Key Post Should someone paying tax at 20% contribute to a pension

Gorteen said:
Is the employer contribution capped at €200? I thought it might be more and related to whatever contribution she makes
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From what you've said the employer contribution is up to a maximum of 6% of salary (€40,000 x 6% = €2400 divided by 12 = €200 per month).
It makes sound financial sense to trigger the maximum employer contribution by the employee contributing 6% herself.

6% is low enough in this day and age - The employer pension contribution is part of her benefits package like salary, health insurance etc. Something to consider when next in negotiation with an employer. Ten % is more common I think and even higher as your grade increases.
 
This is interesting thread to check if we are doing it right. Wife earns €40,000 in age bracket of 40-45. At the moment she only contributes up to 40% tax relief. Is there any benefit of maximising contribution as per age bracket which include a proprtion at 20% tax relief ? Presumption, mortgage is at comfortable level.
 
Bish123, I think paying down mortgage faster (thus getting an ROI by avoiding interest) is likely to be as lucrative as paying into a pension for 20% relief. It might be marginal, and I have not done the spreadsheet.

I agree with Brendan, home buying seems unattainable for this generation, but that should not put people off saving a deposit. Things change.

If young/relatively young and earning in the 40% tax bracket you should be able to save a deposit, once pot of money is saved you can put it into the stock market if you do not see home ownership coming in the short-term at that stage. This at least this gives you funds which are liquid/accessible if a home buying opportunity arises. Once that amount is saved, then save via pension. I do not think someone would lose out on much with this approach (unless close to retirement). Would people have a different view on this?

As an aside I think banks should look at pensions when accessing mortgages, but that is for another topic. Some people have very good DC pensions, and in the case of a DB pension I can not see why a bank would regard that as less relevant that some precarious current earnings they accept. Indeed, if governments encouraged lenders to include pensions then that may drive a very positive behaviour of encouraging younger people to build understanding of pensions
 
Gorteen said:
Does anyone have nay advice for me and/or her?
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She should contribute to the max and take advantage of employer contributions.

20% tax relief is better than 0% tax relief, and funds accumulate tax free. When you add in employer contributions it would be mad to turn down.
 
S class said:
Home ownership will never be attainable for very many young Irish people. By following your advice some of these people may end up homeless in their retirement.
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That's exactly why I started saving in my late 20s, and the first 3 years was when I was not earning enough to pay the higher tax rate. I really thought I'd never be able to afford a home, but I figured out it was worse to have no home and no pension, than no home but a modest pension. But you do you.
 
Bsaically her employer is going to give her an extra 6% provided it goes into her pension, and her side of the bargain is to also contribute 6%.
She can play it easy, contribute 3% and the employer will also contribute the same 3%. Its money on the table for the taking imo. I know when I was in my 20s it represented a very small sum - maybe 57.5 euro a month or something, but the modest tax relief at the 20% I was paying marginally decreased my overall tax burden (which at the time was a lot, I was earning 23k pa) so while small it did pay off. I left that job after 3 years of contributing, and that tiny sum plus employers contributions are now over 17k.
 
in private sector typically its up to 6%, not 10%.
Financial services however often does pay a lot more - as much as 16%
 
Actually it was the first thing my bank asked me when I applied, some banks will allow a longer term if you're in a company known to have a good scheme.
 
Dr Strangelove said:
She should contribute to the max and take advantage of employer contributions.

20% tax relief is better than 0% tax relief, and funds accumulate tax free. When you add in employer contributions it would be mad to turn down.
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Just to be absolutely clear, it is always right to contribute enough to maximise employer contributions.

40% tax relief is much better than 20% tax relief so someone who is paying 20% tax who will be paying 40% in the future should wait until they are paying 40%.

If they will never be paying 40% tax, it's more complicated.

Brendan
 
Here is an alternative view Brendan. Over the last two budgets the threshold where 40% tax kicks in has seen significant jumps (now it’s €42k). If the government continues this trend and there is talk of indexing thresholds..…following this advice may mean that some people would never start a pension. It’s also made more complex by the fact that tax relief may be partly 40% and partly 20% depending on how much they earn/ invest in a pension.

The second scenario is an unknown in many cases - when do you realise that it applies to you to then trigger a review of the “complications”?

Aside from the bald mathematics involved there is the subjective benefit of creating a saving discipline for life and I would encourage everyone to start a pension as soon as they become liable for income tax, at any rate.
 
Another way of looking at this.
If the Employer matches the Employee's 3%, then even tax relief of only 20% on the Employee's 3% (so a net 2.4%) the Employee is still getting 6% invested . So a net cost of 2.4% to get 6% , might be a good deal.
 
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