Should we move or not?

Hi Fella

While you raise a valid principle, that is not applicable in this case.

He has only €100k in his AVCs at age 45. Adding 12% of his salary each year, is "only" another €12k. So it's unlikely to give him a pension anywhere close to €60k.

But as I have said elsewhere, I don't think it's wise to fund a pension beyond €800k - the amount where you can get 25% tax free. But that is a minority opinion - Just you and I.

In any event, it's not wise to contribute to a pension fund over €800k when you are paying 3% interest on a mortgage.

Brendan

Brendan Burgess said:

But as I have said elsewhere, I don't think it's wise to fund a pension beyond €800k - the amount where you can get 25% tax free.

Click to expand...

I am sure there is a key thread on this somewhere in the pension forum, so will go have a look at it. If not, it might be a good idea to create one to discuss this properly.

Lets say someone has a pension of 800k, is mortgage free and sufficient cash reserves. They have a fantastic year at work and are given a bonus of say 50k. There are two choices open to them - draw down immediately and pay 52% tax OR invest in pension fund and defer the liability.

Assuming they draw down the fund and invest with 3% return after all charges for 7 years. This would see a return of roughly 3255 after exit tax. They would end up with 27800 odd euro.

If they put it into their pension pot, it would accumulate to roughly 61,500 at the same growth rates in the window.

Using the Pension Authority calculator, an 800k pension is roughly equal to 23,900 a year. Including state pension, this is becomes 36,000 euro.
For a married person, one party can have an income of 42,800 before hitting the high rate of tax, and the other earner 24800. Or single earner could make 33800 euro.

A higher pension fund may assist some bridge the gap before the state pension is available to them, or allow them maximise the available tax bands in the event of a partner having a lower pension fund available (i.e. would not hit the 33800 mark including state pension).

I don't necessarily agree that a pension fund in excess of 800k is a bad thing. It may be very useful to facilitate early retirement (especially as state pension age rises), and also useful to support maximising the available tax bands.

Am I missing something here ?

Brendan Burgess said:

In any event, it's not wise to contribute to a pension fund over €800k when you are paying 3% interest on a mortgage

Click to expand...

Absolutely 100% agree with this statement. However, I don't believe anyone was staying this. What I suggested was OP needed to review his lifestyle expenses to see where the money was being spent. Given his current contributions there will be a massive adjustment factor once retirement kicks in. I fully accept the spending patterns will 100% change, but it is something the OP needs to be aware of. The point was, at 115k salary, its something that needs to be reviewed !

gnf_ireland said:

I am sure there is a key thread on this somewhere in the pension forum, so will go have a look at it. If not, it might be a good idea to create one to discuss this properly.

Click to expand...

Some of these points were discussed on this thread:-
http://www.askaboutmoney.com/thread...i-should-contribute-to-a-pension-fund.190321/

thanks @Sarenco I see that some of the points I was attempting to raise are listed in the discussion, including

- level of income at standard tax rate
- married couples under joint assessment model
- early retirement ambitions (in advance of State Pension age). Most professionals will have started working by 22/23 (assuming university etc). Most will not want to work 45 years if they can avoid it. Those who do not attend university will probably have started work earlier, with 50 years service before state pension age.
- the risk of the state pension in real terms in the future. I am 41 for example. I could live 50 more years, depending on advances in science !
- the value of a 800k pension pot. Assume 200k tax free and 4% draw down is 24k a year - excluding state pension

My personal view is that pension size is very much dependent on what people can afford, and their personal circumstances. I also agree they should not contribute in unless they are getting tax relief from the contributions. However I would be slow to recommend a 800k maximum without a full assessment being done on the persons finances and lifestyle objectives.

Brendan Burgess said:

The trading up issue is interesting and I like Paddy's idea of thinking outside the box.

I doubt if it's a runner, buy you could consider renting a bigger house when you need it. And then moving back to your existing home when the older kids have left.

Investing in the family home is one of the most tax-efficient forms of investment. No tax on the imputed income i.e. rent saved. No CGT.
So you could trade up for ten years. When the kids have moved, you could trade down again and you would release a lot of capital tax-free. So it's not as if you have a €300k mortgage for the next 30 years.

A lot of people do have difficulty trading down, so it's something you need to think about. In the past with stamp duty rates of 6% and 9%, this was not a viable option. But with stamp duty reduced to 1%, it's doable.

Is there any remote chance you could sell your current home to a friendly investor who might sell it back to you after 10 years? A long shot, but if a friend or relative is thinking of investing in property, that could work very well.

Alternatively, could you do a house swap with someone with a larger house?

Brendan

Click to expand...

I'd rather not become a landlord and I don't think we'd be able to find someone to buy the house and then sell it back to us. Downsizing is something we definitely plan to do once the kids leave , my own parents did this and it worked out very well for them and as you point out stamp duty is no longer a barrier to this.

Paddy's idea is a good one but I'd probably place it second to the attic conversion.

Apologies for resurrecting an old thread but just wanted to come full circle with an update on our current situation. The planners in our area have had a change of heart and we recently got planning permission to change the roof type which will mean we can add attic conversion with an ensuite and dormer. We plan to convert it as habitable space (following all the building, fire regs) so it will count as an additional bedroom . All in all I think this is the best solution for our family.