herald

Tuesday 21 August 2018

Will rise in retirement age affect how much I get on my pension?

I worked for a voluntary organisation and paid into a defined benefit pension scheme for 20 years. Eight years ago I left and am now working in the private sector.

I am not paying into any pension scheme now as I could not continue paying into my previous pension and the one they offered in my current employment was no good.

My pension is frozen until I am 65 years of age.

Now there is talk about the age for the state pension increasing to 67 or 68 years. I do not want to continue working until that age as I am already burnt out from the stress of the job.

Will the defined benefit pension from my previous job be based on my salary at the time I left my previous job or will it be based on my wages at the time I retire from my present job?

Secondly, if I give up work a few years before retirement age, will this affect how much I receive from my defined benefit pension?

Sarah

First things first. Last week the Oireachtas passed the new Social Welfare and Pensions Bill. Under the terms of the bill, the age at which workers will be able to claim the state pension will rise to 66 in 2014, 67 in 2021 and 68 in 2028.

While Sarah hasn't said what age she is, I suspect that she will have little option but to continue working until she becomes eligible for the state pension.

Sarah is extremely lucky that she has a defined benefit pension from her previous job.

Under current pension law her defined benefit pension will be calculated on the basis of her earnings at the time she left her previous job.

However, her previous employer will have to revalue her pension entitlements every year, increasing them by the rate of inflation or 4pc, whichever is the lower.

As earnings rose more quickly than inflation in recent years this means that Sarah's pension will be calculated somewhere between her salary from her previous job and her current earnings.

On the question of how much she would receive from her defined benefit pension from her previous employer if she stops working before she reaches 65 years of age, I suspect Sarah is onto a loser.

As she says herself, her pension is frozen until she reaches the age of 65. While she is free to approach her former employer about drawing a reduced pension before she reaches the age of 65, the employer is under no obligation to do so.

If I were Sarah I would be operating on the basis that my state pension won't kick in until I am 66 and would put off drawing the defined pension from her previous employer until I was 65.

I have all of my savings with my local credit union. A few years ago, worried about the security of my savings, I moved my money from one of the banks to the credit union. Now I read that some credit unions are in difficulty. What should I do?

Niamh

The credit unions have weathered the financial storm much better than the major banks.

However, credit union regulator James O'Brien recently said that an increased number of credit unions were classified as "high risk" and were on his supervisory watch list.

While O'Brien didn't specify how many fell into the "high risk" category, analysts reckons that up to one-fifth of the country's 410 credit unions may be in difficulty.

So what should Niamh do?

The first thing to remember is that after 55 years no credit union has left its members in the lurch.

However, if she is still worried she should check if her credit union is still paying a dividend. If it is then the regulator has no concerns about its financial health and her money is completely safe.

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