago. So maybe it would be worth your while sending a reminder again.
That answered all my questions. It doesn't look like I'll ever be taking a break of more than 25 weeks! What a penalty that every New Entrant should be wise to (although I wonder now if technically it's a break from the public service rather than from teaching for 25 weeks; if I moved to another area of the public service would I keep my "new entrant" status in terms of pension or is this status specific to the DoES?)
Career breaks, sick leave, maternity etc don't count as breaks. They are approved leave. Unemployment or voluntarily leaving teaching are the breaks that refers to.0 -
rainbowtrout wrote: »Career breaks, sick leave, maternity etc don't count as breaks. They are approved leave. Unemployment or voluntarily leaving teaching are the breaks that refers to.
Maternity leave counts if you are only on temp contracts though and not on payroll during the leave. I have many friends coming in to sub when the baby is only a few weeks and a couple who are now on new pension following maternity leave because how it fell with summer holidays meant they couldn't get in to sub.
The holidays also count so if you can't get a day subbing in the new school year until December then you are on the new scheme - it can be tight for some after the holidays.0 -
Griffin Nice Infant wrote: »Maternity leave counts if you are only on temp contracts though and not on payroll during the leave. I have many friends coming in to sub when the baby is only a few weeks and a couple who are now on new pension following maternity leave because how it fell with summer holidays meant they couldn't get in to sub.
The holidays also count so if you can't get a day subbing in the new school year until December then you are on the new scheme - it can be tight for some after the holidays.
yes, but of course it's like that (unfortunately) for temporary contracts. I was referring to teachers who are permanent/CID.0 -
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rainbowtrout wrote: »yes, but of course it's like that (unfortunately) for temporary contracts. I was referring to teachers who are permanent/CID.
Yes I know you were but others reading may not be aware of the situation. Many are shocked to learn that taking full maternity leave may leave them with a break in service, believing legal protections for pregnancy would not allow this to happen.0 -
What do u mean by full mat leave? Are you thinking of unpaid leave you can take extra?0
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What do u mean by full mat leave? Are you thinking of unpaid leave you can take extra?
I mean the 26 weeks you can receive payment from social welfare. In my experience many people mistakenly believe that this period of time would be discounted in determining a break in service for subs or temporary teachers not entitled to payment from DES during their leave.0 -
What do u mean by full mat leave? Are you thinking of unpaid leave you can take extra?
For women who for example are employed on a fixed term contract until June ( and are not reemployed by the school in September). They become pregnant during the school year and perhaps go on maternity leave at the start of March until the end of August. They are paid a full wage including social welfare maternity benefit until the start of June when their contract runs out and then paid the maternity benefit only from social welfare from June to August as they have a maternity leave entitlement. They remain on maternity leave until the end of August, but in the Dept of Ed's eyes they are unemployed for 3 months as they are not in receipt of a Dept/ETB salary. If they do not gain employment Sept - November, they will be kicked into the new pension scheme.0 -
Something similar happened to me in 2005, and I actually only found out by accident, when talking to a union member, last year. I was subbing in a school for a number of years, became pregnant, had a diificult pregnancy, had to go on early maternity benefit, then illness benefit,unemployed for a while due to pregnancy related illness afterwards. Never realised the implications, but apparently unknown to myself - would have moved onto post 2004 pension scheme when I returned to new employment. very difficult when subbing to be totally aufait with new circulars, and very easy to be caught out, because of pregnancy/illness/subbing.0
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I recently received a quote from the Department of Education as I was wondering about the cost of buying back years/notional service. If I make it to retirement age/65, according to their records I will be 12.1 years short and the cost for this would be almost precisely €200,000. That seems like a colossal cost. They warn that "it is subject to acturial reduction if the purchaser retires prior to their 65th birthday" and to get independent financial advice as "it will not be possible to reverse this decision once taken".
Interestingly, they would allow me to transfer an existing AVC into it, which would reduce that figure to a degree. Has anybody done that? Does everybody have a different cost per year of notional service? How is that price determined? It says my "rate of purchase" is just over 25%, and this seems to be that the cost per year is equivalent to 25% of my current gross salary. So, to partly answer my own question, that seems to be how it's determined, but why 25%? Anybody know anything else on the logic behind the calculation?
As I don't have €200,000 cash sitting around, would it be possible to have a deduction from my salary every fortnight for the next number of years instead? If so, would I in effect be paying just 60% of that €200,000? How is the tax side of things sorted? Apologies for all the ceisteanna.
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Interesting question.
I went on the Notional Service purchase calculator on my payroll thing and ran the numbers and discovered the following:
First off, I started teaching at 22, so will have full service at 62 and because I'm pre - 04, I can retire then and get my pension. So I looked to see what NP would cost if I went at 60. So buying back just over two years 2.02 to be precise.
It's quoting me €43114, so yours seems cheap in comparison. For my 43k I'll get an extra 5.5k on the lump sum making up the shortfall there and an extra €1200 on the pension.
So what are the pros and cons? Well for my 43k, to see it back again I'd have to live another 31 years after retirement at 60. Living to 91 is unlikely for the most part. You could of course argue the benefits of not having to work an extra two years and all that comes with that.
It quoted me 21,295 per year purchased at 29.2% of gross salary at current rate. So to answer your question, it is unique to each person. There's only so much a system can model. It has to take into account two major variables: how many years you want to buy back, and what you are currently earning to be able to make the payment.
To answer your question, it also gave me the option for a periodic payment instead of lump sum which worked out at about €1800. It didn't say how often it was but I presume it's an annual payment, perhaps increasing with pay increasing because for the years I have left it doesn't add up to 43k.
On the other hand, if I live to 82 for arguments sake (average life span of Irish woman), to make up for the shortfall I'd need 1200 x 22 (for retirement at 60) + 5.5k shortfall in lump sum, so 31900 in total. It looks like I would be better off saving that money myself and putting it in an investment account so it would be worth more at retirement. To do that and retire at 60, would cost me approx €156 per month not taking into account gains through interest rates/investments etc.
I never sat down before and did any meaningful calculation on notional purchase, but I can't honestly see how it would be a good buy. It would probably be worth looking at the potential shortfall in your pension at 65 and what it would cost to make up that shortfall for 15-20 years of retirement v. the 200k you are being quoted.
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Has anyone recently had a positive experience with a broker about taking out an AVC?
I have researched, and appears that essentially I have two options - to go and pay for service that offers advice throughout (paying for this advice, hand-holding I suppose!) or by going execution only, no advice but with minimal charges.
I do not think I am savvy enough to go execution only, and don't mind paying for a service - but at the same time want an affordable service. Would like to retire at 60 and think I should explore options now ( I am 36).
Thanks folks
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If you're 36 then you must be post 2004 starting teaching. That would mean you are not eligible for your teaching pension until you are 65. If you want to go at 60, you will have to have a way to support yourself for five more years.
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Would I be right in saying that poster won't be able to get the old age pension portion of their teaching pension until they are 68 either....or was there a cut off for that (post some year?)
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