Understanding the pros and cons of public sector pensions
Taoiseach Micheal Martin and Tanaiste Simon Harris in January 2025 with newly appointed Ministers of State at Government Buildings. State pensions remain one of the most valuable benefits of working in the Irish civil and public service. For many people, their pension is their biggest financial asset – often worth more than their home. So, it’s worth understanding and getting specialist advice.
Evan Hughes of PSRA and expertadvice.ie answers the key questions around public sector pensions. He talks to
Working in the public sector has many valuable benefits. One of those is the pension – a generous retirement package as a fitting reward for years of exemplary service.
There’s a steady, feel-good air about that. A whisper of reassuring predictability. Or at least there was, until June of this year, when it was announced that close to 13,000 current and former civil servants – including ministers – were to have their pension deductions assessed for possible anomalies.
At the time it was stated that administrative errors at the National Shared Services Office (NSSO) had led to the incorrect application of pension deductions, impacting a number of office holders, along with members of the current and previous Governments. Retired civil servants were not immune, with some of those included on the list of those on whom pension miscalculations were inadvertently foisted.
The fact that so many were impacted, without their prior knowledge, is indicative of the complexity of civil service and public sector pensions. This complexity is not of the Rubik Cube variety. Nor is it akin to that of the nature of consciousness, infinity, or space time. What it is, is something in between. Something that is best understood by experts with financial prowess in this field. Experts like Evan Hughes, senior financial advisor at expertadvice.ie.
In 2007, Evan co-founded Public Sector Retirement Advisors, later re-regulated in 2017 as PSRA. Because he knows a lot about public sector pensions, we asked him to throw light on the topic, and this he did:
If you’ve ever tried to make sense of a public sector pension in Ireland, you’ll know it’s not exactly the stuff of light, bedtime reading. Rules vary depending on when you joined, what scheme you’re in, your PRSI class, whether you had a break in service, and even if you were promoted late in your career. In fact, the very first rule of public sector pensions is: If you think it’s simple, you’ve probably misunderstood something.
Yet these pensions remain one of the most valuable benefits of working in the Irish civil and public service. For many people, their pension is their biggest financial asset – often worth more than their home. So, it’s worth understanding, and crucially, it’s worth getting advice from a specialist advisor who is an expert in this field.
The complexity comes down to history. Over the years, the State has introduced different schemes, each with slightly different rules. Which one you’re in depends mainly on when you joined.
Pre-1995: This scheme is not integrated with the State pension and the normal retirement age is age 60. 1995–2004: These pensions are integrated with the State Contributory Pension and the normal retirement age is 60. Here, the civil service pension is smaller but is potentially topped up at age 66 when the State pension kicks in. 2004–2012 New Entrants: Here, ‘new entrants’ faced an increased retirement age of 65, again with integration and fewer viable options for early retirement. 2013 onwards (“Single Scheme”): This brought the biggest change, with benefits based on a system similar to career-average pay, not final salary, and the retirement age tied to the State pension age (currently 66 but this may change in future). To make things even trickier, if you broke service status, you might have entitlements under more than one scheme. That’s why trying to DIY your pension planning often ends in confusion. Even the official pension modellers come with warnings.
These are some of the most important and misunderstood questions. Normal retirement age could be 60, 65, or the State pension age, depending on your scheme. There are also early retirement deals for specific occupations like teachers and Gardaí.
Cost-Neutral Early Retirement lets you retire younger (as early as 50 or 55), but your pension and lump sum are reduced.
Retiring five years early might mean a cut of 20% or more to your annual pension.
Retiring five years early might mean a cut of 20% or more to your annual pension.
Ill-health retirement is a different path. If you’re forced to leave due to medical reasons, you may avoid reductions and even gain extra service years. Preserved pensions apply if you resign before retirement age. Your pension is frozen and paid later, based on your years of service and the salary scale at that time.
The way in which your “final pensionable remuneration” is calculated can matter. Promotions in the last three years, allowances and part-time work can all affect the numbers. These fine details can change your pension by thousands per year.
The bottom line is that timing your exit isn’t just about when you feel ready. It is something that has permanent financial consequences.
Here’s where the good news comes in: there are opportunities to improve your retirement position, if you plan ahead. Buying notional years: Older schemes allowed you to purchase extra service years. Think of it as buying yourself extra guaranteed pension income for life. Expensive, yes, but often worthwhile.
Professional added years: In certain technical or professional roles, extra years of service could be credited, though this is tightly restricted. Supplementary pensions: If you retire before the State Pension age, you may qualify for a “top-up” so you’re not left short. However, the conditions are strict, and you must apply. Additional Voluntary Contributions (AVCs): AVCs are a private pension pot alongside your main scheme.
They get tax relief on the way in, can sometimes increase your tax-free lump sum at retirement, and give you flexibility afterwards (cash, annuity, or ARF). Trying to put this jigsaw together accurately is a challenge and requires an intricate knowledge of the rules of each scheme.
This is one of the most powerful but least understood strategies. Imagine you’re retiring with 36 years of service. Your pension lump sum might be €80,000. If you’d had 40 years, it could have been €90,000. That’s a €10,000 gap. By making a €10,000 AVC contribution just before retirement you could get 40% income tax relief on the contribution (so it really costs you €6,000). After retirement, you could withdraw the €10,000 tax-free as part of your lump sum. In effect, you’ve turned €6,000 into €10,000 overnight.
This is not a loophole, it’s built into Revenue rules. But there are strict conditions, paperwork deadlines, and practical considerations. For larger amounts, the tax relief might have to be spread over more than one tax year. And you must act before retirement, as once you have left, it’s too late. This is where many people trip up. They hear about “last-minute AVCs” from a colleague just before leaving and scramble to do it. Sometimes it works. Sometimes it doesn’t. With planning, it can be a major boost. Without planning, it can be a missed opportunity.
Whether you’re ten years from retirement or ten months, there are steps you can take. They include getting clarity on your scheme, checking your payslip for your PRSI class, reviewing your pension service statement, and confirming which version of the pension you’re in. It is advisable to explore AVCs and other top up methods early on. They are not just for last-minute top-ups. Contributing regularly over your career can build a sizable pot with tax advantages. It makes sense to model your options. Online calculators are useful, but they’re not perfect.
Have a professional run the numbers on scenarios like retiring early, buying notional years, or topping up with AVCs. Watch out for SFT (Standard Fund Threshold). Higher earners or long-service staff still need to be aware of the €2 million cap. While fewer people will hit it these days, the penalties for going over are severe.
Getting advice is important. The rules are complex, and they change. A specialist financial advisor who understands public sector pensions can help you avoid mistakes and unlock opportunities. Public sector pensions in Ireland are complicated. But within that complexity lies value and opportunity. For those in older schemes, it’s about maximising benefits while avoiding traps. For those in the newer Single Scheme, it’s about boosting retirement income and bridging the gap to early retirement.
There is. Don’t wait until the week before you retire to figure it out. Start early, ask questions, and get advice. While the schemes are layered with rules, the goal is simple: It’s all about giving you the financial freedom to enjoy life after work.
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