# Should I put more into pension & savings?



## Johnnyinthesky (6 Sep 2021)

Age: 48
Spouse’s/Partner's age: 49

Annual gross income from employment or profession: New Business since last year - 40k approx
Annual gross income of spouse: 50k approx

Monthly take-home pay - Depends - both self employed/ freelance.

Type of employment: e.g. Civil Servant, self-employed - Both Self employed

In general are you:
(a) spending more than you earn, or
(b) saving?

We are breaking even, not saving but not having that much debt.

Rough estimate of value of home 1 million + (see below)
Amount outstanding on your mortgage: 140k. Costing us about 890€ per month (covered by rental below) 12 years outstanding.
*What interest rate are you paying? Tracker from EBS*

Other borrowings – car loans/personal loans etc
I have a car loan of €13,000 paying €350 per month.

Do you pay off your full credit card balance each month?
If not, what is the balance on your credit card? Neither of us have credit cards.

Savings and investments: €3000 in savings. Kids education fund invested via financial advisor. About 45k in that right now.

Do you have a pension scheme? We both have pensions which we fund. My wifes is €190K value. Mine €60K

Do you own any investment or other property? Yes. An adjoining apartment which we let under rent a room for €1100 per month. Good area so rent will be stable.

Ages of children: 14 & 12

Life insurance: Yes as per advice from our financial advisor.


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

We are both very much not into flashy cars, big spending etc. We are in the lucky position of my wife and I sharing a good outlook on money - we dont get into debt, keep living life with small pleasures, holidays in ireland, eating out  a little etc. neither of us very much into 'things'.
We are in our forever home which we have refurbished fully and which my wife will inherit once her parents pass on. My wife is an only child and will inherit this house, two more small rental houses on our site, land and cash assets. My parents in law are very progressive and we have had lots of discussions about tax efficient ways to pass on wealth to us etc. Have a goodish finanical advisor who also looks after their cash & assests etc. They are very wealthy but very sensible (sold a second home in Dublin for 1.4 million etc) So very much asset and cash rich.

I had a long period of being unable to work full time due to depression which I am now managing well. Being self employed allows me to pick & choose and be less stressed. Our kids get to see us more and we live in the country so good quality of life.

My main question is that neither of us have great incomes or big pensions. Tracker is great - as is rent a room paying for it. We dont have much savings. Is this an issue? Should we be working harder? We appreciate this is an unusual situation and not the norm.
Our financial guy is good and knows my parents in law finances so has insight on value etc and says to us to enjoy life, tick along and put a bit more into our pensions. He is not at all pushy as he says that inheritance even after CGT etc will provide for us. Thats grand but I get a little anxious about not earning enough or having a big pension. He points out that our lifestyle is low cost, our debt is low, kids have some college provision (grandparents have some for them too) and that once tracker is paid our rental will add to our income. Interested to hear others opinions and apologies for the long post.


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## HollowKnight (6 Sep 2021)

Johnnyinthesky said:


> We are in our forever home which we have refurbished fully and which my wife will inherit once her parents pass on. My wife is an only child and will inherit this house, two more small rental houses on our site, land and cash assets.



Can you clarify this? You are in a home worth 1 million with remaining mortgage of 140k. But you then go on to say your wife will inherit it? Do you mean she will inherit her parent's home?


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## NoRegretsCoyote (6 Sep 2021)

I'm a bit puzzled as well about what you own right now and what you will inherit.

Otherwise for your your age and income level your pension funds are both pretty low. I would divert more of your wealth into pension if you can.

As the old saying goes "you can't eat a house".


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## mtk (6 Sep 2021)

Sounds a bit messy/unclear tbh as to what your current net worth is. What is the financial adviser saying about the future inheritance tax etc ?


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## Brendan Burgess (7 Sep 2021)

As of now, you jointly own an apartment which you have an income from. 

You have rent-free accommodation. 

Based on your income and expenditure, it does not seem clear to me that you can contribute more to your pension.  You are saving about €9,000 a year through paying down the capital on the mortgage. 

You could sell the apartment and release this cash to contribute to your pension funds.  But I would guess that as it's attached to your home, you want to keep control of it.  Furthermore, if anything goes wrong with the inheritance or your marriage, it's no harm retaining ownership of a family home.


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## Brendan Burgess (7 Sep 2021)

If I were advising you and her parents together, I would advise that they should give you cash now to allow you to maximise your pension contributions.  

If you get it all in 20 years, it will be great but it would be more useful now. You can contribute up to 25% of your income now and 30% when you hit 50.  So about €25k a year between you. 

Brendan


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## Brendan Burgess (7 Sep 2021)

Is there a Gift Tax liability on occupying a €1m house tax-free?  I don't know, but I would certainly confirm this one way or the other. 

I would also think about the Capital Gains Tax on the home you occupy. 

If they give that to you when they die, the CGT will disappear. 
If they give it to you now, they may have a CGT liability. 
But any increase from now until when you inherit it would be free of CGT. 



Brendan


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## Brendan Burgess (7 Sep 2021)

Johnnyinthesky said:


> Have a goodish finanical advisor who also looks after their cash & assests etc.





Johnnyinthesky said:


> Our financial guy is good and knows my parents in law finances so has insight on value etc



Has he a fully documented written plan covering all the issues I have raised here?

If not, he is not good or even goodish.

I think all four of you need to see a Certified Financial Planner, the highest level of qualification in this area.

Brendan


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## time to plan (7 Sep 2021)

Brendan Burgess said:


> Is there a Gift Tax liability on occupying a €1m house tax-free?  I don't know, but I would certainly confirm this one way or the other.


Useful article here.









						‘How does Revenue view adults living rent-free in parents’ property?’
					

Q&A: ‘Our daughter is living in an apartment we own’




					www.irishtimes.com
				






> If you are providing her with a home rent-free, the market rent for the property is considered a gift.
> 
> The first €3,000 a year from each of you and her father (assuming you are both joint owners of this property) is not taxed as it is covered by the [broken link removed]. The balance will be set against her lifetime [broken link removed] (inheritance tax) threshold.
> 
> ...


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## Brendan Burgess (7 Sep 2021)

So if you live in a home worth €1m, it's reasonable that the rent would be €36k a year, minimum. 
That means that you are getting a gift of €15k a year each which is using up your CAT allowance and your wife's. 

Don't know how a gift from the parents in law is treated. 

Brendan


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## Johnnyinthesky (7 Sep 2021)

NoRegretsCoyote said:


> I'm a bit puzzled as well about what you own right now and what you will inherit.
> 
> Otherwise for your your age and income level your pension funds are both pretty low. I would divert more of your wealth into pension if you can.
> 
> As the old saying goes "you can't eat a house".


We have mortgage on the apartment. House is her parents, apartment being paid off by rent a room scheme. I assume it will be an income source for us. House will be left as inheritance in the future. The asset/mortgage we own is the apartment.


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## Johnnyinthesky (7 Sep 2021)

Thanks all.
It is a very complex situation as I have detailed. I very much appreciate the insights esp those from Brendan - I will answer these in order of above posts.

Firstly mortgage: (My first figures were incorrect)
Balance is €144,000
Rate is 0.95 Tracker
Term remaining is 17 years based on current.
Payment is €890 per month

On Rent A Room -yes it does qualify and I have checked this with revenue. It is attached to and was part of the main house so therefore qualifying.
I also checked if we can rent it out even though we are not the owners of the main house and we can provided in laws allow which they do. 
The rent for the apartment at market rate would be only marginally higher (I checked with the letting agent today - we could get €1200 a month) but we would pay tax on it (but maybe not muxch as we are low earners). So not much point switching off rent a room while we qualify. Currently the rent a room rent is €1100 a month.

Selling the apartment - no not really - it would be difficult and devalue the main building. Regarding break up with my wife (hope not  ) we already have an agreement protecting her interest and mine and the value I will leave with if that were to happen.

I agree with Brendan re more cash now for pensions - much more useful. However my parents in law are paying into a fund that can be offset against inheritance tax in future ( I thnk its a Section 72?)
They are also maximising ( I have to check) their €3000 each for each member of our family into a savings account each year. Not sure what this fund value is. That should be 6000 per family member per year? (2 of us, 2 x kids). I do feel a bit weird about this not coming directly to us when it could be used for pensions etc.

Gift tax: We know there is a liability here - we are living here for free which allows us to do rent a room in apartment. I have done a rough (based on inflation & talking to rental agent) calculation to work out how much rent at market rate we would be paying for the last 10 years we have been here and lets say for the next ten years - this comes to €420,000 over the twenty years. Obviously we can offset some of the €3000 tax free gift fund off this but its still significant - and what if we are using the €3000 gift to fund pensions. Apparently the fund towards inheritance tax will cover this but I am not sure at all.
Maybe we should move back to the apartment and not incur this rent - better in the long run? Then my parents in law can rent it or whatever and leave it to my wife.
 It seems we cannot use Dwelling relief either as we are not over 65 on inheriting and we have an interest in our apartment as a primary residence.
What is very apparent to me - this was a great exercise - is that the financial guy does not seem very on the ball. Maybe he has a master plan but we need to see more of it. Bear in mind there are two ther houses forming part of the property also rented and land & cash. Sizeable.

We can of course continue doing what we are doing, pay our bills, sell the whole lot, pay capital gains and retire on whats left but thats not really a strategy.

Final note is that the apartment was gifted to my wife with a value of €190K so thats already eaten up a chunk of her allowance (315K)?

Would welcome any further opinions & thank you Brendan for taking the time earlier to highlight your points.

I need a new advisor for a second opinion. How do I do this - what credentials should I look for? 

Thanks all


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## huskerdu (7 Sep 2021)

That's a lot of useful information. 
I still have a question about the apartment, 

If your wife was gifted the apartment, why do you have a mortgage?  Did you get an equity release mortgage. If so where's the money ?


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## Itchy (7 Sep 2021)

Johnnyinthesky said:


> They are also maximising ( I have to check) their €3000 each for each member of our family into a savings account each year. Not sure what this fund value is. That should be 6000 per family member per year? (2 of us, 2 x kids). I do feel a bit weird about this not coming directly to us when it could be used for pensions etc.



I'm not sure if it qualifies as a gift unless you have unconditional access in order to benefit from it. If its in an account in their names, then I don't think it classifies as a gift to you. (No source on this, just a question).  

So the financial advisor is aware of a cash account with c. €24k per year going into it, which you're not spending, but you also have unused tax relief and mortgage interest? Sounds very inefficient.


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## RedOnion (7 Sep 2021)

Itchy said:


> I'm not sure if it qualifies as a gift unless you have unconditional access in order to benefit from it. If its in an account in their names, then I don't think it classifies as a gift to you. (No source on this, just a question).


You don't need to have access to it.  Just be the beneficiary.  This is for the OP's minor children - it's very common to use a bare trust in this scenario (I have one for my own children).


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## Johnnyinthesky (7 Sep 2021)

Itchy said:


> I'm not sure if it qualifies as a gift unless you have unconditional access in order to benefit from it. If its in an account in their names, then I don't think it classifies as a gift to you. (No source on this, just a question).
> 
> So the financial advisor is aware of a cash account with c. €24k per year going into it, which you're not spending, but you also have unused tax relief and mortgage interest? Sounds very inefficient.


I think it does as long as there is a paper trail/ record of it. It might be more useful going into our pensions tho.
Mortgage interest he would say is minimal as it is a tracker and he says just let it tick along till it finishes. Probably makes most sense to focus on the pensions/ savings?


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## Steven Barrett (7 Sep 2021)

You, your wife and in laws should get expert tax advice on the housing arrangements to ensure that there are no nasty surprises. Your financial advisor may be a good advisor but he probably just doesn't have the expertise in this area. You need to get it. 

On education, if you are living in the country, can we work on the assumption of your children moving out to go to 3rd level? Will you have enough to fund that? Are you in laws going to pick up the difference? 

It is great that you have been able to go self employed to reduce the pressure and stave off the depression. That should be seen as the most important thing out of all of this. But things need to be structured so you have your own money and independence away from your wife's parents. Putting money into a pension is the most efficient way of doing this for yourself and your wife. But pay for good tax advice now. 

Steven
www.bluewaterfp.ie


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## Johnnyinthesky (7 Sep 2021)

Hi Steven
Thank you very much for your kind email. Yes I think health is the most important thing. Being not able to work is difficult but I am back earning and that will hopefully grow in time. I think given the fact that I worked out/ researched the main house tax/ gift implications and it was news to my advisor on a call today would lead me to believe that I do want to get better advice...

Education wise I think there is 40K there in an account from my kids late grandparents so we need to add to that. There is also the other bare trust fund as mentioned above which gets €6000 from each grandparent per year (Red Onion called it a bare trust fund). This will go some way towards funding college.
I do want to be self sufficient with pension for myself and my wife too. I am not really that attached to the house etc though so I'd be happy if it all got sold and we used the proceeds. My wife might think differently but its a big space for two people if my kids & parents in law were not here. Its a great asset but also needs to be managed for no surprises.


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## Brendan Burgess (7 Sep 2021)

For a complex set of circumstances like this you should not be paying commission to an advisor. You should be paying a professional fee on an hourly rate. And that professional will refer to other tax specialists as necessary.

Steven is a  Certified Financial Planner which is the qualification I recommended.

Check out your own guy to see what qualifications he has.

And have you got his advice in writing?

Brendan


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## Itchy (7 Sep 2021)

RedOnion said:


> You don't need to have access to it.  Just be the beneficiary.  This is for the OP's minor children - it's very common to use a bare trust in this scenario (I have one for my own children).



I understood it was for the benefit of the four family members. Is it a bare trust? @Johnnyinthesky in only called it a bare trust after you mentioned it. Is it? How can a bare trust hold assets that the OP/spouse is a beneficiary of (edit: do the assets not vest to the beneficiary when they are 18)? 


Johnnyinthesky said:


> I think it does as long as there is a paper trail/ record of it. It might be more useful going into our pensions tho.
> Mortgage interest he would say is minimal as it is a tracker and he says just let it tick along till it finishes. Probably makes most sense to focus on the pensions/ savings?



Absolutely, in terms of utility, tax relief > paying off mortgage > deposit interest. Seems inefficient to have assets on deposit (that you are the beneficiary of?) when you could get greater utility from the assets elsewhere. Not knowing your full circumstances, your financial advisor may have had a reason to advise this but it does not seem correct, on the face of it.


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## RedOnion (7 Sep 2021)

@Itchy apologies, I misread and thought it was only for benefit of the children.  I see now it includes the adults.


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## Steven Barrett (8 Sep 2021)

Brendan Burgess said:


> For a complex set of circumstances like this you should not be paying commission to an advisor. You should be paying a professional fee on an hourly rate. And that professional will refer to other tax specialists as necessary.
> 
> Steven is a * Chartered Financial Planner* which is the qualification I recommended.
> 
> ...


Correction: I am a Certified Financial Planner


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## Brendan Burgess (8 Sep 2021)

Apologies.  Corrected now. 

This is the body to which I referred: 



			FPSB | Financial Planning Standards Board Ireland DAC


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## Steven Barrett (8 Sep 2021)

Brendan Burgess said:


> Apologies.  Corrected now.
> 
> This is the body to which I referred:
> 
> ...


Yes, that's the body that I am a member of. They managed the CFP designation in Ireland.


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## Johnnyinthesky (8 Sep 2021)

Meeting the financial advisor next week.
What questions do you all think I should ask?
My parents in law and I have also talked and they are seeking a second opinion. Its too complex for the guy they have I think.
Thank you all VERY much for getting a fire under me - I was wandering around the issue and not really addressing it.


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## NoRegretsCoyote (8 Sep 2021)

Johnnyinthesky said:


> What questions do you all think I should ask?


From having perused your post:

You need clarity on whether use of rent-a-room scheme is valid;
Are your parents-in-law using the €3k tax-free gift exemption as much as they can?
Can you tax-efficiently top up your own pension fund?
Life insurance - are you over-insured? Your wealthy parents-in-law and future inheritance seem to be providing a lot of natural insurance.


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## Brendan Burgess (8 Sep 2021)

1) What is your qualification? Are you a Certified Financial Planner? 

Leave if he is not.

Brendan


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## Johnnyinthesky (8 Sep 2021)

NoRegretsCoyote said:


> From having perused your post:
> 
> You need clarity on whether use of rent-a-room scheme is valid;
> Are your parents-in-law using the €3k tax-free gift exemption as much as they can?
> ...


All great points. I do think the rent a room is valid but if it is not then I need to replace that income through salary.
3K Exemption I imagine is being used - its a kinda fundamental one to be using but I take the point that it should really be used for our pensions as it will deliver more growth than sitting in a bank account.
Life assurance - I will check. Yes there is a cushion there if we ever needed it - we never ask though but I do think the discussion should be aroiund what we are facing in tax bills in the future and what we should be doing now to offset this.


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## Steven Barrett (8 Sep 2021)

Brendan Burgess said:


> 1) What is your qualification? Are you a Certified Financial Planner?
> 
> Leave if he is not.
> 
> Brendan


A CFP qualification isn't a cast iron guarantee. In order to boost their numbers, the FPSB allowed brokers who work on commission at banks and insurance companies use the designation (there are lots of good people working in banks and insurance companies but they have no choice but to charge commission).

For anyone looking for an advisor and they aren't sure, the simplest way is to ask them if they will work for a fee. 


Don't send them a list of questions that you find off some American website, it isn't relevant to Ireland. I have received a number of emails from people with a list of questions pulled off the internet. I never reply. Advisors can pick who they work with too.


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## Johnnyinthesky (8 Sep 2021)

Brendan Burgess said:


> 1) What is your qualification? Are you a Certified Financial Planner?
> 
> Leave if he is not.
> 
> Brendan


I think this is an important point. I need the best - all round advice to see the situation from all angles. Thanks Brendan.


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## Brendan Burgess (9 Sep 2021)

I have moved the Rent a Room discussion to 






						I get Rent a Room Relief although I live in an attached property which I don't own.
					

Extracted from a separate thread  Do you own any investment or other property? Yes. An adjoining apartment which we let under rent a room for €1100 per month. Good area so rent will be stable.



					www.askaboutmoney.com


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