50yr old needing advice re: Investment v Pension

B

bren1916

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Age: 50
Spouse’s/Partner's age: 44

Annual gross income from employment or profession: €84K + company shares (variable)
Annual gross income of spouse: 30K

Monthly take-home pay circa 4K

Type of employment: e.g. Civil Servant, self-employed: Employee x 2

In general are you:
(a) spending more than you earn, NO
(b) saving? YES

Rough estimate of value of home circa 420K
Amount outstanding on your mortgage: 118K
What interest rate are you paying? 2.95%

Other borrowings – car loans/personal loans etc: NONE

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

Savings and investments: €75K in shares & €52K in savings (separate savings acc for kids with €8K in it).

Do you have a pension scheme? YES - €125K at present 6% contribution matched by employer (spouse has no pension plan)

Do you own any investment or other property? NO

Ages of children: 16/14/10

Life insurance: YES, both lives are well covered.


What specific question do you have or what issues are of concern to you? Hi all, as I am not earning interest on my savings and with inflation recently hitting 2%, I would be grateful for some advice on investing my savings & portion of shares or benefits of topping up my pension. I have made an once-off AVC of €6900 already this year and I am already paying the 10% allowed overpayment on my remaining mortgage (which is locked in a fixed rate for 7 years) and to redeem would cost 000's so not viable. Recently completed ground floor extension plus attic conversion so no large expenditure expected other than perhaps college fees in a couple of years.. Any advice much appreciated, thanks Bren.
 
I think your immediate focus should be on increasing your pension contributions.

At your age, you could be contributing €25,200 per annum, with relief at the higher income tax rate - in addition to your employer's contribution (assuming it's not a PRSA). Bear in mind that you can get tax relief for 2020 for contributions made before 31 October 2021.

Is the €75k all shares in your employer? That seems like a very concentrated bet to me.
 
bren1916 said:
Do you have a pension scheme? YES - €125K at present 6% contribution matched by employer (spouse has no pension plan)
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Pension fund seems very low for your age and earnings. You will likely face a very big drop in income at retirement at this rate.

I think building pension is a much better use of spare cash than paying down mortgage at present. A mortgage of €118k at your age and income is very manageable.

You probably have more cash savings than you need too. The part of your wealth in shares is almost certainly better in your pension fund where it is not liable to CGT.

So I think your plan for the next few years should be to transfer most of your wealth into your pension fund by maxing tax-relieved contributions each year.
 
Thanks for the replies, I have a couple of Q's around increased pension contributions (it's not a PSRA):

1. The shares are mostly company shares and will be subject to CGT when they begin vesting next month so should I still increase pension contributions since I've already paid income & CGT on the shares?

2. Assuming I utilize the rest of my allowance for 2020 before Oct 31st, how do I work out how much I have left out of the €25,200 (actually 21,000 as I was under 50 last year) - is it the total ACV + My 2020 contributions + Employer Contributions?

For example does the AVC made in May count towards 2020 contributions or 2021 contributions?

Thanks
 
bren1916 said:
I have a couple of Q's around increased pension contributions (it's not a PSRA):
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1. You can make (income) tax-relieved pension contributions from net relevant earnings, subject to certain restrictions. The fact that you may have to pay CGT on your shares is of no relevance.

2. You can claim tax relief on your AVC against tax paid in 2020 or 2021. Employer contributions don't count towards the limits.
 
bren1916 said:
I am already paying the 10% allowed overpayment on my remaining mortgage (which is locked in a fixed rate for 7 years) and to redeem would cost 000's so not viable.
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Have you got a recent quote for the break fee?

Forgetting about the pension for the moment, you are getting 0% on your €60k in savings but paying 2.95% on your mortgage. It would have to be a huge break fee to justify you continuing to pay that rate for the next 7 years.

Pay the 10% you are allowed to without a break €12k.
Then ask for break fee quote for the balance of your savings - say €50k

Brendan
 
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Agree that boosting your pension is a priority.

2020: €21k
2021: €25k
2022: €25k
2023: 25k
2024:€25k
Total: €121k
Net cost after tax: €70k

So, your shares match this amount: €75k

1) Pay the €60k savings off your mortgage - That is the best use of your cash. Ask them to reduce the term on the balance so you pay what is left off faster.
2) Sell the shares as they vest. You should not have such a big proportion of your assets in just one company.
3) Max your pension contributions
 
bren1916 said:
(separate savings acc for kids with €8K in it).
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This is a mistake. It is earning nothing, whereas it could be earning 2.95% tax free. Pay it off your mortgage and keep a separate spreadsheet that you owe them €8k and you will pay them 3% a year interest on it.
 
Thanks again for the responses/advice - I will begin with the 12K paydown and start using the shares & portion of savings to ump up the pension.
 
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