Full Pension Contribution what next

Rationaleyes

New Member
Messages
5
Hi All,

I am late 20s and looking for advice on where to place any extra cash I will have. So currently I max my pension at 15% with a 5% company match, all in equities. Have done since the start of this year. I have been in this company since mid 2016 and had been contributing 5% to get the company match since then. I plan to contribute 10% of last years gross income to the pension too before the deadline in October. I have recently (unfortunately) inherited a portion of a house which I am buying out the other parties in. I will be getting a mortgage with a <60% LTV and then start paying that at around 2.9%. Currently I have ~11k in the pension and ~32K in my bank account. After the house purchase and any content purchases etc. in july I will run a calculation on my yearly income/expenditures, and my savings rate, which should come out as ~48% of my Gross salary, including all pension contributions. I am wondering what to do with any monthly savings in the future, after paying mortgage, bills, etc.

I have been reading on various different vehicles for saving as efficiently as possible, from P2P lending, US-ETFs (up to $60k), paying down a mortgage as quickly as possible, but I don't honestly know which of these (or a mix) is best for saving. Any advice would be great. As with many nowadays I'm looking to get on the path to financial independence far sooner than the government retirement age (if it even exists by the time im close to it).

Thanks!
 

Sarenco

Frequent Poster
Messages
5,426
Hi @Rationaleyes

I take the view that the tax position in Ireland is such that it makes little sense to invest outside a pension wrapper while carrying a mortgage.

So, if I was in your position, I would keep maximizing your pension contributions (you should probably be pursuing an all equities strategy at your age) and use any after-tax savings (over and above a reasonable cash buffer) to pay down your mortgage ahead of schedule.

Keep it simple!
 

Brendan Burgess

Founder
Messages
37,663
I take the view that the tax position in Ireland is such that it makes little sense to invest outside a pension wrapper while carrying a mortgage.
100% agree.

The only exception is if you think you might need the money in the near future for a large purchase such as a car which you won't be able to pay for out of your income.

So even if you don't anticipate such an investment, it might be ok to put €20k into equities and have it there in case you need it.

Then pay down the mortgage.

Brendan
 

Rationaleyes

New Member
Messages
5
100% agree.

The only exception is if you think you might need the money in the near future for a large purchase such as a car which you won't be able to pay for out of your income.

So even if you don't anticipate such an investment, it might be ok to put €20k into equities and have it there in case you need it.

Then pay down the mortgage.

Brendan
Actually just a follow up query, I am thinking since paying down a mortgage quicker is the priority it would be prudent to use the cash I have to reduce how much I take out on the mortgage, rather than getting 100% of the buy out costs from the bank. Does that make sense?
 

Brendan Burgess

Founder
Messages
37,663
It makes sense to hold onto your cash and take out a variable rate mortgage for as much as possible subject to the caveats below. When you have bought the house and paid for any content purchases, then you can pay the surplus cash off the pension without penalty as it's a variable rate mortgage.

Caveat 1
I will be getting a mortgage with a <60% LTV
You should not borrow more than you need if it brings you above an LTV rate limit.

Caveat 2
This does not work for ptsb as they don't allow you to fix at new customer rates if you are an existing customer
 

Rationaleyes

New Member
Messages
5
@Brendan Burgess Hi Brendan, Sorry to bump this a few days after the fact but I was doing some reading and came across an older post where you mentioned that paying any AVCs that would have been taxed at the lower rate is pointless because they could be taxed at the higher rate on the way out of the pension.

So would it be more in my interest to re-evaluate what % of my income to place as my AVC to only contribute on the higher taxed wages, and the balance that I get into my net income push towards the aforementioned overpayments on the mortgage.

Thanks!
 

Brendan Burgess

Founder
Messages
37,663
Absolutely

We all just assumed that you were going to get tax relief at the top rate.

It makes no sense at all for a person in their 20s to contribute to a pension unless they are getting tax relief at the top rate.

Brendan
 

Eoghan

Registered User
Messages
26
Absolutely

We all just assumed that you were going to get tax relief at the top rate.

It makes no sense at all for a person in their 20s to contribute to a pension unless they are getting tax relief at the top rate.

Brendan
Hi Brendan can you explain this to me? Does it make sense if I'm 34 and maxing AVCs or should I not and overpay the mortgage as much as possible? I'm at the lower rate.
 

Brendan Burgess

Founder
Messages
37,663
Hi Eoghan

You get 20% tax relief on your contribution.

After 30 years, when you draw your pension, it will be taxable. You may well be taxed at a higher rate on it then.

So pay down your mortgage.

Brendan
 
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