# Should i continue to make AVC's



## Tumblegreed (14 Jul 2008)

Hi,

I currently contribute 10% of my monthly salary to my pensions by AVC's.  I have just turned 30 and the majority of my pension is invested in the ILIM global equity fund.

Should i stop the AVCs for the forseeable future becuse the markets are so bad and pensions funds are performing very badly with perhaps more bad news on the way.  Should i take the AVCs and invest them myself, in govt bonds?

Thanks for any advice.


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## Tumblegreed (14 Jul 2008)

Just seen this on another thread.  Can anyone explain where the 0.53 comes from?



ClubMan said:


> Remember that for each €1 into your pension (which includes full tax and _PRSI _relief) will compare to as little as €0.53 from net income into your non pension alternative savings/investment fund so the latter would need to grow by almost 100% just to keep pace with the pension.


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## ClubMan (14 Jul 2008)

Tax relief of up to 41%, _PRSI _relief of 4% and health contribution relief of 2% means the possibility of up to 47% relief for high rate taxpayers on _Class A PRSI_. So each €1 contributed to your pension could cost as little as €0.53 from net income with the additional €0.47 coming from relief.


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## Tumblegreed (14 Jul 2008)

ClubMan said:


> Tax relief of up to 41%, _PRSI _relief of 4% and health contribution relief of 2% means the possibility of up to 47% relief for high rate taxpayers on _Class A PRSI_. So each €1 contributed to your pension could cost as little as €0.53 from net income with the additional €0.47 coming from relief.


 
Thanks for that.  On this basis perhaps the best thing for me to do is to change the weighting of my plan from 100% equity to somehting more suitable for the times ahead, perhaps 25% equity, 50% debt, 25% cash.

Is there a limit on the amount of times you can change this in any given year.  I get a pension statement once a year with any changes having ot be made in strict deadlines.


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## ClubMan (14 Jul 2008)

Timing the market is a mug's game. Unless you are already close to retirement and need to gradually shift into less volatile investments as the time to draw down benefits nears you might be better off sticking with high equity/risk-reward funds and riding out any volatility over the long term. 

I don't really know what you mean by _"50% debt" _above!? 

The number of switches allowed and the charges that may apply depend on your specific pension terms & conditions. What charges generally apply on your pension (per contribution, annual management charge etc.)? Is it competitive?

Depending on your circumstances you might even want to increase your contribution above 10% of gross. At age 30 you can contribute up to 20% and get full tax/_PRSI _relief. If you are contributing out of net income and not via payroll (where relief is granted at source) then you need to claim _PRSI _back manually once tax relief has been claimed. See the _Key Posts_.

If in doubt get independent, professional advice.


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## Tumblegreed (14 Jul 2008)

ClubMan said:


> Timing the market is a mug's game. Unless you are already close to retirement and need to gradually shift into less volatile investments as the time to draw down benefits nears you might be better off sticking with high equity/risk-reward funds and riding out any volatility over the long term.
> 
> I don't really know what you mean by _"50% debt" _above!?
> 
> ...


 
Thanks for the answers.  In relation to "debt", i am talking about bonds funds.


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## ClubMan (14 Jul 2008)

In my opinion a 30 year old should generally not have significant pension investments in asset classes such as bonds/gilts/cash etc. and should probably aim to be investing in high equity content/risk-reward funds instead. You are talking about a c. 30+ year investment here so you need to look at the long term picture and the fact that equities are likely to outpace most or all other investments over that sort of timeframe even if they may be more volatile along the way.


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## Tumblegreed (14 Jul 2008)

ClubMan said:


> In my opinion a 30 year old should generally not have significant pension investments in asset classes such as bonds/gilts/cash etc. and should probably aim to be investing in high equity content/risk-reward funds instead. You are talking about a c. 30+ year investment here so you need to look at the long term picture and the fact that equities are likely to outpace most or all other investments over that sort of timeframe even if they may be more volatile along the way.


 

Thanks for that.  I found the keynotes very usefull also.

Sidenote:  Is there any other investment or saving scheme which is taken from you salary before tax?  It doesnt seem worthwhile to invest €0.53 per €1 when you can be investing the full €1.

I guess it all depends what i am investing for doesnt it?


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## ClubMan (14 Jul 2008)

Tumblegreed said:


> Sidenote:  Is there any other investment or saving scheme which is taken from you salary before tax?


As far as I know pensions are the only option here.


> It doesnt seem worthwhile to invest €0.53 per €1 when you can be investing the full €1.


All things being equal this is correct. In particular as long as the pension charges are competitive, the range of funds available is as wide as possible and you choose funds appropriate to your specific needs you are much better off saving towards retirement via a pension. The main downside is that the money is locked away until retirement although this could be a blessing in disguise (e.g. you *can't *blow it on other stuff even if you wanted to! ).


> I guess it all depends what i am investing for doesnt it?


I'm assuming that you are investing for retirement? The _AAM Guide to Savings & Investments _and the www.itsyourmoney.ie consumer guides cover the sorts of things to consider when planning short, medium and long term investments.


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## Fleegle (15 Jul 2008)

ClubMan said:


> As far as I know pensions are the only option here.


 
Good evening all..this is my first post, and frankly, I am a bit worried about the future of my Irish pension. I currently contribute my max allowance of net relevant, split between regular monthly contributions with a yearly top up, to a max of 25% (my age allowance). Total yearly contribution around €23K

As far as I know, a pension contribution is my only option too. Are there ANY alternatives which give similar tax benefits over a shorter term? I know the pension scheme may be better in the longer term, but I am hearing reports of a possible 10 year recovery period for existing pension schemes.

I absolutely refuse to pay 11K to Revenue in order to "biscuit-tin" 12K in cash..even at the new BOI 8% interest on savings. I know I am probably still "young enough" to weather this, but an option would be good.

Any advice greatly appreciated.

Fleegle.


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## ClubMan (16 Jul 2008)

Fleegle said:


> Are there ANY alternatives which give similar tax benefits over a shorter term?


Not as far as I know.



Fleegle said:


> I absolutely refuse to pay 11K to Revenue in order to "biscuit-tin" 12K in cash


In that case a pension would seem to be your only option. Remember that most pensions offer a range of different funds with different asset mixes, risk/reward profiles etc. so it's not always a case of all pensions or their constituent funds doing poorly all of the time!


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## Fleegle (16 Jul 2008)

Yes..thankyou for the prompt reply. Suppose we're all caught between a rock and a hard place just now!


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## LDFerguson (16 Jul 2008)

Fleegle said:


> ...but I am hearing reports of a possible 10 year recovery period for existing pension schemes...


 
Such reports are speculative at best.  Nobody knows how long (or short) it might be until funds recover.


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