Is it worthwhile those over 60 years old joining pension scheme

M

Mcivor

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I'm 62 years old and working in a part time role. Normal retirement age in this firm is 65 but there is the option to work up until 70. Do you think it's worth my while joining a DC scheme with my new employer even though I'm on a relatively low salary. Do these schemes normally stop at 65 years even though there is the option to work with the company past that age. I'm thinking of joining the scheme for a few years and go for an all equity fund that I could leave in place next 7 years. I'd only be getting 20% tax relief on my contributions even though it's possible that I'll be on higher rate when I eventually fully retire and will most likely already have reached the 200K tax free lump sum from my main fund with previous employer - I haven't accessed this fund yet. I'm thinking that I may as well also take the opportunity to get the employer contribution as otherwise will forego this and could also do AVC's, and having another smaller fund will give me more flexibility in the future. Interested in people's thoughts on this. We're reasonably comfortable financially as also have some rental income although my wife who is planning to retire in a year or so only have a small DC fund
 
I’ve always been told that not joining a scheme where the employer pays in is basically leaving money on the table! Is that still true?

And I suspect you’ll need to check the details of the specific scheme re when contributions stop etc
 
Mcivor said:
I'd only be getting 20% tax relief on my contributions even though it's possible that I'll be on higher rate when I eventually fully retire
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It usually would not make sense to make pension contributions that benefit from 20% relief only for the pension benefits to be subject to high rate tax at drawdown.
Mcivor said:
will most likely already have reached the 200K tax free lump sum from my main fund with previous employer
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You probably need to clarify the details of existing pension cover in order to answer your key question.

And it may benefit from a full Money Makeover in order to get more specific/targeted feedback:

Money makeover

Budgeting and dealing with debt moved to Mortgage Arrears and Debt Forum .
www.askaboutmoney.com
 
Let's say your employer contributes €100 on condition that you contribute €100.

It will cost you €80 after tax relief.

So your fund will have €200 for a cost of €80

Now, let's assume the worst (or the best?). None of it will qualify for the €200k tax-free lump sum and it will be taxed at 50% when you draw it down.

So when you draw down the €200, you will get €100.

All of that means that you must contribute up to the amount needed to max your employer's contribution.
 
Should you contribute more than this for 20% tax relief if you will be taxed at 50% on the way out?

Probably not, but there are a few reasons which might make it worthwhile

  • It will grow tax free while it's in the fund
  • The €200k limit might increase before you retire
  • You might not pay 50% tax.
 
Mcivor said:
my wife who is planning to retire in a year or so only have a small DC fund
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Presumably you are jointly taxed, so her tax rate is also 20%.

But would it make more sense for her to contribute more to her pension so that she can avail of the 25% tax-free?

Of course, you can do both.
 
Brendan Burgess said:
Should you contribute more than this for 20% tax relief if you will be taxed at 50% on the way out?

Probably not, but there are a few reasons which might make it worthwhile
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This is teased out in a lot more detail here:

Key Post - Should someone paying tax at 20% contribute to a pension

And if you are getting only 20% tax relief on your pension, you should not be contributing to a pension. I would take issue with that as a hard and fast - or even firm - rule. As I said, standard rate tax relief on contributions to the pension are not to be sniffed at. And then the pension...
www.askaboutmoney.com
 
thks for your responses. I've decided to join the scheme to benefit from the employers contribution and 20% tax relief on my contributions, and let the fund grow - hopefully, for the next 8 years or so and take it from there. Can't predict the future in terms of tax changes, personal health, etc but makes sense to take the opportunity presented
 
Brendan Burgess said:
The investment horizon is not 8 years.
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It kind of is as that’s the latest he can leave it to start drawing down.

Life expectancy for a 62 year old Irish male is about 20 years. Add in sequence of returns risk and there are scenarios where he’d be better off putting after-tax wages on deposit.

In the OP’s shoes I would still join the pension scheme. But it’s not as clear cut for a 62 year old as it is for a 32 year old.
 
I think you are missing the point.

When he draws it down, what does he do with it? He just moves it into directly owned equities.

So the horizon is either his life or his children's investment horizon.
 
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