Another Pension or Cash question....

Do you have any plans for that 100k? Specific needs like children education? I understand having a big buffer, just in case, because things can happen and actually did for us. Knowing that we could deal with them financially made our lives less stressful. But, to be honest, if you have no plans for it, it will probably just keep accumulating with no purpose and really little return. That's fine for now if you don't want to take a bigger step in terms of avc. However, I would encourage you to review it in a few months or next year... Years crip in quickly. You can change your contributions at any time, so even if you decide to contribute more temporarily, you can return to lower contribution later in life. While you might not think about pension in your early 40s, you probably will in your early 50s.
 
Last edited:
no plans just to accumulate it further. We have one child and already have a fund in place for college so the money doesnt really have a home. Its just a very strong pyschological pull for me to build cash where i can see it, hard to explain really. yeah i will re-evaluate and increase the contributions if i decide that but for now 10% AVC is a good starting point i think
 
Sorry to come round to this again but is this correct ?

lets say for example that i contributed 10% AVC instead of 20% , this would give me an extra 420 cash into my hand each month

If i used the extra 10% in the pension then it would be roughly 750 euro a month extra into that so the pension is the winner here

But is it correct to apply 20 or 40% tax on that 750 to account for withdrawing the cash upon retirement so the 750 then would be 600 if tax at 20% and around 400 if taxed at 40%

Is it right that if you pay the higher rate of tax on pension withdrawls then there is no benefit to just saving cash instead ?Is the pension only tax efficent if withdrawing at the 20% rate at retirement
 
Maybe it's easier to explain by way of an example.

Let's say you amass a pension fund of 800k by 65. You take a lump sum of 200k and buy an annuity with the balance that pays you 2,000pm.

Assuming you have a dependent spouse and no other income, you would pay zero tax on all drawdowns!

Why?

The 200k lump sum is tax free.

When you turn 65 with a dependant spouse, the threshold at which you start paying income tax effectively jumps to 36k and there is no PRSI on your income once you reach 66.

So, in this example, 40% relief on all contributions and zero tax on all drawdowns.

You can play around with different fact patterns but contributing to a pension is always the best way to save for retirement (at least until your pension fund gets close to 2m).
 
Thanks. I will push my total contributions to 25% as i like the idea that it may allow earlier retirement
 
You must log in or register to reply here.
Menu
Log in
Register