Age:
30
Partner's age:
28
Annual gross income:
E55,000
Annual gross income partner:
E50,000
Monthly take home pay:
E3,100
Monthly take home pay partner:
E2,850
Type of employment:
Both public sector employees.
Expenditure pattern:
Spend and save in equal amounts.
Accommodation:
Renting – E1500 (contribute E750 each)
Other borrowings – car loans/personal loans etc
None
Do you pay off your full credit card balance each month?
No credit cards
Savings and investments:
E11,000 in state savings five year saving certificate. Matures in June 2025
E16,000 savings in deposit account (E1,000 monthly standing order).
E20,000 in prize bonds. (I buy these periodically as savings in excess of deposit account standing order accumulate – c. E7,500 a year).
Total: E47,000 (growing by c. E20,000 per year).
Savings and investments partner:
Total: E53,000 in savings deposit account. (growing by c. E18,000 per year).
Do you have a pension scheme?
Both on single public service pension scheme (only) and joined public sector in mid-20s.
According to the single scheme calculator tool I will be due a single scheme annual retirement pension + annual contributory state pension of c. E27,500 – E34,000. The former is based on my current wage the latter is based on the wage of the role I am currently trying to get promoted to.
My partner is more than likely to end up on similar if not more.
Do you own any investment or other property?
No.
Ages of children:
None.
Life insurance:
None.
What specific question do you have or what issues are of concern to you?
I have specific and general questions. Topic I am looking into is whether we should be making AVCs or saving most I can for a deposit on a home at this point. I have a worked example below where I have tried to figure this out and could use help, but also, I have some general questions and have laid these out first.
Q1. The amount I calculated via the single scheme calculator above would seem to me like more than enough to live off assuming we have paid off mortgage by retirement. But one element is that I hear a lot about issues with pension sustainability long-term, should we start a PRSA to diversify risk given we are both on public sector single scheme?
Q2. I have seen people suggest on the forums that saving for a deposit on a house makes more sense than making AVCs. I have tried to figure this out below for my own reassurance and could use some help to figure out AVC returns (I can’t seem to find a calculator for it). This is more from the perspective of value for money as the pension allowance seems like enough.
Q3. Also not tied to the idea of an AVC, if you think there is something better, we should be looking at by all means please advise. Finally, would appreciate any general advice that you think would apply to our situation.
Example. Assumptions (mostly based off our own financial position) to understand effect of whether to go with AVC or not: 1. Want to buy home in 2.5 years for E600,000. 2. We would both be hopeful to be on a salary of c. E75,000 in the next 2-3 years. In terms of a mortgage a combined gross salary of 150,000 * 3.5 = E525000. 3. 2.75% mortgage interest rate. 4. Monthly repayments of c. E2,000.
Scenario 1. We continue to deposit savings into savings account. Deposit of E200,000 (joint current savings of c. E100,000 + another E100,000 over next 2.5 years) and get a mortgage of E400,000. According to the CCPC mortgage calculator, buying a 22 year mortgage at 2.75% for E400,000 would cost c. E135,000 in interest.
Scenario 2. We contribute to a PRSA AVC over the next 2.5 years and put rest on deposit. From what I understand I can make a tax-free contribution of 20% (30 years old) of current salary E55,000 = E11,000. According to my payslip my current contribution to scheme is c. E2600 per annum, which leaves E8,400 I could put into an AVC. Over the 2.5 years that would be E21,000.
As my partner is under 30, 15% rate applies. Roughly this results in E12,500 AVC over 2.5 year period. This is a total of E33,500 into a PRSA. In scenario 1 this would have been taxed at 40%, leaving us with E20,000 for the deposit. So instead of the E100,000 savings for deposit, in this example we have an additional E80,000 towards deposit.
Deposit of E180,000 and a mortgage of E420,000. According to the CCPC mortgage calculator buying a 24 year mortgage at 2.75% for E420,000 would cost c E154,000 in interest.
So scenario 2 mortgage costs an extra E19,000. However, there was the 40% tax free saving of E13,000 under scenario 2. And wouldn’t that also get some returns from the pension investment (minus fees). How do I calculate these?
30
Partner's age:
28
Annual gross income:
E55,000
Annual gross income partner:
E50,000
Monthly take home pay:
E3,100
Monthly take home pay partner:
E2,850
Type of employment:
Both public sector employees.
Expenditure pattern:
Spend and save in equal amounts.
Accommodation:
Renting – E1500 (contribute E750 each)
Other borrowings – car loans/personal loans etc
None
Do you pay off your full credit card balance each month?
No credit cards
Savings and investments:
E11,000 in state savings five year saving certificate. Matures in June 2025
E16,000 savings in deposit account (E1,000 monthly standing order).
E20,000 in prize bonds. (I buy these periodically as savings in excess of deposit account standing order accumulate – c. E7,500 a year).
Total: E47,000 (growing by c. E20,000 per year).
Savings and investments partner:
Total: E53,000 in savings deposit account. (growing by c. E18,000 per year).
Do you have a pension scheme?
Both on single public service pension scheme (only) and joined public sector in mid-20s.
According to the single scheme calculator tool I will be due a single scheme annual retirement pension + annual contributory state pension of c. E27,500 – E34,000. The former is based on my current wage the latter is based on the wage of the role I am currently trying to get promoted to.
My partner is more than likely to end up on similar if not more.
Do you own any investment or other property?
No.
Ages of children:
None.
Life insurance:
None.
What specific question do you have or what issues are of concern to you?
I have specific and general questions. Topic I am looking into is whether we should be making AVCs or saving most I can for a deposit on a home at this point. I have a worked example below where I have tried to figure this out and could use help, but also, I have some general questions and have laid these out first.
Q1. The amount I calculated via the single scheme calculator above would seem to me like more than enough to live off assuming we have paid off mortgage by retirement. But one element is that I hear a lot about issues with pension sustainability long-term, should we start a PRSA to diversify risk given we are both on public sector single scheme?
Q2. I have seen people suggest on the forums that saving for a deposit on a house makes more sense than making AVCs. I have tried to figure this out below for my own reassurance and could use some help to figure out AVC returns (I can’t seem to find a calculator for it). This is more from the perspective of value for money as the pension allowance seems like enough.
Q3. Also not tied to the idea of an AVC, if you think there is something better, we should be looking at by all means please advise. Finally, would appreciate any general advice that you think would apply to our situation.
Example. Assumptions (mostly based off our own financial position) to understand effect of whether to go with AVC or not: 1. Want to buy home in 2.5 years for E600,000. 2. We would both be hopeful to be on a salary of c. E75,000 in the next 2-3 years. In terms of a mortgage a combined gross salary of 150,000 * 3.5 = E525000. 3. 2.75% mortgage interest rate. 4. Monthly repayments of c. E2,000.
Scenario 1. We continue to deposit savings into savings account. Deposit of E200,000 (joint current savings of c. E100,000 + another E100,000 over next 2.5 years) and get a mortgage of E400,000. According to the CCPC mortgage calculator, buying a 22 year mortgage at 2.75% for E400,000 would cost c. E135,000 in interest.
Scenario 2. We contribute to a PRSA AVC over the next 2.5 years and put rest on deposit. From what I understand I can make a tax-free contribution of 20% (30 years old) of current salary E55,000 = E11,000. According to my payslip my current contribution to scheme is c. E2600 per annum, which leaves E8,400 I could put into an AVC. Over the 2.5 years that would be E21,000.
As my partner is under 30, 15% rate applies. Roughly this results in E12,500 AVC over 2.5 year period. This is a total of E33,500 into a PRSA. In scenario 1 this would have been taxed at 40%, leaving us with E20,000 for the deposit. So instead of the E100,000 savings for deposit, in this example we have an additional E80,000 towards deposit.
Deposit of E180,000 and a mortgage of E420,000. According to the CCPC mortgage calculator buying a 24 year mortgage at 2.75% for E420,000 would cost c E154,000 in interest.
So scenario 2 mortgage costs an extra E19,000. However, there was the 40% tax free saving of E13,000 under scenario 2. And wouldn’t that also get some returns from the pension investment (minus fees). How do I calculate these?