Pensioner advised to buy extra years

 

PENSIONS are a area for many people who are often unsure, of the value of their pension, even close to retirement age.

Mr R, a civil servant from Drumcondra in Dublin who has 20 years service writes to say he will retire in 10 years time "on a full pension which is half of salary. Is there any pension scheme available that I could join, with a view to increasing my pension to three quarters salary plus?"

As our reader rightly points out, full civil and public service pensions will pay the beneficiary half their salary upon retirement. But maximum service for the purpose of providing a maximum, half salary pension for most civil servants is reckoned at 40 years, not 30 our reader will be short 10 years service when he retires.

As in the private sector, there are provisions for civil land public servants to top up their pensions if they fall short of maximum allowable benefits. In private business it is an Additional Voluntary Contribution (AVC) but you cannot pay in more than 15 per cent of net relevant earnings in any given year and the total pension fund value (the company and your contributions plus the value of the AVCs may not exceed the maximum benefits permissible.

For a civil servant like Mr R, there is provision to purchase what is called `notional service', i.e. extra years of service, but you must have at least nine years of potential service to go before you turn 60. The contributions you make to buy this notional service attracts full tax relief, but only up to a maximum contribution of 15 per cent of net relevant salary in any one year (the same as a private sector AVC. Since Mr R. will have 30 years service by the time he reaches age 60 he can purchase an additional 10 years. Assuming he is age 50 (or under) he should start these contributions soon since he must have at least nine years of potential service to go in order to qualify for notional service funding.