Pay increase - how to maximise pension?

dmos87

Registered User
Messages
412
Age: 33
Spouse’s/Partner's age: 33

Annual gross income from employment or profession: Husband is currently on 41K, proposed new salary €52,383
Annual gross income of spouse: In receipt of Carers Allowance, €217.50 per week - €11,310 P/A

Monthly take-home pay: Husband - €3133.95, my carers averaged out per month is €942.50. Total combined €4076.45.


Type of employment: private sector

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

Saving toward purchase of family home (200k sale price, value of 510k). Currently have 55k in savings for this purchase. We do not own any properties currently but will be 2nd time buyers.

Other borrowings – car loans/personal loans etc None

Do you pay off your full credit card balance each month? Yes

Savings and investments: House savings currently at 55k. We save 1200 per month into this account at present. We have a household savings pot of about 4k at present for emergencies or repair works that we save to each month also.

Do you have a pension scheme? Husband - set up December 2019, contributes €50 per month at present and allocates any annual bonus directly to his pension IF the bonus is paid.

Do you own any investment or other property? No

Ages of children: 7, 3, and one on the way

Life insurance: Yes

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

My husband feels its time to move on from his current employer. I have no issues with this as ultimately I want him to be happy. He is currently studying by night for his second degree, and I am also studying to upskill in my field, with a view to returning to the workforce when our situation allows for it. He will be finished in 1.5 years and will progress nicely at this point, I have 2 more years at least for mine but not rushing as I don't want to qualify too long before I can realistically rejoin the full-time workforce (SN child and additional children, childcare costs an issue).

The issue with him taking this position is that I feel we are currently at a good point financially right now - we meet the conditions for Carers Allowance, he has a current take home pay that combined with my Carers more than meets our needs as a family (all outgoings, therapy costs etc.) as we are very good savers. We have no debt, we budget well, and we are saving aggressively toward the purchase of a family home while living in it (it means we are also paying out to repair as we go which I save for separately and we do in small stages - its an old house). His current employer doesn't offer a pension scheme - there was talk of one coming for a long time but I made him bite the bullet last December and set one up himself as we are getting older (33 now). He contributes €50 per month for now and any bonus he might get goes in in full.

He's been offered a new position - the annual salary would be €52,383 P/A. There are no extra benefits - no medical, no pension contribution, its similar to his current workplace in that regard but the salary is higher and he has guaranteed progression with this new company for when he finishes college. For his happiness and overall progression I want him to take this job, however I know the salary increase would mean I would lose Carer's Allowance, so we would be at a disadvantage overall for the years in between.

Carers is means tested and is calculated on the following:
"If you are married, in a civil partnership or cohabiting the first €665 of your combined gross weekly income is disregarded. PRSI, union dues, superannuation (pension contributions) and travel expenses are also deducted. For a couple, their combined gross weekly income (less any disregards) is then halved to give the carer's weekly means."

What I would hope for is that he could accept this new job, and we could maximise his pension contributions so that he is still on the same take-home pay he is now. This will mean nothing changes for us in terms of Carers Allowance, but his pension gets a massive boost to make up for lost time. I'm having trouble working out the figure he would need to contribute to his pension on his new salary and would appreciate if someone could help us with that please?

Tax Credits - he has his 3,300, along with 1,650 of mine. He also has ICTC of 3,300 for our child with additional needs. I have been working one day per week alongside my carers but have finished up now ahead of our third Childs arrival. Truth be told, this position didn't pay me at all (after tax and the drop in Carers rate, I was earning €13.48 per week but it was done in the hopes we could apply for the mortgage this year and it would show more income on paper - a lot of lenders don't accept Carers Allowance as income. Husbands employer had him on the Covid scheme so that put a halt to the mortgage application). As I have now finished up working, we should be able to re-add the Home Carers Tax Credit in January.

Can anyone help with figures for his pension contribution if he accepts this job? Is what I'm hoping for possible - no change to our take home pay, keep Carer's Allowance in place at the rate above, and maximise pension?
 
Your husband, who is in his 30s, can avail of tax relief up to 20% of his gross employment remuneration.

He could contribute €10,476 (20% x €52,383) to a pension per annum if he takes the job with the increased salary.

Currently, your tax credits more than cover your income tax liability with roughly €2,800 payable in PRSI and USC. With the new job, income tax, PRSI and USC comes to €3,800 approx.

Therefore, gross salary of €52,383 less pension €10,476 less taxes €3,800 leaves your husband with €38,107 net annual pay, €3,175 net monthly pay.

So, your husband can max out his pension contributions and still take home the same approximate net pay.

You mention you both currently take in €4,076 and save €1,200 per month. This leaves your monthly expenses at €2,876 so it is quite tight if your husband will be taking home €3,175 net with no Carer's Allowance coming in.

In effect, you have shifted your monthly savings into a longer-term, less liquid product.

Your house situation is interesting - you are currently living in a house that you will buy for €200,000 but has a market value of €510,000. I presume there is a gift/inheritance manoeuvre happening here?

You have savings of €55k. Will you be taking out a mortgage for €150k approx in the near future?

Does a portion of your monthly spend of €2,876 go towards rent or some contribution on this house? Is this amount approximately equal to what the monthly mortgage payment would be on a €150k mortgage? More details on the house situation may elicit more helpful advice.
 
Thank you for your response. Yes, there is inheritance as part of the house purchase, its a longstanding arrangement with family but as mentioned the house was in dire need of repair works that we've been completing over time while living here. Theres absolutely no rush on the sale / purchase which is a very fortunate position we're in, but I'm conscious we're coming up to the time where our works will start to increase the value of the house so I wanted to get the mortgage in place before that happened - at least approval in principal. This wasn't to be our year though, Covid made things messy so we chose to hold off on the application until my husbands employer was off the scheme. We can press pause on this though and save more toward the deposit, its up to us when we want to strike. Basically, we have options and we're very grateful for them!

I'm quite a good saver and our monthly expenses are low, we have always been able to manage quite comfortably. We own our car outright and it suits our changing families needs, we have no loans or debts, we save for the house deposit each month and also save separately too for the repair works and to cover our day to day household expenses (car tax, insurance, etc.). We did have a larger deposit, but ended up having to use around 20k for structural and damp-proofing that was essential before we could live here, but the flip side was we saved on rent expenses so completely worth it. The €1200 per month saved directly for the deposit is almost double the repayment amount should we proceed with a mortgage, and given the LTV of the property we can avail of a lower rate.

If we are channelling the pay increase to my husbands pension though, as you have outlined above, wouldn't it mean we are still eligible for Carers Allowance as pension contributions are deducted?
 
I know zilch about Carer's Allowance - I just took your word above that the increase in salary would mean you would lose it.

If the Carer's Allowance entitlement is only driven off the net household income and pension contributions can shelter some of your gross pay, then you are in good shape.

Another poster who is more au fait with Carer's Allowance can chip in on that point.
 
How accurate or otherwise (!) is the below OP?

With the methodology I use I get close to your current Carer's Allowance of €11,310 per annum but not quite.

From my reading it looks like there is €36 extra per week if there is another child dependent? Are you also entitled to the yearly tax-free payment of €1,700 for full-time carers? In the 'future' calculation section I am leaving out the nipper that you have en route to avoid complications while I cross check with your understanding of how this is all calculated.

Carer's Allowance CalculationCurrent Future
Gross Income41,00052,383
Gross Weekly Pay788.461,007.37
Less Weekly Pension Contribution12.50 (50 / 4)201.47 (52,383 * 20% / 52)
Less PRSI31.54 (41,000 * 4% / 52)40.29 (52,383 * 4% / 52)
Weekly Income744.42765.60
Disregard665665
Assessable Means (A)39.7150.30
Max Weekly Carer's Allowance Rate219219
Increase for Child Dependent (x1)3636
Weekly Rate inc extra child payment(s) (B)255255
Weekly Rate less Assessable Means (B - A)215.29204.70
Annualised Receivable (x52)11,195 (OP has €11,310 here)10,644

Also, is it the case that in the future scenario that the Carer's Allowance will be added to your husband's increased salary for assessment for income tax (but not USC or PRSI) but that you'd also have the Home Carer credit of €1,600 as an extra tax credit on top of your husband's PAYE & Personal credit (1,650 + 1,650), your personal credit (1,650), the ICTC (3,300)?

Given the assumptions above, I come out with these figures:

Salary52,383
Carer's Allowance10,644
Gross Household Income63,027
Pension Contribution10,477
Income Tax12,160
Credits9,850
Net Income Tax2,310
PRSI2,095
USC1,665
Net Annual Income (after pension & taxes)46,480
Net Monthly Income3,873

The net future monthly income of €3,873 that I come out with leaves you not far away from your current net household income of €4,076. Again, a lot of assumptions in there but would be interested to know if it accords with your view of the world.
 
@AAAContributor Thank you so so much for that breakdown. You've really simplified it for us!

Some very tiny amendments made (Current Pension contribution was calculated incorrectly, its €50 PCM, which is €11.54 per week).

Carer's Allowance CalculationCurrentFuture
Gross Income
41,000​
52,383​
Gross Weekly Pay
788.46​
1,007.37​
Less Weekly Pension Contribution11.54 (50 *12 /52)201.47 (52,383 * 20% / 52)
Less PRSI31.54 (41,000 * 4% / 52)40.29 (52,383 * 4% / 52)
Weekly Income
745.38​
765.6​
Disregard
665​
665​
Assessable Means (A)
40.19​
50.3​
Max Weekly Carer's Allowance Rate
219​
219​
Increase for Child Dependent (x1)
36​
36​
Weekly Rate inc extra child payment(s) (B)
255​
255​
Weekly Rate less Assessable Means (B - A)
214.81​
204.7​
Annualised Receivable (x52)
11,170.12​
10,644​
Salary
52,383​
Carer's Allowance
10,644​
Gross Household Income
63,027​
Pension Contribution
10,476​
Income Tax
10,510​
Credits
9,850​
Net Income Tax
660​
PRSI
2,095​
USC
1,665​
Net Annual Income (after pension & taxes)
48,131​
Net Monthly Income
4,011​

The Income Tax rate, from my calculations it would be €10,510 in the future position (salary of €63,027 - pension contrib of €10,475 = €52,551. 20% Income tax on €52,551 is €10,510). This means the net income tax figure changes to 660 which I've shown above. I hope my figures are correct, feel free to correct me if I'm wrong, its been a long day!!

This would mean that our net monthly income would be €4,011 if he took the new position and we maximised pension contributions. Our current net monthly income is €4,076.

So we might lose €65 per month this way, however look what his pension gains!
 
Would there be any claim for DCA (€309.50 a month )in respect too the child with the extra needs ?
Yes, we are in receipt of this. Its currently used to fund our sons monthly therapies but isn't factored into the Carer's Allowance means test, hence why it hasn't been mentioned above!
 
I think you are correct on the income tax amount.

I worked off a maximum standard rate band for a married couple with one spouse earning of €44,300 with the balance taxable at the marginal rate.

But, you also have an income of the Carer's Allowance and the standard rate band can be increased 1 for 1 I think for any extra income less than €26,300 for a married couple. It would make sense that this should be added on to the standard rate band and so all income taxable at 20%.

My tax knowledge is rudimentary but on the basis of the above, I agree your figure of net income tax at €660.

Maybe another poster qualified in tax could contribute on this point.
 
Just to note for the means test for carers allowance your savings are also taken into account towards your weekly means.
 
Back
Top