# Show me where the value is in a lifetime of contributing to a private pension?



## kiabi1

Hi All,

After recently receiving a statement of reasonable projection from my pension provider I have started to question the true value of pensions. 

*The stats:*
I have 24 years to retirement.
My pension is managed on my behalf.
Currently I am in a risk rating of 4 out of a maximum of 7.

*Current contributions:*
Currently between me and my employer the contributions each year is 25% in to pension pot this is in line with my age and the age-related percentage limit for tax relief on pension contributions . 
This equates to approximately €21k between my own contributions, employers contributions and once off avc.

*What my Statement of Reasonable Projection shows should I continue to contribute at the same level between now and retirement:*
Projected Fund Value €738k
Projected Monthly Income for Life €2300
Projected Montly Income in today's prices assuming inflation of 2.5% €1310
Pension as % of salary 18.50%

*Concern:*
I think the key figure here is Projected Montly Income in today's prices assuming inflation of 2.5% which works out at €1310. It seems incredibly low considering the large amount of money I will have contributed up to my retirement date.

For example If I retire at 65 and live until 85. That would mean a pay out over 20 years of grand total of (20 x 12 x €1310) = €314k

Alternatively If I was to save €21k a year for the next €24 = €504k. (My savings figure does not take inflation into account)

*Thoughts:*
Over a lifetime while a pension pot can grow enormously the amount paid out montly appears to be low.

Based on the above I am now thinking of lowering my employee contribution to perhaps only contribute enough to take advantage of employer maximum contribution. My overall thoughts are that pensions  are not risk free and based on the above figures the value for money is questionable.

Would love to hear your thoughts on this?

Thanks.
Kiabi1


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## RedOnion

To compare apples with apples (a bit);

Are those projections after you take out 25% tax free at retirement?
And increasing by inflation amount each year?
with a guaranteed 50% pension for spouse if you die first?


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## noproblem

*kiabi1*

Your post is very interesting and no doubt at all you'll be answered by quite a few expert projectionists in the very near future with very few facts but many figures


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## Conan

So don’t save for a future income in retirement and:
- rely on a Social Welfare Pension when you retire
- forgo the tax advantages attached to a private pension
- forgo the Company contribution  
- pay more tax on your salary
Facts not figures.


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## kevhenry

Your figures assume an annuity rate of just 3.7% and you don’t have to take the annuity option when you claim your fund.
You would need to allocate €35,000 of your marginal gross income each year to save €21k outside of a pension fund whereas the €21k pension is probably only costing you a net €10,000 each year with a 5% employer contribution.
You are comparing the inflation adjusted net present value of the assumed pension income (i.e. €1,310 p.a.) with the non-adjusted future value of your (now way more expensive) savings proposal of €504k. That’s not a valid comparison.
Pensions are unbeatable when it comes to value for money with the tax relief, tax free growth and employer contributions you are getting.

Kevin
www.thepensionstore.ie


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## Saavy99

The 25% tax free lump sum will go, that's easy pickings when things start going belly up in the economy, someone will have to pay the state pensions for those who do not have a private pension and no doubt the state pension in the future will also undergo sime sort of means testing... aging  population and all that.


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## Oisin19

Id probably dial up the risk. 

Pensions are the best savings and investment gig in town. Problems arise when people decide what to do with the funds once in the structure!


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## kevhenry

If lump sum entitlements were scrapped it would be applied to civil service pensions too so the Government would have absolutely no chance getting that one through.

Kevin
www.thepensionstore.ie


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## Saavy99

Yeah but needs must, I have no doubt to believe that at some stage the 25% tax free element will go. I read there's already rumblings if it in the UK, we normally follow them..


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## Saavy99

[broken link removed]


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## cremeegg

I think you need to separate two things here.

Do you consider the €738k a small pot in terms of your contributions during your working life. What after tax contributions are included in that figure. Given the tax benefits it is almost certain that you could not achieve that figure based on your actual contributions without the tax benefits.

Given that you will have a pot of €738k a monthly pension of €2,300 (I think that is a more meaningful figure than the inflation adjusted figure, although you would need to give me the projected rate of return in the €738k figure to develop that argument) is in any terms pathetic. You would have to live 26 years post retirement just to get your money out, never mind any investment return during your retirement.

kevhenry says that the figures imply an annuity rate of 3.7% and I assume he is correct, it seems reasonable though I haven't done the calculation. However the annuity rate in 24 years could be anything, anyone who suggests that they can predict the rate then isn't worth listening to.
What was it 24 years ago. Much higher I suggest, whatever it was has nothing to do with the rate today, and equally the rate today 3.7% has nothing to do with the rate in 24 years time. By then it might be 1% or 13.69% or 20%.

I presume that the pension provider is obliged to give you this projection and so they must use something as an annuity rate, but it is worse than nothing because the actual rate in 24 years is completely unknowable. This is like what scientists call spurious accuracy, producing a result to so many decimal places when your instruments can only measure in units.

I have said before that the financial advice industry makes me uneasy in many of its doings, providing projections based on less than guesses is one of those things.


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## kevhenry

You are right cremeegg.

Statements of reasonable projection can be very misleading because many of them also assume unrealistic assumptions like the investor increasing their contributions by 2.5% each year which is not sustainable for most people.

And that’s just one.

However, the other relevant point is that committing a €738k fund to a full annuity purchase would be absolute madness for a whole host of reasons.

Annuity income projections are there to merely illustrate the expected level of income and are a legal requirement under the SERP guidelines issued by the society of actuaries in Ireland.

In 20 years time it would not be outrageous to suggest that annuity rates could be 30% lower again if mortality trends continue as they are.

This would make the annuity option practically redundant if it’s not already.

With an ARF you can manage your fund in retirement and take whatever income you wish (within the relevant parameters) so you’re not locked to one option when claiming your money just because it’s on a statement.

Kevin
www.thepensionstore.ie


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## kiabi1

Thanks for all of the replies so far. 

So far it is clear that a lot of the benefit being outlined is based on the perceived tax advantages and that pension won't be heavily taxed on exit.



kevhenry said:


> If lump sum entitlements were scrapped it would be applied to civil service pensions too so the Government would have absolutely no chance getting that one through.



However, I disagree with kevhenry that this cannot change in the future. We have already seen in the past few years how pension qualification age changed from 65 to 68. In hindsight I would have expected uproar from every tax payer in the country. When in fact not one person protested.

The hard facts of what is coming down the track as published on the welfare.ie website. The shortfall will have to be found somewhere...



			https://www.welfare.ie/en/downloads/Joanne_Roche_presentation-Pensions.pdf
		


*The pensioner support ratio (measured as those over 65) is projected to decline from 4.9 workers for every individual over age 66 to 2.9 workers in 2035 and to 2.0 workers by 2055*

Population ‘bulge’ of individuals currently aged 30 - 45
By 2035 the pensioner support ratio is projected to reduce from 4.9 workers today to 2.9 at that stage
Fertility rates have been below ‘replacement levels’ since the 1990s and projected to remain below 2 into the long term
future
*‘Levers’ within policymakers control to reverse the trend are:
• Increase the working lifetime by, for example, extending the age at which individuals stop working through increasing the
SPA or other measures to increase the ‘effective’ retirement age;
• Encourage greater labour force participation particularly amongst currently under-represented groups;
• Encourage a greater inflow of workers
• One or a combination of:
• Increasing PRSI / funding
• Changes to benefit levels / entitlement to benefit*


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## kevhenry

I accept that changes will need to be made to sustain the model kiabi1

My earlier comment was somewhat tongue-in-cheek but was, nevertheless, based on the premise that private pension lump sum calculations are derived from those used to calculate the civil service defined benefit lump sum entitlements based on salary and service.

The state pension age hike is universally applicable to everyone regardless of means. However, drastic restrictions or scrapping of lump sums would disproportionately affect some savers more than others.

Irish Life pension claim stats (from the corporate business arm of the group) shows that 53% of all retirees availed of the ‘lump sum only’ option when exiting their company pension schemes in 2018.

That’s a significant number of people who would be disadvantaged by any proposed changes, not to mention the army of civil servants who would equally be impacted, which would make it an absolute non-runner.

Other changes may be likely in the medium term but since tax free cash is one of the biggest incentives available, no government could afford to be associated with its removal.

Kevin
www.thepensionstore.ie


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## kevhenry

kiabi1 said:


> So far it is clear that a lot of the benefit being outlined is based on the perceived tax advantages and that pension won't be heavily taxed on exit.


Well, as a financial product, it’s benefits should be evaluated based on financial metrics.

And they are more than just perceived benefits.

You get;

Tax relief on contributions of up to 40%
Tax free investment growth
Tax-free lump sums up to €200,000
Standard rate tax on excess lump sums over €200,000 to a maximum benefit of €440,000.

Not only that, as a married individual with dependent spouse, you could amass a fund of up to €400,000 before you start paying any tax on your income in retirement.

You might live to regret making a big decision like this based on something that may or may not happen in the future.

In any case, figuring out the best way to distribute the proceeds of a €738k pension fund would a very nice problem to have.

Kevin
www.thepensionstore.ie


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## NoRegretsCoyote

kiabi1 said:


> *Thoughts:*
> Over a lifetime while a pension pot can grow enormously the amount paid out montly appears to be low.
> 
> Based on the above I am now thinking of lowering my employee contribution to perhaps only contribute enough to take advantage of employer maximum contribution. My overall thoughts are that pensions  are not risk free and based on the above figures the value for money is questionable.
> 
> Would love to hear your thoughts on this?



As always, the question should be: "compared to what?"

You could reduce your contributions, but what would you do with them? If your aim is to have more income in retirement then you need an alternative investment strategy. There are lots of things you can do, but none of them allows for tax-free growth and a large tax-free withdrawal that a traditional pension strategy allows for.

As other posters have pointed out the expected income on retirement is subject to a pile of assumptions. All we know - at a distance of 24 years - is that most of those assumptions will not come to pass, and hopefully in your favour.


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## Steven Barrett

cremeegg said:


> I have said before that the financial advice industry makes me uneasy in many of its doings, providing projections based on less than guesses is one of those things.



The Central Bank tells the life companies what format these projections are to take. The assumptions used will have a massive impact on the figures at the end, especially over the long term. 

But to give you a real life example, a client of mine invested €30,000 24.75 years ago. It's worth just over €100,000 when I did the review for him last week. That's a return of 5% per annum over the period which includes 2 pretty bad market crashes. He's just let it run and do it's thing. And as his advisor, I've done the same (us advisors like to pretend we know better and get clients to move funds around all the time when we should just leave it where it is).

And to the OP, remember risk and return are related. If you are taking a medium risk investment strategy, don't expect any more than that in your returns.


Steven
www.bluewaterfp.ie


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## Boyd

Who has the burden of proof here? It's impossible to predict the future so there won't be an answer for another 24 years on your pension.
Many posters above have outlined advantages, I haven't seen any alternative proposed. Let's say you have decided pensions are rubbish, what would you do instead OP?


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## cremeegg

First of all may I offer respect and thanks to Steven, for coming on here and sharing his expertise with us and under his real name. 



SBarrett said:


> The Central Bank tells the life companies what format these projections are to take. The assumptions used will have a massive impact on the figures at the end, especially over the long term.



Just because it's mandated by the Central bank does not make it less misleading. Or the industry that produces this stuff more respectable.  In 24 years time if annuity rates are 1% and the OP says to his provider "you projected 3.7% back in 2019" he will be met with a shrug of the shoulders.


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## cremeegg

SBarrett said:


> But to give you a real life example, a client of mine invested €30,000 24.75 years ago. It's worth just over €100,000 when I did the review for him last week. That's a return of 5% per annum over the period which includes 2 pretty bad market crashes.



This may seem off thread, but I suggest not.

22.5 years ago I invested €13,000 in an investment property, borrowing €115k. Since then I made repayments of €150k (it was a 15 year mortgage) and collected rent of €211k. The property today is worth €250 approx. I am still collecting rent on it.


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## fayf

cremeegg said:


> This may seem off thread, but I suggest not.
> 
> 22.5 years ago I invested €13,000 in an investment property, borrowing €115k. Since then I made repayments of €150k (it was a 15 year mortgage) and collected rent of €211k. The property today is worth €250 approx. I am still collecting rent on it.



Sounds like it is only relevant, when the taxes, due on the rent are factored in, plus the other running costs, (LPT, maintenance, Insurance etc)which in many cases is up to circa 50%+of the rents received,  as it appears the mortgage paid off, so no interest to write off against gross rents. 
Others may argue the CGT due on the sale of the property may also relevant.


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## cremeegg

fayf said:


> Sounds like it is only relevant, when the taxes, due on the rent are factored in, plus the other running costs, (LPT, maintenance, Insurance etc)which in many cases is up to circa 50%+of the rents received,  as it appears the mortgage paid off, so no interest to write off against gross rents.
> Others may argue the CGT due on the sale of the property may also relevant.



Absolutely, thats why my next property investment will be in a pension wrapper.


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## LS400

SBarrett said:


> But to give you a real life example, a client of mine invested €30,000 24.75 years ago. It's worth just over €100,000 when I did the review for him last week.



Just to balance that a statement Sean,

Another real life example is, 

I purchased a property for €30000 24 years ago, and I just let it run its course also, its value is €240k.

Just saying.


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## NiallSparky

cremeegg said:


> 22.5 years ago I invested €13,000 in an investment property, borrowing €115k. Since then I made repayments of €150k (it was a 15 year mortgage) and collected rent of €211k. The property today is worth €250 approx. I am still collecting rent on it.



There's a higher risk factor here, as when you borrowed your €115k, you had a liability of €115k and a potential loss of €128k; it was a leveraged investment. Investing €13k in a pension instead would mean a potential loss of €13k.

Not arguing for one over the other, but they're not really comparing the same thing at all.


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## cremeegg

NiallSparky said:


> There's a higher risk factor here, as when you borrowed your €115k, you had a liability of €115k and a potential loss of €128k; it was a leveraged investment. Investing €13k in a pension instead would mean a potential loss of €13k.



This is how most people think of leverage, but in the case of a mortgage for a fixed number of years it is quite simply incorrect.

The only liability I ever had was to meet the mortgage repayments. And for as long as I continued to meet that liability there was no possibility of my liability being any more or less than that. The capital value of the property had no effect on my liability, nor could it ever have done, subject always to my meeting my actual liability. My liability under the mortgage contract was clear from the outset and involved no risk (interest rate variations aside). An obligation to pay €8k a year is an obligation not a risk.

In the first year I had a liability of €8,400, and in the second year the same and so on subject only to varying interest rates. At no point did I ever have a liability for more than the repayments due on the mortgage.


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## trasneoir

kiabi1 said:


> *What my Statement of Reasonable Projection shows should I continue to contribute at the same level between now and retirement:*
> Projected Fund Value €738k
> Projected Monthly Income for Life €2300
> Projected Montly Income in today's prices assuming inflation of 2.5% €1310
> 
> *Concern:*
> I think the key figure here is Projected Montly Income in today's prices assuming inflation of 2.5% which works out at €1310. It seems incredibly low considering the large amount of money I will have contributed up to my retirement date.


The projected fund value is a useful figure for comparing with other types of investment. It depends on some assumptions, but so does any projection.

What you do with that ~750k when it reaches maturity is a whole other story. The projections for "Monthly Income for Life" assumes that you take your pot and spend it all on an annuity. This is just one option (a bad one), and _it's not related to the pension_. 



By the by: is the 2.5% inflation assumption too pessimistic? It's been below 2% internationally since 2012 despite record low interest rates, and nobody expects it to go anywhere in the medium term. We'll have a technological revolution or two in the next 30 years, but I think the profits will be too concentrated to spur major consumer spending.


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## trasneoir

cremeegg said:


> This is how most people think of leverage, but in the case of a mortgage for a fixed number of years it is quite simply incorrect.
> ...The capital value of the property had no effect on my liability, nor could it ever have done...


If the value of your asset somehow dropped to zero, you would be out-of-pocket by €128k (less the 'dividend' of rental income or accommodation), right? 

Genuine question, have I misunderstood the definition of liability?


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## cremeegg

trasneoir said:


> If the value of your asset somehow dropped to zero, you would be out-of-pocket by €128k (less the 'dividend' of rental income or accommodation), right?



Under any circumstances I was committed to spending €150k over 15 years plus the deposit at the beginning. That was the case no matter what the value of the asset did, there was no connection between the two.


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## Blackrock1

cremeegg said:


> Under any circumstances I was committed to spending €150k over 15 years plus the deposit at the beginning. That was the case no matter what the value of the asset did, there was no connection between the two.



right but whether it was a good idea to do that or not is pretty dependent on the value of the asset.


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## NoRegretsCoyote

LS400 said:


> Another real life example is,
> 
> I purchased a property for €30000 24 years ago, and I just let it run its course also, its value is €240k.
> 
> Just saying.



That's not plausible.

The ptsb/ESRI index showed growth of 240% 1996-2005, and the CSO index which started in 2005 shows prices more or less at the same level in 2019 as 2005. The biggest growth according to that index 1996-2005 was in Dublin, by 298% or about a factor of four, but no increase since then according to the CSO.

Unless you made serious renovations, there isn't a house that increased at double the rate of the market over the period.


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## Steven Barrett

cremeegg said:


> Just because it's mandated by the Central bank does not make it less misleading. Or the industry that produces this stuff more respectable.  In 24 years time if annuity rates are 1% and the OP says to his provider "you projected 3.7% back in 2019" he will be met with a shrug of the shoulders.



It is the Central Bank requirements that make them misleading! From the few people who actually read policy quotations, I have to spend my time explaining to them that most of the charges don't apply to their contract but the Central Bank says all possible charges have to be shown, even if they don't actually apply. The fact that the quote is sent with the life company logo adds gives extra weight to the document and less to what I am saying. 


Steven
www.bluewaterfp.ie


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## Steven Barrett

cremeegg said:


> This may seem off thread, but I suggest not.
> 
> 22.5 years ago I invested €13,000 in an investment property, borrowing €115k. Since then I made repayments of €150k (it was a 15 year mortgage) and collected rent of €211k. The property today is worth €250 approx. I am still collecting rent on it.



You should make a greater return as you have taken more risk, geared up your initial investment almost 9 times, taken on more work in the management of the property. 

The example I gave, the client got a refund of €12,000 on his initial investment and then did absolutely nothing. 


Steven
www.bluewaterfp.ie


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## LS400

SBarrett said:


> The example I gave, the client got a refund of €12,000 on his initial investment and then did absolutely nothing.



And good for him, if he was happy with that investment.

But my point is, you/he could have done better with the initial investment, if he was willing to take more risk. There will always be a need pension advisers. Many are happy enough to entrust you to make the right decisions with their money, and they will get by just fine. Im quite happy I didn't just leave it in the hands experts to facilitate my future, or I would be less well off financially today. 

Yes there is more work involved for me, but its me that reaps the rewards if there are any.

So, I, many years ago started a pension and its still running to this day, and expect to see a modest reward when the time is right. I happy I didnt put all the eggs in one basket though.

We all could be a lot wealthier or poorer if we made different decisions years ago, no one really knows, they may have a good idea, but they dont really know for sure.


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## cremeegg

SBarrett said:


> It is the Central Bank requirements that make them misleading!



I get that, but Financial Advisors are the people the public deal with not the CB.

Financial Advisors represent the investment industry to the public and whatever the cause of the shortcomings of the industry, it is FAs who deliver them to the public. And that is FAs who make the effort to do their best, some compound the problems with added opacity (if that is a word).

Kudos to you Steven for engaging in debate on here under your own name especially. I hope you think it is worth the effort.


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## aristotle

NoRegretsCoyote said:


> That's not plausible.
> Unless you made serious renovations, there isn't a house that increased at double the rate of the market over the period.



Or maybe bought it for under market value.


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## ashambles

A point the pension regulators seemingly haven't come to realize is that annuities don't make sense when the rate offered is lower than just taking the total sum and dividing by expected pension term.

An alternative ARF like drawdown should be accessible to everyone when annuities aren't a viable alternative. 
One simple rule could be if the annuity rate is less than the ARF draw down rate then use an ARF drawdown.

If annuities were to drop even lower and go into negative territory, as it stands if seems you could be forced to take out annuity where you pay the pension company a pension. 

Clearly paying a negative pension would never happen - even in this country - but the point is annuities as a product only make sense if the annuity pays out more than simply taking the total pot and paying it out in installments.


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## Saavy99

A friend aged 66 recently cashed in a UK pension circa 30,000 when he went a few monthe later to buy an annuity from it, he was offered pathetic amounts ranging from 57 pounds a month to 66 pounds a month. There was no spouse element in that either. So he decided to put it in as good a savings account as he could find and allocates himself 125 pound weekly  from his pot, double what the insurance company was going to give him. It really makes no sense at all.


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## Saavy99

I mean 125 pound monthly not weekly.


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## NoRegretsCoyote

ashambles said:


> Clearly paying a negative pension would never happen - even in this country - but the point is annuities as a product only make sense if the annuity pays out more than simply taking the total pot and paying it out in installments.



I think this is missing the point a bit. An annuity is insurance against two things: 1) living a long time; 2) investment losses.

It's all very well to say that you are just going to draw down your ARF and take out more than the annuity would pay. But the market could take a turn for the worse and/or you could live longer than you expect.

Buying and annuity and drawing down an ARF are not really substitutes. They are quite different investment strategies.


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## ashambles

NoRegretsCoyote said:


> They are quite different investment strategies.


I realize they're two different strategies. 

Say you're 65, you've a fund of 1m, and the annuity rate has fallen further to 1%. (Before anyone corrects me, I know this isn't the current rate for a basic annuity)

The safe traditional annuity must clearly be the wrong strategy in that case, i.e. you've spent 40 years building up 1m. At 1% you'd need to live to 165 to get a greater amount out than you've paid in. 

So a 1% annuity would be daft. What rate it needs be below to start considering an annuity daft is a more subjective question. 

But in my view in a the current low interest rate environment, an annuity is not the way to allow access to pension funds.


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## NoRegretsCoyote

@ashambles

Not necessarily. Keeping your ARF fully in bonds/equities means it is vulnerable to investment losses. Big losses in the early years mean you may not live long enough to grow out of trouble.

Personally I think a balance between purchase of an annuity and ARF drawdown is a good strategy. If I had €1m at 65 I would probably not bother with an annuity as I could basically self insure.

But if your fund is much more realistically in the €100k-€200k range I would put some of it into an annuity even with rates say as low as 2%.


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## Conan

As was stated earlier, an ARF and an Annuity are entirely different strategies.
An Annuity (even with what might appear to be low Annuity rates currently) offers certainty. Irrespective of longevity or investment markets, you have security of income for life. No worries.
An ARF requires you to invest the capital (involving some level of investment risk) but offers flexibility in terms of drawdown. The risks here involve “investment risk” (values can fall) and longevity risk (you might outlive the fund). 
In making a choice one might bear in mind the following:
- your state of health (clearly if in poor health you would not buy an Annuity)
- you attitude to risk, longevity or investment.
- what other assets and income you might have. Clearly if you have significant assets or other income, then you might be able to live with the investment risk and fluctuations  involved with an ARF. But if this is going to be your only income in retirement then you might favour a more secure income source such as an Annuity.
For a male retiring at say 65, a single life Annuity rate is circa 4.5%. Whilst that may seem poor value, it offers certainty. An ARF involves investment risk (something that retirees often cannot stomach). If one looks back to 2007, 2008 when Equity markets fell by c40% many ARF investors could not hang in long enough for markets to recover (which they did from mid 2008).


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## mcauleyej

kevhenry said:


> You would need to allocate €35,000 of your marginal gross income each year to save €21k outside of a pension fund whereas the €21k pension is probably only costing you a net €10,000 each year with a 5% employer contribution.



I think that this type of analysis gives financial advisors a bad name. While all the numbers are factually correct (ignoring USC and PRSI) the impression given is that pensions are 3.5 times better than savings by comparing gross with net and assuming employer contribution. 



kevhenry said:


> Standard rate tax on excess lump sums over €200,000 to a maximum benefit of €440,000.



Equally here "maximum benefit" is quoted, which is a confusing term and not clear that the €200,000 tax free is included in it nor that €60,000 tax will be paid. Why not state that the lump sum is taxed at the standard rate between €200,000 and €500,000?


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## kevhenry

mcauleyej said:


> I think that this type of analysis gives financial advisors a bad name. While all the numbers are factually correct (ignoring USC and PRSI) the impression given is that pensions are 3.5 times better than savings by comparing gross with net and assuming employer contribution.


That type of analysis gives advisors a bad name even though all the numbers are 'factually correct' - 

Good one

Kevin
www.thepensionstore.ie


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## JoeRoberts

kevhenry said:


> Well, as a financial product, it’s benefits should be evaluated based on financial metrics.
> 
> And they are more than just perceived benefits.
> 
> You get;
> 
> Tax relief on contributions of up to 40%
> Tax free investment growth
> Tax-free lump sums up to €200,000
> Standard rate tax on excess lump sums over €200,000 to a maximum benefit of €440,000.
> 
> Not only that, as a married individual with dependent spouse, you could amass a fund of up to €400,000 before you start paying any tax on your income in retirement.
> 
> You might live to regret making a big decision like this based on something that may or may not happen in the future.
> 
> In any case, figuring out the best way to distribute the proceeds of a €738k pension fund would a very nice problem to have.
> 
> Kevin
> www.thepensionstore.ie



The reality is that very few will actually get 40% tax relief. They may get it when contributing but when the taxable element is withdrawn they will likely pay some element of tax plus USC when combined with state pension. Its a partial tax deferment.
If you wrote this summary a number of years back, you would have said there was up to 500k tax free lump sum available. That dropped to 200k very suddenly in one go and while the 25% lump sum may well continue, the maximum limit will once again drop to a level that won't upset too many civil servants. I predict this will happen within 3 yrs.
The huge problem with pension planning is that you cannot plan, as the legal framework is forever changing. This is almost a bigger risk than investment risk in my mind.
Folks still need to plan and save for retirement though, I just don't think expensive, uncertain pension plans are the way.


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## Sarenco

JoeRoberts said:


> Its a partial tax deferment.


No, it's a full deferment of income tax.

It's certainly true that any subsequent drawdown is subject to income tax (at a rate as yet unknown).  But it's still a full deferment until that point and that's very powerful in terms of building retirement savings.

Even if the (now capped) 25% tax-free lump sum was abolished in the morning, pension vehicles would still be the most tax-efficient way of saving for retirement.

That's not an opinion - it's simple maths.


----------



## Itchy

I think a fact that hasnt been mentioned so far is that if you die, your tax relieved PRSA will pass directly to your estate, a significant advance on post tax investments. Open to correction on this.

Nevertheless, I remain unconvinced about a negative pensions environment. A risk of a rule change is of course real but this could equally apply to any investment related rules, CGT, DWT etc.


----------



## cremeegg

NoRegretsCoyote said:


> I think this is missing the point a bit. An annuity is insurance against two things: 1) living a long time; 2) investment losses.



Is it not possible to invest an ARF in cash or govt bonds thus avoiding risk 2 if one wishes.


----------



## cremeegg

kevhenry said:


> That type of analysis gives advisors a bad name even though all the numbers are 'factually correct' -
> 
> Good one
> 
> Kevin
> www.thepensionstore.ie



Yes cherry picking acts and presenting them as if they were typical rather than highly selective is the type of so called analysis that gives many financial advisors a bad name.

A number of other financial advisors post regularly on AAM and I do not think that any of those others engage in that type of thing.


----------



## Conan

cremeegg said:


> Is it not possible to invest an ARF in cash or govt bonds thus avoiding risk 2 if one wishes.


Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges. And with 4%/5% drawdown the fund will gradually reduce.
Govt Bonds still involve investment risk (particular if interest rates rise in the future).
So Cash may eliminate investment risk but at  cost, no upside.


----------



## RedOnion

Conan said:


> Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges. And with 4%/5% drawdown the fund will gradually reduce.
> Govt Bonds still involve investment risk (particular if interest rates rise in the future).
> So Cash may eliminate investment risk but at  cost, no upside.


But isn't this effectively what annuity providers are doing? Investing in risk free instruments?

With interest rates so low the reality of an annuity for a 65 year old is they would have to live beyond 90 just to get your money back, and that's on a straight basis with no inflation adjustment. There's no hiding from that. 

What's the investment risk with government bonds held to maturity Vs an annuity at a fixed rate?


----------



## NoRegretsCoyote

RedOnion said:


> What's the investment risk with government bonds held to maturity Vs an annuity at a fixed rate?



How would you be doing today if you'd put 100% of your pension into Greek government bonds c 2008?

Also please note that German government bonds are now negative at every point on the yield curve!


----------



## RedOnion

NoRegretsCoyote said:


> How would you be doing today if you'd put 100% of your pension into Greek government bonds c 2008?


Held to maturity? You tell me.



NoRegretsCoyote said:


> Also please note that German government bonds are now negative at every point on the yield curve


I know.
Interest rates are low, which is why annuity rates are low.

You're really just confirming my points.


----------



## NoRegretsCoyote

@Red onion

Greek bondholders took a >50% haircut in 2012. 

This is not a regular occurrence, but sovereign defaults can and do occur.


----------



## RedOnion

NoRegretsCoyote said:


> @Red onion
> 
> Greek bondholders took a >50% haircut in 2012.
> 
> This is not a regular occurrence, but sovereign defaults can and do occur.


Fair enough.
The point Conan made was "particular if interest rates rise in the future". I had been thinking about interest rate risk rather than credit default, but I see your point.

If we're factoring in sovereign default risk, we can't overlook default by the life company providing the annuity either?


----------



## NoRegretsCoyote

RedOnion said:


> If we're factoring in sovereign default risk, we can't overlook default by the life company providing the annuity either?



I guess so. Not sure what the regulatory regime is like or whether there is formal investor protection.

Even if there isn't, large-scale default on annuities would probably see government step in.


----------



## Sarenco

Conan said:


> Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges.


Also, Eurozone banks (including Irish banks) now routinely charge interest on large corporate deposits so cash can certainly lose value, even in nominal terms.  

And that's before you take account of the costs of the ARF provider...


----------



## ashambles

Conan said:


> For a male retiring at say 65, a single life Annuity rate is circa 4.5%. Whilst that may seem poor value, it offers certainty. An ARF involves investment risk (something that retirees often cannot stomach). If one looks back to 2007, 2008 when Equity markets fell by c40% many ARF investors could not hang in long enough for markets to recover (which they did from mid 2008).


Is there an Irish company currently offering 4.5% for a relatively healthy person? 

The Irish life calculator annuity calculator for a single male 65 is showing 3.6%. (A 65 year old pensioner gets their money back by the age of 92.) 

If you'd like inflation linked, and a second person, then you're already today looking at under 2% annuities.

I'd be happy with restricting fund choice to safe or ideally guaranteed funds - over forcing people into annuities at rates less than 5%. 

Put it this way, forget about pensions, if you'd 100k in cash at 65 would you give it someone who'll dribble it back to you at 3.6% - and hope you live past 92 and still be in a position to care about your annuity? 

Back when annuities were 7-9% you did have people opting to convert savings into annuities. Outside the captive pension market, no one now is buying annuities.


----------



## Itchy

Ok an annuity is a poor option (for most - everyone's circumstances are different), it does not translate that pensions are a poor option.


----------



## kevhenry

He said that he is funding at the maximum rate for his age and salary in conjunction with an employer contribution.

€21,000 is the amount being funded every year in total which, as he said, represents the maximum 25% threshold given his age, which gives relevant earnings of €84,000.

Therefore he is comfortably a marginal rate taxpayer.

With nothing else to go on I made an assumption of 5% of salary as a contribution rate which would not be outrageous.

Therefore, as a comparison of asset value and relative costs of assembly;

Pension fund;

5% employer contribution (€84,000 x 5%) = €4,200 which leaves him €16,800
Marginal Rate Tax relief = €6,720
Personal contribution = €10,080
Accumulated asset value €21,000
Cash savings;

Gross salary equivalent at marginal rate €35,000
Tax Paid €14,000 + USC + PRSI
Accumulated asset value €21,000
Tax relief is not being utilised in savings fund as the tax has been paid where it is being retained as an asset through a pension.

That’s hardly cherry picking notwithstanding the assumption of a 5% employer contribution.

That said, I apologise that this was unclear as this was obviously not my intention.

Lesson learned.

Kevin
www.thepensionstore.ie


----------



## Conan

ashambles said:


> Is there an Irish company currently offering 4.5% for a relatively healthy person?
> 
> The Irish life calculator annuity calculator for a single male 65 is showing 3.6%. (A 65 year old pensioner gets their money back by the age of 92.)
> 
> If you'd like inflation linked, and a second person, then you're already today looking at under 2% annuities.
> 
> I'd be happy with restricting fund choice to safe or ideally guaranteed funds - over forcing people into annuities at rates less than 5%.
> 
> Put it this way, forget about pensions, if you'd 100k in cash at 65 would you give it someone who'll dribble it back to you at 3.6% - and hope you live past 92 and still be in a position to care about your annuity?
> 
> Back when annuities were 7-9% you did have people opting to convert savings into annuities. Outside the captive pension market, no one now is buying annuities.


Apologies, my fat finger is to blame. You are correct, the rate for a male at age 65 is c3.5%. 
I fully agree, most people coming out of DC arrangements are now going for ARFs. But it also needs to be borne in mind that many (most?) such pensioners tend to be “risk adverse” and in the current climate that results in low (or very low) returns. When you factor in 4% and 5% drawdown, that means the ARF value will be decreasing over time and the 4% or 5% amount will be a reducing income. If one tries to maintain the income at a flat rate, then that will likely accelerate the reducing value of the ARF. 
So if might come down to going the Annuity route (a safe, if low, guaranteed income for life) or an ARF which offers flexibility but also involves investment risk and perhaps the prospect of a gradually reducing income.
Not easy.


----------



## Bronte

Saavy99 said:


> Yeah but needs must, I have no doubt to believe that at some stage the 25% tax free element will go. I read there's already rumblings if it in the UK, we normally follow them..


That's dreadful carry on. People are sensible all their lives and pay into a pension pot believing they will get a 25% tax free lump sum that they may be counting on to pay down mortgage/fund a property purchase in Spain and you get to doing this sensible thing for 40 years and 2 years before you retire you're told it's no longer possible.  

That's one of the main reasons I don't like pensions. Because governements can, and do change the rules.


----------



## NoRegretsCoyote

Bronte said:


> That's one of the main reasons I don't like pensions. Because governements can, and do change the rules.



Governments change the rules about all sorts of investments, all the time.

Uncertainty is part of life.


----------



## Bronte

NoRegretsCoyote said:


> Governments change the rules about all sorts of investments, all the time.
> 
> Uncertainty is part of life.


Which is why some of us remember when a few years back Michael Noonon raided Irish pensions.  Made me think that there was no way I'd go for an AVC and that the best bet was to only contribute the amount that got the tax benefit and that got the employer contribution.

You shouldn't have governement uncertainty into the mix.  Not on something as important as pensions.


----------



## huskerdu

Bronte said:


> Which is why some of us remember when a few years back Michael Noonon raided Irish pensions.  Made me think that there was no way I'd go for an AVC and that the best bet was to only contribute the amount that got the tax benefit and that got the employer contribution.
> 
> You shouldn't have governement uncertainty into the mix.  Not on something as important as pensions.



You are contridicting yourself here. The only way to maximize  the available tax benefit is to use AVCs.

It is a fact of life that the tax law may change in the future. No country has ever guaranteed no future change to the law or tax policy. 
Its a pretty poor arguement for not using the tax benefits currently available when contributing to a pension. 

We have no evidence that the government will change this , soon or in the future. Its all speculation. 

The reason why they are unlikely to in the near term is that the two major political parties in Ireland are scared of doing anything to piss off middle age middle class people , their core vote


----------



## Bronte

NoRegretsCoyote said:


> That's not plausible.
> 
> The ptsb/ESRI index showed growth of 240% 1996-2005, and the CSO index which started in 2005 shows prices more or less at the same level in 2019 as 2005. The biggest growth according to that index 1996-2005 was in Dublin, by 298% or about a factor of four, but no increase since then according to the CSO.
> 
> Unless you made serious renovations, there isn't a house that increased at double the rate of the market over the period.


I purchased in early ninties for around IEP 40K.  Now worth 220/250 Euro.  (not Dublin). Was worth a lot more during the madness of the Celtic Tiger when I should have sold ! But I did sell one to a builder who has now gone bust.  I don't see the capital value going up and down as I have seen as being relevant to the question as all that matters if that your rental income (or you) can pay the mortgage.


----------



## NoRegretsCoyote

Bronte said:


> I purchased in early ninties for around IEP 40K.  Now worth 220/250 Euro.  (not Dublin).




@LS400 made a claim of 700% growth 1995 to date

You are claiming max 400% growth and over a longer period.

You're not contradicting me, if indeed you were trying to.


----------



## Saavy99

NoRegretsCoyote said:


> @LS400 made a claim of 700% growth 1995 to date
> 
> You are claiming max 400% growth and over a longer period.
> 
> You're not contradicting me, if indeed you were trying to.



Difference is prob due to house size, location and condition.


----------



## Bronte

NoRegretsCoyote said:


> @LS400 made a claim of 700% growth 1995 to date
> 
> You are claiming max 400% growth and over a longer period.
> 
> You're not contradicting me, if indeed you were trying to.


I was not at all trying to contradict you. I was pointing out my experience. And if I'd done the same message on here around 2005 the growth would have been phenomenal.  I also saw phenomenal price reductions when the Tiger bust.  That’s why timing your exit is all important.  Mostly that you exit at a time of your choosing and not in a recession.


----------



## mcauleyej

ashambles said:


> The Irish life calculator annuity calculator for a single male 65 is showing 3.6%. (A 65 year old pensioner gets their money back by the age of 92.)



According to the CSO only 13% of men aged 65 (in 2011) will make it to 92. So you could argue that 87% men would lose by getting an annuity or that its a measure of what people are willing to pay to remove risk. 

CSO


----------



## NoRegretsCoyote

mcauleyej said:


> According to the CSO only 13% of men aged 65 (in 2011) will make it to 92. So you could argue that 87% men would lose by getting an annuity or that its a measure of what people are willing to pay to remove risk.
> 
> CSO



The health profile of someone with a pension fund is likely a bit better than the average, so a longer life expectancy, but basically you're right.


----------



## mcauleyej

Sarenco said:


> Even if the (now capped) 25% tax-free lump sum was abolished in the morning, pension vehicles would still be the most tax-efficient way of saving for retirement.



@Sarenco I’m not sure that I agree with your maths especially if someone is hoping to retire early. I’d be interested in your thoughts.

Assuming that the 25% tax-free lump sum is abolished and/or maxed out.

I see a clear benefit of putting money into a pension where you get tax relief at the high level (currently 40%) and will only pay the lower level tax (currently 20%) when you take it out or if your employer matches your pension contribution.

However, where you expect to pay the same tax rate now and when you drawdown your pension (either 20% or 40%) then the decision is a lot less clear. This is because while your pension contributions are PAYE free, you pay PRSI and USC on this income when you earn it and again when you draw it down as your pension. This currently can be anything from 6.5% to 12.5% on top of PAYE depending on your income if you hope to retire early. If you are planning to work until the standard retirement age then PRSI should be 0% and USC a max of 2% (after 70).

If you put the money into your mortgage you only pay these once, if you put it into a fund you pay 42% tax on your gains and if into stocks there’s CGT and PAYE on dividends. I think the key here is that you pay PAYE, PRSI and USC on your full pension earnings but other taxes only on your gains/dividends. There are also other rules that apply to pension draw-downs that don’t apply to savings and visa versa.


----------



## LDFerguson

mcauleyej said:


> @Sarenco I see a clear benefit of putting money into a pension where you get tax relief at the high level (currently 40%) and will only pay the lower level tax (currently 20%) when you take it out or if your employer matches your pension contribution.



I think this is the key point to all of this.  I also think that a majority of people will pay tax at a lower rate in retirement than they do while earning.  

Take an example of an unmarried individual who pays tax at the higher rate while working.  At retirement, s/he can earn €35,300 per year and remain on the 20% tax rate.  Let's assume s/he qualifies for the State Contributory Pension of around €13,000 per year.  So scope for a private pension of €22,000 per year at the lower rate of tax.  Assuming a 4% drawdown from an ARF, that suggests an ARF size of €550,000.  Plus €63,500 into an AMRF makes €613,500 of a fund after the lump sum, or €818,000 of a fund before the lump sum.  

So an individual paying tax at 40% while earning can accumulate a pension fund of over €800,000 and will be taxed at the low rate on 75% of the fund after the lump sum.  

If this individual is married and their spouse has no pension or a smaller pension pot, there's more scope for them to accumulate more than €800,000 and still stay on the low rate of tax.  

Liam D. Ferguson
www.ferga.com


----------



## Saavy99

Interesting article in today's Guardian 








						Pensions tax relief set to cost government almost £40bn
					

HMRC statistics show rising cost of subsidies, with higher-rate taxpayers claiming most




					www.theguardian.com


----------



## GSheehy

At the moment (under the current tax regime) - 

A married couple, both in receipt of contributory State pension, one party has pension fund of €800,000. TFC €200K, 4% from ARF €24,000, State pensions €24,481.60, effective tax rate on €48,481.60 is less than 10%.

If the pension fund was €400K - rest of details the same - the effective tax rate would be 1%.

I think we're forgetting how tax efficient it is to be > 65 in this Country.


----------



## ashambles

20 years ago every pound you put into a pension cost you around 45p after tax relief. Now as there's no relief on PRSI on USC every euro you put in costs you almost 60c. That easy-to-forget decision to not provide relief on PRSI and USC is significant and has reduced the attractiveness of pensions. 

Some one now starting a pension is comparing outcomes such as having:-

(a)
600k saved up outside a pension with 100% flexibility to use when and how you want and no income tax on access. 

(b)
With tax relief instead 1000k in a pension with restrictions when and how you access it,  fees on that access, annuity rates that may make no economic sense, there will be income tax, you've to fight Revenue if you want to move the fund abroad,  and right now even holding cash in a pension fund costs you around 1-2% a year.  On top of that you've to worry about arbitrary government levies and changes midstream to tax reliefs.


----------



## NoRegretsCoyote

GSheehy said:


> I think we're forgetting how tax efficient it is to be > 65 in this Country.



Not forgetting the non-means tested benefits that kick in at 70.


----------



## Early Riser

GSheehy said:


> I think we're forgetting how tax efficient it is to be > 65 in this Country.





NoRegretsCoyote said:


> Not forgetting the non-means tested benefits that kick in at 70.



Ah - To be old again!


----------



## fistophobia

LD, the majority of private pensioners will be paying tax at the lower rate, really? 

I don't think so. The fund size you are quoting is on the low side. Most people I know, its a lot more. 

Together with the state pension, you would be well into the higher rate tax band.


----------



## Bronco Lane

I have a DB pension paying €1500 in to my bank account every month. I have nearly €1000 a month being lodged to my account by way of state pension.

When you get to retirement I would hope that you don't actually need your pensions. You will have put away enough through savings, investments etc to pay for all the luxuries that you can enjoy.
My pensions pay all my bills, including some really nice holidays every year. Being a non smoker and a light drinker helps.
I would suggest that you try and make your monies elsewhere, as I did, and when you receive your pension you just treat it as a bonus that comes in to your bank account every month to pay the bills. I am happy to take these as long as it lasts......because I have earned and paid for them.

It's strange, but when you pass through age 65 you start looking for ways to spend as much as you can rather than trying to accumulate more. I still have my investments but I am happy to spend more now rather than accumulate.


----------



## NoRegretsCoyote

fistophobia said:


> I don't think so. The fund size you are quoting is on the low side. Most people I know, its a lot more.



Your friends is not a representative sample!

Very few pensioners pay income tax at the higher rate on their pension income.

I'll dig out the CSO statistics later.


----------



## RedOnion

NoRegretsCoyote said:


> I'll dig out the CSO statistics later.


Why bother?
Just think of a few random people you know, and then say it's representative of the entire population, and criticise others fact based comments.


----------



## Saavy99

Bronco Lane

Very few people can do without their pensions, half the country rely solely on the State pension and the next generation of young people are squeezed to the limit, paying huge income taxes, Hugh mortgages and travelling up two and half hours each way to their jobs in Dublin every day. High childcare costs. How can they contribute towards investments for their retirement, impossible. You are one of the very lucky ones when you sat that you don't need your pensions.


----------



## Bronco Lane

Saavy99 said:


> Very few people can do without their pensions, half the country rely solely on the State pension and the next generation of young people are squeezed to the limit, paying huge income taxes, Hugh mortgages and travelling up two and half hours each way to their jobs in Dublin every day. High childcare costs. How can they contribute towards investments for their retirement, impossible. You are one of the very lucky ones when you sat that you don't need your pensions.


Do you think that we didn't have similar problems back in the 1970's and 1980's. Mortgage rates at 14%? Higher income tax. Blackouts, petrol shortages, no computers, internet etc
Your pension will take care of itself....... concentrate on generating extra wealth for yourself.


----------



## NoRegretsCoyote

NoRegretsCoyote said:


> Very few pensioners pay income tax at the higher rate on their pension income.




CSO SILC data show that  only13% of over 65s have a net income of over €650 a week (€33,800 a year). That includes all income, not just pension income and bear in mind some over 65s are still in employment. So the vast majority of pensioners are *not *paying any tax at the higher rate.

Median income for over 65s is around €350 a week which will see you pay little or no tax at all!


The major draw of pension contributions is that in general you'll get relief at the higher rate as you pay in, but will pay tax at the lower rate as you draw down.


----------



## Sarenco

NoRegretsCoyote said:


> The major draw of pension contributions is that in general you'll get relief at the higher rate as you pay in, but will pay tax at the lower rate as you draw down.


It's probably more accurate to say that pension contributions are relieved at your marginal income tax rate but drawdowns are inevitably taxed at a much lower effective rate - possibly as low as zero.

And, of course, all investment income and gains within a pension wrapper compound tax-free in the meantime.

It's also worth bearing in mind that, as things stand, the over 65s don't pay PRSI and there's no USC on social welfare payments (including the State Pension (Contributory)).


----------



## ashambles

Sarenco said:


> It's also worth bearing in mind that, as things stand, the over 65s don't pay PRSI and there's no USC on social welfare payments (including the State Pension (Contributory)).



Just for accuracy that age I believe is 66, currently planned to be 67 in 2021 and 68 in 2028.  

Going on memory on something I read - I think the main people taking out annuities now are people forced to do so due to their lump sum being larger than 25% - but I'm sure someone will know the details better.


----------



## Gordon Gekko

Bronte said:


> Which is why some of us remember when a few years back Michael Noonon raided Irish pensions.  Made me think that there was no way I'd go for an AVC and that the best bet was to only contribute the amount that got the tax benefit and that got the employer contribution.
> 
> You shouldn't have governement uncertainty into the mix.  Not on something as important as pensions.



If such restrictions didn’t come to pass,I’d be pretty annoyed to be sitting here 30 years from now having followed your lead.


----------



## LS400

NoRegretsCoyote said:


> @LS400 made a claim of 700% growth 1995 to date
> 
> You are claiming max 400% growth and over a longer period.
> 
> You're not contradicting me, if indeed you were trying to.



I see you have a difficulty with one my investment.
The irony of this being, had more finances been made available, I would have purchased a better house in a better area, and made less of a profit over all. Luck did play a part, but it does in every walk of life. Had I known how well it was to worked out, I regret not investing more in the area (Dublin)

So Throwing around this % growth and that % growth means diddly squat... until you cash out.

Im in my 50s, and for the usual suspects on AAM to be peddling the "only way is Pay as much into a pension as early as possible", Get a grip. I paid off my mortgages with every thing I had. Paying into a pension was way down the list. I had great holidays with the kids, grown up now, great memories, and still pay a modest amount into my private pension. Spreading the egg baskets around.

 Variety is the spice of life here. Ive done well out of the property market "to date", ie, if i were to cash out now, and Im saying this without any smugness, would be very comfortable, and,  many times better off than any Pension i could have afforded.
At the same time, 10 years from now, it could be wiped out with a terrible property crash.... Which expert here wants to stick their head above the parapet and claim to know what lies ahead. ??

The hard fact still remains, my €30k is worth a heck of a lot more than had I given it to an Expert ( No disrespect here to Stephen) to handle for me. Yes I invested time in this, but so did the expert in monitoring the performance of their clients investments. Luck played a part with its location not being as undesirably as it was then, but Luck plays its part every day with investments. 

I said before here, there is a roll for (Good) pension advisers, I just want more out of life!!, 

As for paying into a pension for your working life?,
This really only applies to the high earners who can afford to load their payments into it, and at the same time enjoy a very comfortable life style.


Look at Bit coin, It was almost dead in the water 9 months ago, Intelligent people had it all but buried!! Luck has a lot to do with it .  




NoRegretsCoyote said:


> Uncertainty is part of life.



You need to absorb what you say.


----------



## cremeegg

LS400 said:


> Variety is the spice of life here. Ive done well out of the property market "to date", ie, if i were to cash out now, and Im saying this without any smugness, would be very comfortable, and,  many times better off than any Pension i could have afforded.
> At the same time, 10 years from now, it could be wiped out with a terrible property crash.... Which expert here wants to stick their head above the parapet and claim to know what lies ahead. ??



I am happy to take this up.

Although I firmly believe that you cannot tell the future, there is no doubt that there will be another property crash , at some point.

The question for the property investor is, will you be a forced seller when that happens. Forced either by finances or by personal circumstances. If not then the property price is not hugely important.


----------



## Sarenco

LS400 said:


> I purchased a property for €30000 24 years ago, and I just let it run its course also, its value is €240k.


So, you purchased a property for IR£23,600 (€30k) back in 1995, "just let it run its course" and you now reckon it has a fair market value of €240k.  Right?

Sorry but that's just not plausible.  

You couldn't possibly have picked an individual property that outperformed the broader Irish property market over the last 24 years to that extent.


----------



## LS400

Well that's just it, my property prices today are totally meaningless. They will only become an issue for me within the next 10 years.
Also, as an aside, I just completed a sale very recently, all the advice from the "experts" was how this is the  wrong time to buy, maybe it is, maybe it's not, but this is part of my pension for the next 10 years. And I'm happy to take a punt on it... Speaking of Punts.. It was 30000 punts spent on1995..

Il let the "experts" split the hairs over that one..

Don't take it personally lads, but I'd be a lot poorer today if I were to follow the advice of some folk here.

LS


----------



## Sarenco

LS400 said:


> Speaking of Punts.. It was 30000 punts spent on1995..


Ok, so the purchase price in 1995 was €38k - and not €30k as per your original post.

And you reckon that property has increased in value by well over 500%, during a time period when Dublin property prices in general increased by around 300%.

Sorry, that's still not plausible.


----------



## sidzer

Interesting thread!

I had thought that an annuity would pay out @5.5%. It seems that I need to readjust my expectations! 

After reading this thread I am going to re-look at buying back years notional service.


----------



## Bronte

Gordon Gekko said:


> If such restrictions didn’t come to pass,I’d be pretty annoyed to be sitting here 30 years from now having followed your lead.


And how would you feel if you were one of those affected by what Noonan did?


----------



## Gordon Gekko

Bronte said:


> And how would you feel if you were one of those affected by what Noonan did?



I wouldn’t really care to be honest. A quasi solidarity tax of a fraction of a percent of my fund during one of the most difficult periods in the history of the State certainly wouldn’t stop me building wealth for my family via my pension fund.

Turning one’s back on pension funding seems like a serious overreaction.


----------



## Bronte

Sarenco said:


> So, you purchased a property for IR£23,600 (€30k) back in 1995, "just let it run its course" and you now reckon it has a fair market value of €240k.  Right?
> 
> Sorry but that's just not plausible.
> 
> You couldn't possibly have picked an individual property that outperformed the broader Irish property market over the last 24 years to that extent.


Are you saying he's making things up. I bought in early 98, sold in late 2002 and the propety went up 100%.  That's cost price, renovations, a bit of extra ground, more renovations.  Rented in between.  Thank goodness for indexation and CGT at 20%.

And I've two siblings I know bought low and sold high.  One went on to build a mansion (since sold) and the other, well it's all gone now, the gains and more besides.


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## Bronte

Gordon Gekko said:


> I wouldn’t really care to be honest. A quasi solidarity tax of a fraction of a percent of my fund during one of the most difficult periods in the history of the State certainly wouldn’t stop me building wealth for my family via my pension fund.
> 
> Turning one’s back on pension funding seems like a serious overreaction.


I'm not advocating that at all, just that not to have all your eggs in one basket.  Stories like Enron, Waterford Glass and something in Cork make people like me worry about guaranted pensions.


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## Sarenco

Bronte said:


> Are you saying he's making things up.


I said it wasn't plausible that an individual property in Dublin had increased in value by well over 500%, during a time period (1995 to 2019) when Dublin property prices in general increased by around 300%.

Are you suggesting the figures are plausible?


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## Gordon Gekko

Bronte said:


> I'm not advocating that at all, just that not to have all your eggs in one basket.  Stories like Enron, Waterford Glass and something in Cork make people like me worry about guaranted pensions.



But they’re complete red herrings; Defined Benefit pensions can turn out to be magic beans but my defined contribution “pot” is “mine”. In the worst financial crisis in history, a fraction of one percent was “raided” for a few years; no big deal in my view. It’s still the best way for me to buy rioja and fillet steak in retirement.


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## Gordon Gekko

Sarenco said:


> I said it wasn't plausible that an individual property in Dublin had increased in value by well over 500%, during a time period (1995 to 2019) when Dublin property prices in general increased by around 300%.
> 
> Are you suggesting the figures are plausible?



My parents moved house in ‘95 as it happens; the value of the property is approximately 400% higher today.


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## NoRegretsCoyote

Gordon Gekko said:


> My parents moved house in ‘95 as it happens; the value of the property is approximately 400% higher today.



That's plausible. Assume the market increased 300%, your parents only outperformed by a third which can happen as relative prices of areas and property types shift.

The original claim was 700% from 95 til today (over double the performance of the market) which I don't think is plausible no matter where the property is.


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## Gordon Gekko

Sounds OTT alright. Perhaps a “development land” element?


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