Drop pension contributions to €2m fund projection?

P

paulie

Registered User
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I looked at my pension recently and happily discovered that it is projected to exceed €2.5m fund value on retirement. That's with standard(?) estimates of 2.5% contribution growth etc.,
I believe that any Irish pensions funds that exceed €2m will be immediately taxed at 40% of the excess on retirement.
Does this mean I should reduce my contributions / AVCs to target a final value below €2m?
It seems that anything more than that will get hit by USC twice! Once when saved and again when drawn down in retirement. In addition to full marginal tax rate on retirement + again when drawn down.
That could be worse than just taking the income now, paying standard income tax and keeping it under a mattress, so to speak!

I have been putting 7% + 7% employer contributed + additional AVCs up until now. I'm 35 so retirement is still a way off yet.
 
I'm a great believer in getting to the €2m threshold (which is effectively €2.15m) and then worrying about it, if at all.

For someone in their mid 30s, it would be difficult to see the threshold not ticking up at least in line with inflation, but who knows?

In any event, chargeable excess tax isn't as bad as it's made out. 40% is a small price to pay in my view to have the remaining 60% in a tax free vehicle for a very long time.
 
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A lot can happen over the next 30 years - good or bad. I certainly would not be reducing contributions at this stage. You can review the calculations again as you get within say 10 years of retirement. It is likely that the fund limit will be revised (hopefully upwards) over the next 30 years.
Reviewing the projected figure in the last 5 to 7 years will allow you to fine tune the contributions in the run in to retirement.
 
Do you have a mortgage? Paying that off makes far more sense unless it's a cheap tracker. You may well get a return on your pension in excess of 2.5 per cent. Tax rules make well worsen. You should stop contributing. You can resume closer to retirement
 

Well, €1,000 @2.5% p.a. over 30 years compounds to a higher figure than €600 @4% p.a. over the same time period.

Somebody in their 30s would have to make some very pessimistic assumptions about the future to prioritise paying down a mortgage ahead of maximising pension contributions.
 

Hi Sarenco

This has been discussed in detail in this thread:
Pay down your SVR mortgage before starting a pension, but don't leave it too late

I don't get the €1,000@2.5% p.a. over 30 years. Surely that will be subject to tax on the way out?
 
Does anyone know why the rule to draw it down at latest age 75? Why is there no flexibility on this?
 
Merowig said:
Does anyone know why the rule to draw it down at latest age 75? Why is there no flexibility on this?
Click to expand...

It's 70 for company pensions.

I suppose it comes back to the reason for a pension, provide an income in retirement. The vast majority of people are retired by that age.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I agree the €2m will be a small problem at retirement. Best to build up to it as soon as possible and then manage.
 
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