pension dilemma

B

badly bitten

Guest
I paid 51,500 into a personal pension policy since January 1993 (I am self-employed), to find that it had earned 600 Euro in total by January 2003. The company blamed the stock market, which of course is a false argument over 10 years. Now I am paranoid about commissions, charges, hidden charges etc. I have two weeks to find an alternative policy to move it to, as a pension policy, PRSA or pension mortgage. I began reading about the stock market, world economy etc in February this year and if I had a free hand now, my pension would be invested in China and the Far East, India, where strong growth rates would give me some chance of making up for lost time. I am 54, single and need a retirement income. I live in a small bungalow on the sea coast with two acres of land. I don't think I would get planning permission for a separate house, but believe I would get permission for a separate unit/ extension which I could rent, certainly in the summer season and probably off season also. Should I opt for a pension mortgage or a Far Eastern equity fund? I can expect three separate lump sums of approx. 15,000 Euro, 20,000 Euro and 50,000 in the coming 3-8 years. The "extension" would cost approx. 80,000 i think. Can anyone offer me any impartial advice that does not cost me an arm and a leg (they're gone already)... Please.. and thank you
 
A

Alan Moore

Guest
Dilemma

"Should I opt for a pension mortgage or a Far Eastern equity fund?"

I'm not sure you quite understand a pension mortgage. Which is essentially an interest only mortgage where the capital is eventually repaid at retirement from your pension scheme which may itself be invested in a Far Easteren Fund. The pension could be a PRSA, Personal Pension or Occupational Pension Scheme. A lot of people confuse Pension Mortgages thinking that it is one vehicle. It is two and they are very seperate.

The policy you have does sound awful on face of it. Being paranoid about charges is okay but I would suggest that you take some professional advice. Talk to your bank/mortgage broker about the mechanics of the pension mortgage and your own scenario. Also would advise you take some professional advice on your pension and don't be afraid to ask the hard questions regarding fees/charges/commissions etc. Hope this helps.
 
B

badly bitten

Guest
Alan,

Thank you very much for such a prompt reply! I certainly don't understand pension mortgages - I only read about them for the first time on Sunday. I am stabbing in the dark here. I suppose the question I am asking is: Where do I put the 10,000 odd Euro that I will need to put somewhere for tax relief before 31 October. If I used it as an initial premium for a pension mortgage I would soon have a property that would earn me some income, while I made tax deductible payments on the mortgage, as opposed to putting the same 10,000 to start up a new PRSA or pension policy which I would have to track down that invested in Asia. I don't want to take out a PRSA or pension policy that invests in some anonymous badly managed fund. To me the property investment would be better than that. However if there was a good fund out there that invested in Asia and had some chance of going somewhere then that would be less of a headache. My experience so far it that it is impossible to get any idea of commissions from intermediaries and that is why I have been reluctant to seek out a financial adviser. I feel they are all selling something and are not impartial. That's probably the paranoia kicking in again.

But thanks. I appreciate your help...
 
R

rainyday

Guest
Far Eastern equity fund
This would be a high-risk strategy. Personally, I wouldn't recommend this unless you have a clear idea of how the far eastern markets compare to other markets, the nature of their businesses and economies etc. It could be just the thing to give your pension boost, or you could suffer even worse losses that you have suffered on your existing fund. Don't let your recent losses steer you down the road of further losses.
 
A

Alan Moore

Guest
Still not sure you grasp the principal

...... of a pension mortgage.

You borrow say 100,000 from a bank. You only pay the interest only to them. That is your only dealing with the bank until the end of the term (i.e. your retirement).

How is the loan repaid? From whatever pension you have (including the one you have already possibly). Funds can be invested virtually anywhere e.g. cash, managed funds, property etc. Again would recommend you take advice. Not something you should go into blind.

Would agree with Reainyday that Asia would be considered high risk and would not be for everyone.
 
B

badly bitten

Guest
God help us, I really do not understand the pension mortgage. Every time I think I do, it evaporates. Can I try once more, with a scenario.
1. I find a pension provider that offers pension mortgages and invests in a couple of good funds.
2. I find whatever bank they deal with or pick a bank if that's the way it's done.
3. I have say 10,000 pa that I need tax relief on, so I pay 5,000 to the bank (if they will accept that amount on the 80,000 mortgage) and 5,000 to the company towards a pension/ PRSA. That way I end up with the property paid for on tax relieved money and something over in the pension fund as well, assuming it doesn't all go down the Swanee again. The bank should be willing to give me a decent deal since I will be transferring the 51,500 into the pension fund as soon as I can extricate it.

Is that it? If I am off track again, just don't bother replying. But if I'm right, this would solve my building problem, because I feel that it would be a good investment. What happens every year is I put everything I can into the "fund", and then I have no cash left to do anything.

Many thanks for your patience.
 
C

Conan

Guest
Pension Mortgage

The process is as follows:
1. You identify a property
2. You get an "interest only" loan from a lender (with a promise to repay the capital in one bullet on your retirement0
3. You, or your Company, put a pension plan in place with a provider, at a contribution level sufficient to generate a fund that will repay the loan at retirement.

Remember:
* the pension plan cannot be assigned to the lender
* on retirement you generally will get 25% of the fund tax-free (which will be used to repay the loan). If you need further cash out of the pension plan to pay the loan, thenthis drawdown (from an Approved Retirement Fund) is subject to marginal rate tax - thus you will only get circa 56% into your hand.
* as a rule of thumb, you need to target a pension fund of at least 2 x loan so that the net after tax fund will be sufficient to repay the loan.

I am not sure from your last posting taht you fully understand the cocept of a pension mortgage. If you want to seriously consider the option, I suggest you get professional advice.
 
B

badly bitten

Guest
Reply to Conan, Alan, Moderator et al..
I'm getting there. ..I have taken advice and the bit about ensuring that the final repayment was covered by the 25% tax free lump sum wasn't pointed out to me and didn't occur to me either. So that was very valuable. Now I have something I can work on and I think I will go ahead and do this. Many thanks to you all.
 
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