# Save, overpay mortgage or contribute further to pension



## kiabi1 (20 Jul 2017)

*Age:* 
39

*Spouse’s/Partner's age: *
38

*Annual gross income from employment or profession: *
approx 72K (private sector) + Shares 8k


*Annual gross income of spouse:* 
approx 50k (public sector)


*Monthly take-home pay: *
approx 3330 (this is after pension contributions)


*Monthly take-home pay spouse/partner:* 
approx 1550 (this is after pension contributions)


*Value of home: *
380k

*Amount outstanding on your mortgage:* 175k (17 years remaining) Current interest rate 3.1%

*Current monthly mortgage repayment:* 1,110e
The house we are in is suitable for our needs and we don't intend moving or upgrading in the future.

*Other borrowings – car loans/personal loans etc:* None


*Do you pay off your full credit card balance each month?* Yes.

*
Do you own any investment or other property?* No


*Ages of children:* 2 kids under the age of 5.

*
Savings:* Approx 25k in a savings account + 13k in current account all of which is making near 0% interest.


*Pension Scheme:* I started my employment pension late approx 2010. I have moved companies several times so pensions scattered in small amounts among different pension plans and providers.

Pension of 13k from company 1 which had a defined pension but was wound up. The amount is still with the pension management company but is transferable to another pension if I wish. However, the 13k amount is no longer invested and hence not growing.

Two other separate employment pensions worth approx 6k total. 

Current Pension scheme I contribute 5% and the company contributes 8%. Approx total contributions to date 21k


*Partner/Spouse:*
Last year started paying into the public sector pension for the first time. 


*What specific question do you have or what issues are of concern to you?*

At the moment we can afford to pay approx 250e a month extra into either our mortgage or one (but not both) of our pensions. 

What is the wisest option? Looking at the overpayment calculator an extra 250e a month would reduce the mortgage term from 17 to 13.5 years.

However, I have my concerns that the amount contributed to date by both of us into pensions is not adequate for our age profile. Alternatively should we invest in any type of fund or direct debit the amount to a savings account every month.

Thank you!


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## Sarenco (20 Jul 2017)

Welcome to AAM

I doubt there will be any consensus on this point but I think you should prioritise your pension contributions ahead of paying down your mortgage ahead of schedule.  I would expect that to give you the best return on your savings, on an after-tax basis, over the long term.

I certainly don't think you should invest elsewhere before maxing out your pension contributions and you look like you have adequate cash reserves to address any reasonably foreseeable emergencies that might arise.

I'm afraid I can't offer you any advice as to which pension scheme should be prioritised - public sector pension arrangements have always been a complete mystery to me!

Do you have any say in the investment allocation of your pension fund with your current employer?  It's important to look at all your accounts (retirement, savings, mortgage, etc.) as one and at your age the large majority of your retirement savings should be invested in growth assets (equities).

Don't leave the €13k pension fund sitting in cash for too long...

Finally, are you comfortable that you have adequate life assurance/permanent health insurance in place?  That really should be your number one financial priority with a young family.

Hope that helps.


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## kiabi1 (21 Jul 2017)

Hi Sarenco.

Thanks for the heads up on the pension ref equities as I have no idea what type of funds any of the pensions have been invested in.

Private health insurance for the family and income protection for myself is luckily covered by my employer. However, I have not taken out any life assurance.

These are items I will certainly look further at now that you have flagged them.

Thanks for your help and guidance.


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## jjm (22 Jul 2017)

Sarenco said:


> Welcome to AAM
> 
> I doubt there will be any consensus on this point but I think you should prioritise your pension contributions ahead of paying down your mortgage ahead of schedule.  I would expect that to give you the best return on your savings, on an after-tax basis, over the long term.
> 
> ...


There is  advantages in making sure you have full years in the public service pension and paying for it now if you are short years.For the want of a better word public service pension are the best annuity with an escalation you would not be able to buy it in the private sector.lots of public service pensions allow you to take a pension of two thirds of final salary if employed before 2013 if you fore go lump sum.there is an option to have a avc built up to take your tax free lump sum from it and take the higher pension if it makes since at the time,

On your first post important information which need to be known before advice can be given is year started in public service age at that time was there an option to retire at 60 or 65 or both or is it some other age. and most important of all do you need to buy years to get full pension when you retire.You will find posters on hear will know the answers/cost if you provide this information ,

In my own situation paying pension avc ahead of mortgage was the best thing i ever did.I am now in the happy position of having the option to retire when ever i feel like it for the past 5 or 6 years without reaching retirement age,


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## MrEarl (22 Jul 2017)

Hello,

I would also prioritise pension contributions at this stage.  For the next few years, I would be focused on maximising the benefits of tax relief on pension contributions (through AVCs), given yourself and your partner are in the higher tax bracket.  You both have approx. 25 years until retirement, but if you think about average life expectancy, you probably have another 20 years thereafter, which you need to provide for - think in terms of cost of accomodation, health / nursing care, general living expenses.  While you should have a debt free home, the other items will still be expensive and you will have no regular salaries to cover them (just check out the price of a week in a nursing home if you want a sense of what I'm referring to ).

It's becoming more and more clear by the day, that the state cannot afford to sustain it's current level of contributions for our aging population, not alone increase payments significantly as costs increase in future years and the population continues to live longer.  It's a time bomb just waiting to go off, but the government is afraid to do anything radical because to do so, would mean an immediate impact on their popularity and probably put them out of power for the next ten years - irresponsible and selfish, yes I know, but they are not the first government to avoid it and they sadly won't be the last.

In time, your children will get older and become more expensive (fact of life, or so I'm told ) so you may not be able to put the same amount of cash into your pensions as you can now, that's another reason why I would invest in pensions now, while you have this spare cash.

It's also very important that you look at the correct options for investing your pension contributions - you will have to accept a level of risk, in return for growth and there are lots of options around this but at your age I would be encouraging you to invest the majority of your pension in equities (albeit under some professional advice and alongside other asset classes).

I would also strongly recommend that you make an appointment with an independent, fee based pension advisor.  Ensure you go to a good independent, because while you will pay for their advice, they won't have a conflict of interest and be trying to push certain products or services on you.  They will give you guidance on what to do with your current small pension funds, your investment strategy etc. Recommendations can easily be obtained on good advisors, here or elsewhere.

Given the relative job security that comes with public sector employment, along with the fact that you are both working and have reasonable savings, I would not be overly concerned about providing for a larger rainy day fund at this time.  No doubt you will need to revisit this every few years though, based on circumstances.  Likewise, your homeloan is reducing nicely and looks like it will continue to do so.  Your interest rate is not high (in real terms) so as long as that continues to be the case, I would not see a need to overpay it ahead of a pension.

Sounds like you could also use some life assurance on both yourself and your partner.  Cover can be obtained relatively cheaply and seems a good idea, particularly given you have young children to consider.  I would suggest a relatively straight forward policy over both adults, perhaps a term assurance policy for a 20-year term.  Websites like Low.ie will give you a good indication on cost and may well be the best place to get a policy from, assuming you have no illnesses or long term health issues to consider. 

No doubt others here will give better advice on this than I can, as I do not work in the pension or life assurance industry (although I do know a little bit about both areas ).

Most importantly, do something now - don't just kick the can down the road and let things continue as they have done in recent times


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## jjm (22 Jul 2017)

kiabi1 said:


> Hi Sarenco.
> 
> Thanks for the heads up on the pension ref equities as I have no idea what type of funds any of the pensions have been invested in.
> 
> ...


I have done calculations for friends of mine who work in the public service about buying back years both up front and over 10 years .When they actually got there options from there employer calculations were correct within a few euro at the time.I also done the calculations on how much they would have saved if they had bought extra service when they first got the option to buy back years when they first started working .there are massive savings to be made by buying as soon as you can if you were employed between 1995 and 2013 on a A1 stamp.

If you give me year started salary paid in first year and age of person when the first entered p/s employment and how many years it took to get to 50000 in 2017  I will be able to show you why it is so important to pay into pension as soon as you can .

Born around 1979 started work in(          ) have they option to retire at 60 or 65 or both always worth cross checking if the can buy back years to retire at 60  check contract of employment ,lots of time buying back years done for 65 because it is cheaper I suspect if you lock yourself in to age 65 and start buying back service not easy to change after ,


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## RedOnion (24 Jul 2017)

OP,
Regarding your own pensions from previous jobs, it's worth checking out if your current employer will allow you to transfer them into your pension scheme.  Depending on the company you work for they might pay management fees which will save you paying them out of your returns (plus it's easier to keep track of if they're all together).

Also, when looking at your occupational pension scheme, check if you have life assurance / death in service benefit, and factor it into your life assurance needs.  Make sure you've completed any necessary declarations for the maximum benefit - for example in my previous role I had 4 times salary death in service, but once I declared a child dependent this was automatically increased to 10 times, and I only discovered by accident.

Finally, personally I think you've too much non-interest earning cash when you've a mortgage.  The conventional wisdom here is to keep enough to cover 6 months expenses, but I don't think that's completely necessary when you both have jobs.  If you pay 10k off your mortgage now, you can take about 16 months off the term.  Work out what you're comfortable with as a 'rainy day' fund, and once you're comfortable put the rest to better use paying off your mortgage.


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## cremeegg (24 Jul 2017)

Just to introduce a different idea.

You have two young kids, are you looking at funding college in 13 years time.

From a cashflow point of view money in the pension will be tied up. If you have cleared your mortgage that money will then be available to you on a monthly basis.


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## kiabi1 (24 Jul 2017)

Thanks everyone to date for your replies. Really informative and appreciated.

In terms of my private pension. I've looked into the details of it during the week following the excellent suggestions from posters above.

The pension I have is guided by a pension manager.

"You are being guided by ****** Personal Lifestyle Strategy"

The growth fund when I drill down on the details is listed as having a volatility/risk level of 4 between a possible rating of 1 - 7.

The fund is decribed as being an Asset Mix of Equity, Bonds, Property and Cash.


Here is where I am confused and as a result cautious about paying additonal avc's into a pension fund as opposed to paying down against the mortgage.

When I login to the pension site it presents me with two graphs.

1. "What we think you will NEED based on OUR projections"
2. "What we think you will HAVE based on OUR projections"



Dealing with graph 1 first. This graph shows a target pension of 21,533 pa from the private pension and 12,391 pa from state pension giving a total of 33,924 pa.

Graph 2 being the more important of the two is saying 19,675 pa as the projected pension of which 12,391 pa is from the state and only 7,294 pa from the private pension itself (should I continue with my existing 13% of salary contributions consisting of 5% from me and 8% from employer).

Likewise it shows 14,248 pa as left of target i.e. what I will be short based on trying to get to a projected income of 33,924 pa from graph 1.


Hopefully not too confusing in the way I have described it above so far.


Ok, so here is my big concern.

There is a section called "Hit your target" it will compute if I enter a monthly pension increase amount what affect that will have on current pension.

If I enter 250e which is in addition to my existing contribution and employers contribution i.e. the 13% it only has the affect of moving my private pension from 7,294 pa to 10,529 pa an increase of 3,294 pa from a retirement age of 65.


What this means is that to get an extra 3,294 pa in pension from the age of 65 a back of the envelope calc tells me I would need to pay approx 78,000 pa between now and retirement at 65.

Putting it in those terms it does not seem like value for money to me to put additional AVC's into the pension.

Would love to hear your thoughts on this?


Thank you!


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## jjm (24 Jul 2017)

250 gross will cost you around 150 after tax ,a fund of 100000 will buy you an annuity of 4000 approx .you can take 25% Tax free lump sum or one and a half times your final salary,As i said already if your spouse already has service before the started paying into pension they should be able to buy this service and added years the sooner it is bought the less it will cost and they will be sure of what they will end up getting there are other advantages like if one partner has an annuity like a public service  the private sector spouse can go with an arf,


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## MrEarl (25 Jul 2017)

kiabi1 said:


> ....
> 
> The pension I have is guided by a pension manager.
> 
> ...




I am a little older than you, I opted for a risk weighting of 5 (i.e. I was prepared to accept a little more risk, in return for expected larger returns over the longer term).  In a nutshell, this was suggesting an average return of 6% pa over the long term, but with a potential risk of 20% loss in a single year (based on certain assumptions).  

People must be comfortable with the level of risk they are prepared to accept, but also ensure that they understand the expected returns based on that level of risk. I would ask your current provider to provide you with an illustration of where the anticipated growth will take you to, upon retirement - based on current investment strategy, current levels of contributions etc. I would incorporate your partner's situation into the thinking and askif you are both happy with how this is forecasting. 



> Here is where I am confused and as a result cautious about paying additonal avc's into a pension fund as opposed to paying down against the mortgage.
> 
> When I login to the pension site it presents me with two graphs.
> 
> ...


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