- How does my payslip work?
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The top section has personal details like your PPSN and teacher number.
The left section has your basic pay, allowances, and pay amendments. Basic pay increases through your career in increments based on your pay scale. Allowances are paid for qualification, special duty, promotion, and long service. Pay amendments can be positive or negative and change over time.
The right section has deductions like tax, social insurances, pension, and union. PAYE is income tax. PRSI and USC are social insurance contributions. Pension deductions build up your pension entitlements over time. Spouses' & Children's deductions make provision for your family if you pass away. You may have other deductions like salary protection, AVC, Credit Union, or VHI.
The bottom section shows your PRSI stamp, tax credits, and net pay. Your PRSI stamp determines which social welfare benefits you may be entitled to. Your tax information shows how much you can earn before paying high tax. Net pay is "Take home pay" - It transfers to your bank account every fortnight.
It's a good idea to keep your payslips over the years.
- What do teachers get when they retire?
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You get a Lump Sum and a pension. The Lump Sum is once off and tax-free. The pension is paid to you fortnightly and is taxable. How much you get depends on a few variables.
1. When you started working. This normally determines which pension rule applies to you.
2. The amount of years you worked. 40 years is full service for pension.
3. How high your salaries were while working. Higher working salaries lead to stronger pension benefits.
There are other ways to improve your benefits like Buy Back, NSP's, and AVC's. Early Retirement can be an achievable option for many teachers.
- Which pension rule applies to you?
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There are 4 different pension rules for teachers. The year in which you started teaching,
normally determines your pension rule.If you started teaching before 5th April 1995, your normal retirement age is 60 and you must retire by 65. You can retire early under certain conditions from 55 without penalty. This is arguably the best pension rule.
If you started teaching after 1995 and before the 1st April 2004, your normal retirement age is 60 but you can retire early from 55 with conditions. Some of your pension comes from your employer and the balance comes from social welfare. This is still a good pension with certain drawbacks in early retirement.
If you started teaching after 2004 but BEFORE the 1st Jan 2013, you are considered a "NEW ENTRANT". Your normal retirement age is 65 and there are penalties on retiring early. This rule is not as good as the previous two.
If you started teaching AFTER the 1st January 2013, your normal retirement age is tied to the State Pension - currently age 68. Your benefits are calculated on career average salary instead of final salary. This is the least beneficial of the 4 pension rules.
Other issues to be aware of regardless of your pension rule:
If you break service for longer than 26 weeks, you will rejoin under the newest rule or split rules.
There are ways to improve your pension like buying back years, Notional Service Purchase, and AVC's.
Early retirement is possible for most people.
- Buying back Years & Notional Service Purchase
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Both schemes allow you to buy years of service for pension from your employer.
Buying back is for years that you worked but didn't pay into pension at the time. They are heavily subsidised because you provided a public service. This means they are very good value. The cost is deducted at retirement and for most people, they are a smart option.
Notional Service is buying extra years, that you didn't or won't work. They are guaranteed extra pension from your employer, but they are not subsidised and can be expensive. There are penalties with Notional Service on Early Retirement, so it makes sense to weigh your options if you plan to go early.
Both options can be valuable additions to your retirement planning.
- What are AVCs?
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AVCs are "Additional Voluntary Contributions". They are extra savings that you build up, separate from your teachers' pension.
Here's how they work:
You make regular contributions to the plan. Contributions are eligible for tax relief, so you can reduce your tax bill. Your money is invested, and there will be good and bad years, but it is carefully managed. Your AVC is designed to grow towards your retirement. You can't access your AVC until you retire, and if the worst were to happen your AVC would go to your family.
When you reach retirement, it's time to access your AVC's. First, you'll top up your teachers' Lump Sum to the maximum allowable - this part is tax-free.
Next, you will use the balance to top up your taxable pension. The more you can save and grow the more affordable retirement will be. AVCs work best when you maximise tax relief on the way in and minimise tax owed on the way out.
AVCs are suited to those with short service or interested in retiring early.
- What is salary protection?
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Salary Protection is an insurance policy that pays you an income if you are unable to work due to illness, injury, or disability. It will pay you until you are well enough to return to work, or until your chosen retirement age if you are unable to return.
Your salary is really important as it supports your entire lifestyle. To drop down to ill health or social welfare benefits would be difficult.
Salary protection tops you back up to a reasonable income while you are unwell. So that you can concentrate on recovery and getting well.
There are private and group scheme policies available, and none of them are perfect. There are advantages and disadvantages to both, but you can decide which one is right for you.
- What should you do with your savings?
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You may have accumulated a Lump Sum, or be saving a regular amount. Future goals could include buying or improving your house, college fees and education, or even just a rainy day fund.
Inflation is a problem as it decreases the REAL value of your money over time. Historically, bank deposits have not kept pace with inflation. So they can be a drag on achieving your future goals.
There are many savings options available that have kept pace with inflation, and they have had good and bad years. You won't want all of your eggs in one basket. It's important to find a plan that works for you, so you can aim to achieve your future plans.
- What is the Spouses' and Children's Scheme?
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Spouses' & Children's is part of your pension scheme. It means that your spouse and children will receive a pension if you pass away. Your spouse will receive half of your pension, and your kids will receive the other half while they are dependant. They may be entitled to Social Welfare benefits too.
It's good to know these safety nets exist. Most brokers don't know about them when setting up your Life cover or Mortgage Protection. You may be over or under insured, or paying too much. It's important to have the right cover for your family.