How much should I be paying into my Pension

aidanki

Good Evening Everyone,

I bought todays Sunday Independent and was reading it this afternoon.

I came across a v interesting article, how much should I be contributing to my pension.

The article was recommending to have the 2/3 of the current industrial wage of 43k i.e. 28k on retirement that I should be contributing 1000 per month if starting paying into pension at 30. And that 1000 per month was coupled with the old age pension.

Anyone else read the article, I took a pic with my phone, please see attached

And http://www.pensionsauthority.ie/en/Calculators/Pensions_Calculator/ this agrees with the article.

There is not one 30 year old in the country paying in 1000 per month that much Im pretty sure of. Is this a timebomb ? OR is it because we currently have such low growth in the stock market that they are talking about paying that much.

jive

Pic is a bit blurry but, having not read the article, contribute as much as you can reasonably afford.

If your employer matches a contribution up to a certain % then that is a no brainer, at least contribute that much because you are getting free money from your employer.

Beyond that contribute as much as you can afford because of the tax advantages. Personally, I have maxed out my AVC.

Sonnenblumen

Unless you want to avail of current tax breaks, I would suggest as little as possible.

Beyond the tax break, expect most funds to achieve returns to beat and pay the annual charges.

It's a mugs game and every Oct the bloodsucking pension industry comes out to prey on new victims.

Del2005

Sonnenblumen wrote: »

Unless you want to avail of current tax breaks, I would suggest as little as possible.

Beyond the tax break, expect most funds to achieve returns to beat and pay the annual charges.

It's a mugs game and every Oct the bloodsucking pension industry comes out to prey on new victims.

You can get tracker pensions that don't charge much and follow an index like the FTSE 100 or similar.

What other method do you propose that people can save for 30+ years of living off 40 odd years of employment if not by contributing to a pension?

aidanki

Del2005 wrote: »

You can get tracker pensions that don't charge much and follow an index like the FTSE 100 or similar.

What other method do you propose that people can save for 30+ years of living off 40 odd years of employment if not by contributing to a pension?

how do I invest in one of them ? currently my AVCs are with Irish Life, must look up how they did last year

Dardania

Del2005 wrote: »

Sonnenblumen wrote: »

Unless you want to avail of current tax breaks, I would suggest as little as possible.

Beyond the tax break, expect most funds to achieve returns to beat and pay the annual charges.

It's a mugs game and every Oct the bloodsucking pension industry comes out to prey on new victims.

You can get tracker pensions that don't charge much and follow an index like the FTSE 100 or similar.

What other method do you propose that people can save for 30+ years of living off 40 odd years of employment if not by contributing to a pension?

Buying an expensive house, to release equity in later?

topper_harley2

aidanki wrote: »

There is not one 30 year old in the country paying in 1000 per month that much Im pretty sure of. Is this a timebomb ? OR is it because we currently have such low growth in the stock market that they are talking about paying that much.

The timebomb refers to the fact that the number of people working to people retired is going down from about 5:1 to 2:1 over the next 30 years, meaning that the OAP will be seriously untenable in its current form. This will mean either means tested, complete removal or a total overhaul of the pension model so that your PRSI contributions are invested in your own personal account, rather than being pooled with everyone else's in the current "Pay as you go" model.
Basically in 30 years time, unless you have a private pension (or some other means of income), you will be living on a very very meagre OAP compared with today.

BrokenArrows

This is a post i put in my AH thread a few weeks back where i calculated that to have a very comfortable pension you need to be putting away 1000 per month, increasing it with inflation each year. The 1000 is total contributions, so if your employer is matching your contributions then you only need to put 500.

It is however worth noting that you dont need to be this well off when you retire, but it would be nice. Ccontribute as much as you can afford and thats pretty much all you can do.

BrokenArrows wrote: »

Depends on what you want to do when you retire.

Lets assume you sit down now and work out that you want. 4 foreign space holidays a year , eat out regularly and not have to really monitor your spending and generally just have fun.
Assuming you have no mortgage or rent to pay then you might want a 45k a year pension which will leave you very comfortable.

Thats 45k a year in TODAYS money.
Now lets assume that you plan to retire in 30 years time at an inflation rate of 3% on average, that means you will need a yearly pension of €109,226

Now lets assume that you retire at 60 and Ireland life expectancy is 78 years for men, so you need 18 years of a pension.

18 x €109,226 = €1,966,068

So thats your pension requirement roughly for 18 years. However dont forget that the money doesnt stop growing as soon as you retire.

Say you only had a pension of €1 million and invested it in a very safe fund which returned 3% per year. That would return to you 30k per year.

So you take out €109k a year, but earn 30k in returns (which obviously reduces the more you take out)

So in reality id like to retire with a fund of a minimum of 1 million. Ideally aiming for 1.5-2million for retirement in 30 years.

How much do you need to save per month??

Well lets say you have nothing right now and want a pension fund of 1.5 - 2million to have a very comfortable retirement then the following would need to be true.

1. Put away €1000 per month. Increase the 1000 by the rate of inflation each year. eg. 3%. 1000 is assumed to be the total contribution, both yours and your employers.
2. Gain a return rate of at least 7% after fees.
3. Have it growing for 30 years.

That should get you over 1.5 million and if you do well on the interest rates it will be much more.

ixus

Factors to consider:

1. Cost of living will be very different in 20/30 yrs. I don't know which way, more expensive or more efficient, may be no cash.

2. Charges and fees are a killer.

3. Access to the funds in short & medium term.

4. Goverment cand, do and have raided pension funds when they need cash. They have access to cash on tap at the moment in bond market but they have no hesitation on doing this. They see it as government money. It would be my greatest concern. If you save and others don't, that money is going to have to come from somewhere. You.

Also, if have a mortgage, better to reduce term of mortgage and principal in the near and medium term. Then look at pension.

BrokenArrows

Sonnenblumen wrote: »

Unless you want to avail of current tax breaks, I would suggest as little as possible.

Beyond the tax break, expect most funds to achieve returns to beat and pay the annual charges.

It's a mugs game and every Oct the bloodsucking pension industry comes out to prey on new victims.

If your employer is matching your contributions then i cannot see how you can say its a mugs game.

They are gaining an immediate 100% return on investment. Find another investment in existence that can achieve a guaranteed 100% return.

Its also very important for people who cannot afford to get on the property ladder to get into a pension fund.

Squall Leonhart

Putting away 1,000 a month is something I cannot imagine ever being able to do. I put under half that a month to a pension, there are no employer contributions for me.

Assuming I manage to maintain my monthly payments, and pay solid for 30 years (I didn't start when I was 20....) and assume a growth of 3% p.a. (which is a figure plucked from mid air), I'd only have approx 235K at retirement (assuming aged 60).

If growth was at 5% this would rise to approx 335K.
Dare I dream that growth would be your quoted 7% it'd ramp up to a sum of 485K.

A pension of 1,500,000-2,000,000 is absolute fantasy for the overwhelming majority of people.

Even a pot of 1,000,000 is beyond most people.

Soarer

There's a handy little calculator here for seeing how you'll fair out.

The most important thing is to start, and to start as early as possible. Compound interest is your best friend.

Have a quick look at Mr. Ramsey.

BrokenArrows

Squall Leonhart wrote: »

Putting away 1,000 a month is something I cannot imagine ever being able to do. I put under half that a month to a pension, there are no employer contributions for me.

Assuming I manage to maintain my monthly payments, and pay solid for 30 years (I didn't start when I was 20....) and assume a growth of 3% p.a. (which is a figure plucked from mid air), I'd only have approx 235K at retirement (assuming aged 60).

If growth was at 5% this would rise to approx 335K.
Dare I dream that growth would be your quoted 7% it'd ramp up to a sum of 485K.

A pension of 1,500,000-2,000,000 is absolute fantasy for the overwhelming majority of people.

Even a pot of 1,000,000 is beyond most people.

The first problem id raise with you is that you dont know what your pension fund is achieving. You should know this. Your fund could be losing money at the moment for all you know.

Pretty much any pension fund in existence should be able to achieve 5% and if you do a little research into what fund is doing well at the moment then you should be able to achieve 7% or significantly higher without too much effort.

The simple idea is what performance of any fund changes over time.
In ireland a Property fund would have been performing very well over the past 5 years, but i wouldn't see that lasting too much longer.

eg. The Irish Life Irish Property Fund has achieved 140% return over the past 5 years. https://www.irishlife.ie/investments/fund-prices-and-performance/

You should always be researching and changing your find to get the best returns.

Squall Leonhart

BrokenArrows wrote: »

The first problem id raise with you is that you dont know what your pension fund is achieving. You should know this. Your fund could be losing money at the moment for all you know.

I'd have to disagree with you on this one. I frequently look at current pension value, and routinely change what funds my money is in. My point was, just because something is growing at 8% p.a. now, and lots are, it's not possible to predict with certainty that in 10, 15, 20 years time there'll still be the possibility of getting those returns guaranteed.

BrokenArrows

Squall Leonhart wrote: »

I'd have to disagree with you on this one. I frequently look at current pension value, and routinely change what funds my money is in. My point was, just because something is growing at 8% p.a. now, and lots are, it's not possible to predict with certainty that in 10, 15, 20 years time there'll still be the possibility of getting those returns guaranteed.

Ok, from your post it just sounded like you didn't know what your fund was achieving.

Your right, we cannot predict the future but just do the best we can knowing what we know now.

Its all about achieving large returns when the economy is doing well and minimizing loss when things are going bad.

People should be looking to average the 7% over the life of their pension. If you are lucky your final 5 years of pension building will be during economic strength which it is possible to make significant gains but obviously this will be luck of the draw, if the economy sucks in your final 5 years then you just need to play it safe and accept what you have already built.

Francie Barrett

aidanki wrote: »

There is not one 30 year old in the country paying in 1000 per month that much

Well there's at least one! My son is paying about that between employer contributions and AVC's.

whatever76

Pensions - freak me out and just had that chat in work so yep its that time of year - been contributing to pension last 15 years ( + Emp contribution) ; what would be a good value pension at 40 be ? Now I know it all fluctuates etc and all down to lifestyle you want when retire but just want to get a sense if my current pension value is about right or if I need to contribute more - ballpark average even ?

phantom_lord

I'm in my 20s and put in the max allowed of 1437.5 a month. 40% Tax relief and tax free growth is just too much to pass up.

ixus wrote: »

Factors to consider:

1. Cost of living will be very different in 20/30 yrs. I don't know which way, more expensive or more efficient, may be no cash.

2. Charges and fees are a killer.

3. Access to the funds in short & medium term.

4. Goverment cand, do and have raided pension funds when they need cash. They have access to cash on tap at the moment in bond market but they have no hesitation on doing this. They see it as government money. It would be my greatest concern. If you save and others don't, that money is going to have to come from somewhere. You.

Also, if have a mortgage, better to reduce term of mortgage and principal in the near and medium term. Then look at pension.

It's possible to move your pension abroad.

Not sure about the mortgage advice, I'd expect stock market returns over the long-term to beat the rate you're paying on your mortgage, especially as you're growing pre-tax money.

keane2097

Francie Barrett wrote: »

Well there's at least one! My son is paying about that between employer contributions and AVC's.

Two more with myself and phantom lord!

ixus

phantom_lord wrote: »

I'm in my 20s and put in the max allowed of 1437.5 a month. 40% Tax relief and tax free growth is just too much to give up.



It's possible to move your pension abroad.

Not sure about the mortgage advice, I'd expect stock market returns over the long-term to beat the rate you're paying on your mortgage, especially as you're growing pre-tax money.

Do the math. Karl jeacle mortgage calculator.

A 400k house, 80k down, 30yr mortgage at 3.5%. On a principal of 320k, you pay 197k in interest. If you could reduce the term by 5yrs, you would save 37k over lifetime of the mortgage. This is paying 1600 pm v 1440pm approx. People seem to think pensions only go up. Tell that to the people who had them destroyed in 2008.

phantom_lord

Long-term growth in the stock market is higher than 3.5% though, and every euro you put in to pension only costs you sixty cent, easy to see the better return is there.

Anyone that held their positions through 2008 are doing great now, and anyone that was retiring and drawing down their pension around that time should have had limited exposure in the first place.

(agree with your point on access to money though, that can be a big consideration)

Cute Hoor

There was a bit of discussion on pension investment here
http://www.boards.ie/vbulletin/showthread.php?t=2057640169

Amirani

keane2097 wrote: »

Two more with myself and phantom lord!

I'm 26 and am putting fairly close to that amount in. Can't imagine I wouldn't be doing 1000 p/m by the time I'm 30.

Squall Leonhart

Oh what I wouldn't give for an employer contribution!

Cute Hoor

3 pages on pensions in yesterday's SBP, worth a read particularly the article by Michael Murray

Drumpot

Assuming you are on the higher rate of tax, it would cost you much less to build up, say 500k , then it would by investing in anything else if most things are equal.

Like any investment or savings you can lose.

But let's say you save into a pension that makes zero, after charges, over 20 years. That's not setting the bar very high. Incidentally people who lost big were mainly people who moved their funds out when the markets crashed or people who didn't really understand how risky their savings were.

To save 500k into a pension might have a net cost of maybe 350k (cause you don't get tax relief on USC et).

To save 500k out of your wages you would have to make nearly double that in gross income. So you would have to save double the amount into a savings plan.

Then there is the tax on gains. If you invest your money in an investment similar to one available in a pension , you will be taxed on the gains. You aren't taxed on pension gains.

Pensions are not ideal or for everybody but they aren't as sh*t as some people make out. You don't read many posts about people who used a pension well and saved and invested properly because they are too busy enjoying their retirement. The people who got burned are most vocal because they are angry and have reason to give out.

aidanki

Cute Hoor wrote: »

3 pages on pensions in yesterday's SBP, worth a read particularly the article by Michael Murray

I got the indo, any chance of a link or of a few photos maybe please

Cute Hoor

aidanki wrote: »

I got the indo, any chance of a link or of a few photos maybe please

This is the link, but unfortunately it won't work unless you're a subscriber (which I'm not), maybe somebody else here is and would oblige by posting the article.
https://www.businesspost.ie/business/the-dangers-of-diy-367864

robp

phantom_lord wrote: »

I'm in my 20s and put in the max allowed of 1437.5 a month. 40% Tax relief and tax free growth is just too much to pass up.

Th problem is, before the age of 30 only 15% of net relevant earnings qualifies for tax relief. To put in 1000 euro a month before age 30 with tax relief means one would need to earn €65,671.00 or about €110,00 gross (if single). Not many under 30 year olds earn that. I guess its more doable with employer contributions.

daheff

ixus wrote: »

Factors to consider:

1. Cost of living will be very different in 20/30 yrs. I don't know which way, more expensive or more efficient, may be no cash.

2. Charges and fees are a killer.

3. Access to the funds in short & medium term.

4. Goverment cand, do and have raided pension funds when they need cash. They have access to cash on tap at the moment in bond market but they have no hesitation on doing this. They see it as government money. It would be my greatest concern. If you save and others don't, that money is going to have to come from somewhere. You.

Also, if have a mortgage, better to reduce term of mortgage and principal in the near and medium term. Then look at pension.

1- Inflation makes up (most) of this difference. As the OP is factoring in inflation to his/her theoretical 45K per annum pension fund, the point is negated mostly.
2- No argument there. Best to find a fund with the lowest fees (like any investment fund.
3- True. Access to funds is essential. but once you have sufficient funds put away for rainy days, then imo you should be investing into a pension fund.
4- Bastards!!!!

I don't understand peoples preoccupation with wanting to buy property as an investment. Buying a property (unless you have stacks of money) means most people are putting all their eggs into one basket. & Usually a mortgage. While paying off a mortgage early saves interest, does it save more than one would gain from investing (with tax breaks) into a pension fund? I don't think it would, but if anybody has data showing for or against feel free to post it.

Pension funds can invest in property if thats what your investment strategy is. People can also invest in REITs if they really want out of pension exposure, without facing mortgages.

Sonnenblumen wrote: »

Unless you want to avail of current tax breaks, I would suggest as little as possible.

Beyond the tax break, expect most funds to achieve returns to beat and pay the annual charges.

It's a mugs game and every Oct the bloodsucking pension industry comes out to prey on new victims.

Pensions main selling points are deferred taxation & compound interest. If you can hold onto your tax now (when its high) you can gain a return on it over time, and hopefully use this money as income when you have no income (thus long term reducing the tax you pay vs somebody with no pension).

Amirani wrote: »

I'm 26 and am putting fairly close to that amount in. Can't imagine I wouldn't be doing 1000 p/m by the time I'm 30.

Think about kids, wife/husband and rent/mortgage. Unless you are getting a substantial payrise by mid thirties, a lot of your disposable income is taken up by theses things. On the plus side, if you manage to own your own home outright before you retire, then you wont face rental costs in your retirement (when your income drops).

jive

robp wrote: »

Th problem is, before the age of 30 only 15% of net relevant earnings qualifies for tax relief. To put in 1000 euro a month before age 30 with tax relief means one would need to earn €65,671.00 or about €110,00 gross (if single). Not many under 30 year olds earn that. I guess its more doable with employer contributions.

Net relevant earnings does not mean net earnings (although as usual with revenue it is unnecessarily confusing how they've worded it).
It's 15% of gross, that's where you get the tax relieve e.g. if you're paying the higher rate then for every 60 you put in you essentially get 40 on top of it.

My maths might be arseways but you'd need to be on €85K to stash €1k per month away assuming no employer contributions. Tough to do without employer contributions but very doable with employer contributions (as most offer 6 to 8% for non-management positions in my experience). Works out at about €52k @8% employer plus 15% AVCs to get €1k into the pension per month. Decent salary for an under 30 but not outlandish by any stretch.

jive

daheff wrote: »

Think about kids, wife/husband and rent/mortgage. Unless you are getting a substantial payrise by mid thirties, a lot of your disposable income is taken up by theses things. On the plus side, if you manage to own your own home outright before you retire, then you wont face rental costs in your retirement (when your income drops).

Only real difference for most in their 30s is kids...most under 30s in paying into a pension would already be paying rent, cost of rent is not that much more than the cost of a mortgage these days if they decide to go that route.

Plus you're forgetting all the money saved from having a child cripple your social life!

phantom_lord

Yeah 80k would be 1k a month at 15%.

ixus

aidanki wrote: »

I got the indo, any chance of a link or of a few photos maybe please

Not much in it that hasn't been discussed here. Warning on managing your own one, Random Walk of just adding monthly, better to pay someone who knows more (but doesn't really) etc etc.

ixus

daheff wrote: »

I don't understand peoples preoccupation with wanting to buy property as an investment. Buying a property (unless you have stacks of money) means most people are putting all their eggs into one basket. & Usually a mortgage. While paying off a mortgage early saves interest, does it save more than one would gain from investing (with tax breaks) into a pension fund? I don't think it would, but if anybody has data showing for or against feel free to post it.
.

I have no preoccupation with property. Well, I do, but not the way you might think I have. Spent plenty of time discussing it since 2006 on here, AAM or thepropertypin.

ANYWAY. Ok, I will do a crude bit of math to dispute this pension v paying down mortgage thingy. Lets go back to previous example I spouted:

Do the math. Karl jeacle mortgage calculator.

A 400k house, 80k down, 30yr mortgage at 3.5%. On a principal of 320k, you pay 197k in interest. If you could reduce the term by 5yrs, you would save 37k over lifetime of the mortgage. This is paying 1600 pm v 1440pm approx. People seem to think pensions only go up. Tell that to the people who had them destroyed in 2008.

As above, pay an extra €160pm on principal to reduce term by 5 years and save 37k.

Now, lets put it into a pension and see what tax relief we get:

160pm x 12 months x 25 years = 48,000 @ 40% tax relief if at top rate = 19,200 ( and that if you're at top rate)

160pm x 12 months x 30 years = 57,600 @ 40% tax relief if at top rate = 23,040 ( and that if you're at top rate)

37k - 19k = 18k or almost 50% difference (not accounting for employee contribution 'cos we don't all get that or, any % increase per annum in fund value. Neither did I take fees or govt charges off value.)

phantom_lord

No growth over 25/30 years is a big assumption. Long-term results of the S&P are claimed to be 7%, but all you need is more than 1% after fees.

Monthly contribution is 224 which costs 160 after relief


Monthly Payment 224 224 224 224 224 224 224 224 224 224
Growth 1% 1% 2% 2% 3% 3% 4% 4% 5% 5%
Years 25 30 25 30 25 30 25 30 25 30

Total €76,310.10 €93,996.72 €87,095.93 €110,370.49 €99,905.75 €130,533.06 €115,165.02 €155,467.07 €133,394.17 €186,425.93
Net Contributions €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00
Gain €28,310.10 €36,396.72 €39,095.93 €52,770.49 €51,905.75 €72,933.06 €67,165.02 €97,867.07 €85,394.17 €128,825.93

Versus Mortgage -€8,689.90 -€603.28 €2,095.93 €15,770.49 €14,905.75 €35,933.06 €30,165.02 €60,867.07 €48,394.17 €91,825.93

ixus

Good cop on the 224 v160. Shouldn't have made that mistake.

I don't think you can look at any growth without taking fees, inflation/deflation, goverment etc into account. As I said it was crude math. Purpose to get people to think of alternatives.

Francie Barrett

phantom_lord wrote: »

No growth over 25/30 years is a big assumption. Long-term results of the S&P are claimed to be 7%, but all you need is more than 1% after fees.

Monthly contribution is 224 which costs 160 after relief

But yet people will still say that property is the only way to go!

People talk about a pensions timebomb and maybe for people in my generation (people in their 40's-50's) this is the case. But the reality for anyone under 30 is that if they're smart and follow the guidelines and use low cost indexes and leverage the power of compounding, then they've no excuse to be worried. You can play around with figures on compounding calculator sites, but even someone who contributes €500 a month and has no employer contribution whatsoever can have a very nice sized pot if they start at 25 and contribute until retirement at 65. It's why I have really tried to impress upon my eldest son the importance of getting started.

Soarer

Ben and Arthur were friends who grew up together. They both knew that they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested 23 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?



Believe it or not, Ben came out ahead … $700,000 ahead! Arthur had a total of $1,532,166, while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

ixus

@Francie - I think the fear with regardsto the Pension Time Bomb, is what the government do to address that in the future. I'm sure Varadkar mooted compulsory pension saving at one stage. However, what I think they will do, down the line, is reclassify the pension relief, confiscate from those who saved well, pool public and private or some nasty method.

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

topper_harley2

You can always do both, overpay mortgage and continue to contribute to pension. It's not one or the other. Granted you may have to rob Peter to pay Paul but at least you'll be reducing one and simultaneously growing the other

topper_harley2

ixus wrote: »

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

Scary stuff.

ixus

Does anyone have much experience with Executive Pension Plans (EPP)? Have read all the material from the various brokers/funds. In terms of tax efficiency, they look very attractive for high earners/Directors of own company.

The J Stands for Jay

ixus wrote: »

Does anyone have much experience with Executive Pension Plans (EPP)? Have read all the material from the various brokers/funds. In terms of tax efficiency, they look very attractive for high earners/Directors of own company.

In terms of tax efficiency, they're the same as any other pension.

cooperguy

ixus wrote: »

@Francie - I think the fear with regardsto the Pension Time Bomb, is what the government do to address that in the future. I'm sure Varadkar mooted compulsory pension saving at one stage. However, what I think they will do, down the line, is reclassify the pension relief, confiscate from those who saved well, pool public and private or some nasty method.

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

That's frightening stuff. Im pretty sure that would be unconstitutional here (but it doesnt mean they wouldnt find a way). The one thing I think thats pretty likely is that anybody with any sort of half decent pension will end up being means tested and get no state pension (despite a lifetime of PRSI contributions). That would be extremely annoying if that was to happen.

daheff

jive wrote: »

Only real difference for most in their 30s is kids...most under 30s in paying into a pension would already be paying rent, cost of rent is not that much more than the cost of a mortgage these days if they decide to go that route.

a sizeable amount of people in 30s would not be paying a lot of rent as they are living at home!

ixus wrote: »

I have no preoccupation with property. Well, I do, but not the way you might think I have. Spent plenty of time discussing it since 2006 on here, AAM or thepropertypin.

ANYWAY. Ok, I will do a crude bit of math to dispute this pension v paying down mortgage thingy. Lets go back to previous example I spouted:



As above, pay an extra €160pm on principal to reduce term by 5 years and save 37k.

Now, lets put it into a pension and see what tax relief we get:

160pm x 12 months x 25 years = 48,000 @ 40% tax relief if at top rate = 19,200 ( and that if you're at top rate)

160pm x 12 months x 30 years = 57,600 @ 40% tax relief if at top rate = 23,040 ( and that if you're at top rate)

37k - 19k = 18k or almost 50% difference (not accounting for employee contribution 'cos we don't all get that or, any % increase per annum in fund value. Neither did I take fees or govt charges off value.)

I suppose there are a lot of things to take into consideration here. And I appreciate you mention that its a crude calculation. I'm also guessing that you are talking about a property as a home rather than an investment??

If the property is an investment property then you are also forgetting about net rental income/ property price inflation.
If its a home, then the overpayment (in a variable rate scenario) is a valid point....but it does exclude expected investment gains or losses /access to cash.

However as (to make it easier to compare) there is an assumption that the variable interest rate stays the same (and doesn't fluctuate), then I think its fair to also assume an average long term investment return too, rather than saying investment returns can go up or down.Once you use a positive return >3% on average (per phantom_lord's example) then (to me anyways) its a no brainer to put into your pension than paying off your mortgage earlier.


But thats only looking at it on a money basis. It doesnt take into account if you want to buy a home(not an investment) now with the intention of selling it before the end of the term of the mortgage with a view to buying a bigger/more expensive home. In this case, then absolutely overpaying the mortgage is the more sensible thing to do. It might not generate a better return, but by overpaying, you can access that equity when you sell the property (kinda like saving at the mortgage interest rate).

ebayissues

I've found this thread interesting. I'm on 45k P.A. Due to job demands I'll be doing O.T which will bring me up to 52K a year.

I'm 25, living away from home paying €750 in rent which include bills. I have no debts. After paying rent & bills I save 75% of remaining wages.

I had a pension in my old job worth 2k and I'm considering putting a portion of my income into pension fund.

In terms of pension what the likes of Zurich/Irish life investments is attractive to me. E.g global diversified equities funds. Am I able to invest thins rather than pension from my company and stuff avail of any tax benefits ?

I would like to make use of the excess cash in my account rather than it just seat there doing nothing.

Merowig

Does your current employer offer an occupational scheme where he tops up / matches your contributions? If so go with that one.
An occupational scheme also often offers different investment options (e.g. international equities)

ebayissues

Merowig wrote: »

Does your current employer offer an occupational scheme where he tops up / matches your contributions? If so go with that one.
An occupational scheme also often offers different investment options (e.g. international equities)

My employer offers an occupational scheme. They pay 6% of my income as well. What I life is they dont have many investment options/plans to choose from.

Merowig

I would go for now for the occupational scheme - as it is the most cost effective most likely. If you open a low cost PRSA via LA brokers (they have Zurich and Irish Life) you have 1% AMC - if you go via Davy you have 0.75% plus minimum 0.10 buying costs for an UKI traded ETF.) Going for the employer scheme you have most likely the cheapest option - as they often cover administration costs - unless there are contribution charges.

ixus

ebayissues wrote: »

I've found this thread interesting. I'm on 45k P.A. Due to job demands I'll be doing O.T which will bring me up to 52K a year.

I'm 25, living away from home paying €750 in rent which include bills. I have no debts. After paying rent & bills I save 75% of remaining wages.

I had a pension in my old job worth 2k and I'm considering putting a portion of my income into pension fund.

In terms of pension what the likes of Zurich/Irish life investments is attractive to me. E.g global diversified equities funds. Am I able to invest thins rather than pension from my company and stuff avail of any tax benefits ?

I would like to make use of the excess cash in my account rather than it just seat there doing nothing.

Save it. You will probably need it for big ticket items such as car,wedding, house in the near future. Instead of small costly loans.