Too young for a pension?

[Mininv]

Hi all, looking for a little bit of guidance if possible.

Im 25 and have started a full-time job recently on a 2-year contract. Not sure if it will be renewed due to financial constraints, but if it is, then Im entitled to join the employer's DC scheme. If not, I'll be self-employed with minimal income for a few years.

At the moment, Im in the unusual situation of having no rent to pay so have a large amount of disposable income. I have an SSIA at aximum contributions and about 20k in various deposit accounts. Now that Ive started paying tax on my income (mostly at 20% but a little bit at 42%), I was thinking of taking out a PRSA for the tax benefits.

I dont own property but Im looking at converting family property to a self-contained flat in the next year or so. This shouldnt be too expensive so I reckon I can cover it with a loan spread over a few years.

Ive seen posters say not to have a pension before property but, if my property is going to be less expensive, should I be taking advantage of the tax benefits of a pension now while I can? How does the relief system work (I know Im capped at 15% of earnings at my age - I mean in terms of the practical operation of it)? Is there any point starting a PRSA now if I have to stop it for a few years in 18 months time when my income (might) drop?

Any advice? Thanks in advance.

 

[asdfg]

then Im entitled to join the employer's DC scheme

Most schemes operate on the basis of 5% employer 5% employee of annual salary

about 20k in various deposit accounts

I hope they are earning a decent interest rate at least 2%-3% pa

Now that Ive started paying tax on my income (mostly at 20% but a little bit at 42%), I was thinking of taking out a PRSA for the tax benefits

You should at least put the 42% element into a pension

I dont own property but Im looking at converting family property to a self-contained flat in the next year or so

Are you considering buying the self contained flat.
If you do this you may not be considered a FTB for stamp duty later on

I reckon I can cover it with a loan spread over a few years.

Set up so you can avail or Tax relief at source but you will lose the additional TRS for first time buyers should you buy your own property (PPR later on).

should I be taking advantage of the tax benefits of a pension now while I can?

If you have no intension of buying a property but converting the family home I would say Yes

should I be taking advantage of the tax benefits of a pension now while I can?

Any amount paid into a pension is deducted from your gross pay before operation of tax & PRSI. This can be done by a one off payment or monthly by way of deduction from your salary.
You can also make contribution to pension against last years salary up to 31/10/06. Don't forget to re claim your PRSI portion.

 

[Mininv]

Set up so you can avail or Tax relief at source but you will lose the additional TRS for first time buyers should you buy your own property (PPR later on).



Any amount paid into a pension is deducted from your gross pay before operation of tax & PRSI. This can be done by a one off payment or monthly by way of deduction from your salary.
You can also make contribution to pension against last years salary up to 31/10/06. Don't forget to re claim your PRSI portion.

Thanks for those comments. Very helpful. I didnt realise I could back claim the tax I paid last year so that's a bonus.

I was just wondering (even though its off topic) about your comment about setting up the loan for tax relief to cover the cost of converting (not buying) the family home - how can this be done?

Sorry mods if its off the point.

 

[asdfg]

I was just wondering (even though its off topic) about your comment about setting up the loan for tax relief to cover the cost of converting (not buying) the family home - how can this be done?

The interest for any loan for repairs / improvements can be claimed at source. Tell the bank what it is for. You then complete the form TRS and submit to revenue. It won't be a hugh amount but still

Amount borrowed say 30,000
Interest rate say 4%
Interest payable year one approx 1,200
TRS = 1,200 @ 20% = 240 p a
So 20 p m

 

[corco2000]

''Any amount paid into a pension is deducted from your gross pay before operation of tax & PRSI''

Do you have to pay tax when you pension matures lets asay in 30yrs time or is tax free?

 

[asdfg]

Do you have to pay tax when you pension matures lets asay in 30yrs time or is tax free?

You have to pay tax on a pension including the state pension but remember your salary will be at most 2/3 of your final salary.

Your tax credits at increased and you will also probably be able to apply for Marginal relief thereby reducing your tax bill probably to nil so therefore you never pay tax on the pension contribution unless you have other income.

 

[Mininv]

Ok, Ive had a chat to the designated provider here in work (Irish Life) and it seems to make sense to take advantage of the 42% relief anyway.

Had a look in best buys but didnt see - how does 4% input fee and 1% management fee sound. Seems a little pricey to me but from a quick look at other obvious options, it doesnt look that bad.

Anyone any advice before I commit my money to them?

Thanks again,

 

[ClubMan]

Ok, Ive had a chat to the designated provider here in work (Irish Life) and it seems to make sense to take advantage of the 42% relief anyway.

Don't expect independent, professional advice tuned to your specific needs from a tied agent.

Actually the tax relief will be 42% and there is a further 6% in PRSI relief in most cases.

Had a look in best buys but didnt see - how does 4% input fee and 1% management fee sound. Seems a little pricey to me but from a quick look at other obvious options, it doesnt look that bad.

I would be looking for nearer 0% on each contribution and 1% management fee (or lower) myself. However any employer contributions which you may benefit from if you participate should also be factored in.

 

[Mininv]

I would be looking for nearer 0% on each contribution and 1% management fee (or lower) myself. However any employer contributions which you may benefit from if you participate should also be factored in.

This is what's inclining me towards going with it. At the moment, my employer doesnt make contributions to people (like me) on contracts but has acknowledged it is in breach of the relevant legislation and is working out a scheme to provide such benefits - which are currently 5% for permanent employees.

So, on balance, I still reckon I'll be better off.

 

[ClubMan]

If the option available to you now is 4%/1% and no employer contributions then you would most likely be better off with a discounted Standard PRSA (i.e. with charges lower than the 5%/1% cap)or an presonal pension plan/Retirement Annuity Contract with something nearer 0%/1% or better. Note that in some cases higher than 0% on each contribution and less than 1% on annual management charges can actualy work out better in the long run. That's a number crunching exercise.

 

[asdfg]

Don't forget about the buy / offer spread usually another 2 to 5 %

 

[Mininv]

Thanks for that ClubMan, its good advice - I presume Id have to look via a broker for a discounted PRSA? All of the main company sites seem to suggest 'standard' (love it how a stautory maximum becomes an industry standard) charges of 5& and 1%.

 

[ClubMan]

Don't forget about the buy / offer spread usually another 2 to 5 %

If the charges are quoted as something like 4% on each contribution and 1% annual management charge then there should not be any other charges.

Thanks for that ClubMan, its good advice - I presume Id have to look via a broker for a discounted PRSA? All of the main company sites seem to suggest 'standard' (love it how a stautory maximum becomes an industry standard) charges of 5& and 1%.

Several discount/execution only brokers will offer Standard PRSAs with less than the 5%/1% charge caps. Also - some personal pension plans/RACs might also be worth looking at. There are lots of threads on this stuff both in general terms and dealing with specific offers/recommendations.

Bear in mind that if there is a chance of your employer making contrubutions on your behalf and backdating these to when you joined then that should be a factor in your decision making process. As should be things other than just charges (e.g. fund selection etc.).