Paying into pension - am I missing something?

[arry]

Hi,

Just want to make sure that my understanding is correct. The way I look at it if you want to invest money for the future it makes sense to put as much of it as you can into your pension.

If you are on the marginal rate of 42% and you pay 450 into pension the government effectively pay another 300 for me by way of tax relieft. Therefore I have made about 70% return on my investment.

I was speaking with some pals and they seemed to think they were better doing personal investments in shares/property rather than pensions.

Apart from the lock-in of your money and also the max relief bans am I missing something here??

Thanks

arry

 

[ClubMan]

If you are on the marginal rate of 42%

High rate is 41% these days. If you are on this (and 6% PRSI/health levy) then €100 into your pension actually costs you €53 with the other €47 coming by way of tax and PRSI/health levy relief (once you don't exceed the relevant age related tax relief limit).

and you pay 450 into pension the government effectively pay another 300 for me by way of tax relieft. Therefore I have made about 70% return on my investment.

If €450 is 53% of your total contribution then 100% (i.e. including 47% tax/PRSI relief) will be €850 - i.e. €400 in tax/PRSI relief.

Best not to think of your tax/PRSI relief as a return - rather it's simply money that you earned that is coming back to you from the taxman.

I was speaking with some pals and they seemed to think they were better doing personal investments in shares/property rather than pensions.

The tax relief on pension savings are quite generous - including tax relief on contributions and the ability to take up to 25% of the fund at retirement as a tax free lump sum.

Apart from the lock-in of your money and also the max relief bans am I missing something here??

I don't think so. Check out the key posts, www.itsyourmoney.ie and www.pensionsboard.ie for more info.

 

[arry]

Thanks Clubman. I dont understand why some people are still refusing to make AVCs into pensions at least up to the threshold, if they can afford it.

Arry

 

[Cobra]

Myself i dont trust the government with any of my money except the millons of € they waste of everybodys tax every year.

I think you would be better off putting your money into something like commercial property fund in Europe, Irish Life or somebody like that.Excellent return and freedom to take control of your own money after 5 years. Thats my view anyway. If you look ahead private pension on top of your state pension when you retire tax again and alot of new rules as years go by. Take control of your hard earned cash?? Look at camel question on page 2

 

[ClubMan]

Myself i dont trust the government with any of my money except the millons of € they waste of everybodys tax every year.

Other than granting tax relief the Government has nothing to do with pensions!

 

[LDFerguson]

I think you would be better off putting your money into something like commercial property fund in Europe, Irish Life or somebody like that.Excellent return and freedom to take control of your own money after 5 years.

You can do any of these things AND get the tax relief with a pension.