Pension advice for spouse: Self Employed with deferred CS pension

[Staples]

Grateful for any advice on this one.

My wife, who's self-employed, is looking to start a pension. She 40 years old and has been self employed for about five years. she'll be entitled to the normal state pension and a defined Civil Service pension from her old job which, at today's rates, would be in the region of approx €100 per week.

I, on the other hand, will have a defined benefits pension of about 50k.

The reason I mention this is that from reading the guide, I was interested to note that tax relief on a pension contributiion is really a tax deferred and in our circumstances, it looks as though any additional pensiion my wife generated would be hit for tax.

As an alternative, she feels it might be worthwhile to invest in property (or a property mortgage).

Would anybody have any advice or be able to point me in the direction of a good financial adviser who have a good grasp of the most efficent options for our circumstances?

many thanks.

 

[oysterman]

Re: Pension advice for spouse

I saw this post last night and it has crossed my mind a couple of times today for some reason...let's get the ball rolling.

I think there is every reason why your wife should start making pension provision again:

Your pension is likely to be in the region of €50k; her pension is likely to be c. €5k (you also mention her entitlement to the OACP - she should check with the Department as to what exactly her entitlements are likely to be if she continues being self-employed and paying PRSI at her current rate - she doesn't want any nasty surprises here). I would worry that your family's pension provision is very lop-sided.

Why might this be a concern?

The issue is the unpredictability of life:

1) You might die - what would her spouse's pension be?

2) You might separate/divorce - as it stands she'd be in deep trouble unless she got a favourable court decision.

3) Your pension scheme may not be as reliable as you think and you could end up with a lot less than you're expecting.

I guess my point is that if everything works out well the fact that most of your family's pension eggs are in your basket (an appalling mixed metaphor- sorry) is of little consequence - provided she has adequate cover in the event of your death. However, I'm guessing that she is working hard like you and contributing to the family (both inside and outside the home) so, if I were her, I'd want pension coverage more in line with yours.

As for whether property might be a better play than a more traditional approach to retirement funding....that's a whole different question and is ultimately a matter of opinion and attitude to risk. What is certain, however, is that it wouldn't be as smart a strategy now as it would have been a decade ago.

 

[Staples]

Re: Pension advice for spouse

Oysterman

Many thanks for your reply.

To address the issues you raise,

1) My 50k pension assumes I have 40 years service. iIf I die, my wife gets exactly half of my pension entitlement. If I die before accumlating 40 years service, the pension is adjusted proportionately. At the moment, i worked 25 years so if died tomorrow, my wife would have 25 40ths of 25,000 (I hope that makes sense).

2) Good point. However, I assume that I'd be hit for half of my worth in these circumstances.

3)The pension is a Civil Service one so it's as near to guaranteed as possible.

In relation to proerty, we were thinking more in terms of overseas property. Not necessarily for rental purposes but for capital appreciation.

S

 

[asdfg]

Re: Pension advice for spouse

) My 50k pension assumes I have 40 years service. iIf I die, my wife gets exactly half of my pension entitlement.

Are you sure, most defined benefits schemes give a pension of 40/60 (2/3) of final salary assuming 40 years service and then deduct the state pension. This is called the pensionable salary (I think). Your wife is entitled to half of your pension.
You should be getting a benefit statement every year detailing the amount due to you and your wife in certain circumstances. If you are not getting this contact you scheme trustees, HR dept or union.

You are also generally entitled to take a tax free lump sum and take a smaller pension. This should also be detailed on the benefit statement

 

[oysterman]

Re: Pension advice for spouse

Are you sure, most defined benefits schemes give a pension of 40/60 (2/3) of final salary assuming 40 years service and then deduct the state pension.

Given that it's a Civil Service pension it would be as the OP clarified i.e. up to 40/80ths but, critically, with a tax free lump sum of up to 120/80ths (after 40 years service).

On the wider point of the adaequacy of provision for the spouse here in the event of being predeceased by the OP, a maximum survivor's pension of 50% of €50k is not enough to guarantee a comfortable retirement so she really does need provision of her own at a level well ahead of the modest provision she already has.

 

[Staples]

Re: Pension advice for spouse

Thanks again for the replies.

Assuming 25k would not be enough in the event of my death, can anyone recommend a TYPE of pension that would bet fit our circumstances (or alternatively source of independent advice that could explain the various options)

Thanks

 

[sunshine?]

Re: Pension advice for spouse

Lets not loose focus, were talking about pensions here, not life cover.

Back to your initial question. The way the tax system works in Ireland is as follows:
As a single person your allowed to earn 32,000 at the lower tax rate. As a married couple this is doubled to 64000. The max any one party can take is 41,000 (which is what you will take in retirement) thus leaving your wife with 23,000 max at the lower tax rate.
She will receive a pension of 5,000e and potentially another 10,000 OAP at 65. (Assuming she has enough stamps built up - check with social welfare).
Therefore you wife should fund though a PRSA for a max pension (in todays money) of (23000 -5000 - 10000 )= 8,000 a year. As she will be entitled to draw this from a pension fund at the lower rate of tax in retirement.

In terms of life cover, God forbid if anything happened to your wife, you would receive whatever was built up in the PRSA. (Tax Free)

Also, make sure your wife is getting tax relief at the higher rate putting it into the PRSA (ie her income now is over 23000 per anum)