No Pension @ 35 - pay into mortgage, save or start a pension?

[seamuskangarooo]

Personal details

Age: 35
Spouse’s/Partner's age: 34

Number and age of children: 1 x 2 year old


Income and expenditure
Annual gross income from employment or profession: 38,000 + circa €9,000 bonus per year, paid quarterly
Annual gross income of spouse: 40,000

Monthly take-home pay: 2600

Type of employment: e.g. Civil Servant, self-employed: Emplyoed

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving €500 each p/m

Summary of Assets and Liabilities
Family home worth €420k with a €360K mortgage
Cash of €20k
Defined Contribution pension fund: N/A
Company shares : N/A


Family home mortgage information
Lender: BOI
Interest rate: 2.7
If fixed, what is the term remaining of the fixed rate? 4 Years

(No need to tell us the monthly repayments or what term is left)

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? No Credit Card
If not, what is the balance on your credit card?
€5,000 Car Loan, €4,000 left to pay

Other savings and investments:

Do you have a pension scheme? No

Do you own any investment or other property? No

Other information which might be relevant

Life insurance: Mortgage protection, no life insurance

 

[RedOnion]

€5,000 Car Loan, €4,000 left to pay

Is this a straight forward personal loan, or a HP car finance deal? If a loan, what interest rate?

Do either of your employers have a pension scheme, where if you join the employer would make a contribution?

 

[seamuskangarooo]

Is this a straight forward personal loan, or a HP car finance deal? If a loan, what interest rate?

Do either of your employers have a pension scheme, where if you join the employer would make a contribution?

Sorry should have clarified - personal loan; 8.650%

My employer doesn't have a pension scheme, partner is on the HSE pension scheme.

 

[Sarenco]

Sorry should have clarified - personal loan; 8.650%

Eeek! Paying that off should be your number one priority.

Why don’t you pay it off from the €20k cash at hand?

Also, you have a pretty high mortgage balance relative to your combined salaries. I would be inclined to get that down a bit more before starting to contribute to a pension.

But definitely start contributing to a pension before you hit 40 or once you start paying income tax at the higher rate (whichever happens first).

 

[seamuskangarooo]

Eeek! Paying that off should be your number one priority.

Why don’t you pay it off from the €20k cash at hand?

Also, you have a pretty high mortgage balance relative to your combined salaries. I would be inclined to get that down a bit more before starting to contribute to a pension.

But definitely start contributing to a pension before you hit 40 or once you start paying income tax at the higher rate (whichever happens first).

Yeah fair - will look at paying that off ASAP. Once done, you think pay into the mortgage for 3-4 years then set up a pension?

 

[ClubMan]

For what it's worth, the mortgage versus pension question is covered in many existing threads. For example...

Search results for query: Mortgage pension

And also in the pensions key posts.

Key Post - Key Posts on Pensions

Topical issues Retiring - should I take a higher lump sum in exchange for a lower pension? Key Post Pay down your SVR mortgage before starting a pension, but don't leave it too late What should I do with my pension from a previous employer? Employer pension schemes are better...

www.askaboutmoney.com

 

[RedOnion]

Repay the car loan first. There's no penalty for early repayment.

Then start diverting your savings to mortgage. Your mortgage is 4.6 times combined income which is high.

You're both low rate tax payers, so hold off starting a pension. Revisit pension if either of your employers contributes to a pension. And again when you're higher rate payers and you get mortgage balance down a bit relative to incomes.
Edit: sorry bonus got added after I read it.

 

[RedOnion]

Annual gross income from employment or profession: 38,000 + circa €9,000 bonus per year, paid quarterly
Annual gross income of spouse: 40,000

By the way, are you married & jointly assessed for tax? Your spouse / partner is right on the cut-off, but if there's an increase in tax bands in this years budget, without any payrise, it'd be beneficial to be jointly assessed.

 

[Brendan Burgess]

Agree with what has already been said.

1) Pay off car loan - otherwise you are borrowing at 8.5% to invest - which is not a good idea.
2) Mortgage is uncomfortably high even though you have a low rate for the next 4 years.
3) So set savings against mortgage for the foreseeable future.
4) Review in 4 years when the fixed rate is up.
5) This is a lot of cash to have when you have an expensive mortgage

Cash of €20k

You will have €16k left after clearing the car loan.

If it's earning 0% interest, it's costing you €16k @2.7% or €400 a year.
Of course, if you have it on deposit via Raisin earning 2.7% net after tax, it's not costing you anything.

6) You should both be members of Credit Unions. You don't need to lodge much but just become members with €100 each or whatever the minimum is. If you ever need a loan, they might be the cheapest source.

Brendan