# Lump sum pay into mortgage or start pension?



## Foodie1 (27 Jan 2019)

Looking for advice on 90k lump sum that we have saved. That sum is currently in AIB savings account until decision made. Saving 1k a month also.

 Currently overpaying mortgage by 1k (2.5k) a month and hope to have it cleared in 6 years. Outstanding amount 180k at 1% tracker. No intention of moving.
Husband aged 45 has no pension and hopes to change job this year. Earning 90k a year and keen to start pension. I am Public service part time who started late to the scheme. Estimated 10k pension at 65. 
No other debts or loans. 2 kids.

My question is do we pay a large lump sum into mortgage or just put into saving schemes. We are keen to start a pension for my husband when he gets new jobs job but unsure if we can put lump sums into that or if even advised.


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## Gordon Gekko (27 Jan 2019)

In your circumstances, any mortgage overpayment is madness.

Stop overpaying and filter the spare cash into your husband’s pension, and perhaps your own.

He can put €22,500 in for last year; do that now, probably into a PRSA.

He should do the same for this year.

You could also look at augmenting your pension position with AVCs.

Thereafter, keep six months’ worth of net income in cash (maybe circa €40k?).

Then use the surplus ongoing cashflow from the cessation of the mortgage overpayments to make regular monthly pension contributions for both of you.


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## NoRegretsCoyote (27 Jan 2019)

With your tracker you are borrowing at 1%. Over the long run any kind of decent investment portfolio will do better than that. That means you should stop overpaying on tracker and put as much as possible into the pension. This will almost certainly do better than 1% per annum over 20 years, and you can also avail of the tax relief.

The only benefit I can see of overpaying on the tracker is if you are heavily in negative equity and need to move.

For the 90k it may be best to drip it into a pension scheme year by year to max the tax advantages.

As a PS worker you may be well served by buying notional service or AVCs. There are threads on these.


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## moneymakeover (27 Jan 2019)

You can contribute 25% of salary per year at age 45

You can back pay for 2018 the full 25% which is good way to get up and running

You might want to wait until finding the new job and contribute to the employer pension


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## Codogly (28 Jan 2019)

What about considering future ECB rate increases ? ... with 180k mortgage what if rates rise to 4/5 %...in that scenario perhaps having cleared the mortgage would prove better ...


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## galway_blow_in (28 Jan 2019)

Codogly said:


> What about considering future ECB rate increases ? ... with 180k mortgage what if rates rise to 4/5 %...in that scenario perhaps having cleared the mortgage would prove better ...



Zero chance of rate increase for years


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## Gordon Gekko (28 Jan 2019)

Codogly said:


> What about considering future ECB rate increases ? ... with 180k mortgage what if rates rise to 4/5 %...in that scenario perhaps having cleared the mortgage would prove better ...



Almost zero chance of that happening, and if it does, it’ll mean that the returns available from risk assets will be even higher.

It makes very little sense for the OP to be overpaying.


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## NoRegretsCoyote (28 Jan 2019)

Gordon Gekko said:


> *Almost zero chance* of that happening, and if it does, it’ll mean that the returns available from risk assets will be even higher.
> 
> It makes very little sense for the OP to be overpaying.



It's completely possible that ECB rates will jump a few percentage points over time. 

If it happens it is highly likely to accompany an extremely strong economy and/or a bout of inflation. Debt is paid out of nominal income and your wages would probably be increasing a lot in these circumstances.


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## Gordon Gekko (28 Jan 2019)

NoRegretsCoyote said:


> It's completely possible that ECB rates will jump a few percentage points over time.
> 
> If it happens it is highly likely to accompany an extremely strong economy and/or a bout of inflation. Debt is paid out of nominal income and your wages would probably be increasing a lot in these circumstances.



I didn’t say that it wasn’t possible. It’s just extraordinarily unlikely that we’ll see the ECB rate at 5% in a world where Germany still has the mental scars of hyperinflation.

Either way, it’s a rabbit hole; the OP should cease the overpayments ASAP.


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## Foodie1 (28 Jan 2019)

Thanks for all your replies. I guess we had hoped to pay off the mortgage and have it gone ASAP as would be a nice position to be in. We will have to re think the whole thing now. As always appreciate the advice from the more finanically savvy than I.


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## RedOnion (28 Jan 2019)

Foodie1 said:


> Thanks for all your replies. I guess we had hoped to pay off the mortgage and have it gone ASAP as would be a nice position to be in.


To give another perspective.
I had the same approach as you - clear all debt as early as possible. We aggressively paid down our mortgage. I changed jobs a few times, and didn't really have much pension contributions.
Then last year I fully repaid mortgage, and have free cashflow.
However, there's a limit to the amount I can get tax relief on for pension.
There were a number of drivers for my desire to be debt free, but in hindsight I should have diverted overpayments to pension a lot earlier.


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## Steven Barrett (28 Jan 2019)

galway_blow_in said:


> Zero chance of rate increase for years



We'll probably see a rate increase later on in the year. But there would be no chance of going up to 4/5%. Interest rates go up gradually over time. 

Codology makes a good point though. Why not pay down as much of your capital down now in anticipation of interest rate increases in the future? 


But your husband not having any pension at all is something that needs to be addressed. He can invest €22,500 for last year and this year and get a total of €18,000 back in tax relief. 

You should also look at topping up your own PS pension. Depending on when you joined, some PS are a lot more attractive than others.


Steven
www.bluewaterfp.ie


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## elacsaplau (28 Jan 2019)

Gordon Gekko said:


> It's just extraordinarily unlikely that we’ll see the ECB rate at 5% in a world where Germany still has the mental scars of hyperinflation.



Is this not a bit of a non sequitur?


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## galway_blow_in (28 Jan 2019)

SBarrett said:


> We'll probably see a rate increase later on in the year. But there would be no chance of going up to 4/5%. Interest rates go up gradually over time.
> 
> Codology makes a good point though. Why not pay down as much of your capital down now in anticipation of interest rate increases in the future?
> 
> ...



European economy weakening,. Brexit round the corner.

No chance of interest rate increase this year.

No need to pay off when money is that cheap unless you insist on getting rid of debt as a point of principal.


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## llgon (28 Jan 2019)

galway_blow_in said:


> unless you insist on getting rid of debt as a point of principal.



Principal or principle? Or maybe both?


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## galway_blow_in (28 Jan 2019)

llgon said:


> Principal or principle? Or maybe both?



I post using my phone so probably American English


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## Codogly (28 Jan 2019)

I’ve said it hear many times before ...be very wary of providing a good Pension for yourself ( nowhere to hide that money) ...Governent will eventually have no choice no matter how unpopular but to means test the state pension and that’s a valuable assets to be losing.


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## NoRegretsCoyote (28 Jan 2019)

Codogly said:


> I’ve said it hear many times before ...be very wary of providing a good Pension for yourself ( nowhere to hide that money) ...Governent will eventually have no choice no matter how unpopular but to means test the state pension and that’s a valuable assets to be losing.



Extremely unlikely.

What would more likely happen is increases below inflation and/or tightening of eligibility requirements.

Taxes on pensioners could rise as well. But the contributory pension is likely to stay, it exists in every EU country.


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## Sarenco (28 Jan 2019)

Codogly said:


> I’ve said it hear many times before ...be very wary of providing a good Pension for yourself ( nowhere to hide that money) ...Governent will eventually have no choice no matter how unpopular but to means test the state pension and that’s a valuable assets to be losing.


By the middle of this century the old age dependency ratio is projected to double from the current level to around 46%.

Is it remotely plausible that the State would be in a position to means-test such a high proportion of the population?  It would be a logistical and political nightmare.

Failing to save for retirement out of a fear that you could lose a State benefit would be extremely foolish.


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## Steven Barrett (29 Jan 2019)

Codogly said:


> I’ve said it hear many times before ...be very wary of providing a good Pension for yourself ( nowhere to hide that money) ...Governent will eventually have no choice no matter how unpopular but to means test the state pension and that’s a valuable assets to be losing.



Had this discussion with my in laws at Christmas. If you don't provide for an income in retirement, the State are telling you when you can stop working. It is currently 68 for those born from 1961 onwards. The government plan to increase that age as drugs keep us alive longer. I don't want to *have to* work until I am 70. My best years of retirement will be behind me at that stage. I want to be in a position in my early 60's to stop working if I want to. 

While the State pension is generous and expensive, it is a big drop in income for a lot of people. If you are used to living on an decent income and it drops to €12,650 overnight, that will take a lot of adjustments. I would prefer not to put myself in that position. 

It would be more prudent to fund for your retirement privately and the State pension is additional rather than not saving at all out of fear that they might take it away. 

Steven
www.bluewaterfp.ie


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## Fella (29 Jan 2019)

Sarenco said:


> By the middle of this century the old age dependency ratio is projected to double from the current level to around 46%.
> 
> Is it remotely plausible that the State would be in a position to means-test such a high proportion of the population?  It would be a logistical and political nightmare.
> 
> Failing to save for retirement out of a fear that you could lose a State benefit would be extremely foolish.



I respect your opinion Sarenco but the reality it the government took over 2 Billion from private pension funds ,i don’t remember people on the streets rioting like what would happen in other european countries .

 I personally know many intelligent people that won’t fund a pension for fear of it been raided or means tested in future , everyone knows we are heading for a pension crisis there is no chance I am putting money away as i strongly believe that the government will interfere with it . It can be argued that it is foolish to save for a pension in Ireland when the government have shown disregard for people’s private pensions. 

You just have to look at housing , if your prudent in this country you end up paying for those that are not , a pension crisis is looming the ones that have saved will fund the ones that haven’t one way or another .


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## Cervelo (29 Jan 2019)

Many years ago I got a great bit of advise from my IBEC rep while on a coffee break in the WRC
We started to talk about personal pensions and I was arguing all the usual negative arguments against starting a pension and then she said something that struck a chord with me
"Its better to be looking at it then looking for it, It doesn't mater how big or small, how well its preformed or not, what the government do or don't, when the time comes you'll be glad you did"


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## Steven Barrett (29 Jan 2019)

Fella said:


> I respect your opinion Sarenco but the reality it the government took over 2 Billion from private pension funds ,i don’t remember people on the streets rioting like what would happen in other european countries .
> 
> I personally know many intelligent people that won’t fund a pension for fear of it been raided or means tested in future , everyone knows we are heading for a pension crisis there is no chance I am putting money away as i strongly believe that the government will interfere with it . It can be argued that it is foolish to save for a pension in Ireland when the government have shown disregard for people’s private pensions.
> 
> You just have to look at housing , if your prudent in this country you end up paying for those that are not , a pension crisis is looming the ones that have saved will fund the ones that haven’t one way or another .



So out of fear of having a fraction taken out of their pension fund*, they are doing nothing instead? And being wholly reliant on the same government to tell them when they can stop working and how much they can live off in retirement? 


Steven
www.bluewaterfp.ie


* I don't for one second agree with what the government did on this and yes, they can do it again. But this not a case of cutting off your nose to spite your face?


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## David1234 (29 Jan 2019)

Fella said:


> I personally know many intelligent people that won’t fund a pension for fear of it been raided or means tested in future , everyone knows we are heading for a pension crisis there is no chance I am putting money away as i strongly believe that the government will interfere with it . It can be argued that it is foolish to save for a pension in Ireland when the government have shown disregard for people’s private pensions.



If they are indeed means tested surely all assets are going to be taken into consideration and not just private pension funds. If they are not paying into a pension what are they doing with their money?

Contributing to a pension is far more tax efficient than any other asset accumulation at the moment.


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## Fella (29 Jan 2019)

SBarrett said:


> So out of fear of having a fraction taken out of their pension fund*, they are doing nothing instead? And being wholly reliant on the same government to tell them when they can stop working and how much they can live off in retirement?
> 
> 
> Steven
> ...



I never suggested doing nothing but i’d have my money in assets i can liquidate when I require the money . The fraction they took ends up adding up to quite a lot off a fund when you consider the compounding effect it had. 

just look at how the country is run open your eyes , people that spend like idiots can live in houses that are impossible to repossess , you’ve middle class hard workers with less disposable income than others that have never worked a day in their life . I see it everyday i don’t trust this country or government i see the looming pension crisis , do you honestly think the guy next door who never worked a day in his life is going to lose his state pension or have it cut ? no chance we can’t even evict people from a house in this country .


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## David1234 (29 Jan 2019)

Fella said:


> I never suggested doing nothing but i’d have my money in assets i can liquidate when I require the money . The fraction they took ends up adding up to quite a lot off a fund when you consider the compounding effect it had.
> 
> just look at how the country is run open your eyes , people that spend like idiots can live in houses that are impossible to repossess , you’ve middle class hard workers with less disposable income than others that have never worked a day in their life . I see it everyday i don’t trust this country or government i see the looming pension crisis , do you honestly think the guy next door who never worked a day in his life is going to lose his state pension or have it cut ? no chance we can’t even evict people from a house in this country .



What assets would you recommend? If you contribute €100 into a pension fund and are taxed at the higher rate you will only have the purchasing power of roughly €50 for this other asset when you are hit with your income tax.

If you distrust the country and government I would suggest you look at potentially moving countries.


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## Gordon Gekko (29 Jan 2019)

Neglecting to fund a private pension because of some fear around a future raid by the State is crazy.

All because less than 0.75% was raided for a few years during the worst financial crisis in the history of the State.


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## Sarenco (29 Jan 2019)

Fella said:


> The fraction they took ends up adding up to quite a lot off a fund when you consider the compounding effect it had.


True but it pales into insignificance when compared to the taxes applied to investment income (up to 55%) and gains (33%) on assets held outside a pension fund.

It is bonkers for a higher rate taxpayer in their mid-40's with no pension fund to prioritise paying down a tracker mortgage ahead of contributing to a pension.  

It would also be bonkers (IMO) for such a person to prioritise making after-tax investments ahead of maximising their pension contributions.

Speculating about future taxes or levies is futile - we can only make reasonable decisions based on we know today.


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## Fella (29 Jan 2019)

Sarenco said:


> Speculating about future taxes or levies is futile - we can only make reasonable decisions based on we know today.



That’s what i’m doing though we can see the pension crisis looming but these lunatics decide to give 5€ extra to everyone on the social welfare when there are jobs out there not been filled , you couldn’t make the stuff up. 

Any money I have left won’t be on show for these guys to dip there hand into , there are plenty of ways to store your money and buy assets that will increase in value over time .


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## Sarenco (29 Jan 2019)

Fella said:


> Any money I have left won’t be on show for these guys to dip there hand into


Beyond burying gold coins in your back garden, I really don't know what you mean here.  Pretty much all assets can be traced by Revenue.


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## Codogly (30 Jan 2019)

Great point ; where can you store money outside the reach of Government ...middle income Ireland need to start protecting there savings


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## Steven Barrett (30 Jan 2019)

Codogly said:


> Great point ; where can you store money outside the reach of Government ...middle income Ireland need to start protecting there savings



With the current level of reporting, holding it on your person is one of the only ways. But then you could be robbed and lose 100% of your assets instead of a % of your gains. 

 PPS number is required to open an account almost anywhere and the transaction is then reported back to the Revenue.


Steven
www.bluewaterfp.ie


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## so-crates (31 Jan 2019)

Codogly said:


> Great point ; where can you store money outside the reach of Government ...middle income Ireland need to start protecting there savings


Something like the Ansbacher accounts perhaps ....


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