Reduce pension or SIIA?

A

Allie

Guest
Getting a mortgage and I will need to reduce either my Pension contribs or SIIA contribs(for the remaining 2 years) to pay for it. I'm 35. Which is better to cut back?I'm contributing the max to each at the moment and mortgage will be about E1,000 a month. Thanks.
 
Unless I'm missing something, obvious or otherwise, here (quite possible!):

Pension = 42% tax relief* for high rate taxpayers

SSIA = 25% top-up on AFTER TAX income

in which case it would seem to make sense to prioritise the pension. On the other hand there may be other factors to consider (e.g. the fact that the SSIA is more liquid than the pension etc.).

* Plus PRSI if you can manage to get Welfare to process your reclaim:
 
Stick with the SSIA!

In your situation I would lower my pension contributions in favour of the SSIA. When the SSIA matures - you can always contribute some of it as a lump sum AVC to your pension.

Lump sum pension contributions attract tax relief as normal, provided your total contributions are below the
generous annual Revenue limits. The limits are set at a % of your income in year of contribution (at your age 20%, rising to 30% as you approach retirement). You can always trickle the SSIA lump sum into your pension gradually to ensure you remain under the annual limit.

Note that if you draw income from your pension when you retire (via an annuity) you will be assessed for income tax on that income. This reduces the present value of the tax relief considerably. So even ignoring the ability to benefit on the double (as suggested above), pension contributions are not much more attractive than the SSIA. And as blank points out, the SSIA is more liquid.

This assumes you are "good with money".
If you think you will "splurge" the SSIA lump sum on something silly, then stick with the pension now.

Postscript: it also assumes that by lowering your contributions, you will not lose any employer contributions. In some occupational schemes, employers will match your contributions. If paying into your SSIA meant forfeiting your employer pension contributions, I would probably stick with the pension after all!
 
SSIA

Thank you. I can be relied upon not to splurge the SSIA income I think. Wouldn't it make more sense to put the SSIA money back into paying off my mortgage though instead of into the pension?
 
Pay off mortgage or pay into pension

Maybe. At that stage the SSIA dimension isn't important.
You just have a lump sum and want to know whether it's
better to pay off your mortgage or put it into your pension.
That's a harder question to answer and I'm sure there will be different opinions.

I would split it, maximising your pension contributions for that year to 20% of your income, and paying the rest off your mortgage as a lump sum. In subsequent years - continue to maximise your pension contributions using the interest saved on the mortgage.
 
Pay off mortgage or pay into pension

I guess I never considered that it was possibly to avail of BOTH the SSIA 25% top-up AND pension tax relief if you stick with the SSIA and then put some or all of it into the pension after maturity. Doh! :eek:
 
re: pension versus SSIA

> re: Pension = 42% tax relief* for high rate taxpayers

Contributing to a pension is not TAX RELIEF but a TAX DEFERRAL!
 
re: pension versus SSIA

Whatever! It could be tax relief if your pension is small enough to be below the relevant income tax thresholds at retirement (possibly after taking 25% tax free lump sum first). Anyway, I'm sure that less pedantic people understood what I meant... :rolleyes
 
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