Pension for 34 year old

[geegee]

I am self-employed and do not have a private pension. It is coming up to the tax return deadline so my mind has been focused on taking one out. I have a few queries/concerns which are as follows:

Is paying into a pension really only tax deferral as the pension itself will be taxable in the future?

Is it better to get a stand-alone pension rather than one which has a PHI attachment ( I am thinking about taking out a PHI policy also).

Should I be looking at a pension scheme or a PRSA? Which pension/PRSA would you recommend?

Thanks,

gg

 

[Brendan Burgess]

Hi geegee

I am assuming that you own your own home and that your mortgage is under control. You should not start a pension until this has been achieved.

Is paying into a pension really only tax deferral as the pension itself will be taxable in the future?

You will get tax and prsi relief on the way in at 47%. The fund will grow free of tax. On the way out, you will get a 25% tax free lump sum. The balance will be taxable at your marginal rate as you draw it out. On retirement, you may be paying less than the top rate.

Is it better to get a stand-alone pension rather than one which has a PHI attachment ( I am thinking about taking out a PHI policy also).

I don't know about PHI. If you get life cover through a pension scheme, you are effectively getting tax relief on the cost of the life cover, whereas you get no tax relief on life insurance premiums paid on a stand-alone basis. ( You cannot use such cover for a mortgage protection policy) I don't know if this applies to PHI cover. If it did, then it would reduce the cost of PHI by half.

Should I be looking at a pension scheme or a PRSA?

I think that a pension scheme through a discount broker might work out cheaper than a standard PRSA. I don't know if there are any other advantages.

Brendan

 

[geegee]

Hi Brendan,

I am assuming that you own your own home and that your mortgage is under control. You should not start a pension until this has been achieved.

Please define what you mean by this.

I don't know about PHI. If you get life cover through a pension scheme, you are effectively getting tax relief on the cost of the life cover, whereas you get no tax relief on life insurance premiums paid on a stand-alone basis. ( You cannot use such cover for a mortgage protection policy) I don't know if this applies to PHI cover. If it did, then it would reduce the cost of PHI by half.

At present I have a 5 year old life assurance policy with plenty of bells and whistles such as Hospital Cash, Personal Accident, Surgical Cash etc.etc. Is there a combined pension/life assurance policy available with these "add ons" and if so, would it all be tax deductable?
Also, would the increased cost of serious illness cover since the inception of my policy not cancel out any saving from tax relief?

Regards,

gg.

 

[Brendan Burgess]

Hi geegee

A comfortable mortgage is one where you can easily tolerate an increase in interest rates from the present rate of around 3.1% to say - 6%.

This depends on your level of salary and how reliable it is. For example, a state employee would be more comfortable than an employee of a company whose future is in doubt.

It has become the norm to borrow three, four and five times the salary to buy a house. I probably would not start a pension until my mortgage was reduced to less than twice my salary.

I know that you can get tax relief on your life assurance included in your pension contribution, but I simply don't know if this extends to other bells and whistles. I doubt it.

If you took out a life policy 5 years ago, you should shop around anyway to see if you can the same level of cover cheaper. Rates have come down a lot recently. And if you buy it through a discount broker, the first year may not cost you anything at all.

Brendan