Better to overpay into your pension or to invest excess in ETF's ?

Hi Everyone

Something I've been mulling over and I'd appreciate different opinions on it. There may be no "correct answer" as such.

My wife and I are in the lucky position to have the mortgage paid and are maxing out the tax efficient pension contributions each year.

We would be hoping to be in a position to consider retiring @ 60 in circa 11 years time. We should have enough contributions to be able to get the contributory pension @ 66 as the rules currently stand using the ARF's to generate additional S class contributions, (thanks @S class for info on this)

With the mortgage paid, we opened a Synergy Investment Bond with Standard life which is 100% invested in a Vanguard US 500 Stock Index fund. We put a lump sum into this and the thinking had been to add further lump sums to this each year over the next 11 years or so.

The question I would like to put to people is :

Do you think this is a reasonable Strategy ?
Would it be better to "overpay" into your pensions instead ? In my case it would be into an AVC (main pension will be DB) in my wifes case it is a DC pension.

I was thinking the uninterrupted compound growth in your pension might be better than deemed disposal every 8 years ? There has been talk that this might change but I cannot see it happening even though financially the exchequer would be better off scrapping deemed disposal and applying 41% to the compound growth enhanced sum on actual disposal.

I was looking to see if a similar question had been asked before but could not find anything.

Any thoughts on which might be better over that time frame would be very welcome.

Not a directly comparable scenario but worth a read. I don’t think the OP ever got the answer he/she was looking for.

g

The main advantage of investing in an ETF instead of a pension is that you can cash out anytime while in the case of a pension, you have to wait until retirement.

If you are not planning on cashing out until retirement (conventual wisdom states that you need to be investing in an ETF for at least 6-7 years anyway) you may be better making AVCs; although you have already maximised your tax relief on the contributions you pay no tax on gains while you will be hit with the 41% exit tax on the gains in the ETF.

Obviously you will also need to consider that you will be paying tax on your pension drawdown and if that is going to be in the 40% tax bracket, then the ETF route might be better.

It is a difficult decision as ultimately you will need to base it on your predicted pension and/or ETF growth over the next 11 years and who knows what the tax regime will be then too

It is a difficult decision as ultimately you will need to base it on your predicted pension and/or ETF growth over the next 11 years and who knows what the tax regime will be then too

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redchariot Absolutely. It's a very tough one to call. In some ways I like the idea of having money outside the pension wrapper because you can withdraw it and you know you've paid the tax on it (41%)

With the ARF depending on whether you are paying tax at the 20% (plus the ancillary taxes of usc and prsi etc) then this is a great use of the money you put away and very tax efficient.

If however you are withdrawing money from your ARF at 40% then it potentially becomes debatable.

SPC100 and Garbanzo, thank you very much for the links to those other threads. There are some excellent posts and discussions on them.