I pay in 5% of my salary to my scheme and employer matches that.
For past 3 years I have been paying in additional 5% AVC per year.
With all this talk of levies and reduction of allowances from 41% to whatever over time I'm wondering whether to cap my contribution to 5% and take home the other 5% of my income less the taxes. I was alarmed to hear Eddie Hobbs on Hook's show last week saying 'that I would not put a penny into a pension'. Now I do not know whether he was referring to contributions full stop or AVC's. But it is an alarming statement. Did anyone else hear him say this ? Is anyone else considering reducing or stopping altogether their AVC's and for what reasons other than necessity.
I think the first thing to to is to stop listening to the talking heads, they are economic celebrities and they need to attract viewers, so headline grabbing is the name of the game. That does not mean that they are right or wrong, but it is just not the way to manage your money. In stead look at the numbers:
In the first place, you should be aware the taxes and levies on pensions are common place, so it should not be a surprise that they are applied in Ireland as well. The real question is how much can you afford to see wiped out be these levies before you are really loosing money! That really means how much "free money" are you passing up by withdrawing from the scheme, because in reality you can afford to loose it all and still be no worse than you were before! If for example tax breaks and employers contributions comes to €35 per €100, you can loose a lot before it becomes painful
Next you have to consider how to recover the €35 you passed up at the start. For example if the €135 is invested in a German bond at say 3%, you're going to have to find an asset that will gain you the lost €35 and still return you 3% pa... which means a more risk asset than the bond.
Then there is the tax situation, if the fund has a more favourable position that you, then you'll also need to come up with an edge to deal with that as well - for instance what taxes does the fund have to pay on income and gains in comparison to your own situation.
And of course there is the human factor, it is easier to save if the money is taken out of your salary before it hits your account - there is always a good reason for not saving the extra money this month...
Another factor to think about is the pension fund itself, is a defined contribution or defined benefit type. If it is a defined benefit type how well is it funded? Is there a chance it will not be able to realise the benefits in the end? Also of course how is invested, what are the major asset classes and so on...
I can't tell you the right answer for you, but what I hope to show you is that there are a lot of factors you need to consider than simply acting on a gut reaction or what some taking head said on TV.
Good luck in your decision,
Jim.