Why are people obsessed with getting a pension

Yellow_Fern

S.M.B. wrote: »

I wasn't aware of the extent of the taxes and charges on investing outside of a pension in Ireland right now. That's pretty significant when you break it down to that level.

Is there ever any talk of having a tax free alternative in Ireland like in the UK?

This chap's fee comparison doesn't explain everything. The 1% stamp duty is to do with Irish traded stocks only. Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. This whole area requires a good understanding to get a decent return. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

Yellow_Fern

Yellow_Fern wrote: »

........ Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. .......

https://www.labrokers.ie/prsa-pensions/
Annual management charge 1%*
Actual Allocation rate 100%
Out of this 1% annual management charge, LABrokers are paid a commission of 0.25% by Zurich

Really easy to avoid unjustifiable high fees in pensions.

Yellow_Fern wrote: »

........The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

It's tax relief for those paying the higher rate.
€60 out of your net wages can be €100 in your pension, it's nothing to do with compounding or being over 60.

S.M.B.

Yellow_Fern wrote: »

This chap's fee comparison doesn't explain everything. The 1% stamp duty is to do with Irish traded stocks only. Pension funds have their own fees and most people tend to pay unjustifiable high fees in their pensions. Thankfully there are ways it can be avoided in self administered pensions. This whole area requires a good understanding to get a decent return. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

Some of the main providers that have appeared in the wake of auto enrolment in the UK are pretty bad for fees, range of investment options and actual returns.

I'm loading up on my pension contributions due to a combination of being in a higher rate tax band, having access to salary sacrifice, my company having negotiated a very low annual fee (0.33%) with my pension provider and there being a very decent selection of funds to invest in but not everybody has such favourable circumstances.

Yellow_Fern

Augeo wrote: »

https://www.labrokers.ie/prsa-pensions/
Annual management charge 1%*
Actual Allocation rate 100%
Out of this 1% annual management charge, LABrokers are paid a commission of 0.25% by Zurich

Really easy to avoid unjustifiable high fees in pensions.

The finance industry has siphoned off unacceptably high fees as a rule until recently. It can be avoided but it has been the exception. Anyway there is no reason that someone is more likely to incur high fees outside a pension wrapper.

Augeo wrote: »

It's tax relief for those paying the higher rate.
€60 out of your net wages can be €100 in your pension, it's nothing to do with compounding or being over 60.

\tax relief on pension contributions is are related and the most generous reliefs are only available for 60s and older, which in itself is pretty mad gov policy. and yes it has to do with compounding.

Yellow_Fern

Yellow_Fern wrote: »

........... Anyway there is no reason that someone is more likely to incur high fees outside a pension wrapper.


....

apart from Degiro and similar buying and selling stocks in Ireland outside of the pension wrapper is fee heavy.

You cannot dispute that while reckoning "The finance industry has siphoned off unacceptably high fees as a rule until recently" wrt pensions.

Yellow_Fern wrote: »

............


\tax relief on pension contributions is are related and the most generous reliefs are only available for 60s and older, which in itself is pretty mad gov policy. and yes it has to do with compounding.

By the most generous you refer to the below scale........
.......Age Limits

30 – 39 20%
40 – 49 25%
50 – 54 30%
55 – 59 35%
60 and over 40%

That is a subjective opinion.

With an OCP the % is for the employees own contributions so it's quite generous for many across all age groups.

Your comment quoted below is 100% incorrect.

Yellow_Fern wrote: »

............. The whole €60 is €100 in a pension is only true for people age 60 or older. So that is only five years of compounding.

donkey balls

Has anyone drawn down on a private pension when they turn 50? While also still working away paying the higher tax rate.
I'm going be heading for such a scenario in the next 3/4 years, I don't know whether to keep it in the fund till retirement at present its value is 55k.

You could possibly take the entire €55k as a tax free lump sum, that might be a good option or a bad option for you ........ it may well not be an option at all.......but if it is and you intend to carry on working and paying the higher rate of tax you can contribute to another pension and avail of tax relief so it might well be worth considering.

AndrewJRenko

donkey balls wrote: »

Has anyone drawn down on a private pension when they turn 50? While also still working away paying the higher tax rate.
I'm going be heading for such a scenario in the next 3/4 years, I don't know whether to keep it in the fund till retirement at present its value is 55k.

Yes, I did - took the lump sum, a good bit smaller than yours, but needed the cash at the time. I forego the opportunity for further tax free growth on the sum, and I reduce my max future lump sum by the same amount.

maestroamado

Augeo wrote: »

You could possibly take the entire €55k as a tax free lump sum, that might be a good option or a bad option for you ........ it may well not be an option at all.......but if it is and you intend to carry on working and paying the higher rate of tax you can contribute to another pension and avail of tax relief so it might well be worth considering.

I was thinking of doing the exact thing you doing and contacted the fund management.
I was told i could but there were penalties and fees.
Basically the guy told me what i was thinking of doing was a "no brainer"

He said they were just managing the fund for the company and if i left to complete there be no fees as this was built-in to pension scheme.
Unless you need the money or have concerns i would leave it as it be extra cash security when you leave work...

If you can drawdown your pension from age 50 there are no fees to do so.
Pensions aren't like Unit Linked Investment Funds were there are often front loaded charges that make leaving the scheme early prohibitive.

If you've a small amount in a pension, are planning on retiring from that employment & plan on working elsewhere and paying higher rate of tax taking as much of the fund as a tax free lump sum makes great sense.

Taking the rest of it at the lower rate of tax also makes sense (albeit less sense) if you can build up the fund again with higher rate tax relief.

Saudades

S.M.B. wrote: »

I'm loading up on my pension contributions due to a combination of being in a higher rate tax band, having access to salary sacrifice, my company having negotiated a very low annual fee (0.33%) with my pension provider

Who pays the annual fees on a company pension - employer or employee?

S.M.B.

Saudades wrote: »

Who pays the annual fees on a company pension - employer or employee?

Worth clarifying I'm in the UK at the moment so I've no idea if the same concept applies to Ireland but here an employer would select a pension provider and negotiate a fee (or more accurately in most cases a fee discount as they can vary by fund) based on the amount of employees it was likely to be enrolling/transferring. The bigger the company, the lower the fee. Employees are then liable to pay the fees.

Henry Ford III

AndrewJRenko wrote: »

Yes, I did - took the lump sum, a good bit smaller than yours, but needed the cash at the time. I forego the opportunity for further tax free growth on the sum, and I reduce my max future lump sum by the same amount.

This confuses me a bit.

Nothing stopping anyone taking early retirement benefits from an occupational scheme from aged 50 onwards in a tax free lump sum (25% or possibly higher due to salary and service) and investing any balance into and AMRF/ARF.

That'd give you future tax free growth. Tax free lump sum is a one off though.

Saudades

Saudades wrote: »

Who pays the annual fees on a company pension - employer or employee?

It's a % of the fund, I'd be surprised to see many of any companies paying the management fees tbh.

Henry Ford III

Augeo wrote: »

If you can drawdown your pension from age 50 there are no fees to do so.
Pensions aren't like Unit Linked Investment Funds were there are often front loaded charges that make leaving the scheme early prohibitive.

If you've a small amount in a pension, are planning on retiring from that employment & plan on working elsewhere and paying higher rate of tax taking as much of the fund as a tax free lump sum makes great sense.

Taking the rest of it at the lower rate of tax also makes sense (albeit less sense) if you can build up the fund again with higher rate tax relief.

All d.c. pensions are unit linked funds with various charges.

Henry Ford III

Henry Ford III wrote: »

This confuses me a bit.

Nothing stopping anyone taking early retirement benefits from an occupational scheme from aged 50 onwards in a tax free lump sum (25% or possibly higher due to salary and service) and investing any balance into and AMRF/ARF.

........

When the balance is small though it can be taken as a lump sum also iirc.

AndrewJRenko

Saudades wrote: »

Who pays the annual fees on a company pension - employer or employee?

AFAIK, the fund pays, so it's really a combination of both. Employer and employee usually both pay into the fund. The fund pays the investment fees.

Henry Ford III

Henry Ford III wrote: »

All d.c. pensions are unit linked funds with various charges.

I was referring to unit linked funds that folk can invest into with their personal cash rather then pension.

FYI........ https://www.ccpc.ie/consumers/money/investing/unit-linked-funds/

When can you take out your money?
Unit-linked funds are open-ended, which means you can withdraw part or all of your investment at any time. However, you should be prepared to hold onto your investment for at least five years to increase your chances of getting a return, as investment markets can be volatile over short periods and the bulk of the plan charges are paid in the first five years. If you cash in your investment with in the first five years you increase your chances of losing money.

Also, if you need to withdraw in the first few years you may have to pay an early encashment fee. You have to pay several general charges on unit-linked funds.

My comment was specifically..... "Pensions aren't like Unit Linked Investment Funds were there are often front loaded charges that make leaving the scheme early prohibitive" in relation to someone comparing pension investment v investment with their net cash.

Yes of course, pensions are unit linked funds but from the contect of the chat I thought it was clear I was referring to Unit linked funds that were not in a pension wrapper.

AndrewJRenko

Henry Ford III wrote: »

This confuses me a bit.

Nothing stopping anyone taking early retirement benefits from an occupational scheme from aged 50 onwards in a tax free lump sum (25% or possibly higher due to salary and service) and investing any balance into and AMRF/ARF.

That'd give you future tax free growth. Tax free lump sum is a one off though.

I needed the cash. Yes, I guess I could have reinvested it to avail of further growth, but that wasn't an option for me.

Henry Ford III

Augeo wrote: »

When the balance is small though it can be taken as a lump sum also iirc.

Trivial pensions are taxable though. Up to €30k.

Henry Ford III

AndrewJRenko wrote: »

AFAIK, the fund pays, so it's really a combination of both. Employer and employee usually both pay into the fund. The fund pays the investment fees.

It depends on the agreement being employer and the Broker (who dominate this market).

FMC will apply to both employer and employee contribs.

Policies may carry additional charges, or equally may not. In the latter case a fee will be payable by the employer.

A nil commission contract will offer better value than any discount Broker in my experience.

Henry Ford III

Henry Ford III wrote: »

Trivial pensions are taxable though. Up to €30k.

Yes the balance after the tax free lump sum, if taken also is taxable at 20%.
I'm not at all sure that's referred to as a trivial pension.

Is a public sector pension based on average base earning 80k/year good enough for retirement or do I need to invest in a private pension as well?

AndrewJRenko

[Deleted User] wrote: »

Is a public sector pension based on average base earning 80k/year good enough for retirement or do I need to invest in a private pension as well?

How many years service will you have at retirement? When did you start working in this role?

What will your overall financial position look like at retirement - mortgage? bills? dependants?

ebayissues

Question for you guys. - A friend is deciding to decrease pension payments to buy a house in next 18month.


She is paying750e each month into her pension and employer pays 200e. Pension Fund is 30k - so not much tbh. Already saved up is approx 50K for house purchase, assuming no hit in financially due to covid 19 another 36k could be saved in 18months. Decreasing pension payments to just 150e can mean another 10k saved.



For 10K I dont think its worth decreasing the contributon.



Thoughts?

cefh17

ebayissues wrote: »

Question for you guys. - A friend is deciding to decrease pension payments to buy a house in next 18month.


She is paying750e each month into her pension and employer pays 200e. Pension Fund is 30k - so not much tbh. Already saved up is approx 50K for house purchase, assuming no hit in financially due to covid 19 another 36k could be saved in 18months. Decreasing pension payments to just 150e can mean another 10k saved.



For 10K I dont think its worth decreasing the contributon.



Thoughts?

Does the 150e put in per month still give them 200e in employer contributions?

Tar.Aldarion

ebayissues wrote: »

Question for you guys. - A friend is deciding to decrease pension payments to buy a house in next 18month.


She is paying750e each month into her pension and employer pays 200e. Pension Fund is 30k - so not much tbh. Already saved up is approx 50K for house purchase, assuming no hit in financially due to covid 19 another 36k could be saved in 18months. Decreasing pension payments to just 150e can mean another 10k saved.



For 10K I dont think its worth decreasing the contributon.



Thoughts?

€750-€150=€600 - tax of like 40% = €360 x 18 = €6480 + €2700‬ in pension, so not even €10k. Can't think it's worth it vs €13,500 in pension. (and if her employer doesn't may then it's worse again). Don't see how that much will make a diff if she is saving 2k per month anyway...

pwurple

Where is the 36k coming from over 18 months? I can't see it. I've generously assumed the figures provided are NET rather than gross deductions, and even that way the amount isn't 36k.


AVC Employee (net?) Employee (net?) Employer Gross pay tax Extra? Months Total
550 200 200 300 1250 18 22500
0 150 150 60 360 18 6480

Total reduction in pension contributions.
16020


replacement savings 600*18 = 10800

So, your friend will potentially lose ~6k in net worth by doing this.
But, if the savings make sense in terms of stopping paying rent a number of months earlier, then it could be worth it.

S.M.B.

The 36k is additional savings that can be accumulated over the 18 months to put towards a deposit and is unrelated to pension contributions. At least that's how I read it.

GreeBo

Squozen wrote: »

46, €153k (dropped fairly significantly due to covid-19!), putting in €687/month between myself and my employer (would love to put in more, but I can't until I can find a house to buy) and working on an average gain of 9% per annum.

I'm 43, current pot is 328K and I'm putting in 3.2K total a month.
My estimated pot is 1.2M in present value if I retire at 60....so it seems like one of our numbers are off?

(if I just lash it into a compound interest calculator I get 2.8M @ 9% though, I'd have to drop the rate to 2.5% to get what my pension company are estimating...)