Advice needed on mortgage and AVC

[@buzzybee]

Personal Details
Age: 45
Spouse: 55
No and Age of children: 4 - 18, 16, 15 and 7

Income and expenditure
Annual gross income from employment: 53k
Annual Gross income of spouse: 30k approx (sole trader)
Monthly Take home pay: 2,900 (I think spouse may have some of my tax credits)
Type of employment: Public servant
In general are you saving: 400 per month

Summary of Assets and liabilities
Family home with business attached (worth 250k approx) with no mortgage
Savings: 40k
Other property: Rental property worth 300k with a 74k mortgage remaining. Rental income 1350 a month final payment 2027.

Other borrowing:
Spouse car loan 28k.

Credit card: Yes but paid off every month

Other information which may be relevant: Life insurance policy 500k and spouse 300k
Pension: Public sector pension and AVC worth 17k (not currently paying in)
The older children are employed by my husbands business with 2k per month going into a college fund - 14k currently in this account with eldest child likely to attend college in in Sept - this has resulted in spouses reduced income. Expect this will fund college for the moment as child 2 most likely will go the trade route.
Will likely inherit a 2nd property in the future (15-20 years) current value 200k.

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

1. Should I use my savings to reduce the remaining balance of the mortgage or should I retain my savings for a rainy day?
2. The money that is currently going into the savings should I now divert these into my AVC (had previously paid into the AVC but stopped the payments in 2012)
3. The longer term plan is to retire at 60-62 if possible so will need sufficient income until the state pension kicks in.
4. Work facilitate (not sure that is the correct term) an AVC but could better value be got from elsewhere?

Any advice would be appreciated.

Thanks

 

[ClubMan]

1. Should I use my savings to reduce the remaining balance of the mortgage or should I retain my savings for a rainy day?

Neither. You should probably use them to clear the €28k car loan which is presumably much more expensive than the mortgage.

1. The money that is currently going into the savings should I now divert these into my AVC (had previously paid into the AVC but stopped the payments in 2012)
2. The longer term plan is to retire at 60-62 if possible so will need sufficient income until the state pension kicks in.

If early retirement is an aspiration then bulking up the pension is almost certainly a necessity.

1. Work facilitate (not sure that is the correct term) an AVC but could better value be got from elsewhere?

Impossible to say without some info about the work option - in particular the charges and the investment options.

 

[Early Riser]

Public sector pension and AVC worth 17k (not currently paying in)

1. The longer term plan is to retire at 60-62 if possible so will need sufficient income until the state pension kicks in.
2. Work facilitate (not sure that is the correct term) an AVC but could better value be got from elsewhere?

What length service do you expect to have at 60-62? I am assuming you are Class A PRSI. What scheme are you in - pre April 2004, post April 2004 or Single Scheme?

As regards "better value" you can shop around Brokers for charges on a PRSA-AVC, or choose an "execution only" PRSA-AVC (eg, https://www.labrokers.ie/about-us-la-brokers/). There are some brokers on this forum who might advise further, and also users who have gone the PRSA-AVC route. A PRSA-AVC is essentially the same as a standard AVC except that contributions are paid by direct debit rather than through salary deduction, and you then arrange with Revenue for the relevant tax credit to be coded in for salary purposes. The tax relief is the same.

 

[NoRegretsCoyote]

The older children are employed by my husbands business with 2k per month going into a college fund - 14k currently in this account with eldest child likely to attend college in in Sept

This is not fully clear to me. Are the kids in paid employment by your spouse? Or is he putting cash into a college fund? Or both?

I don’t know the SUSI rules at all but you should probably be aware of them if not already as you will have a lot of third-level cost very soon.

Other property: Rental property worth 300k with a 74k mortgage remaining. Rental income 1350 a month final payment 2027.

Rent sounds low given the value - think about increasing it where possible if rules allow.

 

[@buzzybee]

Neither. You should probably use them to clear the €28k car loan which is presumably much more expensive than the mortgage.

If early retirement is an aspiration then bulking up the pension is almost certainly a necessity.

Impossible to say without some info about the work option - in particular the charges and the investment options.

Thanks for your response.
In respect of the car loan - spouse is a spender and I'm the saver - we operate somewhat independently from a financial point of view. Payments will be made on the car but if the car loan was paid off - spouse would find something else to spend that money on!!
I got a quote for the AVC but do not see any details of fees so will clarify this.

 

[@buzzybee]

What length service do you expect to have at 60-62? I am assuming you are Class A PRSI. What scheme are you in - pre April 2004, post April 2004 or Single Scheme?

As regards "better value" you can shop around Brokers for charges on a PRSA-AVC, or choose an "execution only" PRSA-AVC (eg, https://www.labrokers.ie/about-us-la-brokers/). There are some brokers on this forum who might advise further, and also users who have gone the PRSA-AVC route. A PRSA-AVC is essentially the same as a standard AVC except that contributions are paid by direct debit rather than through salary deduction, and you then arrange with Revenue for the relevant tax credit to be coded in for salary purposes. The tax relief is the same.

At 62 I will have 35 years service and I'm post 2004.
Spoke to an 'advisor' (selling their companies AVC) and the the application refers to a Passive IRIS Retirement Fund - unfortunately I have no clue what this means. I think independent advice or broker would be best in respect of the pension to understand the options available to me.

 

[ClubMan]

Thanks for your response.
In respect of the car loan - spouse is a spender and I'm the saver - we operate somewhat independently from a financial point of view. Payments will be made on the car but if the car loan was paid off - spouse would find something else to spend that money on!!

This is obviously not a good way for a married couple and family to run a household's finances.

I got a quote for the AVC but do not see any details of fees so will clarify this.

What did they include in the quote if they didn't state the charges?

 

[@buzzybee]

This is not fully clear to me. Are the kids in paid employment by your spouse? Or is he putting cash into a college fund? Or both?

I don’t know the SUSI rules at all but you should probably be aware of them if not already as you will have a lot of third-level cost very soon.


Rent sounds low given the value - think about increasing it where possible if rules allow.

Thanks for responding.
Yes the kids are in paid employment - to reduce spouses business profit and to utilise their TFA (2 children) - most goes into a college account and they get paid.
Our combined income too high for a SUSI grant.
Rent low due to RPZ - I have checked the RTB rent calculator and I can increase the rent but will be less than €100 pm but I will look at maximising this.

 

[@buzzybee]

This is obviously not a good way for a married couple and family to run a household's finances.

What did they include in the quote if they didn't state the charges?

Fully aware of this but do my best to keep things in order
Went through quote again and found fees: .75% AMC, gross allocation 69% year 1 and 95% year 2 onwards.

 

[Early Riser]

Annual gross income from employment: 53k

At 62 I will have 35 years service and I'm post 2004.

It sound like you have scope to boost your pension via AVCs and avail of 40% tax relief on contributions if you retire at 62 (depending your current tax marginal rate).

Lets assume you get some increments and maybe a promotion to bring your salary in todays terms to €60,000. As your normal retirement age is 65 you would be taking CNER with an actuarial reduction at 62, which should leave you with an annual pension of around €12,000. The Supplementary Pension would also be around €12k but you wouldn't be eligible to claim this until 65 and it would cease at State Pension age in any event. You could draw down quite heavily from an ARF in the interval without threatening the higher tax rate (unless you and your husband have substantial other income).

You could also take roughly an additional €8.5K tax free from the AVC fund to take you up to the Revenue max of €83k.

Spoke to an 'advisor' (selling their companies AVC) and the the application refers to a Passive IRIS Retirement Fund

I have no idea what this is but......

Went through quote again and found fees: .75% AMC, gross allocation 69% year 1 and 95% year 2 onwards.

.....this sounds poor.

Others on the Forum can hopefully advise you on this.

 

[ClubMan]

Fully aware of this but do my best to keep things in order
Went through quote again and found fees: .75% AMC, gross allocation 69% year 1 and 95% year 2 onwards.

Those charges are terrible.
0.75% AMC isn't the worst but 31% of year one contributions and 5% of contributions thereafter is ridiculous.
Avoid at all costs (pun intended).

 

[GSheehy]

Went through quote again and found fees: .75% AMC, gross allocation 69% year 1 and 95% year 2 onwards.

This has to stop.

These contracts were the construct of actuaries 20/25 years ago and the companies that still have them available are complicit in the maximisation of commission. There wasn't much choice/competition in pricing back then.

They are about the funding of the salary/lifestyle/retirement of the persons who designed and sell the products. No mention of the Annual Management Charge so it's likely that that may be greater than 1% also.

I'm in this execution only space for 15+ years and the three most quoted general reasons that advisers give to potential clients as to why they shouldn't do an AVC PRSA on an execution only basis are i) 'If it sounds too good to be true, it probably is' (in relation to 100% allocation and 1% AMC) - Doubt ii) 'But you might make a mistake choosing a fund' (because you *need* the advisor to figure this out) Fear & iii) 'But you won't be able to do it by salary deduction and that's very handy' - Inconvenience/Time.

i) It is true
ii) There are risk profilers available that help you figure this out &
iii) If you do decide to do this execution only then attached are (slightly dated) instructions on how to claim the tax relief via Revenue 'My Account'.

Fair enough, you may need other advice with how this transaction fits in with the bigger picture but a lot of folk know they just want to buy the product. It's not a suitable service for everyone.

You might be better off just doing a single contribution for 2022 now and either add to that in future years or, you may be able to purchase a lower cost PRSA AVC later in the year when pricing has been clarified by all product providers.


Gerard

www.prsa.ie

 

[@buzzybee]

This has to stop.

These contracts were the construct of actuaries 20/25 years ago and the companies that still have them available are complicit in the maximisation of commission. There wasn't much choice/competition in pricing back then.

They are about the funding of the salary/lifestyle/retirement of the persons who designed and sell the products. No mention of the Annual Management Charge so it's likely that that may be greater than 1% also.

I'm in this execution only space for 15+ years and the three most quoted general reasons that advisers give to potential clients as to why they shouldn't do an AVC PRSA on an execution only basis are i) 'If it sounds too good to be true, it probably is' (in relation to 100% allocation and 1% AMC) - Doubt ii) 'But you might make a mistake choosing a fund' (because you *need* the advisor to figure this out) Fear & iii) 'But you won't be able to do it by salary deduction and that's very handy' - Inconvenience/Time.

i) It is true
ii) There are risk profilers available that help you figure this out &
iii) If you do decide to do this execution only then attached are (slightly dated) instructions on how to claim the tax relief via Revenue 'My Account'.

Fair enough, you may need other advice with how this transaction fits in with the bigger picture but a lot of folk know they just want to buy the product. It's not a suitable service for everyone.

You might be better off just doing a single contribution for 2022 now and either add to that in future years or, you may be able to purchase a lower cost PRSA AVC later in the year when pricing has been clarified by all product providers.


Gerard

www.prsa.ie

Thanks so much Gerard this explains a lot you have been more than helpful.