Use of increased income and financial review

[Ballymag]

Age: 46
Spouse’s/Partner's age: 48

Annual gross income from employment or profession: 34k
Annual gross income of spouse: 58k

Monthly take-home pay

Type of employment: Both civil servants

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving but not hugely
Rough estimate of value of home 380k
Amount outstanding on your mortgage: 150k
What interest rate are you paying? 0.75%

Other borrowings – car loans/personal loans etc None

Do you pay off your full credit card balance each month? Mostly!
If not, what is the balance on your credit card?

Savings and investments: Savings of about 8k

Do you have a pension scheme? Yes

Do you own any investment or other property? No

Ages of children: 11 and 8

Life insurance: No.


What specific question do you have or what issues are of concern to you?

Due to recent promotion my spouse is due a salary increase of around 6k per yr. I'm keen to look at how best to use the increase rather than have it all disappear into general expenditure and we are used to managing on our existing salaries.

I am ashamed to admit that I know very little about the civil service pension scheme that we both have and want to know if increasing our pension contributions is a sensible choice. We are both pre 1995 civil servant entrants which has a bearing on our conditions (though I don't know if this makes a difference for pensions).
I joined in 1992 but have been working part time for a number of years so only have 21 years reckonable service done. Looks like I would get 22k per year and a lump sum of 67k assuming I keep working the same hours until retirement. My spouse is full time and joined around the same time so will have the full 40 years.
For tax purposes we are jointly assessed - most or all of the higher rate tax is paid by him (if that's relevant?)
My question is - should we be looking at AVCs for either him or me (or both) with the additional income? Also, we were overpaying our mortgage by 200 pm but as we are on a low interest rate should we put this into a pension instead?


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[Nikephorus]

Hi Ballymag,

Have you looked into the Purchase of Notional Service as an alternative/supplement to AVC savings? It may well be more cost effective to build up your pension entitlements that way.

Your savings of €8k seems to me to be a bit low. An emergency fund of a 3 months' expenses (perhaps lower than this as you are both in steady employment) would offer peace of mind, while building up savings for replacing your car(s), paying for holidays and for your kids' college fees would also be prudent.

Best of luck with it all,

Nike.

 

[cremeegg]

Also, we were overpaying our mortgage by 200 pm but as we are on a low interest rate should we put this into a pension instead?

Overpaying a 0.75% tracker mortgage makes no sense. Stop, even before you know what you will do with the money.

With secure jobs, at least reasonable pension provision, and young children you would be better off just spending the €200 than using it to overpay the mortgage. You are only saving €18 a year by making the overpayment.

 

[Connard]

With secure jobs, at least reasonable pension provision, and young children you would be better off just spending the €200 than using it to overpay the mortgage.

I understand the point you are trying to make but that isn't true. If they just spend it on random crap (and people are very good at that) then that €200 is gone, at least they are currently using it to reduce their debt.

@Ballymag - If I was you I would stop over-paying the mortgage. I'd then use the money to build up your savings. If your house has a poor energy rating, you could look at ways to improve it. It would make the house more comfortable and reduce your monthly expenditure.

 

[Ballymag]

Thanks all. Based on what I had read here I did stop overpaying it about a year ago. That 200 euro now goes to saving every month as I didn't know what else to do with it. I will look at the Purchase of Notional Service as well as the AVCs to see which is better. Many years ago there were always rumours of civil servants who did this and it turned out to be very bad value. That gave it a bad rap and very few of us have revisited it - the schemes available now may be completely different. I know our union have a deal with some financial crowd - perhaps I'll check this out for further advice.