Pension into ARF or Pay off Mortgage?

Thanks in advance for any advice, just way too confused to make a decision yet..

I'm considering taking 25% tax-free from pension from previous employer to put off mortgage and then seriously considering the option of drawing down the remaining 75% to almost clear the remainder of our mortgage. I'm aware that the taxman would get a big payday but my question is if it would be sensible as we will have two teenage children off to 3rd level in a couple of years. Our mortgage would then be close to cleared while paying 3rd level expenses. Pension provider is strongly advising taking 25% tax-free and then letting them manage the remainder in an ARF but this is hardly independent advice.

We are both early fifties
I'm in the private sector, wife is in the public sector
130k left on mortgage (18 years left on term), house value 400k
Pension value 200k
I am not currently paying into a pension
Wife will have a public service pension
No investments/savings due to putting extra cash off our mortgage
We have a tracker mortgage of ECB rate plus 1.25%

You will get far more informed advice but my opinion is that if you can service your debt then you would be making a serious error, How will you ever accrue that again. You hopefully have at least ten working years to pay down the mortgage. Collage in terms of fees and then kids working part time or even just summers if possible was less costly than secondary school. Grinds and other things like dental etc finished Its just my experience but I found those secondary school years the most expensive.

It also depends on your overall outgoings and your income and definitely needs a money makeover to get the full picture of your situation and get more informed advice. I am similarly aged almost 56 and wondering how I can add to my retirement planning. I think it would be very short sighted. Also you need independent advice in terms of fees etc for the best product to buy. You should be adding to this just even in terms of tax efficiency I would have thought.

Take the time to put your figures up here folks are really knowledgeable and the insight will be worth your while.

It feels more rash than sensible, tbh. But please do a money makeover post so we understand all the details. Third level can be expensive of course, but kids can (should?) help by working part-time, etc.

Compounding, inflation and tax-free are all your friends once your debt repayments are manageable, all three of which require time that you’ll be robbing yourself of.

As above seems like a bad idea, make sure the old pension is invested in growth funds and your 200k will grow a lot by 65. Any lump sum then can pay off the mortgage if outstanding. Really you should be maxing AVCs also but can be tricky too.

giving yourself a decent retirement is as important as putting kids through college.

What are the charges on the pension scheme and what will be the charges on the ARF?

Impossible to comment properly without full details.
But with the very limited information above,

1. Your Pension adviser needs medication at best.
2. You have a cheap tracker.
3. You state that you have been paying extra off mortgage so why now would you destroy your pension give the tax man a load of cash and give up tax free growth on your pension.

As it stands what you propose (sorry) but seems nuts. More detail might clarify things but as it stands dont even think about doing what you suggest. Also get a pension adviser.

Thanks everyone for your honest replies

Based on there being no 3rd level options near to where we live, an estimate of costs including accommodation is upwards of 250euro per week per child, so in a few years we will likely have two children in 3rd level at the same time. This is the main motivation for reducing the mortgage repayments as much as possible. Also, using the CCPC mortgage calculator, the cost of credit for the remaining mortgage is 58k which seems so excessive.

The annual charge for the ARF would be 1%.

With such limited knowledge of my pension options, I don't know what the ARF would be worth weekly at retirement age after tax, bearing in mind that I would have a State pension and my wife would have a Public Service pension. Could anyone please point me in the right direction for determining this? Maybe an online calculator or something similar?

Is there any possibility that a future government would cancel the option to withdraw 25% tax-free?

The money if left in your pension could easily grow in excess of 5% per year over the next say ten years. That growth is tax free.
When you get to retirement age you should be able to draw down your ARF paying the lower rate of tax.
If you proceed with drawing down now and working away you will most likely be paying over 50% in tax. Crazy.
You state that your knowledge on pensions is limited. It is.
No offense but you need to get proper unbiased advise. Its hard enough for ordinary average families financially.
without messing things up for yourself. A few hundred euro might very well save you tens of thousands..
Good luck with your decisions.

There are a lot of variables but if say you didn’t put anything in your pension at all, just left it invested it should be worth 3-400K in 10-13 years. Leaving alone the lump sum you can safely take at least 4% for life. So 12-16k a year. You are approaching doubling your income in retirement for the rest of your life to 29k-33k or so including state pension. This is very marginally taxed at 2-3k a year. This would appear to make a big difference you you in your retirement.

Thanks for your very helpful replies

I'm hoping for some more pension advice if someone here has experience of switching funds in a private employee pension? I switched funds from a Managed Fund for Growth to a Cash plan a while back in my pension and now wish to switch fund types back to the Managed Fund for Growth. I would appreciate any advice on doing this and in particular, are there any caveats? Thanks in advance

Most pensions let you switch funds on request usually for free or maybe, in some cases, for a nominal charge. Contact your pension provider or intermediary to check.

Why did you switch to cash? On the face of it it seems like a bad idea especially if you were attempting to time the market and/or aren't locking in gains in order to buy an annuity for example.

Unless you're close to retirement - and maybe even if you are and your investment timeframe extends into retirement via an ARF or vested pension - you should most likely be mainly or fully in equities.

Thanks for your reply ClubMan. I had briefly considered drawing down my pension so moved it into a cash fund in advance of possibly doing that. No, I was not trying to time the market as I have no experience of such things. I will now not be drawing the pension down and intend to leave it to grow so would like to switch back to the managed fund. As I have very limited experience, I was hoping for some advice on anything to look out for when switching back to the managed fund. Is that something that can be done straight away or are there any downsides or risks?

Oak201 said:

I was hoping for some advice on anything to look out for when switching back to the managed fund. Is that something that can be done straight away or are there any downsides or risks?

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It should be possible to do without any complications or significant (if any) charges. Check with your pension provider/intermediary about the process for switching funds.

Thanks, much appreciated