Moneymakeover 53 needing pension and medium term investment advice

[gkan1972]

Age:

53, no dependents


Annual gross income from employment or profession:

75k

Monthly take-home pay:

3900

Type of employment:

Public sector

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving €750 per month

Rough estimate of value of home:

450k

Amount outstanding on your mortgage:

140k and mortgage runs until age 68

What interest rate are you paying?

3.95% fixed until Oct 2027

Other borrowings – car loans/personal loans etc:

None.

Do you pay off your full credit card balance each month?

Always

Savings and investments:

€42,500 between Bunq and Credit Union

Do you have a pension scheme?

Public Service post 2004 (not the Single Public Pension Scheme).

Late entrant, so will not have full pension.

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

(Annual pension figure includes the social welfare contributory pension )

Do you own any investment or other property?

No.

Life insurance:

Income protection only.

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

I would be a cautious person when it comes to financial risk, but realise this can minimise my ability to get decent returns, so would greatly appreciate any advice on what level of risk is sensible at my stage in life,

I would love to be able to retire early, but at this stage think this would be a pipe dream as I would be losing years of service and impacting the public service pension.


I’m hoping for advice in two areas please.

• Pension – long term investment
• Savings – medium term investment

First – Pension

If I work to age 66 I will have 27.5 years service.

The cost of buying service seems prohibitive and thus I think I need to go the AVC route.

Given my age, it looks like it makes more sense to push money into AVCs, rather than paying off mortgage early, due to the tax reliefs on contributions – would this be correct?

I know Cornmarket run an AVC scheme for the public service and I did speak to them several years ago. However, my recent research (mainly on this forum) was not very positive both in term of fund performance and fees.

I am hoping the good folks here might be able to advise me of alternatives.

Second – Medium term investment

I’m losing money keeping savings in traditional banks and so would like recommendations for this also.




Thanks a million.

 

[CharlieMac]

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

You won't be in bad shape if you end up with that pension but you have time to build up an additional fund with AVCs to give more retirement income or perhaps retire earlier.

Pension:
If you are not having difficulty managing your mortgage repayments then maxing out your tax relief from AVCs would be a good strategy. Although it won't be cheap and if you want to also save for medium term then you will need to decide how much to put toward each. Suggest having a read through this excellent AAM thread on pension investments which mentions good value pension products and brokers.

This thread is about the Single Pension Scheme but this post in that thread contains a lot of information about how AVCs work so would still apply in your case.

There is an Excel AVC calculator by @gort_gráinneog in this thread. It is designed to work for people on the Single Pension Scheme so it would not be completely accurate in your Post 2004 pension scheme but it would give a ballpark figure of how much it will cost to "max out your tax relief" by making AVCs. Explanations on how to use it are here.

You could plug in your anticipated AVCs into this Excel calculator by @AJAM to give some idea about what your fund could grow to until you retire but that estimate would not be accurate given the unpredictability of the future!

 

[ClubMan]

Amount outstanding on your mortgage:

140k and mortgage runs until age 68

Savings and investments:

€42,500 between Bunq and Credit Union

I would be a cautious person when it comes to financial risk

I would love to be able to retire early

In that case using some, most or all of your savings to reduce your mortgage might dovetail well with tentative plans to retire early. If there's any penalty right now because of the fixed rate then you can do it when the fixed rate ends.

I know Cornmarket run an AVC scheme for the public service and I did speak to them several years ago. However, my recent research (mainly on this forum) was not very positive both in term of fund performance and fees.

I am hoping the good folks here might be able to advise me of alternatives.

There are many existing threads that touch on this.
This only slight drawback is that you may have to claim tax relief manually rather than getting it automatically via payroll.
Maybe check the usual suspects for an AVC PRSA maybe on an execution only basis:

Ferguson and Associates

Pensions (including Self Administered) Life Assurance - Income Protection Savings - Investments

www.ferga.com

https://www.labrokers.ie

https://www.prsa.ie

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

That's not necessarily bad!
Might you also have any entitlement to a PRSI based contributory pension if you had prior non public service employment?

You should analyse your current expenditure to see what's a reasonable estimate of your essential expenditure to get an idea of what sort of retirement income you might need.
See here for example:

Moneymakeover - Household Budgeting Comparisons?

Not sure if the correct place... Life has been in (financial) flux for the last 4 years (house purchased, wedding, new baby, mat leave) but 2025 has brought some stability so I have had a look at our income and expenses. I track both pretty well. We both have decent incomes, don't live...

www.askaboutmoney.com

For example ... I'm an early (late 50s) practically/de-facto retired single parent of a third level student and well able to run our household comfortably on a tax free (due to tax credits) income (pension 60%/passive 40%) of c. €30K p.a. even though (or even because) my remuneration a few years ago when working was in 6 figures - plus I cleared my mortgage years ago. But different people/households have different lifestyles and needs, and more to the point, wants, so there's no one size fits all solution necessarily...

I’m losing money keeping savings in traditional banks and so would like recommendations for this also.

Reducing your mortgage and/or boosting your pension cover via AVCs is probably the best place to start to get better than deposit returns (which are likely negative after inflation).

 

[GSheehy]

Do more research on the AVC you want to buy. Know exactly what product provider, product and fund/s you want to invest in before you go on the execution only journey, if that's the route you're going to take based on the AAM consensus. If you think that this route is beyond you and that it may overwhelm you, then use an advisory service.

For the level of contribution you've available there aren't that many (EO) product players. A Standard AVC PRSA should be suitable for your needs. I'm seeing a few questionable recommendations for Non-Standard ( AMC > 1%) products purely based on advice for a partial investment in outlier fund that wasn't available on a Standard (max 1% AMC). Usually, the type of assets that are in those outlier funds are in the multi-asset funds (on Standard products) of companies anyway.

Pay down the mortgage with some of the savings when it's possible to do so. At least you'll feel like you've done something with the money.

Make a will, if you haven't one made already.


Gerard

www.execution-only.ie

 

[gkan1972]

Thank you CharlieMac, Clubman, and GSheehy for your comments and advice.

I'm a new poster and so I don't yet have the ability to like posts.

 

[gkan1972]

Hi folks, thank you once again for all the advice. Sorry about the delay in coming back to you, but I have spent the last week or so reading up on things ( and also had visitors staying). I have some follow up questions and hopefully they make sense,

If you are not having difficulty managing your mortgage repayments then maxing out your tax relief from AVCs would be a good strategy. Although it won't be cheap and if you want to also save for medium term then you will need to decide how much to put toward each

I have a good handle on outgoings etc and have my figures calculated for AVC contributions and medium term saving.

I got a bit lost in the thread on pension investments but the post on AVCs was very interesting.

In terms of Cornmarket, it confirmed what I had read re: poor returns, but I wasn’t aware that there are other funds to public servants or that the fees appear to be lower (tiered AMC) than when I spoke to them years ago.

While there is some debate in that thread about the fees, if they are as stated it does appear quite attractive so I have emailed them to ask for more info.

There is the convenience of payroll deduction and tax relief at source, but if I went elsewhere I am capable of sorting that out myself via tax credits.

I did have a horrendous experience with them last year setting up income protection and so if all things were equal I would prefer not to have to deal with them.

I couldn’t get the first AVC calculator to work, but the other one by @AJAM was very useful and even at a return of 3% after fees I think I could have a pot close to €120k at age 65

Maybe check the usual suspects for an AVC PRSA maybe on an execution only basis

Do more research on the AVC you want to buy. Know exactly what product provider, product and fund/s you want to invest in before you go on the execution only journey, if that's the route you're going to take based on the AAM consensus. If you think that this route is beyond you and that it may overwhelm you, then use an advisory service.

This is where I get a little stuck. I’d be looking at €720pm into an AVC, and looking at some of the EO websites that are mentioned, this would be enough to get a decent AMC on certain funds such as the ones RLI.

However, I don’t have the financial knowledge or the understanding of risk to make an informed choice of a fund (or funds) that provides the best balance between equities and bonds for my stage of life.

Are there any independent advisors that do this kind of work on a fee basis ?

In other words, you meet and discuss financial goals, get recommendations, pay the consultation fee and then make your choice and set up your AVC on an EO basis.

Then maybe leave the fund alone until age 60 and then go back for more advice as retirement approaches and make whatever adjustments are needed.

If this is possible, is it recommended?

What are the drawbacks or major pitfalls to be aware of?

If it is allowed by the AAM site - would anyone have a recommendation of an advisor?

You should analyse your current expenditure to see what's a reasonable estimate of your essential expenditure to get an idea of what sort of retirement income you might need.

If I work to 66, income would be €30k per annum incl the contributory pension and the lump sum would be €75k

If I only fund an AVC at the rate I can afford now (i.e. with no increase) and only achieve a 3% net return I would also have €120k in that.

I have analysed my outgoings, and if mortgage is paid at time of retirement then I think I would be grand.

Reducing your mortgage and/or boosting your pension cover via AVCs is probably the best place to start to get better than deposit returns (which are likely negative after inflation).

Pay down the mortgage with some of the savings when it's possible to do so

I appreciate the advice on reducing the mortgage, and although on a fixed I am allowed repay up to 10% of the balance each year without penalty.

Last Christmas I paid an extra 6 months which knocked a year off the term and I was delighted with myself.

My logic at the time was simple: I’m paying 3.95% mortgage interest, savings were making 2%, so money is being lost.

And I am still in that situation, with cash on deposit, and your advice really makes sense to me.

However, met with someone from Ask Paul a few months ago and he was adamant that doing this does not make sense financially.

He advised me not to overpay at this stage of my life saying it's better to put more into an AVC, get tax relief on that money, then use tax fee lump sum at retirement to clear the balance. He showed me some projections, and it seemed to make sense financially.

He also argued that putting savings into a medium term investment instead of the mortgage also made more financial sense, showed projections on this too, but I was less convinced.

In the end I did not go back to them because I had to push very hard to get him to speak about fees - and they were really excessive (AMC 1.25% for PRSA AVC and higher for a medium term investment).

My own logic – and your advice – leans toward paying mortgage but am hoping you might give a view on the above please?


Finally, I do have a question about medium-term savings.

Obviously I am losing money to inflation while on deposit, and the final answer may be to use that to reduce the mortgage.

But I will still be in a position after AVC contribution of having cash each month to save for medium term (5 years +) and deposits are not the answer.

Any advice on this would also be greatly appreciated.

Thanks in advance

 

[Protocol]

Bear in mind that Cornmarket are a broker, not a fund manager.

So the return on funds is little to do with Cornmarket.

 

[Protocol]

This is where I get a little stuck. I’d be looking at €720pm into an AVC, and looking at some of the EO websites that are mentioned, this would be enough to get a decent AMC on certain funds such as the ones RLI.

However, I don’t have the financial knowledge or the understanding of risk to make an informed choice of a fund (or funds) that provides the best balance between equities and bonds for my stage of life.

If I was starting an AVC at age 53, with montly contributions, for an expected 15 years, I would simply choose an indexed world equity fund.

 

[ClubMan]

However, I don’t have the financial knowledge or the understanding of risk to make an informed choice of a fund (or funds) that provides the best balance between equities and bonds for my stage of life.

If it was me at 53 and aiming to retire at 66 I'd keep it simple and stick it in a low charges index tracker such as an MSCI World Index fund. That's actually what I'm doing in my late 50s and effectively retired early and starting to take a modest income from my PRSA.

Edit: post crossed with @Protocol's but were basically saying the same thing.

 

[Protocol]

He advised me not to overpay at this stage of my life saying it's better to put more into an AVC, get tax relief on that money, then use tax fee lump sum at retirement to clear the balance. He showed me some projections, and it seemed to make sense financially.

Yes, I see the point.

The combination of 40% tax relief on pension contributions and tax-free growth in the pension fund, may be greater than the interest saved on the mortgage.

Personally, I would probably overpay a 3.95% mortgage, even though technically the AVC might be numerically superior. I would do both, if I had the cash.

 

[CharlieMac]

This is an example of a (Developed) World Index fund from RLI.

Shame you didn't get the Gort Grainniog spreadsheet working. It will show you how much it will cost to avail of all the tax relief you are entitled to on making AVCs and how much ends up going in the your AVC fund (before any charges). Maybe try again?

It's a tough call. If you are going to have a DB pension of 30k (incl state pension) from 66 then maybe that's enough? Only you will know that by examining your living expenses. I started recording all of mine in a spreadsheet last January.. and I mean everything. I plan on doing this for a year or two at least. It will give me confidence to know how much I might really need in retirement.

Keeping your mortgage going and maxing AVCs until you retire might be the best option. You could use AVCs fund to buy back more DB pension up to half your final salary and 1.5 times salary as tax free lump sum. I think that's Notional Service on your scheme?

Other option is transfer your AVC fund to an ARF on retirement and use it to supplement your DB pension. It might continue to grow if invested in equities.. a bit more risky but more upside if markets perform well.

But maybe you like the idea of having some money invested outside your pension too. No tax relief on the way in and gains taxed at 33% (CGT on individually held shares) or more like 41% (current taxation on ETFs). By contrast every cent of income you draw from your (AVC) pension fund will be taxed at your marginal rate, not just any gains, if you convert it to an ARF.

Other consideration: there is a limit on how big your AVC fund is allowed to grow. For DB schemes the max is the capital amount equal to 2/3rds your salary at retirement. The Single Scheme thread has the calculations to work out what your AVC funding limit is.

 

[noelÓm]

This is where I get a little stuck. I’d be looking at €720pm into an AVC, and looking at some of the EO websites that are mentioned, this would be enough to get a decent AMC on certain funds such as the ones RLI.

However, I don’t have the financial knowledge or the understanding of risk to make an informed choice of a fund (or funds) that provides the best balance between equities and bonds for my stage of life.

Simply put, you want your investment portfolio to be a mix of risky assets (for almost everyone, a stock portfolio) and safe assets (i.e., a bond portfolio).

The standard mainstream advice is that you should lower the share of risky assets in your portfolio as you get closer to retirement. You might be 100% equity in your youth and gradually shift to 60-40 or 40-60 or even lower as you get close to retirement. The idea is that you want to reduce the potential for really bad performance among your stocks right when you are set to retire, and so minimise the risk of you running out of cash before death. But calibrating the mix of risky and safe assets as you age is not an exact science and there is a lot of disagreement about how to do this optimally. There is even an argument in academic circles that you might not want to reduce your risky asset share at all, once you intend to hold onto them assets through retirement. The main underlying argument being that bonds are vulnerable to intense bouts of inflation, from which they often do not recover, hence stocks are the lesser of two evils. So there is controversy on what the right thing to do is. You can find very heated discussion on this website and others about what an appropriate mix of safe and risky assets is.

Now think about your case. Your defined benefit pension is like a safe Irish sovereign bond portfolio. It is very likely that you will be paid what you were promised. If you have a PRSI record from your past employment, then you might also qualify for a contributory state pension and this too can be thought of a safe bond-like asset. What's more, these cashflows will continue are scheduled to run until you die. So, you are already essentially at a 100% safe asset mix in your investment portfolio and so are at the extreme safe end of the spectrum as you currently stand. So, in your shoes, I would do as others have suggested and pick the cheapest global equity tracker available and put your monthly AVCs into that. Reassess in 5+ years time, but you will likely still have a very low risky asset share in your portfolio then.

 

[gkan1972]

Thank you again folks, was on holiday last week so just read everything last night.

I would simply choose an indexed world equity fund

I'd keep it simple and stick it in a low charges index tracker such as an MSCI World Index fund

Thanks for this, it's really interesting that this is the consensus from all four of you.

I wouldn't have thought of going 100% equities as I would have thought this too risky (As I said, my knowledge is limited although I am working on this).

However, the following from Noel really opened my eyes

you are already essentially at a 100% safe asset mix in your investment portfolio and so are at the extreme safe end of the spectrum as you currently stand.

This was a light bulb moment it would never have occurred to me that I have the safe part of my asset mix already sorted.

I have read several posts on AAM about funds that track different indexes like MSCI or S&P 500.

I'm guessing you're all recommending global funds as preferable to a S&P based funds as global is spread wider (i.e. not just US companies) and also less fx exposure?

Shame you didn't get the Gort Grainniog spreadsheet working

I went back and tried again, no luck but think I have worked it out myself. €720 per month would get tax relief of €288 and so cost €432.

In 13 years the contributions would be €111k with relief of €45k so an actual cost to me of about €67k.

In terms of spending, I do keep a good track of stuff but your advice on really focusing on this for a year or more would help me to see what amount would leave me comfortable in retirement.

In terms of funding limits I have done the calculations based on the SPSPS and even adding the AVC contributions I'm planning to make I would get nowhere near maxing the capital limit (I'd be around 50%).

You could use AVCs fund to buy back more DB pension up to half your final salary and 1.5 times salary as tax free lump sum. I think that's Notional Service on your scheme?

I had looked into notional service before and it seemed expensive and not very flexible at this stage.

However, I have read that it can be a good option as you're walking out the door so to speak but didn't really understand why.

Would I be able to access my AVC funds at that time to buy back years if I felt that suited me?


Thank you all again, your responses have really helped me to get a better understanding of where I am and what is needed.

 

[ClubMan]

Thanks for this, it's really interesting that this is the consensus from all four of you.

I wouldn't have thought of going 100% equities as I would have thought this too risky (As I said, my knowledge is limited although I am working on this).

However, the following from Noel really opened my eyes


This was a light bulb moment it would never have occurred to me that I have the safe part of my asset mix already sorted.

I have read several posts on AAM about funds that track different indexes like MSCI or S&P 500.

I suggested MSCI World Index as an example. There are others with different asset mixes and risk/reward profiles that might delay be suitable. My main point was that you should probably be up to 100% in equities.

 

[CharlieMac]

Hi @gkan1972 In terms of "buying back years" I only really know about the Single Pension Scheme. But I think the negatives of buying back years on your pre-2013 and the SPS post-2013 schemes are likely mostly the same. It was discussed in this thread. Once you buy back a year that amount of pension continues to be up-rated with inflation. Sounds good but if you pay for that year a long time before you retire then you basically invested in an "asset" that is only yielding you a return equal to that of whatever inflation is. Whereas if you had invested the price of that year in something else you probably would have done far better. Especially if you invested that money into AVCs so you can first benefit from the tax-relief (free money) and then avail of (hopefully) higher yielding returns which over a longer timeline equities tend to deliver.

I wouldn't rule it out. Buying back years gets you an annuity with built in inflation protection. I think it's cheaper on the post-2004 (pre-2013) scheme than on the SPS. I'm leaving the option open to do it but I might end up not doing it.

Would I be able to access my AVC funds at that time to buy back years if I felt that suited me?

That would be my strategy, tax-relieved AVCs and compounded growth with market returns to build a fund and purchase "years" by way of transferring value from that fund.

I've researched this a lot. There is a potential issue if you have a big enough AVC fund that there is more value in it than you need to buy back all the years you are entitled to buy or want to buy. In that case you would want to only transfer some of the value from your AVC fund to the post-2004 Scheme administrators.

I am certain you can do this type of part-transfer if your AVC fund is in a Public Sector Linked AVC Scheme that is administered by people like Cornmarket/Irish Life and your workplace union is the Trustee. And with a PS linked AVC Scheme you can also purchase years by transferring value out of your AVC fund BEFORE you retire.

I've also asked if the same is allowed if you built up your AVCs in a PRSA AVC (e.g: Royal London Ireland, Standard Life, Zurich etc) and unfortunately I never got 100% clarification. I am 99% sure you cannot part transfer value out of a PRSA AVC to buy back years. It's all or nothing with a PRSA AVC you can transfer ALL of it (to purchase years) but not part of it. But I'm happy to be corrected on that point. I "think" you would first have to transfer your PRSA AVC fund back to a Public Sector linked AVC fund such as an AVC Scheme with Cornmarket/Irish Life. Irish Life told me they would accept such a transfer provided the PRSA AVC pension provider can satisfy them that their PRSA AVC is also tied to/linked to the same public sector employment. I asked what does "tied to/linked to" mean exactly and once again didn't get the clarity I needed. I think it means the PRSA AVC is set up specifically to supplement your public sector employment only and you only ever used funds from your PS employment salary when making AVCs in to that PRSA AVC.

There are other risks to using all your AVCs to buying back years. The Government has previously "raided" pensions during hard economic times although I think they raided all pension products (ARFs too) not only PS pensions. You might be missing out on wealth building by not having some of your retirement fund always in equities. Also your DB pension will die with you so you wouldn't have anything (such as the value in an ARF) to pass on to anyone else in case that interests you. A sensible strategy seems to be having a bit of DB pension and an ARF too. But only you can decide what you are comfortable with!

As for that AVC spreadsheet, I think you need Excel 2019 or later for it to work but looks like you found a work around.