Given Noonan's raid on pension funds, can the government be trusted?

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Bronte said:
Or you could buy a property that will give you 40K. And you keep your capital.
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Where does the money for the property come from?

Assuming a yield of 6%, you would need a property valued at €666,666 to produce rental income of €40,000 a year.

You need a 20% deposit - €133,333 to start with. Where is 18 year old getting that?

Then 18 year old will need to get a mortgage for €533,333. At 5% interest, that will cost €2,691.66 a month or €1,130,497 over 35 years. That is before the costs of repairs, vacant periods, the tax on the rental income and having a debt obligation for that period of time.

Property can be a good asset for people to hold but it should not be the only asset. And your arguments do not hold water, that is why there is so much push back. They are completely without foundation or any numbers to back it up.

Yes, the pension pots were raided. What are your thoughts on the government restricting the amount of rent that a landlord can charge on a property? Is that not costing landlords thousands every year?


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
joe sod said:
Did you account for the pension levy in that calculation, the only way to account for it accurately is to deduct it based on the fall in pension funds in the years in question 2011 to 2015. Therefore you would need to calculate year on year based on the actual average pension value in that year. The pension levy was deducted off an already depressed pension fund value ,therefore its effect was greater than in a normal year.

Maybe someone in the pensions industry has done the calculation the true effect of the pension levy in reducing pension values a decade out and 2 decades out etc
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Why would I? The article wasn't about the pension levy, it was the cost of funding retirement. The pension levy will not apply to everyone that reads that article and to include it would merely confuse matters.
 
Bronte said:
Most successful business people put everything into it and only get to pensions later.
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That isn't for a want of trying. They simply can't afford to put money into pensions while they get their business up and running and have other overheads to take care of. It is only later in the life of the business that they have the cashflow to plough money into their pensions.

And as they own the company, they can put hundreds of thousands a year into their pension to catch up. 18 year old will be limited to €40,250 in personal contributions. And they won't have a business to sell either to add to their retirement pot, like the successful business person.
 
Steven Barrett said:
Where does the money for the property come from?

Assuming a yield of 6%, you would need a property valued at €666,666 to produce rental income of €40,000 a year.

You need a 20% deposit - €133,333 to start with. Where is 18 year old getting that?

Then 18 year old will need to get a mortgage for €533,333. At 5% interest, that will cost €2,691.66 a month or €1,130,497 over 35 years. That is before the costs of repairs, vacant periods, the tax on the rental income and having a debt obligation for that period of time.

Property can be a good asset for people to hold but it should not be the only asset. And your arguments do not hold water, that is why there is so much push back. They are completely without foundation or any numbers to back it up.

Yes, the pension pots were raided. What are your thoughts on the government restricting the amount of rent that a landlord can charge on a property? Is that not costing landlords thousands every year?


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
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I just sold a property for under 200K with a rent roll of 20K. A sibling has a property around the 230K mark with a rent roll of nearly 30K. I'm getting out because of the RPZ. I'll go back in when there is a good yield with right rent. Next guy (already in the business) is going to put in a whack of an amount and beat the RPZ by doing an extension etc. (all cash, which he made from being a renovating landlord) .

Clearly you don't start off at age 20 with a 666K property. You build it up slowly until you have a few of them. Obviously I know full well about tax, vacant periods, tax, rtb, interest repairs and debt. That's the cost of doing business. All businesses have costs. But it's extraordinary how often the government goes after landlords. (like the mortgage interest changes every so often).

And of course I'm annoyed at the government with their constant meddling. So I'm getting around it by selling. We've had the benefit of good sales too (capital appreciation). Sometimes you can beat the meddling, which I'm aiming to do. Which is why we have one property lying idle.

You left out capital appreciation, which can be significant. Unless it's Argentina.
 
Bronte said:
All businesses have costs. But it's extraordinary how often the government goes after landlords. (like the mortgage interest changes every so often).
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You mean like the pension "raids" that you cited as a reason for not investing in a pension until one is approaching 60?
 
If you had 400,000 in a fund this levy would have been 10,000 euro.

If you were 60 years old - that sort of deduction may mean you've to delay retirement or accept a lower income that you'd hoped.

The 0.6% was temporary, the 0.15% is in some ways more worrying that was a bailout for Waterford Glass DB pension fund. At the time there was talk that would be an ongoing levy.

Non public sector DB funds are always going to bust - the next time there's a DB bailout (and it's likely to be in a recession) where do you think the first place they'll go for cash will be?

Contributing money to a pension takes discipline - the last thing you want to give people is an easy reason to reduce or stop contributions. The government dipping their hand in is a an easy reason.
 
S class said:
The USC was launched as temporary.
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No it wasn’t.

The 2011 budget speech makes very clear that the introduction of the USC was part of a longer, structural reform of the tax base.
TAXATION
A Cheann Comhairle, the primary purpose of
the tax system is to provide the
resources to pay for the services the public
expect from the State. Our tax system no
longer fulfils that purpose well. The line of
least resistance would be to increase the
rates. But revenue is generated by economic
activity: not by increased tax rates. High
tax rates on a narrow base of economic activity
may raise far less revenue than lower
rates on a much wider base.
We cannot have a tax system that damages
our potential to grow
. That is why the
Government has decided in the National Recove
ry Plan that two thirds of the required
budgetary adjustment over the period 2011-
2014 should be thr
ough expenditure
reductions and one third should be raised by taxation.
Our income tax system, as it stands today,
is no longer fit for purpose. At one level,
too few income earners pay any income
tax. This year, just 8%, earning €75,000 or
more, will pay 60% of all income tax while almost 80%, earning €50,000 or less will
contribute just 17%. At another level, to
o many high earners ha
ve opportunities to
shelter their income from tax. We must
address both these stru
ctural defects.
Our system is also unduly complex. With
four separate charges on income, each
rational in its own terms, it contains too
many distortions, steps, and discontinuities.
Our goal must be to create a system that is
rational, sustainable and fair, and that
delivers the resources needed fo
r essential public services.
Income Tax
Such a system cannot be created in one
Budget. But today we take a major step
forward in the reform process.
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Steven Barrett said:
I wrote an article a couple of weeks ago on leaving your pension funding too late. If you want to fund a €40,000 income and start funding 40 years out, it will cost you €357 a month. That is a total of €171,360. If you start 10 years from retirement, it will cost you €3,575 a month. That is a total of €429,000.
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I had a look at your figures and you gave the most optimistic and idealistic example with someone starting a pension 40 years from retirement and starting it with very large contributions if you are a 25 year old assuming 6% growth, ending with a pension pot of 479K. I know when I was 25 the last thing on my mind was pensions as I was not earning enough and had other priorities like accomodation and socialising.

Therefore I have done the calculations based on more realistic assumptions, with typically someone starting a pension in their 30s, 30 years from retirement where they are earning enough to benefit from the tax breaks. Also irish pensions have an average performance of 4.5% from googling. I put in your figure of 357 euros per month or 4284 per year. Based on this I get a pension pot of 277.500 euros. I think that is alot more realistic because generally people put their money into low risk funds which have done really badly lately due to falling bond prices and also probably reflects the pension raid by government a decade ago
 
I had the problem of not earning much when I was 25. But I had the sense to match the employer contribution to make sure I got that, and then I topped it up by a couple of percent. It engendered good habits and, surprise surprise, those good habits continued to the point now where the problem is somewhat different and first world in nature.

Separately, it’s entirely possible to purchase an investment property through one’s pension, a point that is often missed. And you’re buying it with pre-tax gross monies.

Finally, the pushbacks against pension funding always seem to be ridiculous when you peel them back. Just because someone was an eejit and was duped by an unscrupulous saleman, what has that got to do with pensions? That can happen in any walk of life.
 
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S class said:
The untrustworthy Governments continuously lie about whether is or not.
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The article proves exactly what I said. Read it!

When the USC was announced in 2010 literally no one said it was supposed to be temporary. In fact explicitly part of a structural project to broaden the tax base.

Subsequent governments containing four different parties have not abolished it. It was designed as a permanent measure and has remained as one.
 
Dr Strangelove said:
The article proves exactly what I said. Read it!
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You need to read it again !

"However, Lenihan and others in the Fianna Fáil-Green Party coalition Government at the time indicated the measure would be temporary as Ireland sought to make it through the worst of the recession."
 
joe sod said:
I had a look at your figures and you gave the most optimistic and idealistic example with someone starting a pension 40 years from retirement and starting it with very large contributions if you are a 25 year old assuming 6% growth, ending with a pension pot of 479K. I know when I was 25 the last thing on my mind was pensions as I was not earning enough and had other priorities like accomodation and socialising.

Therefore I have done the calculations based on more realistic assumptions, with typically someone starting a pension in their 30s, 30 years from retirement where they are earning enough to benefit from the tax breaks. Also irish pensions have an average performance of 4.5% from googling. I put in your figure of 357 euros per month or 4284 per year. Based on this I get a pension pot of 277.500 euros. I think that is alot more realistic because generally people put their money into low risk funds which have done really badly lately due to falling bond prices and also probably reflects the pension raid by government a decade ago
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You are a missing the whole point of the article which is how expensive it is to fund for retirement if you start late. I purposefully used the highest growth rate that you can realistically use to bring down the cost...which are still very expensive if you start rate.

When you write your own articles on the cost of retirement, you can use whatever rate you want. You can also factor in the cost of drinking when you are young. I don't like to alienate those who have shunned the drinking lifestyle. ;)
 
I just sold a property for under 200K with a rent roll of 20K. A sibling has a property around the 230K mark with a rent roll of nearly 30K.
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What was the average yield over the whole investment term? If you invest in equities, you can have a 30%+ gain one year and a loss another. What is the average over the term of holding the property?

I'm getting out because of the RPZ.
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Government interference

Next guy (already in the business) is going to put in a whack of an amount and beat the RPZ by doing an extension etc.
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He's going to beat government interference by putting more money into the property. So he has to pay to get around it? And that will reduce his rental yield.

Obviously I know full well about tax, vacant periods, tax, rtb, interest repairs and debt. That's the cost of doing business. All businesses have costs.
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The cost of investing in a pension is minimal compared to this. There is no day to day management involved either. Just invest in an index and get access to the biggest and best companies of the world. If the contributions come out of payroll, you don't even have to submit a tax return, you get the tax relief there and then.

But it's extraordinary how often the government goes after landlords. (like the mortgage interest changes every so often).
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Mortgage interest is set by the ECB and not the government.

And of course I'm annoyed at the government with their constant meddling. So I'm getting around it by selling. We've had the benefit of good sales too (capital appreciation). Sometimes you can beat the meddling, which I'm aiming to do.
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You are not beating the meddling, you are getting out of the market altogether. The meddling is beating you. The person who bought your property isn't beating the meddling either as he is paying more and therefore getting a lower return in order to charge a higher rent.


I much prefer to set up a direct debit and invest monthly. Yes, the government levy was extremely annoying. But at the time, I didn't have a big pension pot. I have heavily invested in my pension in the years since and none of that money has had a levy applied to it.
 
Can the Government be trusted?

Regardless of what politicans, or what party, the answer remains the same imho - it's a simple "No".

Decisions are often made by people with little or no relevant experience, while bad decisions are often made by politicans under pressure!
 
Can the government be trusted? No way. I can't wait until Enda and Michael N are gone.

Of course there is no single "the government". It changes over time. And if you think "the government" is going to do everything as you wish or else they are not trustworthy you're in for a horrible time of it.
 
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