Show me where the value is in a lifetime of contributing to a private pension?

ashambles said:
Is there an Irish company currently offering 4.5% for a relatively healthy person?

The Irish life calculator annuity calculator for a single male 65 is showing 3.6%. (A 65 year old pensioner gets their money back by the age of 92.)

If you'd like inflation linked, and a second person, then you're already today looking at under 2% annuities.

I'd be happy with restricting fund choice to safe or ideally guaranteed funds - over forcing people into annuities at rates less than 5%.

Put it this way, forget about pensions, if you'd 100k in cash at 65 would you give it someone who'll dribble it back to you at 3.6% - and hope you live past 92 and still be in a position to care about your annuity?

Back when annuities were 7-9% you did have people opting to convert savings into annuities. Outside the captive pension market, no one now is buying annuities.
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Apologies, my fat finger is to blame. You are correct, the rate for a male at age 65 is c3.5%.
I fully agree, most people coming out of DC arrangements are now going for ARFs. But it also needs to be borne in mind that many (most?) such pensioners tend to be “risk adverse” and in the current climate that results in low (or very low) returns. When you factor in 4% and 5% drawdown, that means the ARF value will be decreasing over time and the 4% or 5% amount will be a reducing income. If one tries to maintain the income at a flat rate, then that will likely accelerate the reducing value of the ARF.
So if might come down to going the Annuity route (a safe, if low, guaranteed income for life) or an ARF which offers flexibility but also involves investment risk and perhaps the prospect of a gradually reducing income.
Not easy.
 
Saavy99 said:
Yeah but needs must, I have no doubt to believe that at some stage the 25% tax free element will go. I read there's already rumblings if it in the UK, we normally follow them..
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That's dreadful carry on. People are sensible all their lives and pay into a pension pot believing they will get a 25% tax free lump sum that they may be counting on to pay down mortgage/fund a property purchase in Spain and you get to doing this sensible thing for 40 years and 2 years before you retire you're told it's no longer possible.

That's one of the main reasons I don't like pensions. Because governements can, and do change the rules.
 
NoRegretsCoyote said:
Governments change the rules about all sorts of investments, all the time.

Uncertainty is part of life.
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Which is why some of us remember when a few years back Michael Noonon raided Irish pensions. Made me think that there was no way I'd go for an AVC and that the best bet was to only contribute the amount that got the tax benefit and that got the employer contribution.

You shouldn't have governement uncertainty into the mix. Not on something as important as pensions.
 
Bronte said:
Which is why some of us remember when a few years back Michael Noonon raided Irish pensions. Made me think that there was no way I'd go for an AVC and that the best bet was to only contribute the amount that got the tax benefit and that got the employer contribution.

You shouldn't have governement uncertainty into the mix. Not on something as important as pensions.
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You are contridicting yourself here. The only way to maximize the available tax benefit is to use AVCs.

It is a fact of life that the tax law may change in the future. No country has ever guaranteed no future change to the law or tax policy.
Its a pretty poor arguement for not using the tax benefits currently available when contributing to a pension.

We have no evidence that the government will change this , soon or in the future. Its all speculation.

The reason why they are unlikely to in the near term is that the two major political parties in Ireland are scared of doing anything to piss off middle age middle class people , their core vote
 
NoRegretsCoyote said:
That's not plausible.

The ptsb/ESRI index showed growth of 240% 1996-2005, and the CSO index which started in 2005 shows prices more or less at the same level in 2019 as 2005. The biggest growth according to that index 1996-2005 was in Dublin, by 298% or about a factor of four, but no increase since then according to the CSO.

Unless you made serious renovations, there isn't a house that increased at double the rate of the market over the period.
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I purchased in early ninties for around IEP 40K. Now worth 220/250 Euro. (not Dublin). Was worth a lot more during the madness of the Celtic Tiger when I should have sold ! But I did sell one to a builder who has now gone bust. I don't see the capital value going up and down as I have seen as being relevant to the question as all that matters if that your rental income (or you) can pay the mortgage.
 
NoRegretsCoyote said:
@LS400 made a claim of 700% growth 1995 to date

You are claiming max 400% growth and over a longer period.

You're not contradicting me, if indeed you were trying to.
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I was not at all trying to contradict you. I was pointing out my experience. And if I'd done the same message on here around 2005 the growth would have been phenomenal. I also saw phenomenal price reductions when the Tiger bust. That’s why timing your exit is all important. Mostly that you exit at a time of your choosing and not in a recession.
 
ashambles said:
The Irish life calculator annuity calculator for a single male 65 is showing 3.6%. (A 65 year old pensioner gets their money back by the age of 92.)
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According to the CSO only 13% of men aged 65 (in 2011) will make it to 92. So you could argue that 87% men would lose by getting an annuity or that its a measure of what people are willing to pay to remove risk.

CSO
 
mcauleyej said:
According to the CSO only 13% of men aged 65 (in 2011) will make it to 92. So you could argue that 87% men would lose by getting an annuity or that its a measure of what people are willing to pay to remove risk.

CSO
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The health profile of someone with a pension fund is likely a bit better than the average, so a longer life expectancy, but basically you're right.
 
Sarenco said:
Even if the (now capped) 25% tax-free lump sum was abolished in the morning, pension vehicles would still be the most tax-efficient way of saving for retirement.
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@Sarenco I’m not sure that I agree with your maths especially if someone is hoping to retire early. I’d be interested in your thoughts.

Assuming that the 25% tax-free lump sum is abolished and/or maxed out.

I see a clear benefit of putting money into a pension where you get tax relief at the high level (currently 40%) and will only pay the lower level tax (currently 20%) when you take it out or if your employer matches your pension contribution.

However, where you expect to pay the same tax rate now and when you drawdown your pension (either 20% or 40%) then the decision is a lot less clear. This is because while your pension contributions are PAYE free, you pay PRSI and USC on this income when you earn it and again when you draw it down as your pension. This currently can be anything from 6.5% to 12.5% on top of PAYE depending on your income if you hope to retire early. If you are planning to work until the standard retirement age then PRSI should be 0% and USC a max of 2% (after 70).

If you put the money into your mortgage you only pay these once, if you put it into a fund you pay 42% tax on your gains and if into stocks there’s CGT and PAYE on dividends. I think the key here is that you pay PAYE, PRSI and USC on your full pension earnings but other taxes only on your gains/dividends. There are also other rules that apply to pension draw-downs that don’t apply to savings and visa versa.
 
mcauleyej said:
@Sarenco I see a clear benefit of putting money into a pension where you get tax relief at the high level (currently 40%) and will only pay the lower level tax (currently 20%) when you take it out or if your employer matches your pension contribution.
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I think this is the key point to all of this. I also think that a majority of people will pay tax at a lower rate in retirement than they do while earning.

Take an example of an unmarried individual who pays tax at the higher rate while working. At retirement, s/he can earn €35,300 per year and remain on the 20% tax rate. Let's assume s/he qualifies for the State Contributory Pension of around €13,000 per year. So scope for a private pension of €22,000 per year at the lower rate of tax. Assuming a 4% drawdown from an ARF, that suggests an ARF size of €550,000. Plus €63,500 into an AMRF makes €613,500 of a fund after the lump sum, or €818,000 of a fund before the lump sum.

So an individual paying tax at 40% while earning can accumulate a pension fund of over €800,000 and will be taxed at the low rate on 75% of the fund after the lump sum.

If this individual is married and their spouse has no pension or a smaller pension pot, there's more scope for them to accumulate more than €800,000 and still stay on the low rate of tax.

Liam D. Ferguson
www.ferga.com
 
At the moment (under the current tax regime) -

A married couple, both in receipt of contributory State pension, one party has pension fund of €800,000. TFC €200K, 4% from ARF €24,000, State pensions €24,481.60, effective tax rate on €48,481.60 is less than 10%.

If the pension fund was €400K - rest of details the same - the effective tax rate would be 1%.

I think we're forgetting how tax efficient it is to be > 65 in this Country.
 
20 years ago every pound you put into a pension cost you around 45p after tax relief. Now as there's no relief on PRSI on USC every euro you put in costs you almost 60c. That easy-to-forget decision to not provide relief on PRSI and USC is significant and has reduced the attractiveness of pensions.

Some one now starting a pension is comparing outcomes such as having:-

(a)
600k saved up outside a pension with 100% flexibility to use when and how you want and no income tax on access.

(b)
With tax relief instead 1000k in a pension with restrictions when and how you access it, fees on that access, annuity rates that may make no economic sense, there will be income tax, you've to fight Revenue if you want to move the fund abroad, and right now even holding cash in a pension fund costs you around 1-2% a year. On top of that you've to worry about arbitrary government levies and changes midstream to tax reliefs.
 
LD, the majority of private pensioners will be paying tax at the lower rate, really?

I don't think so. The fund size you are quoting is on the low side. Most people I know, its a lot more.

Together with the state pension, you would be well into the higher rate tax band.
 
I have a DB pension paying €1500 in to my bank account every month. I have nearly €1000 a month being lodged to my account by way of state pension.

When you get to retirement I would hope that you don't actually need your pensions. You will have put away enough through savings, investments etc to pay for all the luxuries that you can enjoy.
My pensions pay all my bills, including some really nice holidays every year. Being a non smoker and a light drinker helps.
I would suggest that you try and make your monies elsewhere, as I did, and when you receive your pension you just treat it as a bonus that comes in to your bank account every month to pay the bills. I am happy to take these as long as it lasts......because I have earned and paid for them.

It's strange, but when you pass through age 65 you start looking for ways to spend as much as you can rather than trying to accumulate more. I still have my investments but I am happy to spend more now rather than accumulate.
 
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