We are often asked about the merits of buying back years for pension purposes. It is possible to buy back actual years worked and notional years when there are gaps in past service. Below we have summarised the key information in relation to buying back actual years that were worked but previously cashed in.
Buying Back Actual Years
This relates to instances when Consultants have previously cashed in their Superannuation Benefits (which is often done when moving abroad). It is generally advisable to buy back these benefits. You can receive a quote to buy back these years based on the following:
- The amount of the refund that you initially received
- The interest rate compounded (up to 7% depending on the time of the refund). Tax relief on the interest charged is available when buying back years.
Once you receive a quote to buy back years, you have two years to buy them back. Otherwise they will be re-costed and there will likely be a higher level of compound interest charged.
Payment can also be made via payroll or from your lump sum at retirement. If payment is made via payroll, tax relief on the accrued interest will be given at source. If the service is reckoned via lump sum the pension administrator will issue a Revenue Certificate to allow for an application for tax relief from Revenue.
It is also important to mention that there is also a contribution due for the Spouse & Children’s scheme irrespective of whether you are married or have children. The rate levied is 1.5% if making the contribution through payroll or 1% if made at retirement. While the rate is higher when making contributions through payroll, this is based on current salary while the contribution at retirement is based on final salary.
It may also be possible to buy back years of temporary employment that were not previously pensionable. Membership to the HSE pension scheme for temporary contracts was not introduced until 2002. However, for certain schemes (such as the Trinity Pension Scheme), it is not possible to buy back temporary service that was accrued before 2003.
There are also a couple of conditions where buying back years is not possible.
- If the Consultant has a break in service of more than 26 weeks (and this is not treated as a career break), they will become a member of the career average Single Scheme on their return to the HSE. If they had taken a refund of contributions from a final salary scheme, they will not be able to buy back actual years and convert them to years in the Single Scheme.
- If the Consultant has taken a refund of all superannuation contributions and then moved to the private sector, they will not be able to buy back years as there is no current pension to link the buy back of years to. Therefore, there must be retained superannuation benefits with at least one hospital in order to buy back years.
Please note that this is a very complex area and it is vital that before any action is taken, the appropriate advice is sought