Pension for Spouse/Mortgage overpayment?

RandomUserName

New Member
Messages
4
Good morning,

Age:32
Spouse:34

Gross:€52k
Spouse:€8k-12k (tax free)

Take home monthly:~€3k
Spouse:€700-€1200

Sector: Public Sector
Spouse: stay at home parent, also registered childminder in the home

Home value: ~€240k
Outstanding:~€114k over 27.5yrs
Rate: 2.35%
Monthly:~€470


Car loan: ~€430pm (0% HP, EV so fuel bill savings of ~€300pm Vs previous car)

No credit card or personal loans

Savings: ~€12k

One 3 yo child

Mortgage life insurance and personal life insurance for both of us in place

General situation: mostly been breaking even over recent years, and paid off personal loans. In a position to save more consistently now and with upcoming promotion will increase regular savings.

The plan: I am a post-2004 entrant to the Defence Forces. Under our fast-accrual pension system, I will have 40 years service at 50 years of age (each of last 10 years counts double), and be entitled to retire at that age, with a mandatory retirement age of 56. Cannot get a straight answer regarding supplementary pension at that age, but assuming I can secure that entitlement I would expect a pension of approx €30k. Ideally I would intend to be fully retired from 56 as the supplementary pension system is a major disincentive to take on other paid employment.

What I'd like some advice on, is how best to provide a pension/income for my wife in this situation? She is currently working in the home and is a registered childminder. As such, she can earn a tax free income of <€15k and I can avail of her tax credits and higher standard rate cut off. She pays class S PRSI each year of €500, giving her entitlement to maternity benefit and state contributory pension.

I had been under the impression that I could put money into an AVC to provide a fund for her retirement, but I now realise this is not the case as I will have full service and get 1.5 times final salary lump sum and cannot use AVC to increase this (correct?).

Specific query: Would it be best for us to start overpaying our quite modest mortgage, potentially we could afford to clear it in 10 years (early 40s), or my preferred option, is there a tax deductible way to fund a pension for my wife? We would like to have ~€10k pa for her from age 58 until her state contributory pension kicks in (presumably 70+ for our generation)

Any and all observations or suggestions will be welcome!

Thanks
 

Marc

Registered User
Messages
1,424
You should definitely be looking to overpay your mortgage

I set out an analysis framework here

 

Brendan Burgess

Founder
Messages
44,205
If you wife has no taxable income, there is no point in contributing to a pension on her behalf. She may return to taxable paid work later in life and she would then get tax relief on her pension contributions at that stage.

Alternatively, it's possible that the rules will change to encourage people on low pay to contribute to a pension. So it would make sense to wait until then to start contributing.

I presume that if anything happens to you, she will get some proportion of your pension?

At your age, the priority should be to clear the mortgage.

Brendan
 

RandomUserName

New Member
Messages
4
Thanks for the replies guys. Brendan, thanks for clarifying that it would not be possible for me to get tax relief on pension contributions for my wife. She would be entitled to something under the Widows & Orphans scheme if something happens to me.

We've been fortunate enough to secure a cheap enough mortgage over a long enough term that we could make the lifestyle choice for her to be at home for at least a few years. Even at that, knocking 10 years off the mortgage to finish at 50 years of age seems very achievable, with a bit of a stretch we could even go further than that. Every month not paying the mortgage from that point would be money saved/invested for retirement.
 

Itchy

Registered User
Messages
478
The plan: I am a post-2004 entrant to the Defence Forces. Under our fast-accrual pension system, I will have 40 years service at 50 years of age (each of last 10 years counts double), and be entitled to retire at that age, with a mandatory retirement age of 56. Cannot get a straight answer regarding supplementary pension at that age, but assuming I can secure that entitlement I would expect a pension of approx €30k. Ideally I would intend to be fully retired from 56 as the supplementary pension system is a major disincentive to take on other paid employment.

From a career planning perspective there are a couple of issues to consider, without knowing your role or qualifications. For example, based on your expected pension entitlement, your career high earning potential is €60k. Depending on role and level of responsibility, this could be achievable a lot earlier in your career in either the public or private sector, not considering the pension entitlements. The pay the disparity between the DF and public sector has expanded significantly in the last decade and has not yet started to reverse. The general pay issue may be rectified by the pay commission but could take the remainder of your career! What will happen is that the asymmetrical power balance will remain and will continue to be exploited (This will continue to have some pay implications such as allowances attached to certain posts, number of tech appointments etc., see the instructors and ARW allowance debacle). Obviously you anticipate another 18 years service but frustration with the culture is also very real. Having a realistic view of your career track is important.

Some considerations:
It looks like the mandatory retirement ages may not be sustainable in the future but may not be relevant in any case given you should have full service at 50.
As a post-2004, you accrue 1/80th of your entitlement for the first 20 years and 2/80th for the last 10 years. However, should you move into the public sector, you move from the fast accrual system to the standard accrual system. You obviously carry your service with you, but 1) you pay less ASC so at the same salary level it will be a de facto take home pay increase and 2) you may get 4/3rds credit for your fast accrual service e.g. with 12 years service you actually have 16/80ths of the standard accrual benefit. You wont get the benefit if you leave the DF for the private sector.
Obviously if you leave before age 50, you cant draw your pension before age 60. If you stay beyond age 50, you wont accrue pension benefits but will continue to pay the ASC and superann.
If you have the opportunity to go for a higher salaried position in the public sector after age 50, you can uplift your final pensionable salary, which is based on the best 3 years in the final 10 years of employment.

What I'd like some advice on, is how best to provide a pension/income for my wife in this situation? She is currently working in the home and is a registered childminder. As such, she can earn a tax free income of <€15k and I can avail of her tax credits and higher standard rate cut off. She pays class S PRSI each year of €500, giving her entitlement to maternity benefit and state contributory pension.

I had been under the impression that I could put money into an AVC to provide a fund for her retirement, but I now realise this is not the case as I will have full service and get 1.5 times final salary lump sum and cannot use AVC to increase this (correct?).

It appears AVC option is not applicable in your situation, at the moment.

Specific query: Would it be best for us to start overpaying our quite modest mortgage, potentially we could afford to clear it in 10 years (early 40s), or my preferred option, is there a tax deductible way to fund a pension for my wife? We would like to have ~€10k pa for her from age 58 until her state contributory pension kicks in (presumably 70+ for our generation)
Your tax advantages are limited in your circumstances. However, some thing to think about might be to consider your PPR. You have 100k equity, your salary situation may allow you to get a mortgage of c. 200-250k. Upgrading your PPR will be tax free. A larger property (300 - 350k) could be targeted that would allow you to rent a room, income potential of 14k that you could earn tax free. In addition, overseas is mandatory for your contract (?) so you will be able to use that to reduce the mortgage, every couple of years. At retirement you can down size, and realise a lump sum (tax free) that could be used for you/your wife in retirement. Obviously dependent on the property market but there is a long runway between here and there. Also, retirement in your mid 50's is a long road. You will have 30k for 10 years or so before your wife gets the SPC.
 

RandomUserName

New Member
Messages
4
Itchy, that is an excellent reply, thank you. You obviously have some specific knowledge about the DF which is great as most of the info out there on PS pensions is for teachers, civil servants etc.

You are 100% correct on your points regarding pay disparity, unfortunately I've learnt from bitter experience that no matter what any review/report/commission etc finds, all that can be hoped for is the usual "fiver per week" across-the-board pay "increase". Apart from that all I can say without getting too specific is that a change to another sector at this particular time would involve significant retraining and an initial drop in salary for a few years, but indeed there would be scope for significantly higher earnings eventually. There is a lifestyle element to consider also which is quite a personal choice of course. I do consider the potential to retire quite young to be worth something versus getting a higher salary. Overseas helps too!

Your point regarding a move to another PS career is particularly interesting and warrants further investigation on my part, thanks.

Your point regarding moving up the property ladder is interesting too. We did rent a room before our child was born and it worked well for us, I can't see us doing it again with kids in the house though. Downsizing on retirement would be a likely move even from this house, depending on the kids housing situation. Out west or abroad is the dream currently!

Really appreciate your input, thanks.
 

Itchy

Registered User
Messages
478
You are 100% correct on your points regarding pay disparity, unfortunately I've learnt from bitter experience that no matter what any review/report/commission etc finds, all that can be hoped for is the usual "fiver per week" across-the-board pay "increase".

Look, you know yourself. Values are a one-way street sometimes. The point to take is that hope is not a strategy.

Apart from that all I can say without getting too specific is that a change to another sector at this particular time would involve significant retraining and an initial drop in salary for a few years, but indeed there would be scope for significantly higher earnings eventually.

Totally understand. Again without knowing your circumstances, Id just say that you need to avoid being passive otherwise you could get caught badly. You should be constantly in a place where you have options. The outlook looks OK now, but you dont want to be a 56 year old ex-Inf Pl Sgt with a kid still to put through college. The other thing is, dont undersell yourself. You probably have more responsibility in your day job than you realise. Look at how you can leverage off that.

There is a lifestyle element to consider also which is quite a personal choice of course. I do consider the potential to retire quite young to be worth something versus getting a higher salary.

Of course, the lifestyle is the only thing keeping the show on the road! On a serious note though, lifestyle can be a double edged sword. When it great, its great for everyone. When its bad, its bad for you and worse for your family. If you dont have options, it can turn very quickly. The problem from a financial point of view is that you can probably do better literally anywhere else.

If you decide to commit and go up the ranks, the lifestyle benefits can fluctuate. Its grand if you're one of 20 and you can manage your commitments. Its harder when you're senior and one of two, with a niche qualification. Just make sure you're in a position to handle the phonecall that says you're off in two weeks for six months. Other option is to stay relatively junior, but it will be a struggle financially, which means you become dependent on an overseas mission (will it suit? will there be one available in the future when you need it?) or get a second job. If you're a junior NCO, in Dublin with a family the reality is you'll need something else on the go. Otherwise, its FIS and the council housing list. If you have a second job, then your lifestyle is gone. Active planning is my point and also, thank your lucky stars you're not in the Single Scheme!

Remember though, the soldier in Dublin is paid the same as the soldier in Galway but the cost of living is not the same. If the dream is to head out West, why wait? Carpe Diem!
 

RandomUserName

New Member
Messages
4
All good points and all taken on board. Just keeping things vague as I'd rather not identify myself, but thankfully have worked myself into a good niche where I am and in a great position regarding promotion etc. The only danger really is 'topping out' relatively soon and then the boredom might set in, it was boredom that got me here from my previous spot!

Not in a position to go west yet but I often thought the same thing for guys who can, why stay around Dublin/Kildare when you could get the same money in Donegal etc?

Definitely trying to do a bit of active planning alright, which is the main reason I've been looking into all this regarding pensions etc.
 
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