Mortgage cleared-AVCS?

newhouse87

I cleared my mortgage this year, mid30s, just wondering would people think it would be best to lump into avCs now that i wont be paying1200a month for a mortgage. Was paying 3%avCs matched by the company and now im thinking i might up it to20/30% as i will be saving 40% tax that way. Have no other expenses at moment so was thinking lump into now rather then pay40% tax on the earnings and leaving inflation eat away at savings in the bank.

walterking

Well done on being mortgage free. Probably one of the lucky ones who bought 2012 ish.

Yep, push on with the pension and build up a decent pot. It gives you huge options as you move into your 50's and less dependent on paid work.

Henry Ford III

AVC?

redlough

https://www.boards.ie/discussion/comment/119807188#Comment_119807188

Additional voluntary Contribution

That is what it is called in our company anyway, means you can plough more into your pension.

redlough

https://www.boards.ie/discussion/2058269494/mortgage-cleared-avs

I would talk to a financial expert.

The best return is from AVC as far as I know, especially if your company will match.

newhouse87

https://www.boards.ie/discussion/comment/119807270#Comment_119807270

Company matching up to 3%. I upped it to my max of 20 % last night. Essentially i see it as im svving 40% tax and investing in stocks anyway with the fund im in. If i was to invest separate to the avcs i would be paying the 40% tax, so id have to have my investments go up a min40% just to match avcs. Think im right in thinking that.

newhouse87

Max rate for my age is 20%, does my employers 3% contribution come into t that as in i can only pay in 17%?

https://www.boards.ie/discussion/comment/119807269#Comment_119807269

You referred to it as an AVS several times in your OP.

redlough

https://www.boards.ie/discussion/comment/119807343#Comment_119807343

I didn't make the orginal post.

I didn't notice AVS, sorry misread. I guess the OP is referring to a similar setup as it seems the exact same as my company but we call AVC

redlough

https://www.boards.ie/discussion/comment/119807279#Comment_119807279

Probably, the issue is rainy day fund. Sticking loads of money into pension is great but hard to get out so make sure you are putting money away into an easier access fund. I invested into a Zurich share fund

newhouse87

https://www.boards.ie/discussion/comment/119807343#Comment_119807343

Yep meant to be avcs.

newhouse87

https://www.boards.ie/discussion/comment/119807383#Comment_119807383

Yeah, have enough in the bank for rainy day i think but think this just makes sense as i dont have much expenses at the moment.

AndrewJRenko

https://www.boards.ie/discussion/comment/119807465#Comment_119807465

Pension is a great investment for tax efficiency. The downside is that your money is tied up until you retire. You could be retiring as young as fifty, if you’re no longer working for the employer in question.

Is there any chance that you’ll need the money before then? Kids? College? House move or extension? Significant health issue?

newhouse87

https://www.boards.ie/discussion/comment/119807716#Comment_119807716

TBH, i dont see it unless something totally out of the blue. No mortgage now, girlfriend has good job, no kids yet but was thinking if i need more money in the future ill just scale back the avc% im putting in. Have money in the bank for rainy day which i will be topping up monthly anyway regardless of what im putting into avcs. Its just seems a no brainer because you hear people saying you shouldn't pay off mortgage and invest money instead, but i see it as pay off mortgage then lump into avs with the money i would have been using to pay mortgare and save40% tax. not too many investments guarantee you40% and yes i know fund can drop in value but thats the same for any investment.

1percent

An interesting thing to know of is you can make a lumps payment to your pension in the new year to max out you 20% relief and claim the 40% tax back

banie01

I was in a similar position OP. Cleared my mortgage in my late 20's and then I immediately started maxing out my AVC.

My own thinking around it was to take advantage of the tax benefit and to ensure that I was building a pot in the most efficient manner possible.

Other savings pots were set up for kid's college and a sinking fund for the house. I had income enough to contribute nicely to each pot.

Alkers

https://www.boards.ie/discussion/comment/119807324#Comment_119807324

Yes, your contribution limits are regardless of what your employer pays.

AndrewJRenko

https://www.boards.ie/discussion/comment/119807746#Comment_119807746

If you haven’t had kids yet, and you are planning on having kids, I wouldn’t be locking up money for the long term. There are just too many variables, IVF, disabilities, parental leave, education.

cython

https://www.boards.ie/discussion/comment/119807827#Comment_119807827

Actually it depends on the nature of the pension. If it's a PRSA then employer contributions are counted as if the employee made them and thus count towards the limit for relief. However in plenty of occupational schemes (my own included) the employer contributions are separate and a non entity when it comes to the percentages allowable for relief, meaning that the full 20% (for the age in question here) of earnings is available for the employee's use.

Furze99

https://www.boards.ie/discussion/comment/119807847#Comment_119807847

Yeah, but he can adjust that from year to year as needed. My limited knowledge of private pension (have a PRSA) is that you specify a retirement date when setting it up, so money locked in till then. Maybe this can be changed too at any stage if need arises, I never bothered enquiring.

I suppose the other thing people do with spare cash is that great Irish thing to buy property and become a 'mom & pop' landlord etc. Loads of pros and cons I'm sure.

newhouse87

https://www.boards.ie/discussion/comment/119807847#Comment_119807847

Yeah have share bonus scheme at work so thats other income every year i wlll be getting for things that pop up.

AndrewJRenko

https://www.boards.ie/discussion/comment/119807954#Comment_119807954

https://www.boards.ie/discussion/comment/119807954#Comment_119807954

Things change. Share prices crash. Businesses close. Entire markets crash. Adults experience disabilities or mental health issues. Relationships break up.

Plan for the unexpected.

newhouse87

https://www.boards.ie/discussion/comment/119807966#Comment_119807966

Yeah i see where you are coming from but if i thought like that id just leave it in the bank after being taxed at 40% and being ate away with inflation. Markets over history have shown over the long term they have decent returns. We are talking 30year span im looking at so market crashes will happen at periods through out that but still should give me better returns then paying tax at 40% and leaving sit in bank account. also any growth on shares invested are exempted from cgt which would be 33% on shares invested privately outside the scheme, just thought of that. Happy with my decision more i think about it.

coylemj

https://www.boards.ie/discussion/comment/119807978#Comment_119807978

That's a very positive take on where you stand, I agree 100% with your attitude. Especially compared to the doom and gloom in the previous post. Which I read to suggest ('plan for the unexpected') that you should stash all your spare cash in a bank account. In which case (as you pointed out), it would gradually be eaten away by inflation.

AndrewJRenko

https://www.boards.ie/discussion/comment/119807978#Comment_119807978

You have the option of investing in the same markets as your pension would be investing in, just outside of a pension. You'd miss the tax advantage, but you'll get all the growth of the pension.

Jim2007

https://www.boards.ie/discussion/2058269494/mortgage-cleared-avcs

If you have not already done so, the first step is to create a financial plan, from that you will be able to decide what is the best approach to take from here. Tax savings is there to encourage you to do something, it does not mean that it is what you should do. Do you have an adequate rainy day fund, are you adequately covered in case of series illness or incapacitation, do you plan to work up to retirement age or get out early and so on.

newhouse87

https://www.boards.ie/discussion/comment/119810208#Comment_119810208

What would be the point in that, paying 40% tax before i get to invest outside pension and also 33% cgt on any growth after 1270euro exemption. That makes zero sense.

AndrewJRenko

https://www.boards.ie/discussion/comment/119818314#Comment_119818314

The point is much higher growth than leaving the same funds in the bank. The tax and CGT impacts are the same either way.

Lots of people invest outside of their pensions, either to be able to access their funds on demand, or because they've maxed out their pension contributions.

coylemj

https://www.boards.ie/discussion/comment/119818458#Comment_119818458

The tax and CGT 'impacts' are not the same in a fund you invest in separate from your pension. A pension fund is listed as 'exempt', meaning that the fund managers pay no tax on dividends or capital growth.

You receive tax relief on your own contributions to a pension arrangement within certain limits and you are generally not taxable on your employer’s contributions, if any (effectively this is tax-free pay).

Investment returns earned by pension schemes are also exempt from capital gains and dividend income tax and the lump sum you can take at retirement is tax-free up to certain limits.

https://www.pensionsauthority.ie/en/lifecycle/tax/

AndrewJRenko

https://www.boards.ie/discussion/comment/119818566#Comment_119818566

I wasn't comparing to a pension fund. I was comparing it to leaving funds in the bank, the option that the OP seemed to be outlining.

newhouse87

https://www.boards.ie/discussion/comment/119818458#Comment_119818458

The point i was making was to invest in same shares outside pension fund would be costing me 40% tax up front and 33%cgt on mone earnt after 1270 yearly threshold so 73% difference, its a no brainer as far as i can see.