Circular 0129/2006

To: The Management Authorities of Primary, Secondary,

Community and Comprehensive schools

Purchase of notional service for superannuation purposes

(Revision of Scheme)

1.Introduction.

1.1Following discussions with the Staff Side of General Council, the Minister for Finance has announced a number of revisions to the scheme for the purchase of notional service by established civil servants and by non-established state employees, including an increase in the contribution rates for the purchase of notional service by periodic deductions from salary.

1.2The notional purchase contribution rates are common across the public service. Analysis of the current contribution rates has shown that the Notional Service Purchase Schemes are not self-financing and that they impose a cost on the employer (i.e. the Exchequer).

1.3The last general revision of the scheme in the case of primary and secondary teachers was implemented with effect from 1 October 1991 through the issue of the Revised (1991) Scheme for the Purchase of Notional Service. Paragraph 8 of the Revised (1991) Scheme provides that the contribution rates may be increased from time to time. Paragraph 8 states:

“The rates of contribution and the actuarial reduction factors applicable from time to time under the Scheme will be such as to ensure that the Scheme is self-financing. Where necessary, revised rates and factors will be set following discussions between the Official and Staff Sides at the Conciliation Council for Teachers.”

1.4In accordance with paragraph 8 of the Revised (1991) Scheme, discussions on revised contribution rates have taken place with the Staff Side at the Conciliation Council for Teachers. The tables of contribution rates contained in the Revised (1991) Scheme are hereby replaced by the tables attached to this Circular with effect from the dates indicated in the following paragraphs.

Tables suitable for pensionable non-teaching staff, arising from discussions by the Department of Finance with the Staff Side of General Council, (and taking into consideration that, unlike teachers, a co-ordinated contribution to the Spouses’ and Children’s Scheme is payable by non-teaching staff), are also attached.

Agreement has also been reached, in the case of certain job-sharing teachers and in the case of non-teaching staff, to permit purchase of service by reference to age 60, where appropriate, in addition to the existing arrangements for purchase of service to age 65. The appropriate contribution rates for purchase by reference to age 60 are also attached. (Teachers, other than those jobsharerswho purchase notional service in order to make up for deficiencies in actual service caused specifically through job-sharing, have had the option of purchase to age 60 for many years – the age-60 Tables for teachers are also attached.)

It has also been agreed to extend the availability of the lump-sum purchase option during a person’s career subject to certain conditions.

It should be noted that (i) the purchase tables apply to both male and female (i.e. there is no distinction on gender basis for purchase), and (ii) the lump-sum contribution rates for employees in PRSI of Class A are levied on gross salary only (i.e. there are no Net Pay/Pay contribution rates for lump-sum purchase as heretofore). For periodic purchase options, however, contribution rates for employees in PRSI of Class A continue to be levied on both Net Pay and Pay).

1.5It should be noted that purchase of notional service by reference to age 60 will not be available to “new entrants” as defined in the Public Service Superannuation (Miscellaneous Provisions) Act 2004 since the earliest pension age for such staff is 65.

Broadly-speaking, a “new entrant” to the public service is a person who commences employment in the public service on or after 1 April 2004 or who, after a break of more than 26 weeks, returns to employment in the public service on or after that date.

2.Contribution rates for purchase by lump-sum.

The lump-sum rates set out in Table 2 of this Circular (which were originally contained in Circular PEN 11/05 of May 2005 (Revised Contribution Rates for Purchase of Notional Service) continue to apply to requests made on or after 10 May 2005 by teachers, who are members of the Spouses’ and Children’s Pension Scheme, and who wish

(a) to purchase notional service by way of single lump-sum contribution, or

(b)to have Transfer Values accepted in respect of prior service with organisations which are not members of the Public Sector Transfer Network (PSTN).

As stated, the lump sum rates contained in Circular PEN 11/05 are suitable for teachers who are members of the Spouses’ and Children’s Pension Scheme. Further tables are now attached in order to provide for teachers who are not members of that Scheme and in order to provide for pensionable non-teaching staff.

Where a teacher, not being a member of the Spouses’ and Children’s Pension Scheme, has already made a lump sum payment in accordance with the Tables issued with Circular PEN 11/05, an appropriate refund should now be made by reference to the Tables, attached herewith, which provide for teachers who are not members of the Spouses’ and Children’s Pension Scheme.

Similarly, where a member of the non-teaching staff has already made a lump sum payment in accordance with Table 1 of Circular PEN 11/05, (which set out contribution rates which were appropriate for teaching staff only), an appropriate refund should now be made by reference to the appropriate non-teaching staff Table herewith.

3.Contribution rates for purchase by periodic contributions - effective date

The rates attached to this Circular for purchase of notional service by periodic contributions will apply in any case where contributions commence on or after 10 November 2006. Any purchase agreement already entered into for which contributions have already commenced or commence before that date will not be affected by the revised rates in this Circular.

4.Purchase by reference to age 60: non-teaching staff, certain job-sharing teachers.

(Paragraphs 4 and 5 of this Circular do not apply to wholetime teachers since wholetime teachers have had the option of purchase to age 60 for many years. They apply to job-sharing teachers who purchase notional service in order to make up for deficiencies in actual service caused specifically through job-sharing – in accordance with Circular PEN 05/02, provision was made for job-sharing teachers to make up for such deficiencies through purchase of notional service to age 65 only. Any reference to “relevant staff” in paragraphs 4 and 5 means pensionable non-teaching staff and such job-sharing teachers.)

As stated, the option of purchase to age 60 will not be available to “new entrants” as defined in the Public Service Superannuation (Miscellaneous Provisions) Act, 2004.

The option of purchase to age 60 will be available to relevant staff, other than “new entrants”, who up to now, could only purchase service by reference to age 65, provided that they will be short of 40 years service at age 60. This option is available to all such relevant staff including those who are currently purchasing notional service, or have purchased notional service, by reference to age 65. The normal rules of the notional purchase scheme will apply, e.g. regarding the requirement to have the potential for a minimum of 9 years’ service at age 60, retained benefits, cessation of periodic contributions before age 60 and the application of actuarial reduction factors where payment of superannuation benefits commences before age 60 (e.g. ill-health or cost neutral early retirement).

In the case of relevant staff who are currently purchasing notional service, or have purchased notional service, to age 65 and who now wish to purchase by reference to age 60 and retire at that age, the amount of service which the age-65 purchase agreement(s) would provide at age 60 must be calculated using the rules applying to early cessation of contributions and/or the relevant actuarial reduction factors, as appropriate. This will result in a reduction in the amount of service purchased or being purchased under the original age-65 agreement(s). In addition to that reduction (shortfall) in service, a further shortfall of 5 years will of course arise from the decision to retire at age 60 rather than age 65. Relevant staff may enter into an additional agreement(s) to purchase the revised shortfall either by commencing an additional periodic purchase agreement or by exercising a lump-sum option (or a combination of both) by reference to age 60.

However, due to the effects of actuarial reduction factors in such cases it should be noted that, while relevant staff would be able to purchase sufficient service to achieve maximum lump-sum entitlement at age 60, there will be a slight shortfall in service for pension purposes. The following example illustrates the position.

Example:

(a) A school secretary (being a member of the Pension Scheme for School Clerical Officers), who will have a shortfall of 5 years’ service at age 65 (i.e. commenced at age 30 and will have 35 years’ service at age 65) commenced purchasing the 5 years by periodic contributions (to age 65) with effect from her 40th birthday in 2005. She now wishes to consider purchasing service by reference to age 60 with the intention of retiring at that age.

First of all, the existing age-65 periodic purchase agreement continues with the relevant contributions being deducted until her 60th birthday. As the agreement will cease at age 60 and her retirement benefits will come into payment at age 60, rather than the expected age 65, it is necessary to apply the reductions specified in the Revised (1991 Scheme to take account of (i) the unpaid periodic contributions for the period from age 60 to age 65, and (ii) the early payment of her superannuation benefits at age 60 rather than age 65.

The formula applicable under the Revised (1991) Scheme to take account of unpaid contributions under a periodic purchase agreement is:

A x B

Cwhere:

A = the number of years the secretary originally opted to purchase;

B = the period over which contributions will actually be paid;

C = the period over which contributions would have been paid had the

Secretary continued to pay the contributions in full to age 65.

In the example, therefore: A = 5 years;

B = 20 years (40th to 60th birthday);

C = 25 years (40th to 65th birthday).

The result of the formula is 5 x 20 / 25 = 4 years. This is the amount of service the secretary will have purchased under the age-65 purchase agreement when the periodic contributions cease on her 60th birthday.

The next step is to apply the Age-65 Actuarial Reduction Factors (see Table 13 of Appendix 1 to this Circular) to take account of the early payment of her superannuation benefits at age 60 rather than age 65. The age-60 factors are 90.7% for lump sum and 74.8% for pension. Therefore, applying these rates to the 4 purchased years gives 3.628 years’ service for lump-sum purposes and 2.992 years’ service for pension purposes. Accordingly, her service position at retirement at age 60 would be as follows:

-for her lump-sum entitlement she would have 30 years’ actual service + 3.628 years’ purchased service = 33.628 years.

-for pension purposes she would have 30 years’ actual service + 2.992 years’ purchased service = 32.992 years.

Therefore, the maximum amount of service she may now consider purchasing by reference to age 60 is 6.372 years (40 – 33.628) to give her the maximum 40 years’ service required for maximum lump-sum benefit at age 60. Her service at age 60 for pension purposes will amount to 39.364 years (32.992 + 6.372).

(b) if the above secretary originally purchased the 5 years by lump-sum option then the relevant age-65 actuarial reduction factors only will apply to take account of the early payment of her superannuation benefits at age 60 rather than age 65. Applying the Actuarial Reduction Factors of 90.7% for lump sum and 74.8% for pension to the 5 years gives 4.535 years for lump-sum purposes and 3.74 years for pension purposes. Accordingly, her service position at retirement at age 60 would be as follows:

-for her lump-sum entitlement she would have 30 years’ actual service + 4.535 years’ purchased service = 34.535 years.

-for pension purposes she would have 30 years’ actual service + 3.74 years’ purchased service = 33.74 years.

Therefore, the maximum amount of service she may now consider purchasing by reference to age 60 is 5.465 years (40 – 34.535) to give her the maximum 40 years’ service required for maximum lump-sum benefit at age 60. Her service at age 60 for pension purposes will amount to 39.205 years (33.74 + 5.465).

5.Transitional arrangements for purchase to age 60:- non-teaching staff, certain job-sharing teachers.

As a transitional measure, relevant staff (other than “new entrants”) serving between 10 May 2005 and the date of this Circular may, if more favourable, opt to purchase service by reference to age 60 using the rate(s) applicable to their age on a birthday occurring between those dates rather than the rate(s) applicable to their age on their next birthday. (Refer to paragraph 4 for an explanation of the term “relevant staff”.)

The option must be made within 3 calendar months of the date of this Circular. The following arrangements for payment of purchase contributions will apply:

(a)in the case of a lump-sum option made under these transitional provisions, the contribution due will be calculated by reference to the member’s salary on the date of the option (i.e. not the salary on the date of the earlier birthday) and must be paid within six months of that date;

(b)in the case of an option to purchase by periodic contributions payment will commence on the member’s next available payday and will continue until the date on which the member attains age 60. The arrears of contributions due in relation to the period between the member’s last birthday (being a date not earlier than 10 May 2005) and the date of commencement of payment of contributions must be paid within 12 months of that payday.

6.Other changes

Following discussions by the Department of Finance with the Staff Side at General Council and by the Department of Education and Science with the Staff Side at the Conciliation Council for Teachers, the following further changes in the operation of the Notional Service Purchase Scheme have been agreed:

  • Purchase by contract staff (see paragraph 7)
  • Purchase by worksharers/part-time staff (see paragraph 9)
  • Reckoning of career breaks (see paragraph 10)
  • Unpaid contributions & cancellation of purchase agreements (see paragraphs 11 and 12)
  • Treatment of EU severance payments (see paragraph 13)

7.Purchase by teachers on wholetime fixed-term contracts

7.1The potential service of any public servant is critical to the determination of the amount of notional service which that person may purchase. (This derives from superannuation related provisions of the Taxes Consolidation Acts). A person who wishes to purchase service must have an expectation of a minimum of 9 years’ actual reckonable service (including any transferred service) to the relevant age, (i.e. age 65 in the case of “new entrants” and age 60 or 65, as opted for by the applicant for purchase of notional service, in the case of employees other than new entrants). Note that actual reckonable service is computed in wholetime years, reckoning part-time service on a pro rata basis to comparable wholetime service.

7.2With effect from the date of this Circular, the following arrangements will apply for the purposes of determining the potential service of employees who are employed on a contract basis:

  • A person on a fixed term contract which clearly states that it is non-renewable, or on a fixed purpose contract which would not be expected to extend beyond a 9 year period, may not purchase notional service (unless the person has prior reckonable service or has transferred service for superannuation purposes, which would result in potential service exceeding 9 years);
  • A person on a “contract of indefinite duration” may be considered to have potential service to age 60 or 65, as appropriate;

The maximum amount of notional service which may be purchased in any of the above situations will be determined in accordance with the normal rules of the purchase scheme.

7.3Refunding notional service purchase contributions, which is particularly relevant in the case of contract staff, is dealt with in paragraph 14. It should be noted that where a person ceases employment with less than 9 years’ actual reckonable service (including transferred service), all purchase contributions must be refunded. In other cases, it may be necessary to make partial refunds of purchase contributions.

8.Frequency of lump-sum purchase options

Under current scheme rules, purchase of service by lump-sum option is only allowed (i) within the first two years of joining the pension scheme, (ii) at retirement or within two years prior to the date of retirement, or (iii) within six months of returning from a period of special leave without pay (in which case the period to be purchased may not exceed the period of special leave). Option (iii) will continue to apply but the following arrangements will replace options (i) and (ii).

With effect from the date of this Circular, members may now exercise a lump-sum option at any time during their career subject to the following conditions: (a) only one such option may be made in any calendar year, and (b) the minimum amount of lump-sum contribution which may be made in this way is 10% of the member’s annual rate of salary, or, if less, the contribution required to purchase the member’s potential shortfall in service below the maximum reckonable service of 40 years. In the case of work-sharers or members working part-time, “annual rate of salary” is the full-time rate of pay for the job, not the reduced work-sharing or part-time rate of pay.

9.Purchase of service by Work-sharers/Part-time staff

9.1This Department’s Circular PEN 05/02 dated 12 April 2002 (Purchase of notional service for superannuation purposes by job-sharers) refers. The effect of that Circular was to allow jobsharers to make up for deficiencies in actual service caused through job-sharing on the assumption that they would continue to job-share until age 65.

As alreadystated in paragraphs 4 and 5, job-sharers may now purchase notional service on the assumption that they will continue to job-share until age 60 or age 65.

More generally, in line with the revised arrangements announced in Department of Finance Circular 20/2005 (Public Service Pension Reform: Revised arrangements for part-time public servants), pension benefits of part-time employees who pay pro rata superannuation contributions will be based on notional full-time pensionable remuneration and on actual service worked expressed as a proportion of full-time attendance (the same arrangement as has applied to jobsharers). Consequently, it has been decided that the provisions of Circular PEN 05/02 may now be applied in the same manner to part-time teachers, who may contract to purchase to age 60 or age 65, and with the following amendments: