Pension viability for basic rate taxpayer

Yorky

I know there's speculation that tax relief will be reduced to the basic rate for all taxpayers.

In the meantime, is it viable to pay in to a private pension as a basic rate taxpayer when it is at best tax deferral and at worst partial tax deferral.

coylemj

I see your point but bear in mind that the capital gains and dividends earned by the pension fund are tax-free i.e. all of the accumulated gains are free of tax so a pension fund will normally do better than an equivalent regular savings fund.

Kennie1

Hi Yorky, this was well discussed in the context of a "approved retirement fund in this post http://www.boards.ie/vbulletin/showthread.php?t=2056099959 However it was never really discussed in the context of annuity (monthly payment for the rest of your life when you retire) so lets begin. Yes it still is a good idea as you said it is defered income that we receive tax relief today at todays rates but may have to pay tax when you retire... so if your are a standard rate tax payer and are funding for an annuity chances are that you will pay little or no tax on your monthly annuity pension payment when you come to retirement also remembering that you get 25% of the overall fund as a tax free lump sum (TFLS) or up to 1.5 times final salary for occ pensions.

The facts that you have to consider if you do not belive in funding for pensions is how you are going to survive on state benefits and the fact that there is a pensions time bomb just beginning to go off at the moment as a result increased life expectancy. This is already being demonstrated, back in '99 the cost of state pension benefits was 1.5 billion but at the end of '08 it had risen to 4.5 billion with over a 100,000 more people receiving pension benefits at the end of '08 than there was in '99 or to put it another way we currently have 5 people working to support 1 retired person (5:1) but over the next 40 years this is expected to increase to a ratio of 2:1 (probably worse than this because of all the youth leaving the country:() and the national pension reserve fund is being used to cover losses in the banks:mad:, there is going to be massive pressure on state finances to provide pensions in the years ahead. This is why there is a proposal for a soft mandatory pension scheme starting in 2014 provided that the then country can afford it:rolleyes:

So the real question is; "how can you afford not to have a pension?" if you don't win the lottery or receive a huge inheritance form a lost relative in the states;)

Yorky

Thanks - that makes sense. Do you agree with the default investment strategy for a PRSA? Someone suggested recently to have all funds in low yield bonds and cash as they're more secure and pension fund managers rarely beat the market.

Is there an option to have an index tracker pension and what are the merits?

Kennie1

Yorky wrote: »

Thanks - that makes sense. Do you agree with the default investment strategy for a PRSA? Someone suggested recently to have all funds in low yield bonds and cash as they're more secure and pension fund managers rarely beat the market.

Is there an option to have an index tracker pension and what are the merits?

For the ordinary joe that does not have much of an interest in markets DIS is the only way to go as it transfers out of higher risk funds into more secure funds over a difined period usually 10 years before retirement on a phased basis. For some one that may be using their pension as an investment vehicle this would not be the way to go so I suppose its different for everyone based on their attuide to risk and what their objectives are

I was just stating that in a other post there 5 min ago, manager rarely beat the index they are tracking but remember that they invest accross a range of different index's not just the FTSE world index as some one would think.

Yes their is most PRSA have this but you need to assess what the "standard diviation" from the index is as the higher it is means that there is intervention from the funds manager so this then is not really a true indexed fund i.e. higher returns when times are good and poorer returns when times are bad or indeed the other way around sometimes as well. Typical managed fund consists of between 60-80% stock, 5-20 bonds, 3-10 property and 3-15% cash depending on the market cycle so you could make up your own managed fund with this % break down and by all accounts you could beat the fund manager if you get the percentage's right