Stay at home parent - pension options/questions

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Premierview

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I am 44 and became a stay at home dad to newborn twins in Sept. 2018. Until then, I was contributing to my PRSA up to the maximum amount allowable, I have stopped contributions since then.
I now want to resume payments and I can afford to save approx. €400 per month. I plan to return to work at some point, possibly when the children start school - in approx. 5 years time. Therefore, assuming my plan works out, I would have saved approx. €25,000.

While my partner has a PRSA, I would prefer to have my own pension fund on retirement, so I would prefer not to explore the options of using the spare money to top up my partners pension.

Based on my research to date, I am planning to use a fund such as Zurich Lifes Prisma fund, to build up a lump sum that I will then use to contribute to my PRSA on my return to work.

My questions on this approach are as follows:
- Is this a sound approach? I welcome any suggestions on a better way forward.
- Are there any limits on how much I can invest in a PRSA on my return to work?
- What options do I have for this money if I don't return to work or if I return to work on a part time basis or to a lowly paid job?
- Can someone please explain to me how tax relief will be allocated to me at that point? How do I claim it What will the rate of tax relief be?
- Can I take a portion of the money saved and use it for something else?
 
How are you in a position to save €400 a month when you are not working? Do you have another source of income?

Are you married? Do you or your partner have any debt? If so, how much and at what interest rate?

Without knowing all the details I would not encourage anyone to put money into a pension that they are not getting tax relief at the higher rate.
 
I don't think there is tax relief if you're not working

So it makes more sense to wait until your back in the workforce before resuming contributions
 
If I understand you correctly, Premierview, your intention is to build up a fund from resources available to you (I am guessing through your partner's after tax income or another income source that you have access to) in unit-linked investment fund, cash it in when you start working again and make it a single contribution into a pension fund then in order to take advantage then of tax benefits? In principle it seems like a reasonably sensible approach to me. You cannot benefit tax-wise for the years that you aren't paying tax but it is entirely reasonable to plan to take full advantage of your contribution allowances when you do go back to work. The only concern would be of course that any such fund is subject to the vagaries of the market ..

"
Warning: Past performance is not a reliable guide to future performance.
Warning: Benefits may be affected by changes in currency exchange rates.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in these funds you may lose some or all of the money you invest.
"

As long as you are comfortable with that risk it does seem like a sensible strategy in my opinion.
 
Thank you for the replies. To answer the questions posed:
Questions by David1234
Yes I am married to my partner - he has a very good job that pays a large salary. We share a joint bank account and once all essentials are paid for we have money left over to save for things such as; rainy days, children's education, pensions - I realise that we are lucky to be able to do this.
Our only debt is mortgage debt - we have 2 investment properties in addition to our home. All 3 properties are on tracker loans and are at very low interest. The amount of debt outstanding on our home is approx. 100k. We have no credit cards, overdrafts etc.
Questions by so-crates
You are correct, the money will come from my partners after tax income. The plan is to save in a unit linked investment fund, then cash it in on my return to work in order to invest in my PRSA.
 
Assuming you don't need the funds for anything else and your husband is maxing out his pension entitlements you could just set up your own PRSA now and contribute it now. You can then claim the tax relief when you have the income in the future. This way you also get the benefit of tax free growth on the investment over the next 5 years.

You also reduce your investment risk as you will have to come out of the markets if you wish to encash a personal policy and then invest the proceeds into a pension policy.

- Are there any limits on how much I can invest in a PRSA on my return to work? You can put however much you want into a PRSA. However relief is only given on a percentage of your income. This percentage is an age related percentage. For example for a 42 year old it is 25%. So if you had a salary of 100k you can get tax relief on 25k in that year. if you were to contribute 50k in that year that would mean that 25k would be unused and carried forward.

- What options do I have for this money if I don't return to work or if I return to work on a part time basis or to a lowly paid job? You have to be sure that you will have income that you will be able to get relief against in the future to take the pension option. Even better if its at the higher rate. Other options are goal depenedent to you.

- Can someone please explain to me how tax relief will be allocated to me at that point? How do I claim it What will the rate of tax relief be? You can claim the relief by applying to revenue through my account. If you go back to work and want to make contributions monthly to a PRSA your employer can arrange this from your monthly wage and will sort the tax as well for you.

- Can I take a portion of the money saved and use it for something else? ignoring any of the above, you never mentioned what are you trying to achieve here? Without having a clear understanding of what your goals and needs are it is difficult to recommend what is a sound approach for you. Granted you may have considered these factors and may not want to share but ensure that you have considered what the end goal is!

Please note that the fact that you are even thinking about your financial future puts you in a much better position that the majority of the public so you are on the right track!
 
Thank you for your reply Fergal19. To answer your questions:
- Yes - my husband is maxing out his PRSA contributions.
- My goal for opening up this pensions savings account is to put the spare money that I have every month somewhere relatively safe. If I leave it in my current account, it will earn nothing and I will end up dipping into it for non-essentials/luxuries.
(Note: we do believe in enjoying life and have allocated some money each month from my husbands income to spend on nice things for myself, my husband and kids. We just want to make sure that we have money for ourselves in retirement).

Note: I was told by a professional advisor that the most I could contribute to a PRSA in my name, while not in employment, was €127 per month/€1524 per year. Otherwise, I would incur a tax liability. Do you know if this is correct? I assume that the tax liability would be on any returns that the PRSA might generate?
(Note: I don't want to go back to that advisor to clarify, as he is suggesting that I sign up for some products that would involve paying him a set-up/admin fee. I'd prefer to handle the set up of any savings product myself, to save this money (€750)).
 
I never heard of that tax charge. The spirit of pension tax law is that it encourages people to save for retirement. The tax charge you describe would go against that ideal. How would the PRSA providers even administer this tax? It would require them getting proof of earnings each year from each customer. That would be an enormous project. I could be wrong here. Pensions are in effect a tax deferral. ie you get tax relief on the way in and pay tax on the way out. So if you don't have the income in the future to claim the relief you will have a liability. Maybe this is what is been referenced here?

The only reference that I see to a 1,525 figure is that this is the smallest figure that you can get relief on a contribution to a PRSA.

I note your goal and a personal savings & investment plan would achieve the same result without the funds been locked away till 60, (or worse from 75 if you have to satisfy the AMRF) especially when you aren't getting or guaranteed the tax relief. You say you have two new born kids. Have you got an emergency fund in place? Have you reviewed your insurance needs? The main thing is that if you put money in a pension it is gone for a long time. You have to be sure that won't need the funds back!

Will Zurich deal with you directly on an execution basis? I think they might insist on an adviser themselves.

Impartial independent advise is worth the money as it provides you with i) a sounding board and ii) you can be satisfied that you are getting the right product to match your goals. The suitability of the product is the most important part. There are 100's of pension products out there and 1000's of funds/ETF's. You have narrowed this down to the Zurich Prisma fund. Even within that there is 6 versions of that fund. You have to be sure that this the most suitable for your needs. Please note that an advisor will only provide a recommendation to you. You don't have to take it but its good to have the conversation.

if all else fails you have someone to blame/sue if it goes wrong!! if you do it yourself you take on this risk yourself.
 
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