Best Investment Strategy once Mortgage paid off

T

turing

Registered User
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Hi folks,

We are currently heavily overpaying mortgage (~ 1900 euro overpayment per month). Currently ~54000 euro outstanding mortgage balance, so due to clear it by end of 2025.

My question is regarding the best investment strategy after clearing the mortgage (quick summary of our situation: we have no other non mortgage debts, I am 36yo, married, single earner 90k per annum, wife full time mum, and we have 20k emergency fund in cash, I have 93k in occupational pension and am currently maxing age related tax relief pension contributions, 26k pounds in UK occupational pension, paying voluntary contributions for Uk state pension, wife has negligible amount in PRSA).

So I am trying to decide between 2 investment strategies once we have paid off the mortgage.

1) Overfund my occupational pension beyond age related tax relief amount.
-main advantage is the additional funding would grow tax free which could get my pension value up to ~800k by age 50 based on ~3% per annum real return (then take 200k lumpsum tax free). For me ~800k is the ideal pension size for providing enough for retirement but minimising tax (after taking 200k lump sum, 4% per annum of 600k is 24k which won't attract much income tax)
-main disadvantages are the pension can't be accessed until age 50 ( I am currently 36) and I won't get tax relief unless I work beyond age 50 and claim the tax relief retrospectively (I think Marc Westlake mentioned this in an earlier thread).

2) Invest outside pension (in say Zurich Dynamic Fund which would attract Deemed Disposal/Exit Tax at 41%).
-main advantage is that I would be building up a substantial fund outside my pension (~200k by age 50), but should also have a lower but still substantial pension fund of ~550k by age 50. So all my eggs would not be in one (pension) basket.
-main disadvantage is the Deemed Disposal/Exit Tax at 41%.


What do peoole think? Strategy 1 or 2?


Turing
 
turing said:
wife full time mum
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You've only listed 2 options. Will your wife ever return to work? If she will, you could start funding a PRSA now, and claim tax relief retrospectively when she returns to work.

Remember even in retirement, you will each have tax bands. It's not tax efficient for one of you to have a massive pension pot and the other very little.
 
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Hi.
You're doing very well and are in a very good financial position. I don't think Option 1 is prudent in your circumstances (married, 1 income, children) as your 40's are likely to be an expensive time for you and your family so better to have some savings you can access. Remember you will also be paying some tax on your pension when you draw it down so you'll be taxed on the double on the pension overfund. Option 2 is more prudent. If you wish to avoid the deemed disposal & 41% disposal tax then a better option would be to invest directly in a diversified basket of shares (though this will mean you'll need to file a tax return every year for the dividend income).
 
We’re you born in the U.K. and moved to Ireland or have you returned home.

Often missed is the ability to make contributions to a Stakeholder pension with tax relief at source for 5 consecutive tax years after leaving the Uk
 
Marc said:
We’re you born in the U.K. and moved to Ireland or have you returned home.

Often missed is the ability to make contributions to a Stakeholder pension with tax relief at source for 5 consecutive tax years after leaving the Uk
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Hi Marc, born in Ireland, moved to UK , worked there for 7 years then returned to Ireland
 
Hi RedOnion, we have 2 children (2 and 4), and may have a 3rd child so I am being conservative by assuming my wife won't return to work full time during time period from now to age 50.

My wife does have a PRSA - Zurich Dynamic Fund via LA Brokers (recently setup), and the child benefit (140 euro x 2) is sent to this each month. As this is a PRSA rather than an occupational scheme she won't get access to it until age 60 (rather than 50).

I agree that building up her pension as evenly as possible with mine would be more tax efficient (due to individual tax bands after retirement) but it not getting access to it until 60 is the sticker for me (50 yo seems more closer). Otherwise I'd consider a third strategy of funding her PRSA each month once the mortgage is paid off with the money we are currently using to over the mortgage.
 
Hi Flybytheseat,

What's interesting about Option 2 is that in many ways its follows the same strategy that we are currently employing (namely 'investing' our after tax excess cash in overpaying mortgage and getting the 2.1% guaranteed tax free return -until fix rate ends in 2026). Which from a purely numbers perspective is likely to give us a much lower return than funding my occupation pension above tax relief amount.. BUT it helps me sleep better (especially with a young family) having the mortgage paid down asap.

It's just the punitive tax situation for non-pension investments that is so off putting (if the UK ISA optiob was available here if would be a no brainer), and while a diversified basket of shares is a great plan, I'd prefer to avoid the hassle of managing.

So I think this comes down to whether the peace of mind of have a larger amount of capital available outside a pension is worth the tax hit.
 
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