Increase AVC vs Increase Overpayments vs Prisma5

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mgriffin

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Hello
I am a 34 year old Secondary School Teacher and member of the Single Public Service Pension Scheme and looking for some advise on best route forward with planning for the future.

Currently I have €5,408.44 in my pension with €27,333.77 in lump sum through work but I have also been doing AVCs with Cornmarket for a while (currently set to 6% of my annual salary).
The fund with Cornmarket has €16,592.53 currently from €15,388.46 contributions which has been running since approx. August 2017.
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As I felt the returns on the AVC were low I organized a review with Cornmarket and trying to weigh up my options for better results.

I told the advisor that I wanted to switch funds to Indexed World Equity Fund for better returns and while he agreed that the fund does need to be switched, he pushed the idea of Zurich Prisma 5 instead as my money, would not be locked away until retirement like an AVC and could potentially have better returns.
The AMC on this is 1.5% and its taxable at 40% so I am dubious about this option to be honest.

I also wanted to raise my contributions to 10/11% of my salary to try and maximize the tax benefits for my pension contributions for my age range (20%) as well.
He also tried to talk me out of this saying that while I would gain the benefit this side, its likely I will lose it again on retirement as my yearly pension will tip over to the 40%?
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The way I see it I have 3/4 options:
  • Follow his advise and Switch AVC to Indexed World Equity Fund at 6%, Invest 4% of annual salary into Prisma 5.
  • Switch AVC to Indexed World Equity Fund and increase contributions to this to 10%.
  • Switch AVC to Indexed World Equity Fund and increase contributions to this to about 8% and increase Mortgage Overpayments by 2%.
  • Some combination of switch and increase AVC, Invest in Prisma 5 and overpay mortgage
With the mortgage we currently have €296,384.87 remaining on it and have it fixed until 1/12/2027 at 2.45%.
Base repayments on that is €1269.84 but for the last year I have been overpaying to €1423.43.
Bank of Ireland have confirmed that we could overpay to €2016.24 per month. Assuming no change in interest rate come 2027 (one can hope?) at that rate would be mortgage free by 2039 or by the time I am 49.

I know things are very much dependent on my personal circumstances but hard to know what the best option is.
I am definitely changing the AVC and upping the money out to either the AVC, Prisma fund or Mortgage just looking for people opinions on this/sanity check?
Thanks!
 
I wouldn’t worry about hitting the higher rate of tax on retirement. If you do, great.

I'd split the extra free cash between the mortgage and the AVCs. Mathematically the AVCs will probably give a much better return but there's a big psychological boost to being on track to be mortgage free by age 50.

A sizeable AVC fund also gives more options in terms of early retirement. In principal you can take early retirement anytime from 55 onwards, but in practice unless you have a decent size fund you'll be be totally broke if you actually do. Maybe you'll want to keep working until 66 or later, but it's always better to have options available to you. And it's definitely better to choose to work until 66 than to be forced into it by your financial circumstances.
 
Hi mgriffin,
Were you in a cash fund with Cornmarket? I received poor advice a number of years ago and was in a similar situation with very little return on investment.
 
mgriffin said:
The fund with Cornmarket has €16,592.53 currently from €15,388.46 contributions which has been running since approx. August 2017.
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You've had an annual rate of return of 0.995% after fees. That's criminally low. Going through Cornmarkets fund list, the Irish Life indexed world PRSA fund has returns (net of fees, as far as I can see in their funds centre) 9.2% per year since 2017, for comparison. I mean, inflation has been notably high since you started investing, the value of €1,000 in August 2017 is something like €900 today.

You need to get your money into a more suitable investment product for your age and run to retirement (personally, I'm all about indexed equity but your mileage may vary...)

I would generally say you should maximise your available tax relief before getting into other types of investment in Ireland. You can't really beat €0.60 turning into €1 invested in the market, in return for the commitment to leave the money locked away for a long period of time. Remember, sometimes advisors are thinking not only about the very reasonable points they are raising (accessing cash sooner and all that) but also, well, the fees on the products you're being positioned.

Mortgage vs investment (whether in a pension or otherwise) is a qualitative and personal question. There is a closer to guaranteed return in paying down your mortgage but there is a significant historical risk premium to be had by investing. I personally only started over paying the mortgage when I had topped out the pension tax relief, but I was in the position to do so.
 
C_Pike said:
Remember, sometimes advisors are thinking not only about the very reasonable points they are raising (accessing cash sooner and all that) but also, well, the fees on the products you're being positioned.
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This.

If you want a separate investment to your PRSA-AVC that you can access freely then I'd suggest investing directly using on online provider. It'll be far cheaper- i just (i know...) checked the spread on the fund I'm in with Zurich and received a bit of a shock! And that's before the annual charge. Worth it for the benefits of being inside a pension wrapper but otherwise not so much.
  • I use Trading212, i think Degiro is popular. There's a few others as well.
 
BIG-notorious said:
Worth it for the benefits of being inside a pension wrapper but otherwise not so much.
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The benefits of being in a pension are huge - tax relief on contributions up to one's age related contribution limit, tax free growth within the fund, tax free lump sum on drawdown etc.

Don't throw the baby out with the bathwater on account of the sunk costs attributable to possibly poor choices regarding charges and asset allocation.
 
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@mgriffin

Is what you have an AVC or a PRSA AVC? If it's an AVC, is it the one where circa €600 is taken off the first years contribution to pay the set up fee? Do you know the AMCs on the AVC fund/s you're in?

What did/does your suitability/reasons why letter say about the fund/s you're invested in? Did you tell the advisor in 2017 that you didn't want to take a risk?

Did the advisor bring up paying down the mortgage or is that your own idea?
 
ClubMan said:
Don't throw the baby out with the bathwater on account of the sunk costs attributable to possibly poor choices regarding charges and asset allocation.
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100%. I've no intention of ceasing or lowering my AVCs.

What i meant was that the charges etc are worth it in a pension but for a non-pension investment you're probably better off doing it DIY through an online broker unless there's a specific reason not to.
  • For example I'm keeping the Child Savings Account with Zurich despite the charges and spread because the tax benefits to my mini-me significantly outweigh the costs.
Don't get me wrong. I made quite a good return on my Zurich product before I cashed it in, but I know more now and have more0 confidence (hopefully not too badly misplaced) in my investment decision making now. So it makes more sense to me to eliminate the associated costs.

All of my 40% income is already going into my pension so there's limited value in putting any more into the AVC even ignoring my preference for having savings/investments i can access ahead of retirement.
 
mgriffin said:
  • Follow his advise and Switch AVC to Indexed World Equity Fund at 6%, Invest 4% of annual salary into Prisma 5. NO
  • Switch AVC to Indexed World Equity Fund and increase contributions to this to 10%. Yes
  • Switch AVC to Indexed World Equity Fund and increase contributions to this to about 8% and increase Mortgage Overpayments by 2%. Also good option
  • Some combination of switch and increase AVC, Invest in Prisma 5 and overpay mortgage NO
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If you are on a decent fixed rate on your mortgage, I would just max out the pension.
 
GSheehy said:
What spread?
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The spread between the price i pay for a unit of that fund and the price I'll receive if I get out of it is almost 5%. The spread on the equivalent fund on Trading212 is about 0.15% when I checked.

AJAM said:
If you are on a decent fixed rate on your mortgage, I would just max out the pension.
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Mathematically yes, but a €300k mortgage is a big burden regardless of the interest rate. Also, it looks like the OP may have 30 years or so left. Being mortgage free at 50 as compared to 65 gives you a ton more options. On top of that, every overpayment i make reduces tge amount i HAVE to pay each month which also gives me more financial flexibility.

So I'd still say do both.
 
BIG-notorious said:
The spread between the price i pay for a unit of that fund and the price I'll receive if I get out of it is almost 5%
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And your policy certificate specifically states that the units you buy/sell are on an Offer to Bid basis? The intermediary you bought the contract through confirmed this to you?
 
GSheehy said:
And your policy certificate specifically states that the units you buy/sell are on an Offer to Bid basis? The intermediary you bought the contract through confirmed this to you?
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On looking at the disclosure schedule it appears not. My mistake- i was basing it on the fund factsheet.
 
Thanks All,
Derek1001 said:
Hi mgriffin,
Were you in a cash fund with Cornmarket? I received poor advice a number of years ago and was in a similar situation with very little return on investment.
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I am on "Public Sector Cautious Fund" which "invests in indexed equities spread across Global equities, Emerging Market equities and Minimum Volatility equities. The fund also invests in indexed bonds both Eurozone Government bonds and Euro Corporate bonds. In addition the fund invests in a diversified, actively managed, property portfolio which includes forestry."


GSheehy said:
Is what you have an AVC or a PRSA AVC? If it's an AVC, is it the one where circa €600 is taken off the first years contribution to pay the set up fee? Do you know the AMCs on the AVC fund/s you're in?

What did/does your suitability/reasons why letter say about the fund/s you're invested in? Did you tell the advisor in 2017 that you didn't want to take a risk?

Did the advisor bring up paying down the mortgage or is that your own idea?
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As far as Im aware the €600 set up didnt apply back in 2017 but I would need to pull up old payslips to be 100% sure.
Back then I was put on cautious following the risk assessment questionnaire. I was young at the time and was nervous about volatility, I know better now.
The idea of over paying the mortgage is my own idea.

Following above posts I am now leaning more heavily to the split between increase AVC and increase overpayment and forget about Prisma.
With the 20% for my age range, are my figures correct that I have 6% with Cornmarket already, 6% with employer so that leaves 8%?
 
If your payslip tallys to 6% main scheme contribution then the 8% is correct.

Do some more work on the existing contract through in terms of finding out exactly what the charges are and alternative fund/s. I'd say it's AVC as opposed to PRSA AVC so the cost of the advice must have come from you, via the product.

A cautiously managed fund would probably only have done 2.2%/3.6% over that period, assuming an AMC of 1%.
 
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mgriffin said:
With the 20% for my age range, are my figures correct that I have 6% with Cornmarket already, 6% with employer so that leaves 8%?
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For the main pension scheme you contribute 3% of your gross pay plus 3.5% on any pay above €30,100. That is unlikely to amount to 6% overall - probably more like 5%.
You could just quick check (or cross check) on your payslip. Exclude the ASC and calculate what percentage the total pension deduction is of your gross fortnightly pay.
Ditto for your Cornmarket deduction.
 
mgriffin said:
I am on "Public Sector Cautious Fund" which "invests in indexed equities spread across Global equities, Emerging Market equities and Minimum Volatility equities. The fund also invests in indexed bonds both Eurozone Government bonds and Euro Corporate bonds. In addition the fund invests in a diversified, actively managed, property portfolio which includes forestry."
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With 30 years to retirement, I'd try and move to a higher risk portfolio. Looking at the fund fact sheet from Irish Life, it has 5 year annualized returns of 3.14% and 10 year 2.31%. I will qualify what I'm about to say with the caveat that past performance is not a reliable guide to future returns, but equity markets have returned multiples of that (depending on where you're exposed in the world and fees) for decades.

To compare, Irish Life's Global Indexed Fund (100% shares in companies) has 5 year annual returns of 12.21% and 10 year 8.17%. If you put €1,000 in either fund for 10 years and somehow the returns were magically exactly the same as the past 10 years (they won't be, of course, this is for illustration) you'd have €1,257 in your current investment and €2,191 in a fund like the global indexed equity one mentioned above. (Extend it to 30 years, just for fun and assuming you never left the high risk strategy and the world worked in a straight line, you'd have €1,985 in your current fund and €10,530 by going all equities... Just to illustrate the power of compound interest over time.)

I'd make a switch inside the pension and take control to increase your chances of getting a better outcome in future.
 
A better way to deal with the problem of tipping into the 40% bracket is to retire earlier and stay within the 20% bracket. If I were you I would talk to ChatGPT about it. Give all the facts and assess what it spits out, ask questions about different scenarios etc. It's pretty good for this stuff.
 
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