29 Year old married couple unsure to invest in pension or reduce mortgage term

[Cluelesscouple]

Personal details
Your age: 29
Your spouse's age: 29
No children

Income and expenditure
Annual gross income from employment: 85000 – Will increase to 125000 next year – Planning to be earning >200000 in 5 years
Annual gross income of spouse/partner: 85000 will increase to 100000 in 2y, May have maternity leave over the next 5 years

Monthly take-home pay: 8000 (combined)

Type of employment: Employees
Employer type: Junior doctors, will be moving into the private sector

In general are you:
saving ~1500/month between us

Summary of Assets and Liabilities
Family home value: 400000
Mortgage on family home: 237000 over 20 years at 4year fixed 2.05% since October 2022, now down to 219000
Net equity: 181,000

Cash:
Savings: 55,000 between us
Defined Contribution pension fund: HSE Public pension fund
Company shares : 0


Family home mortgage information
Lender: PTSB
Interest rate: 2.05%
Type of interest rate:, fixed.
If fixed, what is the term remaining of the fixed rate? 2 years 3 months
Remaining term: 18years 3 months
Monthly repayment: 1204.56
Overpayment: No associated fees - as per phone call today

Other borrowings – car loans/personal loans etc: No

Pension information
Value of pension fund: Unsure. Both paid into it for 3 years of HSE pension

Buy to let properties: No


We are junior doctors and are unsure what direction to go with our money. Until now we have been saving for a mortgage deposit and for a wedding.

People have been very generous and we now have some money and are hope to continue saving. We plan to have children over the next few years so my wifes income will hopefully take a hit in that time. She plans to continue working after her maternity leave period(s).

We will be changing to the private sector in the next 2 years and need to think about pension schemes. However we are not sure whether to do this now or in 1 and 2 years when we make the change.

We also have a mortgage and would be keen to reduce the term if possible so we are paying less interest.

We would like some guidance on 1) where would be a good option for pension schemes, 2) whether it would be better to invest in the pension now or wait until we have moved to the private sector and 3) whether it would be a better option to overpay the mortgage with no charge to reduce the term.

 

[Protocol]

Quick point: Public service pensions are unfunded. There are no funds, so there is no "value of pension fund".

Sorry I don't have much to add, but I suppose one question is: if you leave the PS, and move to the private sector, will you be employees, or self-employed doctors?

The answer may affect your pension planning.

 

[Cluelesscouple]

Quick point: Public service pensions are unfunded. There are no funds, so there is no "value of pension fund".

Sorry I don't have much to add, but I suppose one question is: if you leave the PS, and move to the private sector, will you be employees, or self-employed doctors?

The answer may affect your pension planning.

Thanks.

Initially employees for a period of 2-5years and then self employed ideally.

 

[Steven Barrett]

In moving to the private sector do you mean becoming GPs?

What are the chances of you remaining in your current home?

If you are going to leave the public sector in the next few years, I wouldn't focus on building up AVCs. Your AVCs will be linked to your HSE pension, which you won't be able to access until 66 (or maybe later).

I'd look at paying debt and building cash reserves if you wife will be taking maternity.

 

[BigBoots82]

I wouldn't reduce the mortgage term if I were you. Better to have a longer term with scope for overpayment a long the way which it looks like you do currently and would in any case when the fixed term expires. The lender is unlikely to let you increase the term later if you change your mind. Restructuring of that nature is typically only considered for those in financial difficulty.The fixed rate you have currently is less than inflation therefore in real money terms inflation is eroding away some of the asset value to the lender. If you can do better than 2.05 after tax through another form of investment there are arguments that you would be better off overall doing this.

 

[_OkGo_]

We would like some guidance on 1) where would be a good option for pension schemes, 2) whether it would be better to invest in the pension now or wait until we have moved to the private sector and 3) whether it would be a better option to overpay the mortgage with no charge to reduce the term.

I think you are asking all the wrong questions and focusing on all the wrong things.

At 29, you have combined income of €170k which will soon increase to €225k. You already have net worth of €235k. You have huge potential for higher earnings and even when you go private, you are unlikely to ever face unemployment.

You need to put that into perspective and focus on the right financial decision for you as a family.

Family home value: 400000

A €400k house doesn't buy a lot these days especially if you are near any kind of city or urban centre.

You are planning a family and have high income so you should buy the house you really want now before kids come along. Your age allows you to borrow for up to 35 years so I don't think it is unreasonable to buy in the €800k - €1m range.

That would give you mortgage payments in the region of €2.5-3k but this should be very manageable on your income even while you have maternity gaps. When you are both working you can overpay it to bring it down to a more comfortable level

Other than that, your earning potential means you are very likely to reach the SFT without much effort so starting a private pension is less critical for you right now. Wait until you move to private sector employment and see what your options are.