Do I need a 'pension'? UK resident but will return to Ireland

N

nbc

Registered User
Messages
286
Looking for advice
Mid 40's- No pension. UK resident for past 6 years.
My income £100,000
Ireland
3 properties in Ireland- Total value E900000
Outstanding debt-E175000
Paying off E20000 in mortgage debt yearly
Mortgage payments E25000 yearly
Rental income: £45000 yearly

UK
Home property Value £650000
Mortgage outstanding £400000
Current rental value £20000 per annum
My aim is to have this paid off in 20 yrs, have moved back to Ireland and moved back into one of the 3 properties( each one is similar in terms of value and potential rental income). I'll have no mortgage debt all going well and I'm spared!

So when I retire in 'todays' money I'll have rental income of
£20000- aprox E23000(uk property) + E30000( 2 irish properties)= E53000. Assuming expenses/repairs etc lets deduct 25%- aprox E40000 per annum.

Do I need a pension or is it safe to say that my property will provide a pension?
I feel I'm over exposed to property and wonder if I need to start an SIPP or stocks and shares ISA.

Any advice gratefully received.

NBC
 
Last edited:
You have €1.6m in property and about €650k in mortgages.

That level of gearing is comfortable. Your salary and level of rental income means that you could withstand a collapse in rental income or a collapse in property prices.

You probably should look at each property separately and each mortgage separately. If you have cheap tracker mortgages, you should keep them. If you have full interest rate mortgages, you should sell properties to pay them off.

Not sure about a stocks and shares ISA. If you are borrowing at 4% to invest in one, it's probably a bad idea. The only thing is that there is an annual limit of £15,000, so it might be worth investing that every year as you will lose it otherwise.

So if you have tracker mortgages, then you should max out your Stocks and Shares ISA. If you have high rate mortgages, you should probably sell the associated properties and pay off the mortgages. Invest any surplus in the ISA.

You probably don't "need" a pension, but that should not be your question. Your question should be if there is a more tax-efficient way for you to accumulate wealth.

I don't know how tax efficient UK pensions are. Presumably in 20 years you will have a fund built up in the UK. Will you be allowed bring that back to Ireland and draw it down?

So back to the borrowing question. If you have high rate borrowings, pay them off first. Maybe contribute to a pension later.

Overall, cut out high rate borrowings and diversify into equities.

Brendan
 
Your lifestyle is currently built around a £100k salary (less cost of debts). Changing to a lifestyle of €40,000 will take a lot of adjustment as you will find yourself not able to afford things that you used to buy without even thinking about. I have a number of clients who have a really wonderful retirement, travelling a lot, enjoying life, plenty of experiences. They are spending more in retirement than they used to earn when they are working. You are not limited to 20 days annual leave, there is nothing stopping you heading off somewhere for a month.

If you have the cash, put money into ISA's and pensions to give yourself the choice at retirement. I've never met a retiree who's complained about having too much money. ;)

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
I've never met a retiree who's complained about having too much money. ;)
Click to expand...

But that is not the issue. The issue is about how to accumulate it most efficiently.

And I know plenty of people who are scrimping and saving when they should be enjoying life. They will end up very wealthy and leaving their wealth behind them. As with everything, it's a question of balance.

nbc has around €1m in his own name (as distinct from being in a pension fund) and a salary of £100,000 in his mid 40s. I reckon he is doing very well. He does not need to panic about living on €40,000 a year in 20 years time, when he will have no mortgage.

Brendan
 
nbc asked if he needed a pension or is his property portfolio enough. And I never suggested he scrimp now, I said "if you have the cash".

Having €1m in property is very different to a pension fund in that if he needs a lump sum of cash in retirement, he can't access it. He will have to sell a property which in a good market, will take months. In a bad market, it could take over a year.

At least ISA savings and pension savings will give access to cash fairly quickly if needed in retirement. With the pension freedom rules in the UK, he have the ARF equivalent from age 55 and no AMRF requirement. Tax efficient and liquid.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
Having €1m in property is very different to a pension fund in that if he needs a lump sum of cash in retirement, he can't access it.
Click to expand...

It's very different indeed. He can sell a property anytime and he gets the cash less any CGT. In a pension fund, it will be taxed on the way out.

While property is not a liquid investment, he is not concerned about liquidity now. Closer to retirement, he would definitely need liquid assets.

And just to be clear I am a much bigger fan of stocks and shares over property.

Brendan
 
Won't the OP be entitled to a state pension at the very least.

I think he should have some other type of pension income in addition to his properties. It's not good to have everything in one asset class. Nothing worse than a complete meltdown after a property bubble and having to sell a property as I've seen in family life and numerous cases on here.

With that much of a portfolio the OP should sit with a financial advisor to make the best tax decisions as regards his move to Ireland and he should do that now, not in 20 years.

OP also needs to think about what would happen if he loses his job, it does happen and particularly as you hit your fifties.
 
Many thanks Brenda, Steven and Bronte.
Reassuring Brendan to hear you say that I'm doing ok and probably 'don't' need a pension. In my head I always felt that at least if I had a rental property or two it would equate to a small pension at the very least and although I've always had a good salary I never seem to have spare cash to invest in things like pension or savings. I guess servicing mortgages and loans for deposits would have been one factor. I know you're not a major property fan but in my case it's worked well. I borrowed £15000 in 1998 as I have zero savings( and never have had any) and used it as a deposit and to furnish my first place and just went from there.
Steven - good point about lifestyle on 40 k but I don't have an extravagant lifestyle- A lot of my salary has gone on paying mortgages etc. I imagine I could survive very well on half my salary or less. You mention about tax efficiency of pensions etc but at the end of the day apart from the 25% tax free lump you do pay marginal rates on what you withdraw( in my case probably 40 something %) so is it so amazing? And does it matter if it's a UK pension and say I move back to Ireland in 5-10 years?
Thanks Bronte- I work in healthcare so thankfully close to recession proof. I have an income protection plan in case of illness worth 50k annually.
So.... In view of me having little spare cash should I just carry on as I am and maybe put any spare cash I can find into an Isa or pension( still unsure which might be better) or sell a property and use the proceeds to invest in stock market and so diversify? Market appears good now but so is rental income and I have great tenants.
By the way Brendan -my mortgage rates are,
Ire property 1 - No mortgage
Ire property 2- 0.75% 75 k outstanding
Ire property 3- 4.8 % 100 k outstanding
UK property 0.99% £400k outstanding

nbc
 
I would be very concerned about the concentration risk. You have virtually everything tied up in one asset class. Brendan's point regarding tax efficiency is well made; you are providing for your retirement in the least tax efficient manner possible, i.e. using after-tax monies to buy things which you're then holding in your personal name.

Surely it would be better for you to max out the tax efficient pieces first (a £1m pension fund and your ISA)? I am not being provocative, but someone earning £100k a year and not having a pension fund is ludicrous.
 
nbc said:
although I've always had a good salary I never seem to have spare cash to invest in things like pension or savings. I guess servicing mortgages and loans for deposits would have been one factor.

Steven - good point about lifestyle on 40 k but I don't have an extravagant lifestyle- A lot of my salary has gone on paying mortgages etc. I imagine I could survive very well on half my salary or less.
Click to expand...

I agree with Geko that it's odd you don't have a pension on your high salary. (three posters have suggested this is odd, BB is the only one who said it might be ok) Also can we test your theory that you'd have no problem living on 40k?

Can you put up full details of each of the property and their income/expenditure/tax please. (up to you of course)
 
I take your point Bronte but in 7 years there will be no mortgage to pay on any of the properties( one valued at 300k approx is mortgage free)
Currently Income is 45k and mortgage payments are 25 k. I estimate expenses/repairs are about 8 k a year( averaged- some years 4 k- others 15- depends how luck i am with tenants).
But I take the point that I am over exposed on one asset class and posting here has reaffirmed that. Would you advise me selling the property that is mortgage free( Value 300 k,capital gains tax of 50k I guess- bought for E120 k in 1998, rental income E1250 pcm although market rate is 1500) and investing in my UK pension- I can invest 40k per year and apparently I can backdate for 3 years so could put £160 k in potentially between this year, next year and backdating a bit. I believe investing 160 k would result in an extra 20% pain by HMRC totalling 192K and then I can claim 20% back on me tax return which is 18K so a pension pot of 190k approx for 140k invested aprox. Is this a wise move rather than holding onto property and liklihood of cap appreciation and rental income of 15k a year.
nbc
 
nbc said:
Ire property 3- 4.8 % 100 k outstanding
Click to expand...

This is the mortgage you should be paying off quickest as it's so expensive. I would prioritise paying off this mortgage ahead of everything else - even contributing to a pension or ISA.

You should max your stocks and shares ISA.

You should probably own shares directly as well. Doesn't the UK have something like an annual exemption for £5,000 in capital gains? If you have shares you can use this efficiently.

If you were in Ireland, I would recommend maxing your pension contributions. I don't know how the UK pension system works. What tax relief will you get on the contributions? How will it be taxed on the exit. I get the impression from speaking to people that ISAs are almost as good as pensions. Given the fact that you would have a UK pension but want to retire to Ireland, it sounds messy to me. If the tax advantages are overwhelming, then by all means start a UK pension.
 
nbc said:
Ire property 1 - No mortgage
Ire property 2- 0.75% 75 k outstanding
Ire property 3- 4.8 % 100 k outstanding
UK property 0.99% £400k outstanding
Click to expand...

Which property to sell? Well clearly not the UK one with 0.99% mortgage rate.
Probably not the 0.75% one. But it depends on its value.
You can sell property 1 or 3 and pay off the expensive mortgage.

You probably should make the decision based on the gross yield you are getting. If both are worth €300k and one is earning less rent than the other, then sell that one. If one is caught by the new rent rules, maybe sell that.

Brendan
 
You must log in or register to reply here.
Back
Top