Help with a pension?

eldamo · 16-10-2019 10:48am

Ok, unfollowing this thread before it goes to silly town.

Pensions are supposed to be slow, conservative build ups of savings to cushion you into retirement.

They should get more conservative the closer to retirement you get.

So, if you are young and have an extra 5k lying around, invest it in bit coins for all I care, but leave a pension be a pension, slow and steady wins the race, why are we getting into the world of tax based arbitrage? just register yourself as an offshore entity in the caymans and be done with it.

Most people will have a little give in their budget if they sit down with a pen and paper and put down all of their incomings and outgoings and would be better served maximising that than getting a loan and hoping their managed fund outperforms the interest rate on an unsecured loan.

seannash · 16-10-2019 10:55am

eldamo wrote: »

Most people will have a little give in their budget if they sit down with a pen and paper and put down all of their incomings and outgoings and would be better served maximising that than getting a loan and hoping their managed fund outperforms the interest rate on an unsecured loan.

But in my example its not about outperforming. Its about contributing more and paying out less.
I agree pensions should be slow but the OP is late to the game (Not incredibly late)
If they can take the 10k hit I totally agree go the full contribution route without the loan

Spleerbun · 22-10-2019 9:00pm

flipflophead22 wrote: »

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.

So just to confirm, the company contribution is counted as part of your limit is that right?

So say I'm under 30, my company pays in 10% of salary and I pay in 5%...there would be no point in increasing my 5% because there'd be no tax relief on the additional?

Squall Leonhart · 22-10-2019 9:45pm

Spleerbun wrote: »

So just to confirm, the company contribution is counted as part of your limit is that right?

So say I'm under 30, my company pays in 10% of salary and I pay in 5%...there would be no point in increasing my 5% because there'd be no tax relief on the additional?

For a standard PRSA, yes that is my understanding.

eldamo · 22-10-2019 11:55pm

Spleerbun wrote: »

So just to confirm, the company contribution is counted as part of your limit is that right?

So say I'm under 30, my company pays in 10% of salary and I pay in 5%...there would be no point in increasing my 5% because there'd be no tax relief on the additional?

Don't presume, ask hr, they should be able to point you in the right direction.

gwalk · 23-10-2019 7:51am

Spleerbun wrote: »

So just to confirm, the company contribution is counted as part of your limit is that right?

So say I'm under 30, my company pays in 10% of salary and I pay in 5%...there would be no point in increasing my 5% because there'd be no tax relief on the additional?

No,

its based on your Employee Contribution and any AVCs you make

if in doubt speak to whoever looks after the employee benefits in your organisation

Coillte_Bhoy · 25-11-2019 5:47pm

Im 52, working for An Post and have a defined benefits pensions that ive been in for 9 years. Wasnt really in a position before now to start putting more money away for my retirement but am a bit bewildered by all the options. Ive been advised against buying 'years of service' and AVC's have been suggested, or should i look at taking out a private pension too? Any avdice would be appreciated. I'm looking at about €200 a month that i could afford

unhappyBB · 25-11-2019 10:53pm

Coillte_Bhoy wrote: »

Im 52, working for An Post and have a defined benefits pensions that ive been in for 9 years. Wasnt really in a position before now to start putting more money away for my retirement but am a bit bewildered by all the options. Ive been advised against buying 'years of service' and AVC's have been suggested, or should i look at taking out a private pension too? Any avdice would be appreciated. I'm looking at about €200 a month that i could afford

Here is my understanding of the An Post pension setup, to be taken with a pinch of salt.

You contribute 1.5% of gross pay + 3.5% of net pensionable remuneration.
Your pension is 1/80 x net pensionable remuneration x full time years of service.
Your lump sum is 3/80 x pensionable remuneration x full time years of service.

Pensionable remuneration is how much of your pay counts towards your pension. Your basic pay and nda used to be 100% pensionable but because of some bad union deals it's now more like 94%. Other allowances can be fully/part/not pensionable. (Check the top right of our payslip for actual %)

Net pensionable remuneration is the above minus twice the state pension.

So here are some assumptions and an example...
You retire at 68 with 25 years service. You currently earn 40k. State pension is 12k.

PR: 40k x 0.94 = 37,600
NPR: PR - (12k x 2) = 13,600

Pension: 1/80 x 13,600 x 25 = 4,250
Total pension = 4,250 + 12k (state pension) = 16,250
Lump sum: 1/80 x 37,600 x 25 = 11,750

Now, AVCs...
The An Post AVC scheme is like your own stand alone pension but is tied to when you retire from An Post / draw down from the main scheme.

It is run by Halligans insurance and invested in Zurich lifes PensionStar Dynamic/Performance/Balanced/SuperCAPP fund. I think it averages growth of about 6% per year and the management fee is 0.85% + €2per month. I was told this is much cheaper than going it alone and a good choice to grow a pension pot but I don't know. I'd love to hear somebody else's opinion on this.

*Just in case, this isn't advice, this is just what I found out while looking into the same thing you are.

{{{Rumour I've heard... At retirement they are thinking of offering either a 15% bump in pension payments but no further increases ever or the current setup where the pension increases along with your current grade according to very strict rules}}}

Liam D Ferguson · 26-11-2019 10:50am

That's a great explanation by unhappyBB there.

You mentioned buying back years, also known as Notional Service Purchase. That's an alternative to AVCs in that you can buy extra years in the pension scheme, even when you weren't working there. The examples above assume that you had 25 years' service when you retired. If you bought an extra year, the calculations would be based on 26 years' service so you can see how that would change what you would get.

Differences between buying back years and investing in AVCs?

With an AVC you have no certainty of what you'll get back. You choose a Zurich Life fund in this case and what you get back is entirely dependent on how well that fund performs (after charges) by the time you retire. If you buy back notional years in the defined benefit scheme, you can calculate what you're going to get in return and you're not taking on any investment risk - you don't choose funds etc. BUT there's another risk - that the terms of the Defined Benefit pension scheme might be changed before you retire.

The lump sum at retirement is tax-free (up to €200,000). In the example uphappyBB gives above, the pension scheme would give you a lump sum of €11,750. Revenue would allow you to take a lump sum of up to 1.5 times' actual salary or €60,000. You can use an AVC to bridge the gap between the Revenue-allowed maximum and what the scheme will give you - in this example €60,000 less €11,750 or €48,250. So if you build up an AVC fund of €48,250 you would be allowed to withdraw it all as a tax-free lump sum at retirement, which would be very tax-efficient given that you've got tax relief on AVCs while contributing along the way. If you buy back years, you get additional lump sum and pension whether you like it or not. You can't decide that you just want to boost your lump sum.

The charges quoted for Halligans for an AVC above look good. You can bypass this and choose your own AVC PRSA from any broker or company offering PRSAs. But the charges are likely to be higher. The annual charge on a PRSA will probably be at least 1% and the charge per contribution will be anything between 0% and 5%, depending on where you go.

FastFullBack · 26-11-2019 4:58pm

gwalk wrote: »

No,

its based on your Employee Contribution and any AVCs you make

if in doubt speak to whoever looks after the employee benefits in your organisation

Are you sure on that? Everything I've read suggests employer contributions count towards tax credit limit. Like this link:
https://www.oneview.mercer.ie/content/mercersubdomain/global/en/oneview/plan-your-pension/retiring-soon/maximising-pension-contributions.html

Mercer wrote:

If your employer contributes to a PRSA on your behalf it is important to note that employer contributions count against your maximum total contributions.

Humour Me · 26-11-2019 7:44pm

If it’s a defined contribution scheme, the employer contribution does not count towards the maximum relief %.

If is a PRSA, the employer contribution does count toward the maximum relief %.

FastFullBack · 26-11-2019 8:13pm

Humour Me wrote: »

If it’s a defined contribution scheme, the employer contribution does not count towards the maximum relief %.

If is a PRSA, the employer contribution does count toward the maximum relief %.

Thanks.

Have another question.

My salary is made up of base salary, car allowance and bonus. My contribution and employers contribution is a % of my base salary only.

For the max tax relief %, is it a % of just my base or my total yearly pay (base, car allowance & bonus)?

I think it will be my total yearly pay as that's the figure on my P60, so that's what revenue see.

The J Stands for Jay · 30-11-2019 11:27am

FastFullBack wrote: »

Thanks.

Have another question.

My salary is made up of base salary, car allowance and bonus. My contribution and employers contribution is a % of my base salary only.

For the max tax relief %, is it a % of just my base or my total yearly pay (base, car allowance & bonus)?

I think it will be my total yearly pay as that's the figure on my P60, so that's what revenue see.

It'll be on the salary for USC shown on your P60 (or the document that has replaced the P60).

Coillte_Bhoy · 03-12-2019 8:18pm

unhappyBB wrote: »

Here is my understanding of the An Post pension setup, to be taken with a pinch of salt.

You contribute 1.5% of gross pay + 3.5% of net pensionable remuneration.
Your pension is 1/80 x net pensionable remuneration x full time years of service.
Your lump sum is 3/80 x pensionable remuneration x full time years of service.

Pensionable remuneration is how much of your pay counts towards your pension. Your basic pay and nda used to be 100% pensionable but because of some bad union deals it's now more like 94%. Other allowances can be fully/part/not pensionable. (Check the top right of our payslip for actual %)

Net pensionable remuneration is the above minus twice the state pension.

So here are some assumptions and an example...
You retire at 68 with 25 years service. You currently earn 40k. State pension is 12k.

PR: 40k x 0.94 = 37,600
NPR: PR - (12k x 2) = 13,600

Pension: 1/80 x 13,600 x 25 = 4,250
Total pension = 4,250 + 12k (state pension) = 16,250
Lump sum: 1/80 x 37,600 x 25 = 11,750

{{{Rumour I've heard... At retirement they are thinking of offering either a 15% bump in pension payments but no further increases ever or the current setup where the pension increases along with your current grade according to very strict rules}}}

`
I actually came across my Members benefits statement for last year and according to that if i retire at age 68 in 2035, i will have 22.9 years service with a lump sum of €27k and a pension of just under €1.9k which vary somewhat from your figures

unhappyBB · 03-12-2019 11:51pm

Those figures do line up roughly with the formulas alright. The figures in the example were chosen randomly so you would have to slot in your own PR/NPR, years of service, and the correct state pension value which I think is higher. (Although you have your statement now so it's probably no longer necessary)

There was a calculation error in the example I gave actually, sorry for the confusion:

unhappyBB wrote: »

Your lump sum is 3/80 x pensionable remuneration x full time years of service.
Lump sum: 1/80 x 37,600 x 25 = 11,750
Lump sum: 3/80 x 37,600 x 25 = 35,250

Have you decided what to do regarding the AVCs?
I've decided to go with the provided scheme but haven't actually made the first payment yet.

I'd still love to hear an opinion from somebody more knowledgeable of pensions. No sooner had I made up my mind to go with the company AVCs at ~6% return, I started seeing threads from people showing off their 13% pension growth :pac:

Coillte_Bhoy · 06-12-2019 8:03pm

unhappyBB wrote: »

Those figures do line up roughly with the formulas alright. The figures in the example were chosen randomly so you would have to slot in your own PR/NPR, years of service, and the correct state pension value which I think is higher. (Although you have your statement now so it's probably no longer necessary)

There was a calculation error in the example I gave actually, sorry for the confusion:

Have you decided what to do regarding the AVCs?
I've decided to go with the provided scheme but haven't actually made the first payment yet.

I'd still love to hear an opinion from somebody more knowledgeable of pensions. No sooner had I made up my mind to go with the company AVCs at ~6% return, I started seeing threads from people showing off their 13% pension growth :pac:

not yet, im going to do a bit more research, im finding it all a bit confusing tbh, i should have done this years ago but wsa having too good a a time.Anyway, better late than never i suppose

Help with a pension?

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