No it isn't too late, there is only so much you will be able to add but whatever you can add will be beneficial. It may not have as much time to grow but that doesn't mean you shouldn't do it. Even a small additional contribution from you should improve your pension pot.My question is, is it too late at this stage of my life to start making some serious contributions to this pension fund?
Yes it would be. It is better in terms of savings because the government effectively contributes to your pot too. So if you were to maximise your contributions to the 30% of your income, you would add €12,000 pa and the government would lower your tax bill by €2400 so the cost to you would actually be €9600. It isn't a small amount to consider but it might be worth sitting down with your partner and seeing what your goals are and what ye can reasonably achieve. Working down from a maximum rather than working up from a minimum is probably a better strategy for you.Would it be advisable, even at this late stage to try and fund it as much as I can?
No it isn't too late, there is only so much you will be able to add but whatever you can add will be beneficial. It may not have as much time to grow but that doesn't mean you shouldn't do it. Even a small additional contribution from you should improve your pension pot.
Yes it would be. It is better in terms of savings because the government effectively contributes to your pot too. So if you were to maximise your contributions to the 30% of your income, you would add €12,000 pa and the government would lower your tax bill by €2400 so the cost to you would actually be €9600. It isn't a small amount to consider but it might be worth sitting down with your partner and seeing what your goals are and what ye can reasonably achieve. Working down from a maximum rather than working up from a minimum is probably a better strategy for you.
Once ye have done that and have a clear picture in your minds about what ye can do and what ye want to achieve, I would also suggest it might be worth having a sit down chat with a (preferably independent) financial adviser. It would also be worth looking at what your current pension pot is invested in and determining whether it is the best investment for you and also what sort of end point you want to target for your pension (Cash/Annuity/ARF) - the sort of end point you want will be important in terms of planning your pension, especially in the last 7-10 years working. I am going to guess you are probably in whatever the default strategy is, that may well be the best option for you but it is worth examining it in detail firstly by yourself and then with an advisor and being sure.
It is also a good idea to have a look at the resources and information on this website https://www.pensionsauthority.ie/en/
Just to add, I am making an assumption that you are in a defined contribution pension. Is this correct?
Hi, thanks so much for the reply(and to the other contributors.
Yes its a defined contribution pension.
I havent paid to much attention to it to be honest as mortgage etc took priority. However my circumstances have changed in the last two year. We have paid the mortgage off early and I have received some inheritance very recently too so have a healthy sum of cash(for us at least) sitting on deposit in various accounts until I decide what to do with it.
I think I will max out the pension from here on in for the time being and see how i go with it. It will reduce my take home pay significantly but it is more than affordable with the lump sum we have.
I am meeting with my financial advisor next Monday morning to discuss the pension and he is also aware of the money i have inherited so I will talk to him about that too as its doing little or nothing at the moment. I have no experience whatsoever in the stock market so am a little nervous to start going down that route but I need to do something with it to stop it depreciating over time.
I am sure the advisor will know best but, it may be worth considering using that inheritance (or some of it at least) as contribution to your pension, you would still get the tax benefit but you wouldn't have to take the pension contribution out of your salary. Obviously that would mean it would be tied up in your pension so you would lose immediate access to it.
The likelihood is you are already invested in stocks via your pension and generally most people do not invest directly in stocks, but rather buy units in funds that do so. Understanding that risk and working out how comfortable you are with it is where the advisor will hopefully be most helpful. Before making any decisions it would be good to tease out your feelings about risk.
Just remember that as interest rates are so low at present, keeping that money on deposit means that its value is depleting (inflation outstrips any interest paid, and that interest is also taxed!). There is risk whichever path you choose.
There are limits to what you can put into your pension each year if you want to get tax relief.
You can make larger contributions but you won’t get tax relief and then you have to remember that you will be taxed on the way out of the pension so may not make sense to do that.
Hi @adox
You only get tax relief on contributions from your "net relevant earnings" (essentially your wages). In your case, that's capped at €12k per annum (30% of €40k).
If I was in your situation, I think I would do something like the following:-
I'm sure your financial adviser will have plenty of other suggestions. Just make sure you understand the fee structure/commission arrangements on whatever products are suggested.
- I would contribute a lump sum of €10k to your pension for 2018 (you can do this at any time before the end of October 2019) and increase your ongoing pension contributions to €1,000 per month (from your wages). I would invest all pension contributions in a global equity (stock) fund.
- I would keep ~€50k on deposit (an instant access savings account) and would buy ~€50k worth of 5-year State savings certificates from An Post.
- That leaves you with around ~€190k. Assuming you don't want/need to upgrade your home, I would be seriously tempted to buy an investment property (perhaps a small apartment) in your wife's name. It's certainly not a risk-free option but, all going well, you could be looking at an additional income of around €12k per annum, with minimal (if any) income tax.
- If the idea of becoming a landlord fills you with dread, you could look at an investment trust with a high dividend yield (something like City of London Investment Trust Plc) but ultimately that's a stock market play and I'm conscious that you are nervous about going down that road.
You should also consider whether you have sufficient life assurance & income protection for your circumstances. Also, it makes sense to write a will (if you haven't done so already) and put enduring powers of attorney in place.
Hope that helps.
Pretty much. But if you didn't use your maximum allowable last year, you can make a small lump sum before October to use last year's allowance (you'll have to do a tax reclaim for it).then the only way to avail of the tax relief is to fund this through your wage? Any lump sum contributions wouldn’t quality for tax relief?
Virtually impossible in OPs circumstances since last month.you should talk with the financial adviser about your pension fund buying the investment property
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