Advertisement
If you have a new account but are having problems posting or verifying your account, please email Niamh on [email protected] for help. Thanks :)
New AMA with a US police officer (he's back!). You can ask your questions here

Pension

  • 18-02-2021 1:28am
    #1
    Registered Users Posts: 82 ✭✭ Bitconfused


    Hi All

    I hope this is the right place for this topic.

    I'm very late starting a pension contribution and especially since my employer will match the amount. I won't have a chance to contribute until the end of this year in any case (the option is given in December). I'm 33 now so kind of kicking myself I hadn't started by now, I suppose retirment seemed a long way off.

    What do people usually contribute to their pension? Is there anyone here who started as late as me? Also what usually happens if a person leaves the job? Is the payment made then?


«13456711

Comments

  • Registered Users Posts: 2,700 ✭✭✭ cronos


    Hi All

    I hope this is the right place for this topic.

    I'm very late starting a pension contribution and especially since my employer will match the amount. I won't have a chance to contribute until the end of this year in any case (the option is given in December). I'm 33 now so kind of kicking myself I hadn't started by now, I suppose retirment seemed a long way off.

    What do people usually contribute to their pension? Is there anyone here who started as late as me? Also what usually happens if a person leaves the job? Is the payment made then?

    Why is the option given in December? Usually HR will start that whenever you ask.

    Personally I've always contributed the amount required to get the employer match. Recently I've increased beyond that as savings have allowed. Really depends on if you own your own home for example as getting to a point where you don't have to pay rent is also helpful for long term.


  • Closed Accounts Posts: 133 ✭✭ Bigfatmichael


    I'd recommend to put in what your employer matches at the start and see how it goes. You can change it usually whenever you want. Some people here will tell you to put every spare cent into a pension if you can which I find crazy.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    @mods: please move to banking &, insurance & pensions


  • Registered Users Posts: 1,917 ✭✭✭ bilbot79


    33 is grand. I always had a pension but didn't start maxing contributions till relatively recently


  • Registered Users Posts: 3,130 ✭✭✭ Padre_Pio


    I maxed mine to benefit from the tax relief.
    10% from me, 10% from employer.

    Haven't put any more in after that.
    Better to put it into shares.


  • Advertisement
  • Registered Users Posts: 43,743 ✭✭✭✭ 6


    Padre_Pio wrote: »
    I maxed mine to benefit from the tax relief.
    10% from me, 10% from employer.

    Haven't put any more in after that.
    Better to put it into shares.


    Money you are using to buy shares has already been taxed heavily. Money into a pension is benefiting from a massive tax break (40%).

    Once you are maxed contributions for your age, and have debts cleared, I'd agree.


  • Registered Users Posts: 3,130 ✭✭✭ Padre_Pio


    6 wrote: »
    Money you are using to buy shares has already been taxed heavily. Money into a pension is benefiting from a massive tax break (40%).

    Once you are maxed contributions for your age, and have debts cleared, I'd agree.

    Yes, any more into my pension is taxed at the normal rate.

    My pension grows maybe 3-8% a year? haven't checked in a while.

    Shares maybe 10-15%, though this year has been weird.


  • Registered Users Posts: 421 ✭✭ the goon


    Always wonder, aside from the tax free lump sum, would you be better off just trying to accumulate enough to buy an apartment/ house rather than putting in pension? I mean if you bought an apartment for 150k, rent would give higher return than an equivalent pension plus you retain the value of your investment. Assuming not defined benefit pension


  • Registered Users Posts: 20,406 ✭✭✭✭ Stark


    Padre_Pio wrote: »
    I maxed mine to benefit from the tax relief.
    10% from me, 10% from employer.

    Haven't put any more in after that.
    Better to put it into shares.

    I think the employer contribution is top of your tax relief allowance btw.

    For example, if you're a 35 year old you can contribute 20% of our salary and your employer can contribute an additional amount on top of that.
    Padre_Pio wrote: »
    Yes, any more into my pension is taxed at the normal rate.

    My pension grows maybe 3-8% a year? haven't checked in a while.

    Shares maybe 10-15%, though this year has been weird.

    You get the additional advantage with a pension that the growth is untaxed. Whereas with shares you need to pay capital gains tax or in the case of ETFs, exit tax with deemed disposal after 8 years.

    I definitely wouldn't pay into the pension unless I was getting 40% tax relief on the contributions though. Since you pay income tax on the annuity you purchase, you'd be taxed twice if you weren't getting relief.


  • Registered Users Posts: 2,700 ✭✭✭ cronos


    the goon wrote: »
    Always wonder, aside from the tax free lump sum, would you be better off just trying to accumulate enough to buy an apartment/ house rather than putting in pension? I mean if you bought an apartment for 150k, rent would give higher return than an equivalent pension plus you retain the value of your investment. Assuming not defined benefit pension

    The ideal would be doing both so you are not so heavily tied to the performance of the real estate market. It just depends if you want to diversify or not I guess.


  • Advertisement
  • Registered Users Posts: 82 ✭✭ Bitconfused


    Thanks for the replies

    So the contribution to the pension is not taxable? I presume if i set this up its just a monthly deduction that my employer matches? What happens if i leave the job is it transferred somewhere?


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    the goon wrote: »
    Always wonder, aside from the tax free lump sum, would you be better off just trying to accumulate enough to buy an apartment/ house rather than putting in pension? I mean if you bought an apartment for 150k, rent would give higher return than an equivalent pension plus you retain the value of your investment. Assuming not defined benefit pension

    What if your tenant stops paying rent and doesn't leave? What if the apartment block needs remedial work to fix the fire hazards, and you need to stump up €40k? What about the 40% tax on the rent?


  • Registered Users Posts: 20,406 ✭✭✭✭ Stark


    Thanks for the replies

    So the contribution to the pension is not taxable? I presume if i set this up its just a monthly deduction that my employer matches? What happens if i leave the job is it transferred somewhere?


    You usually get a letter when you leave the job asking you what you want to do with the pension funds. You can just leave it in the fund until you retire or you can ask for it to be transferred into a new employer fund.


  • Registered Users Posts: 1,321 ✭✭✭ FastFullBack


    Padre_Pio wrote: »
    My pension grows maybe 3-8% a year? haven't checked in a while.

    Shares maybe 10-15%, though this year has been weird.

    Put your pension into passive equities. Equities grow at the same rate in or out of a pension,but in a pension the growth is tax free.


  • Registered Users Posts: 3,130 ✭✭✭ Padre_Pio


    Stark wrote: »
    I think the employer contribution is top of your tax relief allowance btw.

    For example, if you're a 35 year old you can contribute 20% of our salary and your employer can contribute an additional amount on top of that.

    Here's what revenue say
    PRSAs
    Employer PRSA contributions are:

    deemed for tax relief purposes to be made by the employee.

    added to the employee's actual contributions to determine if the above limits are reached.

    treated as a taxable employer benefit received by the employee.

    So they're included in my 20% tax relief.


  • Registered Users Posts: 443 ✭✭ TP_CM


    McGaggs wrote: »
    What if your tenant stops paying rent and doesn't leave? What if the apartment block needs remedial work to fix the fire hazards, and you need to stump up €40k? What about the 40% tax on the rent?

    I'd love to know what proportion of landlords actually pay that tax. It's so high, and so easy to evade these days, especially with revolut or stating you're just renting out a room. It's basically a tax on honesty. The more honest you are, the more you pay.

    I think the big deterrent for me is that the return on investment isn't enough even with tax evasion. Say you buy a house for 150k, even rent of 15000 per year is just 10% return. Better off sticking the money in the S&P index fund which returns on average 10 per cent a year and you don't have to paint it every 3 years.


  • Registered Users Posts: 21,016 ✭✭✭✭ AndrewJRenko


    TP_CM wrote: »
    I'd love to know what proportion of landlords actually pay that tax. It's so high, and so easy to evade these days, especially with revolut or stating you're just renting out a room. It's basically a tax on honesty. The more honest you are, the more you pay.

    I think the big deterrent for me is that the return on investment isn't enough even with tax evasion. Say you buy a house for 150k, even rent of 15000 per year is just 10% return. Better off sticking the money in the S&P index fund which returns on average 10 per cent a year and you don't have to paint it every 3 years.

    Not really "so easy" at all. If Revenue don't have access to Revolut today, it's only a matter of time before they do.

    If you claim rent-a-room, there is a fairly low ceiling, and it has to be your PPR.

    Any tax dodging landlord is just one tenant disagreement away from being reported to Revenue.


  • Registered Users Posts: 443 ✭✭ TP_CM


    Not really "so easy" at all. If Revenue don't have access to Revolut today, it's only a matter of time before they do.

    If you claim rent-a-room, there is a fairly low ceiling, and it has to be your PPR.

    Any tax dodging landlord is just one tenant disagreement away from being reported to Revenue.

    It is so easy though. What you're talking about is being caught up in the 1 or 2 per cent of landlords who are audited or who have a problem. Most will never have issues and most will never be audited and so for most it's really fairly easy. I'm just saying at the moment revenue don't seem to be looking into rent transfers too urgently. I think even if you keep getting paid into an irish bank account you won't be caught unless you're audited. Do the banks check on things like that? Get a mate or family member in the house, give them vouchers at Christmas and a month off from rent during the year and you'll have no issues unless you're very very unlucky. I'm not saying it's right by the way. But it is easy to not pay tax and get away with it. Wouldn't you agree, at least in comparison to other taxes we have to pay? Would you say there is an easier one?


  • Registered Users Posts: 421 ✭✭ the goon


    McGaggs wrote: »
    What if your tenant stops paying rent and doesn't leave? What if the apartment block needs remedial work to fix the fire hazards, and you need to stump up €40k? What about the 40% tax on the rent?

    Yes, wouldn't be for everyone but alot of "what ifs" there. The net of tax income is still likely to far exceed the annuity rate on relative pension.


  • Registered Users Posts: 1,788 ✭✭✭ Cute Hoor


    TP_CM wrote: »
    I'd love to know what proportion of landlords actually pay that tax. It's so high, and so easy to evade these days, especially with revolut or stating you're just renting out a room. It's basically a tax on honesty. The more honest you are, the more you pay.

    If you buy a to-let property to fund your pension you would be batsh1t crazy imo to be dodging the taxman, he will find you and your property and pension will go up in smoke with the assessment, late fees and penalties. And the taxman will find you. JMHO.


  • Advertisement
  • Registered Users Posts: 1,882 ✭✭✭ Smee_Again


    TP_CM wrote: »
    It is so easy though. What you're talking about is being caught up in the 1 or 2 per cent of landlords who are audited or who have a problem. Most will never have issues and most will never be audited and so for most it's really fairly easy. I'm just saying at the moment revenue don't seem to be looking into rent transfers too urgently. I think even if you keep getting paid into an irish bank account you won't be caught unless you're audited. Do the banks check on things like that? Get a mate or family member in the house, give them vouchers at Christmas and a month off from rent during the year and you'll have no issues unless you're very very unlucky. I'm not saying it's right by the way. But it is easy to not pay tax and get away with it. Wouldn't you agree, at least in comparison to other taxes we have to pay? Would you say there is an easier one?

    If there's a mortgage on the property you can be sure tax is being paid.
    If the landlord accepts HAP then tax is being paid.

    Even if the property is owned outright good luck claiming for expenses if no rental income is declared.


  • Registered Users Posts: 13,616 ✭✭✭✭ Bass Reeves


    McGaggs wrote: »
    What if your tenant stops paying rent and doesn't leave? What if the apartment block needs remedial work to fix the fire hazards, and you need to stump up €40k? What about the 40% tax on the rent?

    If stood stiff on a baldy man's quiff. What if the sky falls in. Property has proved a solid invest in Ireland except for one 4-5 year period from 2005-2010. Even the a huge percentage of investors managed to ride storm.
    TP_CM wrote: »
    I'd love to know what proportion of landlords actually pay that tax. It's so high, and so easy to evade these days, especially with revolut or stating you're just renting out a room. It's basically a tax on honesty. The more honest you are, the more you pay.

    I think the big deterrent for me is that the return on investment isn't enough even with tax evasion. Say you buy a house for 150k, even rent of 15000 per year is just 10% return. Better off sticking the money in the S&P index fund which returns on average 10 per cent a year and you don't have to paint it every 3 years.

    You seldom buy a house without borrowing. Generally it's a leaveraged investment. There are two elements to the investment capital growth and rental growth. At present is not a great time to invest in a property as returns are not as high as you need. However there is still investment opportunities just a lot less of them. Ideally you would like a ROI of 10% or better but often it about 8%

    Apartment 150k, deposit 50k, initials costs 5-10k. Borrowing 100k. At an interest rate of 4% repayments are 583/month. Interest is 4k in first year property tax is approx 150-200euro. Management fees 1k. Structural insurance is Inc in management fees so you just need to get nsure contents. Say 100euro.

    Yield at 8% is 12k/year less Mgmt fees, ins, property tax and running costs of 2k leaves 10k. 80%of interest leaves 6.8k. Assuming depreciation of 5k of initial costs over 8years leaves about 6k taxable leaving about 3500 after tax. Add in depreciation claw back and interest relief bring you back up to about 7500. However most first time investors will manage to add.in some personal expenses unless self employed to reduce tax bill.

    On a 55k investment you return is about 15% in real term. Yes 80% of the money is tied up making repayments. Assuming 2% growth in investment and rental yield in 20yeas time you have a property worth 210k+ and a rental return of 18k/anum for an original investment of 55-60k
    There is few investments that out preform property. However time of entry is critical, investment timing is critical and it is not the easiest to exit your capital from

    Slava Ukrainii



  • Registered Users Posts: 21,016 ✭✭✭✭ AndrewJRenko


    TP_CM wrote: »
    It is so easy though. What you're talking about is being caught up in the 1 or 2 per cent of landlords who are audited or who have a problem. Most will never have issues and most will never be audited and so for most it's really fairly easy. I'm just saying at the moment revenue don't seem to be looking into rent transfers too urgently. I think even if you keep getting paid into an irish bank account you won't be caught unless you're audited. Do the banks check on things like that? Get a mate or family member in the house, give them vouchers at Christmas and a month off from rent during the year and you'll have no issues unless you're very very unlucky. I'm not saying it's right by the way. But it is easy to not pay tax and get away with it. Wouldn't you agree, at least in comparison to other taxes we have to pay? Would you say there is an easier one?

    Revenue auditing isn't done on a random basis. They look for exceptions - people with assets and spending beyond their declared means - properties with no apparent resident but ESB supply ticking away - landlords claiming interest relief but not declaring rental income. If you screw around, you dramatically increase your chance of being audited.

    By the time Revenue get a good look at Revolut, the interest and penalties will have built up nicely.

    There were loads of cute hoors in the 80s and 90s who were sure that Revenue were never going to find their bogus non resident accounts or their offshore accounts. But Revenue did come knocking, with interest and penalties.


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    the goon wrote: »
    Yes, wouldn't be for everyone but alot of "what ifs" there. The net of tax income is still likely to far exceed the annuity rate on relative pension.

    Very few people use pensions to buy annuities, so that comparison is useless. If you want to run with it anyway, annuities will always pay you every month, there's no having to deal with tenants and their issues, no costs of getting in new tenants, no wear and tear and no uncertainty of income.


  • Registered Users Posts: 1,188 ✭✭✭ Cilldara_2000


    McGaggs wrote: »
    What if your tenant stops paying rent and doesn't leave? What if the apartment block needs remedial work to fix the fire hazards, and you need to stump up €40k? What about the 40% tax on the rent?

    This.

    Plus the massive 40% subsidy from the state on the pension contributions.

    For someone like the OP in their 30s, and, say. earning €50k a year. They can put €10k into a pension, and the government via the tax relief gives them €4k. There is no other investment opportunity that puts you 66% ahead on day one.


  • Registered Users Posts: 13,616 ✭✭✭✭ Bass Reeves


    This.

    Plus the massive 40% subsidy from the state on the pension contributions.

    For someone like the OP in their 30s, and, say. earning €50k a year. They can put €10k into a pension, and the government via the tax relief gives them €4k. There is no other investment opportunity that puts you 66% ahead on day one.

    Pensions are a great investment as long as you understand they are not very accessible and that they are taxation deferred. In OP's case I would definitely recommend inv at in a pension. When an employer is matching contribution I would max those out. However after that I would really other at other investment options as well. The reason being if for your working life you want expect to be employed in an area where employers match contribution you pension will continue to fund itself.

    You also have to be mindful of your general life needs. If you intent to have a family and may need to find education especially third level. Pension contributions are not very accessible at times like that and if you do access funds ahead of stopping or significantly reducing work commitments tax can be a serious issue on drawdowns. As well depending on market conditions drawings may not be advisable.

    General savings for all its flaws and the threat of negative interest rates is a necessity to tide one over change of life circumstances. Other investment can be considered after pension is adequately funded I would not get caught in the trap of over funding. I think more and more people will part fund there retirement through part time work. I know a good few people that have retired and many continue to earn in one share or form.

    Just a note on tax relief while you get tax relief most finds will charge a feed for investment and there is a buy sell spread on pension investments, so technically the return is not 66%.

    Slava Ukrainii



  • Registered Users Posts: 2,649 ✭✭✭ cooperguy


    the goon wrote: »
    Yes, wouldn't be for everyone but alot of "what ifs" there. The net of tax income is still likely to far exceed the annuity rate on relative pension.

    It's rare people buy an annuity these days


  • Registered Users Posts: 1,917 ✭✭✭ bilbot79


    Pensions are a great investment as long as you understand they are not very accessible and that they are taxation deferred. In OP's case I would definitely recommend inv at in a pension. When an employer is matching contribution I would max those out. However after that I would really other at other investment options as well. The reason being if for your working life you want expect to be employed in an area where employers match contribution you pension will continue to fund itself.

    You also have to be mindful of your general life needs. If you intent to have a family and may need to find education especially third level. Pension contributions are not very accessible at times like that and if you do access funds ahead of stopping or significantly reducing work commitments tax can be a serious issue on drawdowns. As well depending on market conditions drawings may not be advisable.

    General savings for all its flaws and the threat of negative interest rates is a necessity to tide one over change of life circumstances. Other investment can be considered after pension is adequately funded I would not get caught in the trap of over funding. I think more and more people will part fund there retirement through part time work. I know a good few people that have retired and many continue to earn in one share or form.

    Just a note on tax relief while you get tax relief most finds will charge a feed for investment and there is a buy sell spread on pension investments, so technically the return is not 66%.

    It's still vastly superior to non-pension investment and I dont agree with the statement 'taxation' deferred. Income tax will be applied to what you take per annum later but that's a choice and by the end some 80% of the value of the fund will consist of compound interest growth that compares extremely favourably with regular investments which would have had 2 levels of tax applied instead of one i.e.1.initial income tax (cutting your final compound portion in half) and 2. capital gains tax cutting the profits significantly.

    Given those factors there is no argument about 'taxation deferred'. Pensions are the ultimate get rich slow scheme. The veritable golden goose and given that Irish individuals get so few personal tax benefits compared to other nations it would be madness not to max out.


  • Registered Users Posts: 1,298 ✭✭✭ RedRochey


    33 is definitely not too late to start a pension, a worrying amount of people out there have no idea what pensions are.

    Just be careful with your employer contributions, some would contribute 5% regardless of what you contribute but others would only match what you contribute (up to 5%)

    I would definitely contribute enough to get full employer contributions but after that it depends on your current situation, are you trying to save for a deposit? Do you have other bills that are more important? Not much point putting money away for 30/40 years if you need it now for school costs for your kids


  • Advertisement
  • Registered Users Posts: 1,788 ✭✭✭ Cute Hoor


    Obviously past performance is no predictor of future performance, but here is an actual example of how a pension can accumulate, an actual example can be easier to get your head around.

    2003 to 2010 - €91k (Nett) invested in a pension – a very late start to be putting money into the pension fund obviously.
    2013 - €27k withdrawn tax free
    2013 - €175k invested in an ARF
    2014 to 2020 - €86k pension collected (5% pa), taxable obviously
    2021 - €266k – current value of ARF fund

    There is no need to micro manage, no worries about dodgy tenants, no requirements for expensive and time consuming repairs, no annual bills to organise and worry about, no late night phone calls, just sit back and relax and collect the pension annually.


Advertisement