Pay off mortgage or PRSA?

N

nest egg

Registered User
Messages
575
Interesting thread, myself and my wife are debating this ourselves, our choice is:
  1. ~€6500 pa into wife's PRSA, to make full use of her allowable threshold (38 yo), I'm already maxing mine
  2. ~€4000 pa overpayment on mortgage (55% LTV, 2.6%, €418k & 27 yrs remaining)
Leaning towards 2, but hate leaving 2500 pa on the table
 
I would go the PRSA route.

My own view is that with the tax relief on the way in and the tax-free compounding from age 38, combined with the decent enough mortgage rate, it’s the right thing to do.
 
Can you switch to a better mortgage rate?

Will the 6500 only be relieved at the lower tax rate? If so, I think this is a bit less clear.

Would your wife expect to be paying tax at the higher rate when she is drawing down her pension. (this could be from pension alone, but could be from property, other pensions, investments etc.,)?

What fund would you be putting the 6.5k into, and what are the pension costs?
 
If you are near age milestones, you will be able to claim at a higher % soon. Potentially you could make the payment now, and claim the relief in the future. (You can carry forward the un-relieved part)

Or you could wait for her to claim the relief, if she would soon be paying tax at the higher rate?

Or pay down the mortgage until ye hit the age milestone.
 
SPC100 said:
Can you switch to a better mortgage rate?

Will the 6500 only be relieved at the lower tax rate? If so, I think this is a bit less clear.

Would your wife expect to be paying tax at the higher rate when she is drawing down her pension. (this could be from pension alone, but could be from property, other pensions, investments etc.,)?

What fund would you be putting the 6.5k into, and what are the pension costs?
Click to expand...

Re: Mortgage, we're fixed for another couple of years, in the meantime, we can overpay up to 10% of the balance of the mortgage each year, so there's plenty of room for overpayment. One idea is to aggressively overpay it until then, and switch to a lower rate thereafter.

Re: tax rate, relief will be at the top rate

Re: fund, it's a company sponsored PRSA, charges aren't great (5% contribution / 1% annual). Moving her pot into a passive global equity fund is the next step, unsure what charges would apply for doing this, but this will help a little on the fees side. Have debated with her starting a self-directed PRSA, to minimise charges further, however understand that you can't reclaim the tax on a monthly basis, which means the company one is better from a cashflow standpoint.
 
Assuming your mortgage is not very high, then I'd go with the pension payment. I think your figures are off. I think your number after taxes will be lower than what you quoted?

Existing prsa might have some passive fund hidden among the choices?
 
SPC100 said:
Assuming your mortgage is not very high, then I'd go with the pension payment. I think your figures are off. I think your number after taxes will be lower than what you quoted?

Existing prsa might have some passive fund hidden among the choices?
Click to expand...

That's the idea, to move to a passive fund with her existing provider. Have never looked at this before, so I don't know if it's common to expect a charge for moving funds within a PRSA?

Regarding the figures, it's a contribution of €6500 gross salary, which equates to €3900 net. I only count income tax (PAYE), as USC and PRSI are paid regardless on the earnings.
  1. €6500 AVC every year @5% return after charges, would equate to ~€370k after 27 years (subject to income tax, after allowances).
  2. €3900 pa overpayment @2.6% interest shaves 5.5 years off the mortgage, and saves ~€37k in interest. Assuming we invested the equivalent of the mortgage repayment for those 5.5 years @5% return after charges, we would pocket another ~€135k (no tax, aside from CGT)
Obviously a lot of unknowns in the above and different tax implications, but the pension contribution would leave us ~€200k better off, on paper.
 
You must log in or register to reply here.
Back
Top