Help with a pension?

flipflophead22 · 15-10-2019 2:50pm #1

So I am almost 40 and only now starting up a pension, I have recently started a new role and I have the option to pay into the work pension here, I pay 3% and the company will match. Its with Irish Life and I just wondered is this a good option or are there alternatives out there where I can do one outside of work and get decent benefits from it? Sorry its all new so just wanted to ask opinions here.

Thanks

eldamo · 15-10-2019 3:10pm

i'm 36 and have only recently started paying any attention to the pension which has been silently accruing for the past 12 years.
I used this online calculator to get an idea about it.
https://www.pensionsauthority.ie/en/LifeCycle/Useful-Resources/Pension-Calculator/

I don't know your current position or your intentions but 3% + 3% sounds a bit low to me. You get tax benefits for contributing up to 20% of your salary until you are 40, thereafter it raises to 25% and onwards and upwards.
https://www.cwps.ie/increase_your_pension/IncreaseYouPension/AVCsandTaxrelief/default.aspx

What is your companies position on this, is 3% the max they will contribute, or will they match you up to a certain percentage, because that could be quite valuable to you.

That said, you can only contribute today what you can afford to contribute, I have only just last week filled in the forms to top up what my employer gives (which is pretty generous) to the max I will get relief from, even then, we will have to see how it goes from here on out. The earlier you start the less painful it is.

Anyway, hopefully the calculator gives you an idea of what you are likely to get back from what you put in.

coylemj · 15-10-2019 4:34pm

flipflophead22 wrote: »

.... I have the option to pay into the work pension here, I pay 3% and the company will match.

That's a very low (total) contribution, especially when you've only just started and you're 40. If you contribute more, will the company match that to a ceiling higher than 3%?

Either way, you need to significantly increase your contribution. And doubly so if the company will match some or all of the increase. The company's increased contribution will be free money and you will get up to 40% tax relief on the extra you pay into the pension. Meaning that (for example), if you increase your contribution by €100 p.m. and the company matches it, you will be getting €200 p.m. paid into your pension at a potential net cost to you of just €60.

flipflophead22 wrote: »

.... I just wondered is this a good option or are there alternatives out there where I can do one outside of work and get decent benefits from it?

Whatever else you might decide to do to supplement the existing scheme, you cannot pass up the company scheme as they are contributing to it. If you go elsewhere, you will lose their contribution. Before you look at outside options like an AVC, make sure that you are getting the maximum contribution from your employer.

flipflophead22 · 15-10-2019 4:55pm

https://imgur.com/a/8PbxFex

Does this change anything?

coylemj · 15-10-2019 5:03pm

flipflophead22 wrote: »

https://imgur.com/a/8PbxFex

Does this change anything?

I get this message when I click your link....

This page may contain erotic or adult imagery. You'll need to sign in if you still want to view it. :eek:

I really don't fancy reading a scanned image of your company scheme, if that's what you've posted. Can we confine the discussion to text please? Links to images are very rare in this forum.

Squall Leonhart · 15-10-2019 5:12pm

It's just a link to an image of the table showing

If you are under 30 Up to 15% of your earnings
If you are 30-39....

flipflophead22 · 15-10-2019 5:12pm

haha sorry about that, let me post text.

What is My Maximum Contribution?

Please note you may contribute more than the maximum contribution the Company will place in your pension fund, provided the total contributions, however you will not receive tax relief on contributions, including company contributions, that exceed the limits set by the Government. These are as follows:
If you are under 30 Up to 15% of your earnings
If you are 30 to 39 Up to 20% of your earnings
If you are 40 to 39 Up to 25% of your earnings
If you are 50 to 54 Up to 30% of your earnings
If you are 55 to 59 Up to 35% of your earnings
If you are 60 or over Up to 40% of your earnings

Variations To Contributions

You may vary or suspend your contributions in response to changes in your circumstances or earnings. This provides you with the flexibility to increase your contributions in line with pay increases and one-off pay awards.
The Company will reserve ultimate discretion as to when and how you may vary your contributions in order to reduce the administrative burden that would otherwise prevail should the regularity of contribution amendments prove excessive.

coylemj · 15-10-2019 5:19pm

OP, if you're only paying in 3% then all that data is irrelevant, you're miles below the tax-free limit. Anyone here who contrbutes to threads about pensions knows all that stuff, it's on Revenue, Pensions Authority and every life company website.

The second part is pretty standard company pension stuff, it doesn't really help us answer any of your questions.

I'll ask you again....... will the company match higher (than 3%) contributions? Their will be a limit - is it 3% or higher?

flipflophead22 · 15-10-2019 5:26pm

coylemj wrote: »

OP, if you're only paying in 3% then all that data is irrelevant, you're miles below the tax-free limit. Anyone here who contrbutes to threads about pensions knows all that stuff, it's on Revenue, Pensions Authority and every life company website.

The second part is pretty standard company pension stuff, it doesn't really help us answer any of your questions.

I'll ask you again....... will the company match higher (than 3%) contributions? Their will be a limit - is it 3% or higher?

No the max they will contribute is 3% they told me, I can contribute more but they will only go 3%

Eathrin · 15-10-2019 5:47pm

flipflophead22 wrote: »

No the max they will contribute is 3% they told me, I can contribute more but they will only go 3%

It's not amazing but it's better than what you'll get by going to a Personal Retirement account. Given your age, it would probably be wise to contribute a bit more than 3% even if it's not matched. Some employers will contribute a higher % depending on your age or length of service.

coylemj · 15-10-2019 6:03pm

flipflophead22 wrote: »

No the max they will contribute is 3% they told me, I can contribute more but they will only go 3%

If you're almost 40 then you need a lot more than 6% if you want anything like a decent lump sum when you reach retirement age. It's difficult to say how much you should be contributing but at age (almost) 40, you need to consider 15% (incl. employer contribution) as the absolute minimum starting point.

flipflophead22 · 15-10-2019 6:16pm

Ok maybe I should start on 15% then, I don't mind tbh as having a decent sum at the end would be my priority. Current salary is 80k

seannash · 15-10-2019 6:35pm

flipflophead22 wrote: »

Ok maybe I should start on 15% then, I don't mind tbh as having a decent sum at the end would be my priority. Current salary is 80k

Just for context, my company matches up to 5%. I contribute the max I'm allowed to contribute for my age bracket (20%). If you can do that I'd suggest you do the same.
Also if you get a comapny bonus ask the company can you contribute them to your pension.

flipflophead22 · 15-10-2019 7:29pm

Thanks folks, I will give irish life a call tomm and have a chat with them. One more quick one, is 500k the average projected amount that someone can expect to receive at retirement age?

Padre_Pio · 15-10-2019 7:40pm

All good advice.

Your first step should be to work out how much you want to retire on, then base your contributions on that. You've 26 years of work left so what can you save in that time.

Ideally you should max out your contributions to take advantage of the tax savings. Open to correction, but I believe your employers contribution counts towards your %, so you contribute 22%, your employer 3% which is your total 25 tax exempt.

Best time to start a pension was 20 years ago, second best time is now.

flipflophead22 · 15-10-2019 7:47pm

Padre_Pio wrote: »

All good advice.

Your first step should be to work out how much you want to retire on, then base your contributions on that. You've 26 years of work left so what can you save in that time.

Ideally you should max out your contributions to take advantage of the tax savings. Open to correction, but I believe your employers contribution counts towards your %, so you contribute 22%, your employer 3% which is your total 25 tax exempt.

Best time to start a pension was 20 years ago, second best time is now.

I know tell me about it haha, better late than never I guess. Im thinking my aim is 500k on retirement.

Padre_Pio · 15-10-2019 7:51pm

flipflophead22 wrote: »

I know tell me about it haha, better late than never I guess. Im thinking my aim is 500k on retirement.

Ok, just remember that's 500k in 2045 money, which may be a lot less than now, and may have to last you 30 years, or 16.5k a year plus state pension (whatever that turns out to be)

Talk to an advisor or two, get expert advice.

Squall Leonhart · 15-10-2019 10:55pm

500K of a pot being built in 26 years means a lot of money every month for a long time!

Gross over simplification, 950/month @ 5% growth per annum for 26 years will give you a pot of €544K for an investment of €285K.

Present value calculator is like a reverse compound interest calculator.

https://www.calculator.net/present-value-calculator.html

There are all sorts of caveats with the figures above, but it's getting your head into a space to see what is required.

Padre_Pio · 15-10-2019 11:41pm

Squall Leonhart wrote: »

500K of a pot being built in 26 years means a lot of money every month for a long time!

Gross over simplification, 950/month @ 5% growth per annum for 26 years will give you a pot of €544K for an investment of €285K.

Present value calculator is like a reverse compound interest calculator.

https://www.calculator.net/present-value-calculator.html

There are all sorts of caveats with the figures above, but it's getting your head into a space to see what is required.

Yep, the 5% growth is very optimistic, especially towards the end of a pension.

thebourke · 15-10-2019 11:48pm

correct my if i am wrong but dont you also pay tax when you come to retirement age!!

seannash · 16-10-2019 12:16am

Got a bit of a stupid idea but would the op be better off maxing out his pension contributions to avail of the 40% tax relief on contributions and then take out a loan to make up the balance in his paycheque? Would the tax relief on the pension be more valuable than the interest on the loan?
Gotta be honest I haven't thought this through so there could be an obvious flaw in this

Padre_Pio · 16-10-2019 4:01am

seannash wrote: »

Got a bit of a stupid idea but would the op be better off maxing out his pension contributions to avail of the 40% tax relief on contributions and then take out a loan to make up the balance in his paycheque? Would the tax relief on the pension be more valuable than the interest on the loan?
Gotta be honest I haven't thought this through so there could be an obvious flaw in this

The loan has to be paid back. If you're taking out a loan to live day to day, then how do you pay it back?
Unless you can defer payment for 25 years and draw down a lump sum to settle the loan plus accrued interest, but no one is going to give you that.

Again, I might be mistaken too.

If the OP was thinking about using savings as a AVC to kick start the fund, then I'd say it would be better to max contributions from salary and use savings to make up the shortfall.

Again, this assumes the OP has no significant outlays in the years ahead.

Professional advice is the best way forward. I'm just a miser and do my best to avoid PAYE as much as possible.

seannash · 16-10-2019 7:14am

Padre_Pio wrote: »

The loan has to be paid back. If you're taking out a loan to live day to day, then how do you pay it back?
Unless you can defer payment for 25 years and draw down a lump sum to settle the loan plus accrued interest, but no one is going to give you that.

Again, I might be mistaken too.

If the OP was thinking about using savings as a AVC to kick start the fund, then I'd say it would be better to max contributions from salary and use savings to make up the shortfall.

Again, this assumes the OP has no significant outlays in the years ahead.

Professional advice is the best way forward. I'm just a miser and do my best to avoid PAYE as much as possible.

No i get that it has to be paid back but would compound interest on the pension and the pretax benefit on the monthly contribution not out perform the interest on loan over the years?

pwurple · 16-10-2019 9:12am

seannash wrote: »

No i get that it has to be paid back but would compound interest on the pension and the pretax benefit on the monthly contribution not out perform the interest on loan over the years?

Too risky to borrow to fund speculation. This is not advisable...

What if your pension tanks due to the markets? Or the govt bring in a levy on it?

seannash · 16-10-2019 9:22am

pwurple wrote: »

Too risky to borrow to fund speculation. This is not advisable...

What if your pension tanks due to the markets? Or the govt bring in a levy on it?

I get you. I guess pensions are a gamble either way right. I'm just trying to think of a way to maximize the contribution while still maintaining your income at the same level.
Perhaps a small loan (20K) to top up the take home pay reduction. Still a risk but its slightly less than the 100k option.
You could keep doing that whenever the loan is paid back.
For someone who hasn't put aside anything up til now a 25% reduction in their wages might be unmanageable but a loan repayment might work out better for them to make u the difference

Squall Leonhart · 16-10-2019 9:29am

OP, I'd advise against borrowing money to fund a pension, or to enable you to fund a pension.

eldamo · 16-10-2019 9:31am

seannash wrote: »

I get you. I guess pensions are a gamble either way right. I'm just trying to think of a way to maximize the contribution while still maintaining your income at the same level.
Perhaps a small loan (20K) to top up the take home pay reduction. Still a risk but its slightly less than the 100k option.
You could keep doing that whenever the loan is paid back.
For someone who hasn't put aside anything up til now a 25% reduction in their wages might be unmanageable but a loan repayment might work out better for them to make u the difference

I don't think you would find a financial adviser under the sun who would suggest doing something like this.
Maximising the tax benefits is a great goal, but only if you can afford it, your salary should hopefully increase over your time in work, you are doing well to put in now what you can.
If you don't like the look of what your pension calculator is forecasting, maybe it is time to take a look at your overall budget and see if savings can be made elsewhere, a loan with nothing physical to show for it is a personal phobia of mine.

BrokenArrows · 16-10-2019 9:42am

OP there is only one way to look at this.

1. You are 40 so are nearly 15 years of contributions behind someone starting work after college. Someone in their early 20's can get away with the 3% minimum as they have a whole working career to accumulate a pension. You do not have that much time.

2. You need to contribute as much into your pension as you can reasonably afford. You mentioned you want 500k in a pension for when you retire.

If you want a 500k pension fund then and assume you will retire at 70 then you will need to deposit €500 per month into your pension for 30 years. Thats assumed you earn 8% on average for the first 20 years and 4% on average for the remaining 10 years.

If you want to retire at 60 then you would need to put in about €1000 a month for 20 years. Thats assumed you earn 8% on average for 15 years and 4% on average for the final 5 years.

BrokenArrows · 16-10-2019 9:58am

eldamo wrote: »

I don't think you would find a financial adviser under the sun who would suggest doing something like this.
Maximising the tax benefits is a great goal, but only if you can afford it, your salary should hopefully increase over your time in work, you are doing well to put in now what you can.
If you don't like the look of what your pension calculator is forecasting, maybe it is time to take a look at your overall budget and see if savings can be made elsewhere, a loan with nothing physical to show for it is a personal phobia of mine.

No a financial adviser would never advise such a thing. But that doesn't mean its not a viable option.

But whether its a good option or not completely depends on the OP's financial situation and the interest rate on such a loan.

Say a personal loan at 6% was taken out for 25k over 5 years (about €460 a month) and deposited in a single go and the person stopped making pension contributions for 5 years and uses that money to pay off the loan, thus reducing the risk.
A 25k deposit + tax relief + expected return of 8% should in theory out perform due to the compounding nature.

However its still a risk and the OP could just get unlucky with the fund they choose or the market in general.

eldamo · 16-10-2019 10:15am

BrokenArrows wrote: »

No a financial adviser would never advise such a thing. But that doesn't mean its not a viable option.

But whether its a good option or not completely depends on the OP's financial situation and the interest rate on such a loan.

Say a personal loan at 6% was taken out for 25k over 5 years (about €460 a month) and deposited in a single go and the person stopped making pension contributions for 5 years and uses that money to pay off the loan, thus reducing the risk.
A 25k deposit + tax relief + expected return of 8% should in theory out perform due to the compounding nature.

However its still a risk and the OP could just get unlucky with the fund they choose or the market in general.

God the expected benefit would be so marginal as not to be worth the messing around.

I started looking at tax calculators over a one year horizon vs a 20k I year loan (25% of his 80k) and then I remembered that I have a job.....

Yeah, maybe you could make it work, but dear god why?

seannash · 16-10-2019 10:37am

eldamo wrote: »

God the expected benefit would be so marginal as not to be worth the messing around.

I started looking at tax calculators over a one year horizon vs a 20k I year loan (25% of his 80k) and then I remembered that I have a job.....

Yeah, maybe you could make it work, but dear god why?

Okay so some quick and dirty figures

OP earns 80k so his take home pay is 51k roughly
OP maxes out his pension contributions so his yearly salary would go do to 41k

10k difference per year but contributing 20k toward his pension per year.

Might the OP be better seeing how much he needs to top up his 41k per year in order to facilitate this level on contributions

Lets say for talk sake he says I need to maintain my full take home pay. If he takes out a 50k loan in the Credit union over 5 years he will have paid out roughly 60k to cover that loan but put 100k into his pension.

Yes I know their is risk and no financiall adviser would recommend but if the OP could facilitate he would have contributed 100k at a cost of 60k before any growth in the pension fund

Help with a pension?

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