starting up a pension at 49 what to watch out for.

[coleen]

Hi,
I am employed and pay prsi but do not have any prsa. As well as my wages I have rental income and my liability is €3500 to be paid by Nov 15th. My accountant says I should consider a deposit pension as my income is 34,000 that I could contribute 9,000 euro and that my 3,500 would go against this. This means that I must have 5,500 to pay in. I do try to contribute 300 to AIB on line savings .
We are jointly assesed and I am paying tax at 41%. I know if I contribute I will not have access to the pension until 60 and if I did not do it I just pay the 3,500 libility and if I can keep saving my 300- 400 monthly I have access any time I wanted.
What pitfalls do I need to watch out for ? If I pay it this year and cant afford it next year what happens? Can you decide to pay different amounts every year? If I die having paid in for 5 years will it go to my family ? When you are 60 do you get a lump sum or a montly payment.
Should I go direct to a company or what ?
Any other advice. We do have a property which is currently rented out for 1,600 monthly so that is the income I had hoped to have but this would be an extra. The only fear I have is that I might need the money and wont be able to withdraw ?

 

[donee]

Pension salesmen seriously though ask what the fees are, charged over the lifetime of the plan. RTE did a progamme with George Lee ( whom my father-in-law thinks is a genious BTW i dont know why) a couple of weeks ago, which should still be avaiable on their RTE Player. while im sure its not definitive im sure will give you some good pointers.

 

[ClubMan]

By "deposit pension" do you mean one that puts most or all of the money in cash/deposits rather than some higher risk/reward assets such as equities/index trackers etc.? If it was me with a c. 10 year pension savings timeframe I would consider putting at least some of it into something higher risk/reward. But there's no easy answer to that...

Many (most?) pension products these days allow you to contribute or not as you see fit or your circumstances change - you are normally not "locked into" making contributions all of the time.

Look out for charges - initial setup charges, bid-offer spread, other per contribution charges and annual management fee etc. As a rule of thumb you should probably aim for something that has a 0% bid offer spread and a c. 1% annual management fee and no other charges. If you can do better well and good.

Charges are important but not the be all and end all. Look also at investment options, customer service etc.

These are just general points but what is appropriate really depends on your specific circumstances and needs. My own experience is as a PAYE worker having pension savings/investments. What's appropriate for or available to somebody who is self employed or has non PAYE income may be different.

I'm sure that others here can give you some feedback and advice.

If you are employed then your employer MUST have an occupational pension scheme or else a (nominated) PRSA provider as far as I know. But just because an employer has a nominated PRSA provider doesn't necessarily mean it's a no brainer to go with them.

 

[coleen]

still checking it out so thanks for the pointers

 

[T McGibney]

As well as my wages I have rental income and my liability is €3500 to be paid by Nov 15th. My accountant says I should consider a deposit pension as my income is 34,000 that I could contribute 9,000 euro and that my 3,500 would go against this. This means that I must have 5,500 to pay in.

Sounds very iffy to me. Pension contributions do not attract tax relief against rental income. A pension contribution of €9000 against a total income of €34,000 sounds disproportionate, and I reckon it will only attract 20% tax relief, or €1,800, not €3,500. Is your accountant trying to sell you a pension?

 

[Baracuda]

I tend to agree with T McG if your total income is 34K inc rental income. Furter more if your income is inc rental you would only be able to contribute c. €6500 rather than the €9000 that your accountant suggested. Only part of your contribution would get 41% tax relief with more of only getting 20%

Did you ask what the likely tax treatment of the pension would be at retirement? This is a very important issue as if you were going to taxed at the higher rate on the proceeds of the pension all what you would be doing (to a certain extent) would be kicking the tax liability 16 years down the road.

Take professional advice on this from a pensions advisor rather than an accountant.

 

[LDFerguson]

Did you ask what the likely tax treatment of the pension would be at retirement? This is a very important issue as if you were going to taxed at the higher rate on the proceeds of the pension all what you would be doing (to a certain extent) would be kicking the tax liability 16 years down the road.

This is very good advice. In retirement, your tax position will be based on your State Pension, your spouse's State Pension, your rental income and any private or work-related pensions that you or your spouse may have. (I accept that not all of these may apply to you when you retire.)

So look at the tax position at both ends - now and in retirement.

My accountant says I should consider a deposit pension...

Did your accountant discuss the various options that are available before recommending this? A deposit pension fund is one choice from a wide range available. I'm not criticising the deposit pension route - it's a perfectly valid choice to fit some people's requirements. But I'm checking to see did the accountant make sure it's suitable for yours.

 

[coleen]

Just to correct a few of my figures. My income from work is 34,000 spouse is 44.500 and our rental income is 9960 and our tax liability is 3,349 We are jointly assesed so our profit from letting is 4,940 each.
My accountant is not trying to sell me a pension but has told me it may be worth my while. My husband is paying in to a pension and I will be intitled to state contrubitory pension and hopefully we will still have the rental income to subsitise my state pension. But I was wondering would it be worth my while at this late stage to go the pension route and what are the pitfallls to watch out for I am trying to gather as much info as I can before getting advice so I can ask the right questions and of course I have left this until the last minute as it must be sorted by Tue 15th
Thanks for advice so far

 

[mmclo]

This business of watch the tax on the way out is a bit puzzling. If you retired today you'd only pay higher rate tax on income above the srcop and also get credits, this could be up to 40k.

This would be a pension pot of 800k, now if your expecting this fairplay! And if you are in this category you only pay the higher rate of that proprtion of your income above 40k.

I would think this is not a huge amount of people and will hardly apply to somebody starting at 49?

 

[Baracuda]

This business of watch the tax on the way out is a bit puzzling. If you retired today you'd only pay higher rate tax on income above the srcop and also get credits, this could be up to 40k.QUOTE]Pension advisors should look at the bigger picture and take into account what other income sources that a person may have in retirement.

A lot of people bought property, shares and so on, this will produce an income after mortgage is paid if they have one. Perhaps a person has a UK pension or pension from a previous employment(s), a person may aquire a number of property's before retirement through inherritance or may indeed buy a number of property's before retirement.

You also need to consider how a person would take retirement benefits as well. There is now a lot more people able to avail of ARF options so if they sadisfy the income requirements they maybe able to take their entire fund subject to tax at their marginal rate.

So its only prudent to look at the likely tax treatment of a pension investor as their earned income might be well under the tax thresholds but unearned income maybe very substanial.