I’m a 62-year-old university library assistant who has worked for the past 20 years in a full-time position in the public service.
I would like to change to a jobshare in the same role when I am 65. I plan to then continue to work half-time before retiring somewhere between 68 and 70.
I have been warned by friends and colleagues that doing this might badly affect my final pension, as this would be calculated on the basis of my earnings in the years leading up to retirement, rather than my on full employment history.
In other words, by working a final few extra years with reduced hours, I would get a smaller pension than if I had worked full-time up to retirement at 66.
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I find it hard to believe this would be the case as it would seem to discourage staying in the workforce for longer. Can you help clear this up please?
My current salary is €52,687.50.
The reader’s query represents a common concern and misconception among those working in the public sector, according to James Mullane, director of PPS Financial Planning.
Working beyond the normal retirement age of 65 while job-sharing to either 68 or 70 will not “badly affect” the reader’s pension, he says.
“It will be the opposite, as they will continue to accrue pensionable service and will accrue more pensionable service than they would have if they worked full-time to 66 and then retired,” Mullane says.
However, for each year the reader works, they will get half a year of additional pensionable service instead of a full year, he says.
“So, if you job-share from 65 until the age of 70, you will get 2.5 years of additional pensionable service, as opposed to five if you worked full-time, and 1.5 years of additional pension service if you work until age 68, as opposed to three if you worked full-time,” he says.
If the reader worked full-time from 65 to 66 and then retired, they will only have accrued one additional year of pensionable service, Mullane says.
“If you are job-sharing at retirement, your pension will still be calculated on your full-time equivalent salary, which is currently €52,687.59.
‘Paying into an additional voluntary contribution to make up tax-free retirement lump is a very tax-efficient way to save towards your retirement’
— James Mullane, PPS Financial Planning
“The impact of job-sharing in retirement, as opposed to working full-time, is relatively small on your pension, as your pension is integrated with the State pension,” he says.
Taking the reader’s details into account, Mullane calculates they would receive a lump sum of €47,718.83 and a pension of €6,789.14 per year should they retire at 66, after working full-time from 65.
However, if the reader decided to retire at 70, having job-shared for the five years prior, he calculates a lump sum of €50,382.51 and a pension of €7,213.46.
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“Whichever route you take post-65, you will get a larger retirement lump sum and pension by job-sharing to 68 or 70 than if you retired at 66 while continuing to work full-time in your final year,” he says.
On a separate note, as the reader will not have 40 years of service by the time they retire, Mullane says they will not have the maximum tax-free lump sum of 1.5 times their final salary (€79,031.38) at retirement.
“If they have not done so already, and if it is affordable, they should consider making up this shortfall.
“By paying into additional voluntary contributions, they could fund for this shortfall tax efficiently. I have calculated that they could pay up to €18,703.39 per year into an AVC annually and get tax relief at between 20 per cent and 40 per cent,” he says.
“Paying into an AVC to make up tax-free retirement lump is a very tax-efficient way to save towards your retirement,” he adds.
Each person’s pension in the public sector is unique to them as there are many different types of superannuation schemes in the public sector, and each person has a different service history, Mullane says.
“In addition to this, different occupations have many different rules and nuances. As such, before anyone makes any decision that could impact on their retirement benefits, I would strongly advise that they get professional advice from someone who works in that area,” he says.
