Pensions, a scam?

dacarinaeman

Just having a thought on pensions and putting it out there. I am paying into a pension and I am also paying my mortgage with PTSB insterest rate of 5.1%. My wages are low and therefore I am taxed at 20% and therefore the tax relief on my pension contributions is also at 20%. My question is, would I not be better off diverting what I pay into my pension to paying down my mortgage sooner, thereby reducing the term and the amount I would pay on interest on the mortgage? I know the tax relief is an incentive to continue with a pension but I think that is only peanuts for me and I know that there is potential for pensions to do well if the stock markets do well but with the commissions and charges etc is it really worth it?

chris85

dacarinaeman wrote: »

Just having a thought on pensions and putting it out there. I am paying into a pension and I am also paying my mortgage with PTSB insterest rate of 5.1%. My wages are low and therefore I am taxed at 20% and therefore the tax relief on my pension contributions is also at 20%. My question is, would I not be better off diverting what I pay into my pension to paying down my mortgage sooner, thereby reducing the term and the amount I would pay on interest on the mortgage? I know the tax relief is an incentive to continue with a pension but I think that is only peanuts for me and I know that there is potential for pensions to do well if the stock markets do well but with the commissions and charges etc is it really worth it?

You say there is the potential for pensions to do well if stocks do well. Well you can invest in less risky areas, bonds, cash only, and reduce the risk. Depends what scheme you are on and how you want it to go.

Its a choice at the end of the day

dacarinaeman

Hi Chris, I know what you mean, the less risky stuff means less returns but at least it would be realitively safe. I read or heard sumwhere recently that the returns on pensions over time comes in at about 10% which is good if that was the return. I just kind of feel that I would be better off paying down the mortgage and having a bit more cash in my pocket as a result. Just a though really

shangri la

The returns vary wildly from one pension scheme to the next and from one decade to the next.

Like the other person said its a choice and the only way to know which is right is hindsight.

Personally I would continue with a low risk pension at the minute with low fees.

chris85

Hardly a scam though? Worthwhile if the right choice is made and this choice will be different for people.

digzy

I really believe pension contributions are crazy if you're at the 20% level.
what all the gurus dont tell us when they're selling the tax thing is the fact that you'll be paying tax at a similar rate when it's time to cash in.

There's a lot of waffle re low fees. they're all close enough to each other i think. prime time did a programme about them a while back. basically about a third is wiped out in mgt fees and commission. that means they've to match inflation AND increase in value by 50% just to break even.

Personally i feel pensions make most sense if you're in the higher bracket. however the more you earn it's pointless as bar the lump sum you're gonna most likely be paying tax on it at the higher rate. I'm luck enough that i'm a reasonably high earner. I've decided to keep with it till the tax relief changes then i'm out.

Once again it's a personal thing. loads of variables must be considered. i reckon you'd be better off lobbing savings into a fixed deposit a/c. once again personal circumstances will dictate this.

best of luck;)

Pablo Sanchez

digzy wrote: »

i reckon you'd be better off lobbing savings into a fixed deposit a/c. once again personal circumstances will dictate this.

best of luck;)

Im not sure why you think this would be better? The money you pay into the savings account is your after tax income (ie after your 41% PAYE, PRSI and USC). You then have to pay 30% DIRT tax on all interest every year.

If you put your money into your pension you pay it from your gross income, any gains on your investment are 'rolled up' and you only pay exit tax every eight years, so it has a chance to grow faster then a savings account. You can access any number of funds. Over the long term Equities outperform all other asset classes. While banks are offering good rates of interest now, that wont always be the case.

And dont forget that when you retire (65+,if you married) you wont have to pay any tax on your income if you have less then 36k coming in every year. And even if you do have more then that coming in, you will each only pay lower rate income tax up to 32k each.

thomasm

dacarinaeman wrote: »

Hi Chris, I know what you mean, the less risky stuff means less returns but at least it would be realitively safe. I read or heard sumwhere recently that the returns on pensions over time comes in at about 10% which is good if that was the return. I just kind of feel that I would be better off paying down the mortgage and having a bit more cash in my pocket as a result. Just a though really

According to finfacts.ie the average pension managed fund returned 1.1% pa growth over the last 10 years. Failure to even keep up with inflation is a savage indictment of their performance

the_syco

I started my pension two or three years ago, right around when pretty much all investment type things seems to go bad, so I decided not to allow the bank to invest my pension in anything. Meh. I've another 35 years or so to go, so have time to invest it yet.

digzy

Pablo Sanchez wrote: »

Im not sure why you think this would be better?access to cash if you need it-illness,income replacement etc..you cant touch the pension till you're 65!
The money you pay into the savings account is your after tax income (ie after your 41% PAYE, PRSI and USC). You then have to pay 30% DIRT tax on all interest every year.you've to pay tax once your pension returns go above the cut off. thats presuming the gurus investing them haven't tanked!

If you put your money into your pension you pay it from your gross income, any gains on your investment are 'rolled up' and you only pay exit tax every eight years, so it has a chance to grow faster then a savings account.Chance being the key point. how many times have we heard 'go down as well as up' You can access any number of funds.what do the vast majority of us know about funds. there's a broker who is just bothered about their cut. thay go over the usual B/S about attitude to risk. if you're young go risky if older go safe Over the long term Equities outperform all other asset classes. While banks are offering good rates of interest now, that wont always be the case.i've been putting cash into pensions since 2003. the best performing one is an eagle star pension, i put 12k into in 2003. it's surrender value is 11800.i've a beauty with irish life that i've 25k in which is at about 19k now:rolleyes: I hope you're right. i'm well invested in equities

And dont forget that when you retire (65+,if you married) you wont have to pay any tax on your income if you have less then 36k coming in every year.Tbf op didn't specify married or single so lets presume single, say 18k? even at that i'm convinced you've to pay some deductions even at that level And even if you do have more then that coming in, you will each only pay lower rate income tax up to 32k each.

to sum up. I've been badly burned over the years with these things so perhaps i'm biased. however if any of you were in my position you'd be biased too!as i've stated sooooo many times your personal situation will dictate what you do. lets presume op is in their 20s single and hoping to get a mortgage to trade up. there's not much point looking for a mortgage if you've 20 k in a pension and 5 or ten in savings.the interest rate will also be dictated by what you bring to the table in terms of savings.i'm no actuary but taking into account tax, income levies, mortgage interest relief etc what return would the pension have to make to match your mortgage.then you could make an informed choice. that rate's a shocker. i was arguing with my bank over ecb +1 or 1.5! Looking at all these markets, the guys making money are active. look at the infamous 'bondholders' who made a killing off all our backs last wednesday.most of our pension money is plonked into a fund untouched for it's lifetime, it's up to you to change it yet they charge a 'management fee'. utter scam

st1979

I paid 1 lump sum into 2 pensions 10 years ago 1 with new ireland and the other with bank of ireland. neither have ever been worth more than i paid into them. And i mean not one year in the last 10. Its the fees and commisions that are taken whether the fund grows or loses money. So I for 1 am not impressed with pensions

theTinker

I've always been worrying about my pension too. I constantly am reminded that i need one, but I certainly never hear of good returns on them, especially these days. I hear nothing but getting wiped out or drastically reduced. Peoples savings for ten years, gone, puff.

I currentily pay 3-4% of my salary into one, and my employer throws in an extra 10-12%. I think this is worth doing only because of employer contribution, but most people dont get that i believe(I dont know, this is my first).
Is this a particularly good pension im in, or is this what every one roughly gets and think its a bad idea?

MadsL

theTinker wrote: »

I've always been worrying about my pension too. I constantly am reminded that i need one, but I certainly never hear of good returns on them, especially these days. I hear nothing but getting wiped out or drastically reduced. Peoples savings for ten years, gone, puff.

I currentily pay 3-4% of my salary into one, and my employer throws in an extra 10-12%. I think this is worth doing only because of employer contribution, but most people dont get that i believe(I dont know, this is my first).
Is this a particularly good pension im in, or is this what every one roughly gets and think its a bad idea?

That's a fking amazing pension....

Marcanthony

dacarinaeman wrote: »

Just having a thought on pensions and putting it out there. I am paying into a pension and I am also paying my mortgage with PTSB insterest rate of 5.1%. My wages are low and therefore I am taxed at 20% and therefore the tax relief on my pension contributions is also at 20%. My question is, would I not be better off diverting what I pay into my pension to paying down my mortgage sooner, thereby reducing the term and the amount I would pay on interest on the mortgage? I know the tax relief is an incentive to continue with a pension but I think that is only peanuts for me and I know that there is potential for pensions to do well if the stock markets do well but with the commissions and charges etc is it really worth it?

Thats exactly what I done. I have stopped my pension. I now pay my mortgage with adjusted amount to cut my term to what would originally have been a 20 year mortgage. I was 7 years into a 30 year mortgage.But the adjustments I have made means it will be cleared in approx 12.5 years and is also getting the burden of negative equity of my back.
Ill be 46 when mortgage is paid off and that will be guaranteed. My pension was/is a bit of a risk.Ill worry about my pension when I pay of my mortgage.