Pension @ 35

[seamuskangarooo]

Hi all,

I recently turned 35. Started a 35 year mortgage last year. Live with partner and child.

Earn 38k base, with commission pushing it up to 45ish.

I can probably only afford to put away €150 a month at the moment allowing for savings, although could contribute more when commission comes in each quarter.

Anyone have any advise as to what the best route to take regarding pension would be? Although it may change, there currently wouldn't be a contribution from my employer. I presume the sooner I start the better?

Thanks.

 

[ClubMan]

What are the details of your mortgage?
It may make more sense to defer pension savings until this is down to a manageable/comfortable level.

Do you have other (unsecured) debts?
What are your overall financial circumstances?
You might be better off posting in the Money Makeover subforum:

Money makeover

Budgeting and dealing with debt moved to Mortgage Arrears and Debt Forum .

www.askaboutmoney.com

Otherwise, a good option might be a low charges PRSA mostly or fully invested in equities.
Ideally the charges should be nothing off contributions (i.e. 100% allocation) and an annual management fee of 0.75% (or lower if you can get it).
There should be lots of existing threads about PRSAs and charges etc.

Might also be worth reading this key post:

Key Post - Key Posts on Pensions

Topical issues Retiring - should I take a higher lump sum in exchange for a lower pension? Key Post Pay down your SVR mortgage before starting a pension, but don't leave it too late What should I do with my pension from a previous employer? Employer pension schemes are better...

www.askaboutmoney.com

 

[Flybytheseat]

Only a very small portiton of your income if any at all will be subject to higher rate (40%) income tax so a pension contribution unless matched by your employer doesn't seem like the best option for you. Preferable would be to use whatever you can save to pay down your mortgage.

 

[ClubMan]

Only a very small portiton of your income if any at all will be subject to higher rate (40%) income tax so pension contribution unless matched by your employer dont seem like the best option for you. Preferable would be to use whatever you can save to pay down your mortgage.

Even a 20% "topup" on pension contributions by way of standard rate tax relief is not to be sniffed at - especially since a pension offers tax free growth and a significant tax free lump sum at retirement.

However, ignoring that, I agree that there may be good reasons for deferring pension saving in this case depending on details not yet posted.

 

[seamuskangarooo]

Thanks for that. In terms of mortgage I'm on a 2.7% fixed rate for 5 years. So 4 years to go on that.

Only other debts are a 5,000 loan being paid back over the next 3 years. Also putting away around 400 a month into a savings account.

Looks like I'd be best overpaying on the mortage at the moment rather than contributing to any pension fund, and possibly diverting the monthly savings into that also? Currently have 3 months salary worth of savings.

 

[Brendan Burgess]

It's best to fill in the MoneyMakeover as ClubMan has suggested.

All the issues like the amount due on your mortgage and the income of your partner, if any, are really critical.

The general principle is that if you have a high mortgage, you should pay it down before you start a pension. (But if the other loans are interest bearing, then you should pay them down ahead of your mortgage.)
And if you are getting only 20% tax relief on your pension, you should not be contributing to a pension. Wait until your income improves so that you are getting 40% relief on it.

But fill in the Money Makeover.

brendan

 

[Fortune]

A common error.

If you pay in €1000 in 2023 when the tax relief is 20%, it costs you €800.
If you put the money in a savings account instead and wait until your tax rate goes up to 40% , then it will cost you only €600.

If the OP were 60 and unlikely to ever pay 40% tax, then you would be correct.

Brendan

OP's income is €45k, so the proposed €150 a month would likely get 40% tax relief.