# Tax Planning Suggestions Needed



## MG Midget (17 Sep 2013)

Folks,

I appreciate you help around some tax planning suggestions

I am private sector worker, earning €71K, age 46 and currently maximising my AVC's.  The value of my AVC's and retained benefits from previous schemes is €200,000.  I am a member of a hybrid DC scheme with current minimum pension payable at 65 of €4,700.  If I stay until 65 this will increase to €19,000 per recent pension statement

My wife is a private sector worker, earning €68K + €12K car allowance, age 40 and has 2 closed DB retained benefits of approx. €8,500PA at 65 and €2K PA at 65.  Her employer has now opened at DC scheme where they contribute 15% of pensionable salary,  She is not paying any AVC's.

We are in a lucky position to save €1,500 per month after tax.

Should my wife contribute AVC's?  she is looking to take a step back from work in next 2-3 years due to our children's ages (7,4)

We have savings of €275K but do not really want to touch any of this as it is a next egg.

We would like to tax plan smartly, build enough to maximise TFLS's but not be in a position to be hammered by the tax man in the future or not be eligible for state pension because we saved as hard as we could.

Any suggestions welcome


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## Steven Barrett (17 Sep 2013)

First thing is find out about the DB schemes. How solvent are they?

If your wife is going to step back from work in a few years, you need to anlayse the effect that will have on on your finances first. Are you planning on using your nest egg to replace the lost income or reduce your lifestyle expenses? Does your wife plan to go back to work when the kids are a bit older?

Steven
www.bluewaterfp.ie


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## MG Midget (17 Sep 2013)

Hi Steven,

Thanks for your response.

Both DB schemes would appear to be reasonably solvent (who knows these days). However, the parent company is European, is quoted on the stock exchange and is expanding in Ireland, so at present would appear to be okay.

My wife would intend returning to work full time in the future, in the shorter tem (2-3) years she will look to reduce her hours in her current employer or find part time work with another employer in the same industry.

Our preference would be to reduce our living expenses and live within our means especially if my wife can stay employed on reduced hours.


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## JoeRoberts (17 Sep 2013)

I would not get too caught up in tax planning as Govt are changing the goalposts every year regarding pensions/savings taxation. Still a lot of anticipated changes to come and a lot of uncertainty especially around maximum pensions.

The one thing I would plan for your retirement in 20+ years is that the state pension will be means tested. IMO this is coming like a steam train.


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## Steven Barrett (18 Sep 2013)

What's your mortgage like? Have you looked into paying some/ all of that off? You really have a lot of money sitting on cash, probably too much.

If it is your nest egg, what is it for? Afterall, saving money is only worthwhile if you have a plan for it. Otherwise it is a savings plan for your kids and the Revenue for when you die! 

Getting back to your original question re AVC's, they certainly look affordable at the moment. I would also ask, when do you want to retire and what do you want to do then? What other assets do you have that can be used as a retirement income or do you want to help out your kids financially at some stage?


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## MG Midget (18 Sep 2013)

Thanks for feedback Joe & Steven,

Essentially I am unsure what our plans are for 15 - 20 years down the road, all I anticipate is that if I have a decent fund in place I have more options available to me than if I do not.  At the same time, I could be putting the after tax income to use now rather than putting it all aside so that Michael Noonan's successor says in 20 years, "well done" and for saving all that money in your pension you'll get 0 from the state because you don't need it.

Our PPR mortgage is €263,000,  ECB + 1.25, currently overpaying by €250pm, finishes in 18 years at current repayments
We have investment property in Dublin worth €300K, mortgage of €50K, ECB +.95, renting at €1,100pm
3 investment properties in NI, one with mortgage finishing next May others finishing in 10 years after (all rented)


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## Steven Barrett (19 Sep 2013)

You've a lot going on and a lot of different options to explore. Too much to be giving an definitive answer on an internet forum. AVC's are certainly affordable anyway.


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## MG Midget (19 Sep 2013)

Thanks for your input Steven apppreciate the time.

Anyone else who has suggestions?


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## rob oyle (19 Sep 2013)

JoeRoberts said:


> The one thing I would plan for your retirement in 20+ years is that the state pension will be means tested. IMO this is coming like a steam train.


 
I hadn't considered this before but I'd agree 100% (not that I'd agree with it being done, just that it WILL be done!). It defies logic to think that those that are planning for their retirement will end up barred from the State supports but there you go - the State must look after the vulnerable, regardless of how they got there.


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## Protocol (19 Sep 2013)

JoeRoberts said:


> The one thing I would plan for your retirement in 20+ years is that the state pension will be means tested. IMO this is coming like a steam train.


 

This is off-topic.

Note that there are two State pensions - the contributory PRSI-based State Pension, and the means-tested non-contributory State Pension.

You seem to suggest that in time the main PRSI pension will be abolished, and that the State Pension will only be paid to people with low incomes, who pass a means-test.

Note that this would mean workers paying much less PRSI, as the SI fund would not have to pay 4-5bn on pensions.

Query - I work 45 years for, say, Dunnes Stores, with no work pension - what happens at age 66/67?

_*NB: there are economic reasons for a compulsory SI pension.*_

Also not that, to my knowledge, no country has a purely means-tested State Pension.


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## JoeRoberts (19 Sep 2013)

Protocol said:


> This is off-topic.
> 
> Note that there are two State pensions - the contributory PRSI-based State Pension, and the means-tested non-contributory State Pension.
> 
> ...


 
Why is it off topic ? OP query is about making provisions for his future. I pointed out something I believe that people should not take for granted.

I am talking 20 + years here. Govt is well able to change the rules for pensions as we have seen over past few yrs. Pension levy, pension caps, pension age etc. They changed the pension age with 3 yrs notice !!!

When faced with massive state pension outlays it will be easy to say people with private pensions got tax breaks so its fair to means test them for state pension.

People paid PRSI for unemployment benefit and look how that is now curtailed to only 9 months before it will be means tested. So PRSI history is no guarantee.

Just my opinion that people should not rely on it that far out. Remember all the people who relied on DB pension schemes ? You may have laughed if someone predicted in 1985 what would happen the Waterford Crystal pension scheme.

Re Dunnes Stores query; if you have no means then you would get a means tested state pension. So no change.


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## Steven Barrett (20 Sep 2013)

Protocol said:


> Query - I work 45 years for, say, Dunnes Stores, with no work pension - what happens at age 66/67?



You've paid your PRSI, so you get an old age pension of nearly €12,000 per annum (if you have a yearly average of 48 PRSI payments a year). If you were a lowly paid worker, this is probably an adequate income in retirement relative to your past earnings.

The issue with the OAP is the cost. It is taken out of the Exchequer each year and the cost is massive. People are living longer and there is more people getting it. It is a strain on the economy having to take all that money out each year. The Pension Reserve Fund was supposed to relieve some of that pressure but they spent it bailing out the banks, propping up semi-state pension schemes that were under water and now they are going to spend the rest. It's hard to see how will be able to afford it in 20 years.


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## Protocol (20 Sep 2013)

SBarrett,

my query about the Dunnes Stores worker was asked in the context of suggestions that the PRSI social insurance pension would be abolished.

I was asking what would then happen to a worker with no work pension?

There are very good economic reasons for having a compulsory SI pension, based on contributions.


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## Steven Barrett (20 Sep 2013)

Sorry, misunderstood what you were asking there. 

Isn't part of the role of government to protect the vulnerable? You would imagine a means tested OAP would be provided and the rest of us can feck off and provide for ourselves...and that is after they've cut the relief on pension contributions!





....I'm getting the feeling there's no government strategy here, are you? 


Steven
www.bluewaterfp.ie


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## mtk (22 Sep 2013)

MG Midget said:


> Folks,
> 
> 
> We have savings of €275K but do not really want to touch any of this as it is a next egg.



Hi MG is this related to the equity in your properties or separate   ?
This would influence how you might invest your defined contribution and AVC.
I think you make a good point re having a larger fund gives you more options but there is a risk it will be of no avail ....
Lose means tested pensions because have your own as you suggest. I too HOPE this ( means testing )does not happen.
Other possibilities would be a much higher retirement age e.g. 75 in 20 years 
It’s already at 68 for you 

Some things to consider are 

1 I would say if you think you will pay tax at higher rate on way out on arcs (via ARF or annuity) then don’t.
In your case there are many variables to consider and many assumptions to make, too many for there to be a correct one

2 If you think you want to retire early  then the avc option is  quit attactive imho.
3 In fact given your exposure to property how the property market does in next 20 years will have a much bigger impact on your wealth in 20 years than whatever you do regarding avcs

PS i am not an expert so seek prof. advice before acting


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## MG Midget (25 Sep 2013)

Hi mtk,

Thanks for your response.

The funds we have built up of €275K is in addition to the equity we have in our properties. All of these funds are on bank deposit/state savings (on reasonable rates at the moment, will need to look at reinvestment options as these mature due to current low interest rate environment).

All my pension funding is invested in medium - high risk level equity funds. My general plan is to move 10% to bonds/cash each year from age 55 onwards.

Retiring early is certainly something I would like to be able to do. Stepping back from full time work at age 60 and perhaps getting involved in a lower paying position in a different industry/sector/part time would certainly be a plan I would have in my head.


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## mtk (28 Sep 2013)

MG Midget said:


> The funds we have built up of €275K is in addition to the equity we have in our properties. All of these funds are on bank deposit/state savings (on reasonable rates at the moment, will need to look at reinvestment options as these mature due to current low interest rate environment).



I would be in similar position with similar assets in state savings/bank deposits
As you say what to do with poor reinvestment options available is another question. 



MG Midget said:


> All my pension funding is invested in medium - high risk level equity funds. My general plan is to move 10% to bonds/cash each year from age 55 onwards.



again i do similar although moving to cash the conventional wisdom  is not zero risk (inflation risk etc.)



MG Midget said:


> Retiring early is certainly something I would like to be able to do. Stepping back from full time work at age 60 and perhaps getting involved in a lower paying position in a different industry/sector/part time would certainly be a plan I would have in my head.


 
For me this is  crucial issue and would be main reason i load my avcs.
but if you think you may get a sweetener to retire early from your employer maybe not ( is there history of it,etc.)  .....Its obviously hard to predict to say the least !

Just my views - seek expert advise i suggest


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