Should I make AVC to Pension or not?

Oooops9

New Member
Messages
2
Hi, Long time looker and was wondering if any of ye could help with my query.

Age:
50
Spouse’s/Partner's age:
47

Annual gross income from employment
36k (with overtime 40k)
Annual gross income of spouse:
12-15k very sporadic (works in private sector part time)

Monthly take-home pay:
€4520 for both of us and this includes child benefit

Type of employment:
Public Sector – Just started recently

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving not fully sure of the exact amount but saving approx. 1500 – 2k per month.

Rough estimate of value of home:
350K
Amount outstanding on your mortgage:
68k
What interest rate are you paying?:
2.99%

Other borrowings – car loans/personal loans etc:
0

Do you pay off your full credit card balance each month?:
Yes
If not, what is the balance on your credit card?:

Savings
110k

Do you have a pension scheme?
Yes we have 3 pensions, we are not very clued in on any of them and this is where I need help.
OH had a defined benefit pension, which on the last statement showed the pensionable pay was €13k, Lump sum gratuity was €21k, and transfer value is €36k
Basically pension will be worth €220 in todays money if this makes sense. Also OH can transfer from age 55.

I have a Zurich private pension worth 36k, Started this pension in 2000, was only contributing very small amounts towards it of 1k per annum but done an AVC of 9k in 2016 and 5k in 2017.

Am not paying into this Zurich pension anymore as now have a new Occupational pension with new job. Zurich pension has not grown very much as we had it in low risk, we since moved the pension to the following spread across Balanced Pension and Invest, SuperCAPP and 5 star 5.

Do you own any investment or other property?
Yes 6 BTL’s (all are on trackers)
No 1 – Paid off – Value 100k
No 2 – 167k outstanding – Value 250k – Paying Interest only - Maturity 2028
No 3 – 118k outstanding – Value 220k – Paying capital and Int – Maturity 2029
No 4 – 132k outstanding – Value 270k – Paying capital and Int – Maturity 2032
No 5 – 145k outstanding – Value 220k – Paying capital and Int – Maturity 2032
No 6 – 97k outstanding – Value 95k – Paying capital and Int – Maturity 2032

Ages of children:
Twins aged 14 and 11 yr old

Life insurance:
Yes we have serious illness and death on PPR and 2 of the BTL’s.

We are about to pay 2019 tax bill which is 27k or if I contribute the max of 7k into my new occupational pension the tax bill is €28,400.
My question is should I pay into my occupational pension or not, I need to bear in mind that in 2028 I need to pay back 167k for the property that is on interest only.
Ideally we would like to own all of these properties but if we have to sell No 1 or No 6 then that is fine, but I really would like to keep the interest only one and the other 3.
All are on trackers thankfully as without that I don’t know how we would have managed !!

Also another question is if I die what happens to my Occupational Pension, does my OH inherit half of it?
Is it worth contributing to the pension or not, my new contract says that I can work until 70 but can retire at 68.

There will also be many other expenses along the way like all 3 children are going to need braces and none qualify on the HSE scheme.
Also car will need to be changed in about 2-3 yrs time and I also need to think about college around the corner in the not too distant future especially for the twins.

Any advice is welcome, we are not clued in on pensions at all and are wondering if we should be saving towards paying off property No 2 or making AVC’s towards my occupational pension.
 

50andOut

Frequent Poster
Messages
59
You earn 36k and have SIX investment properties..... I have no clue how you have managed to get 7 mortgages, but eggs in one basket much!

You have savings of 110k earning nothing whilst paying 2.99% on your PPR mortgage. Madness - pay this off today.

You are overexposed to property - need to diversify and sell at least 3 our the inv properties imo, giving you sufficient funds to pay off the remaining 3 mortgages if needed - assume its tax efficient to not pay off as you offset the interest I think, but that cash can be put into state savings over 10 years and probably earn the same as a tracker mortgage - a good hedge against a recession.

After this is done you should maximise pension contributions against your limit (30%)
 

New2This

Registered User
Messages
30
So first off I think there is some errors in your calculations as a contribution to your pension should reduce your tax liability not increase it. Making the lump sum contribution from your after tax money would normally result in a tax refund but is instead used to reduce your liability.

At first glance you have €1.5m in property investments with €750k in mortgages on a salary of €40k, which gives you 18.75 LTI (Loan to Income) and the central bank recommends 3.5. I assume this is legacy from before 2008 given the levels and trackers, and that perhaps you were on more back then. However you also seem have rental income which isn't listed in your income or against the properties and probably improves the picture.

Based on you tax due you seem to be making at least €67k net profit from the rentals, which brings your LTI down to 7. Still very high as far I'm concerned but not a scary as the previous one. I would be figuring out what level of emergency fund I need and then taking the rest of the cash to first pay off my PPR and then as fast as possible pay down the other mortgages. I would definitely consider selling some of the properties.

I would also get mortgage protection for all the houses with mortgages as if something were to happen to either of you it would be an incredibly stressful situation for the remaining spouse to be left in.

If your employer gives an employer match for your pension, contribute what you need to get that but then focus on reducing your debt levels. While it's not ideal and lacks diversification, these B2Ls are your pension. Even if you sold them your current salary level wouldn't allow you to invest most of the money in a pension vehicle.

Your new occupational pension provider should have advised what would happen to your pension on death. Usually if you are a member of an occupational pension scheme through your employer, and you die while you are still working, your estate will be entitled to a “surrender value” of your pension, which means the value of both the employer and employee contributions made to the policy. The Zurich private pension is likely the same.
 

Oooops9

New Member
Messages
2
Thanks to both of you for the replies, Yes all BTL's were purchased before the 2008 crash and for 2 PAYE workers the banks lent us far too much at the time !!! But that's another story.
OH did have a decent job for many years but left 5 yrs ago and took redundancy. OH has a much lesser paid job now but never looked back as was there for the children.

I never minded being a landlord, infact I quite enjoy it, I am handy enough at fixing things and thankfully I have never had a month where a unit was empty. Many tenants have stayed with me for along time and nothing major has ever gone wrong, touch wood !!

I am going to ask a very basis question :
What is the big advantage in having a pension or state savings over property (beside the hassle of dealing with property which I don't mind)

Am I correct in saying that If I die, half of the occupational pension will transfer to my OH and then when OH dies, if the children are no longer dependants, the occ pension will cease, is this correct?
And is that the same for the other 2 pensions? Will they also die someday with us?
I am sorry for asking such a basic question and I realise pensions are a minefield, but I am wondering what is the big advantage of having them over property.

Whereas if I focus on the BTL's and make no AVC's to my new occupational pension and forget about the tax relief, am I right in saying that the BTL's will be our pension in 12 yrs time and still be there someday for our children.
I am assuming when they are hopefully paid off someday, I will be paying 52% tax on the rental income, is this correct?

I can see where ye are both saying I am over exposed but I can see the capital coming down every year and the rent is covering the repayments, expenses, and tax bill and we are getting closer to the finishing line, even though it is a good bit away yet.

Yes I will take your advise and consider maybe paying 20k off the PPR, not sure if I will put anymore towards this (as never know what is round the corner) and yes I see where ye are saying its madness to be earning zero on savings and paying 2.99% on PPR.
 

50andOut

Frequent Poster
Messages
59
Hi Ooops

I purposely didn't respond here as BTL's are not something I have any interest in. However until someone else can chime in, I will comment:

I am going to ask a very basis question :
What is the big advantage in having a pension or state savings over property (beside the hassle of dealing with property which I don't mind)
Why have one over the other? The way you have phrased this is the issue - lack of diversification.

If you lose your job or there is a property crash and you A) Cannot generate enough rent to service the loans, and B) are in negative equity so cannot sell to pay off the loans what would you do?

Why do you need 6 properties to fund your pension? Have you actually worked out what expected future expenses you need to fund your retirement?

Pension only dies with you if you buy an annuity - when you retire, if you take out an ARF this becomes part of your estate on death.


Yes I will take your advise and consider maybe paying 20k off the PPR, not sure if I will put anymore towards this (as never know what is round the corner) and yes I see where ye are saying its madness to be earning zero on savings and paying 2.99% on PPR.
You are not taking the advice. you have €110k in savings and 68k PPR Mortgage outstanding. Clearing it in full leaves you with savings of €42k + €1.5k excess savings per month.

Your comment of not knowing what is around the corner is amusing given the complete disregard of the over exposure to property at the cost of everything else

50+O
 

50andOut

Frequent Poster
Messages
59
Look at this simplified scenario and see what you would do:

  • Earn €36-50k per year
  • PPR home Owned - value €350k
  • Have an Inv property value €1.25m with a mortgage of 659k
  • Have €42K savings + addtl €1.5-2k per month
  1. Should I take out a loan at 3% interest for €68k just in case something happens? Of course not.
  2. Should I downsize investment property to reduce the massive exposure and over leverage? Of course I should
  3. Should I start maximising pension to avail of tax breaks and add some diversification away from property? Of course I should
 

50andOut

Frequent Poster
Messages
59
This doesn't factor in the retirement phase - so in 15 or so years what is your desired income at that point?
You have a DB pension + 2x state pension entitlements? + Rental inc + Occupational pension.

It maybe easier to set a desired income target and work backwards looking at the total of combined income streams and try to ensure a balance in the income streams and not an over reliance on 1
 
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