# Remove AVCs for rainy/stormy day?



## L0llip0p (15 Dec 2010)

Hi,

I'm a young chap and I've been contributing to defined contribution pension scheme since 2008. I started by going all in to 100% equity fund and maxed out by AVCs because of higher tax relief etc.

Since 2008, we now have a child whom my wife cares for full time so we're down to single income. I adjusted my AVCs to 6% of the my salary in an attempt to free up some disposable income. 

My employer contributes 5% for 2% on my side. All fine you say 

Given the news that the 41% relief is going to be scrapped, I'm trying to evaluate whether AVCs are worth it at all given that maybe it would be more prudent to use this money to cover rainy days/interest rate hikes where life bite with you unseen expenses given that the budget is tight just to live with some level of comfort each month.

I did invest in a rental property in 2003 which, to my mind, would hopefully be a pension of sorts IF I manage to keep up with it for the next 15 years.

If you were in my shoes, would you ditch the AVCs and start building the dam? I'm considering withdrawing from the pension entirely and focus solely on keeping our home and rental afloat but I took the pension out in April 2008 so I dont know if too much time has elapsed.

Can an experienced soul give a young fella some guidance in these dark times?


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## GSheehy (15 Dec 2010)

L0llip0p said:


> Given the news that the 41% relief is going to be scrapped,...


 
It may not be 'scrapped'. DoF have left the door open on this one and it may agree to a levy on pension funds, if it can raise a similar amount (€700m) for exchequer.


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## Greta (17 Dec 2010)

I understand that it's tempting for you to stop saving for a pension but it doesn't seem a very good idea unless you are really desperate financially and you don't sound like it. Even with the reduction in pension tax relief you still benefit from generous employer's contribution, and over time, if invested wisely, you should build up a substantial nest egg for your retirement.

However, building an adequate emergency fund is very important, so I suggest you concentrate on that, reducing your AVC still further if necessary, but only temporarily - when your emergency fund is saved, you can increase AVC again.

Also your wife may not stay at home forever - once your child grows up a bit, she may go back to work and your financial situation improves, allowing you to contribute more to AVC. It would be a pity to throw away the opportunity to build up a pension.


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## L0llip0p (20 Dec 2010)

Thanks for replies folks. It is solid advice.

My only "other" concern would be regarding "investing wisely" (as you have put it Greta) and whether or not my current approach regarding my pension investment is just that..."invested wisely".

From researching around, the general advice I've read in the past has been to investing in risker funds (like 100% equities) in the earlier lifecycle and reign that in to safer less volatile investments later on.

I'm not sure if the advice was solely based on the markets pre 2008 so I do have a slight concern that being "all in" for equities at present is such a smart move? My logic was that in 2008 things couldnt have floored out much worse and then things could only improve.

Of course that was all wrong and the investment took 40% hit in that year. 2009 was an improvement (roughly 30%) so in my head all seems to be in the right direction.

I guess my lack of detailed knowledge on pensions is affecting my confidence in my investment here.


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## huskerdu (20 Dec 2010)

The general advice to invest your pension in 100% equities when you are young is based on the statistics that equities on average over the last 50 years outperformed other asset classes, if you are investing for 20/30+ years, even though YOY returns can be volatile. 

This was especially true of a broad portfolio  of equites, as a pension fund would have. BUT, these broad portfolios also assumed that banking stock was very safe. 

Will this still be the case in 30 years ? I don't know, noone does and we have all had our faith/trust in the international banking/investment industry  taken out from under us. 

I think you are doing the right thing to be investing in a pension, but I agree that its not the best time for AVCs  given that it will now be subject the USC and you do not have a nestegg of savings for the next few years.


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## Complainer (20 Dec 2010)

L0llip0p said:


> My employer contributes 5% for 2% on my side.


Can you clarify this? 

Does this mean that once you pay 2%, the employer adds in 5%? Does this all go into the same AVC fund? Is there any opportunity to get a higher donation from the employer if you pay more?


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## L0llip0p (21 Dec 2010)

Sure.

I pay 2%, employer pays 5%
I pay 3%, employer pays 6%.

Thats the ceiling in terms of the contributions the employer will make.


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## L0llip0p (21 Dec 2010)

Note. This is separate to the AVCs I would make which would be 6% after the 2%.

so basically, in total i put in 8%, employer sticks in 5%.

I can see what your saying. I have put in for 3% contribution to avail of the 6% employer contribution in last couple of days. 
The 6% employer contrib is only available from year 3 of pension onwards.


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## Complainer (21 Dec 2010)

The 3%/6% is an unbeatable investment - it is a 200% immediate return on your money, with the only catch being that you have to leave the money tied up for your retirement.

If you can afford to keep this going, you should.


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## L0llip0p (21 Dec 2010)

Thank you the replies. 

It has put me somewhat at ease for now and given me some solid advice to take action on.


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