Pension V Mortgage

T

TRS30

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Married couple 48 & 46
3 kids- 10, 8 & 6

Me: 75K
Wife: 55K (takes 1 parental leave a week)

House Value: 650K
Mortgage: 308K- PTSB
Fixed Rate 2.2% till June '27
22 years remaining

Current pension funds:

Me:
Buy Out Bond 1- €235K (100% global equites-TER 0.55%)
Buy Out Bond 2- €210K (100% global equites-TER 0.26%)
Current fund- €35K (100% global equites-TER 0.31%)

Wife:
Buy Out Bond 1- €150K (100% global equites-TER 0.26%)
Current fund- €25K (100% global equites-TER 0.31%)

Both 6% and employers 6% contributions.

Unvested RSU- €15K

No loans and emergency fund of €5K & saving €500 a month (please see other post on this).

Have about €500 (net) spare a month and trying to decide:

-Do AVC for the full €500, i.e. extra €1,000 a month in pension
-Do €250 to mortgage over payment and €250, i.e. €500 to AVC.
-Do full €500 to mortgage

Mortgage overpayment would go into PTSB credit a/c and be offset against mortgage balance for interest calc. Could be used to take mortgage break/reduce payment if necessary.

I think pension is the play however interested in others opinion.
 
Your €5k emergency fund is a little shy given your mortgage must be about €1700 a month. I would pre-pay the €500 a month into your PTSB mortgage for about 18 months. Getting 9-10k in there will reduce your interest bill, but it sits alongside your main mortgage and can be used on a rainy day to meet your monthly repayments. Like a 2.2% deposit without a DIRT bill.

Otherwise, you're in great shape, well done.
 
Sarenco said:
Agreed.

I would definitely prioritise increasing pension contributions over paying down your mortgage ahead of schedule in your circumstances.

Overall it looks like you are in good shape financially.
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My thought would be that is there is still an outstanding mortgage balance come retirement (mortgage runs to 70 and would like to get out at 63, if possible), I could use some of my TFLS to pay it off. There is the possibility of inheritance however never like to factor that into financial planning.
 
conor_mc said:
Your €5k emergency fund is a little shy given your mortgage must be about €1700 a month. I would pre-pay the €500 a month into your PTSB mortgage for about 18 months. Getting 9-10k in there will reduce your interest bill, but it sits alongside your main mortgage and can be used on a rainy day to meet your monthly repayments. Like a 2.2% deposit without a DIRT bill.

Otherwise, you're in great shape, well done.
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Mortgage is €1.5K a month. Low(er) emergency fund was something I had queried in another post:

Emergency Fund Required

Am in the process of a full financial review with the aim to increase pension contributions, over pay mortgage and make sure we are making best use of all income, cutting unnecessary expenditure etc. One of the first things that you always see on here is people advised to have 6 months...
www.askaboutmoney.com
 
TRS30 said:
-Do AVC for the full €500, i.e. extra €1,000 a month in pension
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Being slightly pedantic but €500 net is €833 gross into your pension. You were probably just rounding for simplicity but just so there are no surprises if you do increase your contirbution by €1k, you will be down €600 net

Other than that, it also probably makes sense to use this money to contribute more to your spouses pension. You already have ~€480k so with reasonable growth and the extra funding, you are likely to go well over the €800k mark meaning that a portion of your TFLS would be taxed at 20%.

If you choose to prioristise your spouses pension, you might need to adjust tax bands/credits to make sure she is getting the full 40% relief on her contributions. In other words, she is already contributing €3.3k (6%), if she added €12k to this it would be €15.3k meaning some of her contributions would be coming from the 20% tax band
 
_OkGo_ said:
Being slightly pedantic but €500 net is €833 gross into your pension. You were probably just rounding for simplicity but just so there are no surprises if you do increase your contirbution by €1k, you will be down €600 net

Other than that, it also probably makes sense to use this money to contribute more to your spouses pension. You already have ~€480k so with reasonable growth and the extra funding, you are likely to go well over the €800k mark meaning that a portion of your TFLS would be taxed at 20%.

If you choose to prioristise your spouses pension, you might need to adjust tax bands/credits to make sure she is getting the full 40% relief on her contributions. In other words, she is already contributing €3.3k (6%), if she added €12k to this it would be €15.3k meaning some of her contributions would be coming from the 20% tax band
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Can you explain how you get from €500 to €833?

Also, as we are jointly assed once all pension contributions are above the combined standard threshold would 40% relief not apply?
 
TRS30 said:
Can you explain how you get from €500 to €833?
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You are getting 40% relief so the net cost to you is 60%.

€500/0.6 = €833.33

TRS30 said:
Also, as we are jointly assed once all pension contributions are above the combined standard threshold would 40% relief not apply?
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I haven't had to do it myself so I don't know specifically how it works in practice

But my understanding is if you allocate the credits/reliefs correctly, you will get the tax relief as it happens and everything should be correct at the end of the year. If you don't change anything, your spouse will have overpaid IT due to only receiving 20% relief on a portion of the pension contribution but when you do your balancing statement at the end of the year you should get a refund. That's my understanding but open to correction on it.
 
Arguments in favour of pension

TRS30 said:
Fixed Rate 2.2% till June '27
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I think that this is the key. It's such a low rate that you are effectively borrowing at 2.2% to put your money into a pension. That seems like a good deal.

Arguments in favour of paying down the mortgage

If your jobs or income are in any way uncertain, then having a lower mortgage is a great comfort.

It increases your flexibility. If you or your wife decide that you want to take a year out, having built up a year's mortgage payments as a credit with ptsb would make it much more doable.

You have a fairly decent fund already so you will exceed the €800k fairly soon. But your wife has plenty of scope.

Conclusion
Up your pensions while the mortgage rate is so low, but revisit when the fixed rate ends or if your employment situation becomes less secure.
 
Brendan Burgess said:
Arguments in favour of pension



I think that this is the key. It's such a low rate that you are effectively borrowing at 2.2% to put your money into a pension. That seems like a good deal.

Arguments in favour of paying down the mortgage

If your jobs or income are in any way uncertain, then having a lower mortgage is a great comfort.

It increases your flexibility. If you or your wife decide that you want to take a year out, having built up a year's mortgage payments as a credit with ptsb would make it much more doable.

You have a fairly decent fund already so you will exceed the €800k fairly soon. But your wife has plenty of scope.

Conclusion
Up your pensions while the mortgage rate is so low, but revisit when the fixed rate ends or if your employment situation becomes less secure.
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Thanks Brendan.

Am leaning towards put it all into wife's pension. I am going to continue to review expenditure and see if scope to put small amount against mortgage (circa €150 monthly) as like the idea of having that additional flexibility of having a years mortgage repayments 'in the bank'.

While no one can predict the future is a €450K pot with my current contributions likely to exceed €800K in 14/15 years?
 
Yes.
Adding €9k a year without adjusting for salary increases and getting an investment return of 2% a year would give you €800k
 
Think I might have come across a wrinkle to my plan.

Wife takes 1 day a week parental leave so pensionable salary is 52K*80%= €41.6K

The max limit for her age is 25% so €10.4K and she is already putting in €2.5K so leaves €7.9K.

€7.9K/12= €660 or €395 nett. So not a disaster and about €100 less then I had budged.

Do the revenue age limits apply to pensionable salary only or gross salary pre prenatal leave?
 
Great work TRS!

Something to keep in mind about your mortgage.

When your PTSB fix expires, you are likley to have large increase in mortgage payments. PTSB are famous for high rates for existing customers. Most of their fixed rates are >4% and their current variable is >4%.

So, you may want to be ready to switch the moment your fixed rate expires, especially so if you are stuffing your excess in a pension.
 
PTSB have an existing business 3-yr fixed rate of 3.6% atm, which isn’t too far off the market best. Considering this myself as the prepayment option would help me reduce my term whilst also giving me some rainy-day protection. Reducing the term should also be a consideration for OP as current term would run to 70/68 years of age each.

Mind you, a lot can happen to interest rates between now and OP’s fixed term ending in Jun ‘27!
 
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