Help Needed - Becoming self employed following redundancy

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MoneyNovice

Registered User
Messages
20
Personal details

Your age: 42
Your spouse's age: 38
Partner's age if not married:

Number and age of children: 3 kids - 6, 3 and 1


Income and expenditure
Annual gross income from employment or profession: €173,000 (no extra benefits)
Annual gross income of spouse/partner: €32,500 (part time - employer pension contribution but no other benefits)

Monthly take-home pay:

Type of employment - e.g. Employee or self-employed. Self employed
Employer type: e.g. public servant, private company. Ltd company

In general are you:
(a) spending more than you earn, or
(b) saving? Saving


Summary of Assets and Liabilities
Family home value: €500,000
Mortgage on family home: €43,500
Net equity: €456,500

Cash: €200,000
Defined Contribution pension fund: €196,000 in DC fund plus €10,200 per year in a DB fund. Wife has around €75,000 in various DC funds.
Company shares : €9,000
Buy to Let Property value: N/A
Buy to let Mortgage: N/A

Total net assets:


Family home mortgage information
Lender: AIB
Interest rate: 3.75%
Type of interest rate: tracker, variable, fixed. Variable
If fixed, what is the term remaining of the fixed rate?
If tracker, what is the margin e.g. ECB + 1%

Remaining term: (Original term is not relevant) 22 years
Monthly repayment: €245 (we overpay by €350 so it is around €600 in total per month although reducing all the time)

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes. No other loans
If not, what is the balance on your credit card?

Pension information

Value of pension fund: €196,000 in DC fund plus €10,200 per year in a DB fund. Wife has around €75,000 in various DC funds.

Buy to let properties
Value: N/A
Rental income per year:
Rough annual expenses other than mortgage interest :
Lender
Interest rate
If fixed, what is the term remaining of the fixed rate?

Other savings and investments
N/A

Other information which might be relevant

Life insurance: €600k life cover for me (excluding the death in service benefit that I had in my previous job), €400k for my wife. Both of us have cover for €100k critical illness each. These 10 year policies were all taken out in 2021. €100k remaining on our mortgage protection policy. Income protection for €12k per annum for my wife.


What specific question do you have or what issues are of concern to you?

I have recently taken voluntary redundancy from a permanent job which had benefits like healthcare, income protection, death in service etc. Luckily I was able to secure a new role very quickly as a daily rate contractor becoming a director of an umbrella company. My wife has already transferred her tax credits to me since she went part time.

My main questions are around what to do with the excess cash we have from the redundancy payout and a few general questions around taking out my own insurance policies which are very important to me as the primary earner with a young family. We don't plan to have any more kids. I have included my currently thinking after a little bit of research but please feel free to point if I'm way off on anything.

  1. I plan to clear the mortgage ASAP. Does this make sense?
  2. We have estimated that our yearly spend is around €90k which includes holidays etc. Our saving on monthly mortgage repayments will be more or less wiped out by paying for healthcare, income protection etc. I am thinking to take out an income protection policy which covers me for €80k and the monthly cost is €125. I also want to take out a death in service policy to boost my life cover. Is there a general recommendation on how much that should be?
  3. Assuming we clear the mortgage, it will leave us with around €150k. We are thinking to keep around €50k on deposit with a high interest savings account like Bunq as we have some upcoming costs like a new car and some home renovations plus we want an emergency fund. We want to invest the remaining €100k for 10-15 years as a college fund for our kids but we want to keep it flexible that we can access it after 5 years in the event of an emergency. I assume it is best to talk to an independent financial advisor on this?
  4. Our largest pension is with Irish Life who have the lowest yearly management fees for the new PRSA I want to take out. Would it make sense to diversify by having my new PRSA with a different pension provider or could we still go with Irish Life once we use a different fund?
  5. We are thinking to invest €500 (i.e. children's allowance) every month to an investment fund for our kids to ensure all our excess cash is not tied up in pension alone. After that, we want to divert most of my excess income to a PRSA to obtain the 51% tax relief or is there a cutoff point where that doesn't make sense?
  6. My wife may soon opt to quit her job to become a stay at home mother. In the meantime, does it make sense for her to maximise her AVC contributions considering she is in the lower tax bracket?
 
MoneyNovice said:
Summary of Assets and Liabilities
Family home value: €500,000
Mortgage on family home: €43,500
Net equity: €456,500

Cash: €200,000
  1. I plan to clear the mortgage ASAP. Does this make sense?
Click to expand...
Seems to make sense to me. You'll still have €156,500 in cash left over.
Be careful with such policies as some (many?) of them may only pay out in very specific circumstances and for limited periods of time.
MoneyNovice said:
  1. I also want to take out a death in service policy to boost my life cover. Is there a general recommendation on how much that should be?
Click to expand...
Why would you have multiple policies rather than just a single (or joint if also covering your spouse) policy?
€50K on demand seems high to me.
Some form of equity based investment may be appropriate here (although not if the term is only 5 rather than 10-15 years). That could be a unit linked fund, ETFs or direct share investments. Each has its pros and cons particularly with regard to taxation and these issues are discussed at length in several other threads. E.g. see some of the key threads here:

Key Post - Key posts in Investments forum

https://www.askaboutmoney.com/threads/overpay-mortgage-or-contribute-to-pension-or-do-something-else.221401/ https://www.askaboutmoney.com/threads/how-much-rainy-day-savings-do-i-require.193039/ https://www.askaboutmoney.com/threads/what-is-the-best-way-to-save-for-childrens-education.190472/...
www.askaboutmoney.com
In my opinion, as long as the charges are reasonable (i.e. c. 0.75% annual managment fee and 100% allocation on contributions) you don't need another provider as long as your pension is invested appropriately - e.g. an all equity index tracker.
See key posts link above - there are threads about options for saving child benefit and other money for the children's future.
MoneyNovice said:
  1. My wife may soon opt to quit her job to become a stay at home mother. In the meantime, does it make sense for her to maximise her AVC contributions considering she is in the lower tax bracket?
Click to expand...
Probably not - again something that is discussed in other threads.
MoneyNovice said:
Company shares : €9,000
Click to expand...
What is this? What company? Are they shares from a previous employment's stock incentive scheme? Does it make sense to hold these or liquidate them and invest them in a more diversified manner?
 
Thanks for the reply @ClubMan See below.

ClubMan said:
Be careful with such policies as some (many?) of them may only pay out in very specific circumstances and for limited periods of time.
Click to expand...
Noted. We will pay close attention to the detail here.

ClubMan said:
Why would you have multiple policies rather than just a single (or joint if also covering your spouse) policy?
Click to expand...
The financial advisor we used before explained that there is €25k critical illness cover for each child on each policy. By having life and critical illness policies with 2 different providers, it means it is effectively €50k cover for each child.

ClubMan said:
€50K on demand seems high to me.
Click to expand...
It will probably be less. We are just waiting on final quotes for home renovation and will be looking at a car upgrade before the end of the year. Once those expenses are out of the way, I plan to have around €20k on demand deposit.

ClubMan said:
In my opinion, as long as the charges are reasonable (i.e. c. 0.75% annual managment fee and 100% allocation on contributions) you don't need another provider as long as your pension is invested appropriately - e.g. an all equity index tracker.
Click to expand...
The quotes we have so far are around 1% for the annual management fee. Not sure though what you mean by 100% allocation on contributions? The funds being shown to use are all around risk level 5 or 6 if that makes sense?

Thanks, will review these threads.

ClubMan said:
What is this? What company? Are they shares from a previous employment's stock incentive scheme? Does it make sense to hold these or liquidate them and invest them in a more diversified manner?
Click to expand...
It is an APSS from my previous company. I will be selling them immediately as they vest over the next 3 years.
 
100% allocation means all of your money is invested. Some policies might have a 95% allocation rate, where 5% of your contributions just... disappear... as charges. I was sold a 95% allocation PRSA once which I only properly understood 2 years later as the AMC was "only" 1%.

There are good links on here to lower AMCs - Gerard Sheehy (not a recommendation just an example) can get down to 0.7% sometimes but it is execution only (you have to pick the fund).

You might need a financial advisor to help tie in the various policies you want (I myself have income protection, life cover and have used serious illness cover in the past - all because I am a sole earner in the family) but I would be wary of including your lump sum investment - as many advisors will be looking to sell you something that suits them. It really is quite simple - find a low fee with a good, large investment fund e.g. Zurich and give them the money (usually via an advisor). Make the advisor show you ALL fees as you could be hit with an additional 1% somewhere in the fine print.

If in 5 years you need 20k just write to them to ask them to sell 20k worth of stock.
 
You need to decide if a PRSA or a Master Trust Executive Pension would be more suitable for you right now. One may suit today and the other may suit later, depending on your circumstances and how much more meddling with the rules of both that Revenue do. All is not lost if you choose incorrectly as there are some mechanisms for switching over.

I'd recommend that you do a Maximum Funding Quote (there are quotes engines online) to see what scope you'd have under a MT Exec. Pension and then study the subtle feature/rule differences between that and a PRSA.

It may be more tax efficient for you to buy the income protection and death-in-sevice though the company. Was there any option to continue with the DIS benefit from the previous employer? A continuation/conversion option without medical evidence?

That line about Irish Life and lowest management fees has me confused. Are you thinking that you can continue to pay into the DC (Occupational Pension) under your new company, as a PRSA?


Gerard

www.execution-only.ie
 
Last edited:
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