Stop pension payments and pay off mortgage instead with payments?

Bens

I am looking for options as to what I do with my pension contributions now that I do not trust that they are safe anymore. If they can be raided once they can be raided again.

So Im trying to work out what I can do to make the most of my money right now. No longer interested in a pension fund as it is now a risk as opposed to a secure invstment.

Confidence is gone in pension fund.

So here are some opitions I have been thinking about.

--First option--

I have 17 years left on my mortgage. €220,000 outstanding.
I currently pay €1000 a month into my pension.
My wife pays €900 into hers.
My employer adds another €350 a month.
Wifes adds another €250 for her.

For 12 years we have been doing this. And the funds are actually worth less than we put in. Well mine is worth a little more but we are talking less than 2% more. Even taking tax relief into account.

So given that the fund cant be touched. The only thing we have to work with are our personal contributions. Total 1900 a month (my 1000 + her 900). If we stop these then take the tax off we end up getting €1100 into our hands more a month instead of the €1900 going into the government bailout fund.

Pay that as extra payments off the mortgage assuming an average rate of about 5% over the next 10 years. That gives us mortgage paid in full in 8 years and saves us €60,000 in interest.

This seems like a good option given that pension funds never perform as you are told they will. And the evidence supports this. I used to work in the pensions industry.

So together with the pension raid by the government, the high charges by the fund managers, the prospect of losing even more tax relief on pensions at the stroke of a pen, and the fact that pension performance already is miserable. Paying down the mortgage looks like a good option. And after thats done we'll see how the landscape is after that.

Note the government can guarantee the bank deposits, but have they moved to guarantee your pension fund value. Not on your nelly. This tells us something very important.


--Second option--

As option one
But instead of paying it off the mortgage (currently a tracker rate of .5% above ECB), we can Save it at about 4.5% instead and pay it off when the tracker rate goes above the savings rate less DIRT.) That way we would stand to save even more than €60,000.

The risk here is a grab on our savings. Or a default and then our savings converting into punts which would make them worthless.

I like this option, but only if we can somehow put our savings out of the governments reach. We will even emigrate to the UK to do this. There are plenty of jobs to suit us over there, so it would be easy. The only thing holding us here now are the house and family. But the house is in a very rentable area and the rent would easily cover the mortgage and then some, even after tax on the rental income.


--Third option--

Do nothing and keep pensions and mortgage payments as they are. You must be joking.

---

So I think option two, but need to go now and find out how to protect our savings from the government. We cant protect our current pension funds, but we can certainly make sure we dont put anything else where the government can get their hands on it.

I did vote for the current pr!cks and I must apologize for that.

Pensions will be compulsory in 2014 - something Hanafin did but postponed the implementation of for some reason.......sneaky

ei.sdraob

Deleted User wrote: »

Pensions will be compulsory in 2014 - something Hanafin did but postponed the implementation of for some reason.......sneaky

Heard about that mentioned in parallel thread.

What is the minimum amount that will be required?
How will the low paid afford to pay into one?

I think as seen from the OP people are now waking up to the fact that the government might get more ideas and dip into their savings and investments, and our banking system is a mess. More importantly being prudent is punished while being reckless is rewarded. Oh moral hazard where are thou!

ei.sdraob

ei.sdraob wrote: »

Heard about that mentioned in parallel thread.

What is the minimum amount that will be required?
How will the low paid afford to pay into one?

I think as seen from the OP people are now waking up to the fact that the government might get more ideas and dip into their savings and investments, and our banking system is a mess. More importantly being prudent is punished while being reckless is rewarded. Oh moral hazard where are thou!

we havent even hit the worst of it yet
Japan took 7 years from peak for non performing loans to bring down the banking system - we have a 2nd banking crisis coming between 2012 and 2014.
We are borrowing so much that we will have huge interest payments on the national debt - a straight jacket on economic policy really.

When the time comes all bets are off on what they will do or say they are being forced to do. Pensions are no longer safe forget them - savings could be cut or temporarily frozen (for years) or a portion frozen or some mix of all.

Its possible that if Europe play hardball they may tell us to pay for the second mess with our savings before they lend us anymore. If we keep borrowing now we will have no options left.

We are penning ourselves into a very dangerous corner.

ei.sdraob

I think Ireland will end-up worse of than Japan
1) they are deep in debt but its mostly owed to Japanese themselves, here the money is owed externally
2) different work ethic and attitude to work

ei.sdraob

ei.sdraob wrote: »

I think Ireland will end-up worse of than Japan
1) they are deep in debt but its mostly owed to Japanese themselves, here the money is owed externally
2) different work ethic and attitude to work

3) industrial & technological giant

Bens

Deleted User wrote: »

Pensions will be compulsory in 2014 - something Hanafin did but postponed the implementation of for some reason.......sneaky

I dont mind that. My company already contributes to mine whether I do or not. I wish I could get that in salary instead though now too though.

Bens

ei.sdraob wrote: »

I think as seen from the OP people are now waking up to the fact that the government might get more ideas and dip into their savings and investments, and our banking system is a mess. More importantly being prudent is punished while being reckless is rewarded. Oh moral hazard where are thou!

Very true. Even if I were guaranteed a return on my pension I would not believe there will be anything left in it when I retire. I did up until last week think paying into a pension is a good thing. I wont spend it, but I will find a way to squirrel it away abroad.

I think my next step, after we stop our pension payments is to find out how to get our savings out of the grasp of the government here. We are seriously thinking of moving abroad anyway, even though our jobs are secure here and there wouldnt be problems getting jobs even if we did get made redundant.

BeardyFunzo

Where would you find a rate of 4.5% at the moment?

Otherwise I think one important factor is your age. If you are in your thirties you won't be retiring until your mid seventies the way things are going.
You would have to wonder why anyone under forty has a pension at all.

Paying off the mortgage makes the most sense. Option 2 is the most efficient use of your money if you can get that rate.

Bens

BeardyFunzo wrote: »

Where would you find a rate of 4.5% at the moment?

Otherwise I think one important factor is your age. If you are in your thirties you won't be retiring until your mid seventies the way things are going.
You would have to wonder why anyone under forty has a pension at all.

Paying off the mortgage makes the most sense. Option 2 is the most efficient use of your money if you can get that rate.

Im 37. Wife is 36. So a few years to go yet.
You can get 4.5% less DIRT of course from BOI. Buts its Irish, so thats out.

The main thing is that it should safe and out of reach of the Irish raiders. So its important I look hard.

Even if I got 0.5% above ECB on savings after taxes, I would use that as long as the Irish government could never get at it. If I cant get that then i'll just pay the mortgage down.

ei.sdraob

http://www.statesavings.ie/products/Pages/NationalSolidarityBond.aspx

if anyone does trust the state, then above seems like a good deal and no need to bother with banks (the banks and the state are now the same thing anyways)

on the other hand if one doesn't well then its not the end of the world, there are plenty of banks out there which be only to happy to provide banking services and not muck about like the local banks do

dan_d

What will pay for you when you retire?

I understand your anger, believe me I really do.

But the idea that a pension fund is a nice little pot of money to be used at will is ridiculous. Having said that, when you see how the Gov speak about the NPRF (to be used on a rainy day, as far as I can see), it's hardly surprising this is the attitude most people have towards their pensions.

I've read your plans and sure, pay off your mortgage if you want. But remember, you can never buy back your pension.Especially if your employer is contributing too.

Bens

dan_d wrote: »

What will pay for you when you retire?

I understand your anger, believe me I really do.

But the idea that a pension fund is a nice little pot of money to be used at will is ridiculous. Having said that, when you see how the Gov speak about the NPRF (to be used on a rainy day, as far as I can see), it's hardly surprising this is the attitude most people have towards their pensions.

I've read your plans and sure, pay off your mortgage if you want. But remember, you can never buy back your pension.Especially if your employer is contributing too.

I know what you are saying. I never planned to stop paying into my pension fund. Thats why I paid near the max into it since I was about 25. I was planning and providing for my old age. That is now a plan which could backfire on me. I still plan to plan for my retirement - but with my funds out of the reach of the Irish government.

I dont want to buy it back now. Im not convinced it will even be there.
My employer will still be contributing even if im not. But I dont trust that to be there either when I retire.

Pensions were a special case. You would have thought they would be untouchable.
Its now a security issue. Pension funds are not secure anymore. No funds are secure now in Ireland. Nothing is untouchable anymore.

To plan for the future you need stability. Thats gone with the pension raid.
I dont care what the "potential" return on pensions are. It could be zero by the time I retire.

Now any planning I have for the future will be in funds I can get at should the landscape change. They will be far from where the government can get their hands on it too.

Im still in the process of finding out where they cant get at it. Im not convinced simply putting savings in a foreign account is enough. I may have to emigrate to protect my savings and my future. I'll see if I can bring the current pension funds with us too.

Im not the only one. 3 other people asked about stopping their AVCs at work on Friday. I bet tomorrow the whole company will. My wife said the talk is the same in her company.

johnnyskeleton

Deleted User wrote: »

Pensions will be compulsory in 2014 - something Hanafin did but postponed the implementation of for some reason.......sneaky

I would imagine there are constitutional and EU legal difficulties with such a proposal.

Pensions are just another form of savings, except they are tax free and can't be tapped midway through. But what if you need the money now on expectation of greater income later on? Or what if you are self employed and get paid very little one year and get paid almost two years' salary the following year?

Welease

johnnyskeleton wrote: »

I would imagine there are constitutional and EU legal difficulties with such a proposal.

Pensions are just another form of savings, except they are tax free and can't be tapped midway through. But what if you need the money now on expectation of greater income later on? Or what if you are self employed and get paid very little one year and get paid almost two years' salary the following year?

I doubt there would be much difficulty depending on how it's implemented.. Anyone paying PRSI already has to contribute to a pension fund (contributory OAP).. there would be little to stop this being extended either by % (to increase the fund), or by who is required to pay PRSI..

My concern is that if it gets treated like the NPRF, and gets raided anytime (everytime) we need to bailout the "elite"..

Edit - forgot to respond to the OP

The pension fund is just a manner of providing for the future, you need (as everyone does) to look at the pros/cons and decide what option works the best based on your risk levels and plans..Pensions are not now bad.. they still have tax benefits that can outweigh other investments. I wouldn't necessarily run a mile to other methods where gains are taxed directly (and far more than .6% for 4 years)
For some that is putting money into a pension and letting someone else manage it, for some it was/is buying property and selling that at a later stage, for some its buying stock/shares/gold, and for some it's backing a nag.. all are legitimate ways of providing for your future.. and depending on the choices you make, so will be more profitable than others..

coffee_cake

Bens wrote: »

I know what you are saying. I never planned to stop paying into my pension fund. Thats why I paid near the max into it since I was about 25. I was planning and providing for my old age. That is now a plan which could backfire on me. I still plan to plan for my retirement - but with my funds out of the reach of the Irish government.

I dont want to buy it back now. Im not convinced it will even be there.
My employer will still be contributing even if im not. But I dont trust that to be there either when I retire.

Pensions were a special case. You would have thought they would be untouchable.
Its now a security issue. Pension funds are not secure anymore. No funds are secure now in Ireland. Nothing is untouchable anymore.

To plan for the future you need stability. Thats gone with the pension raid.
I dont care what the "potential" return on pensions are. It could be zero by the time I retire.

Now any planning I have for the future will be in funds I can get at should the landscape change. They will be far from where the government can get their hands on it too.

Im still in the process of finding out where they cant get at it. Im not convinced simply putting savings in a foreign account is enough. I may have to emigrate to protect my savings and my future. I'll see if I can bring the current pension funds with us too.

Im not the only one. 3 other people asked about stopping their AVCs at work on Friday. I bet tomorrow the whole company will. My wife said the talk is the same in her company.

Bens, pension investments are not risk free. You must have been warned of this. They are not iron clad guaranteed returns. The fact that you are still young means it may recover. I'm surprised you are calling them so "secure".

Bens

bluewolf wrote: »

Bens, pension investments are not risk free. You must have been warned of this. They are not iron clad guaranteed returns. The fact that you are still young means it may recover. I'm surprised you are calling them so "secure".

This I know. I could and have modified the allocation to reduce the risk to the fund depending on the economic landscape. What I didnt know/expect was that the government could go in and take a slice of the full fund whether it was performing or not, no matter what I did. Its a slippery slope and im getting off the slope.

douglashyde

The dipping into the pensions fund could be challenged yet by courts.

Opening a foreign bank account would be one way safeguarding savings and money for future.

Outside the EU = more secure, however if it's in a UK bank I think your pretty safe.

Another option is putting your money in a Fund outside Ireland. However you need to keep in mind your employers contributions.

I'm just finishing up in College and have to decide what I should do about my pension as my will be employer will match my contributions up to a certain amount.

Would anyone have any advice if this is good or not?

Also will the levy effect money as it's going in? Or is it just .6% of the balance each year?

Welease

douglashyde wrote: »

Opening a foreign bank account would be one way safeguarding savings and money for future.

Outside the EU = more secure, however if it's in a UK bank I think your pretty safe.

Another option is putting your money in a Fund outside Ireland. However you need to keep in mind your employers contributions.

I think people need to be careful here...

Bank accounts are not equivalent to traditional pension funds.. (I'm not saying one is better or worse, but people need to understand the difference)..

With a bank account you money will sit idle, and earn a minimum interest rate..
With a pension your money should (not will!).. should.. earn a much bigger interest level as you are paying someone to manage and make investments on your behalf over a 40 (or whatever) year period. But to get the best return, you do need to manage the person managing your fund, and move funds as your requirements dictate..

It's your future.. so take the time and talk to an expert before committing your future to one decision or another...

jetfiremuck

My advice to the op is to save 6 months in an emergency fund. Keep whats in your pension now and Id pay that mortgage down as fast as possible. I dont trust tbe Gov in anything they say or do and that includes all parties. Retirement accounts are ripe targets that have cash for the Gov. The only tangible asset is your house with the deed. That is an asset.Pensions are for the future and in my opinion retirement age will be raised going forward for everyone where youll have to pay in longer or face a penalty.Also tax deferred benefits are subject to change etc. The property backlog will get resolved in time and property will rise with inflation. ECB Interest rates will go up to control inflation and we as a country will have no recourse.

Bens

jetfiremuck wrote: »

My advice to the op is to save 6 months in an emergency fund. Keep whats in your pension now and Id pay that mortgage down as fast as possible. I dont trust tbe Gov in anything they say or do and that includes all parties. Retirement accounts are ripe targets that have cash for the Gov. The only tangible asset is your house with the deed. That is an asset.Pensions are for the future and in my opinion retirement age will be raised going forward for everyone where youll have to pay in longer or face a penalty.Also tax deferred benefits are subject to change etc. The property backlog will get resolved in time and property will rise with inflation. ECB Interest rates will go up to control inflation and we as a country will have no recourse.

We've already got our emergency fund. But its better earning the interest it already is for now than paying off the mortgage with it.
This we can move and spread around when we find a safe home for it, so not worried about it yet. It will soon be beyond the government.

To be honest we've lost any hope for the pension fund. We know we cant touch it, but what we can do is make sure no more of our money gets stuck in it. It might or might not be there when we retire. My money is on it not being there or seriously depleted, due to government robberies yet to take place. The landscape has definitely changed on pensions.

Bullseye1

I can see alot of people getting no benefit from their pensions. People are going to be working into their seventies. I'd wonder if the old age pension will even be around.

Jayminato

I really dont get your negativity..

Your getting an investment in excess of €1350 per month including employers contribution into a fund that grows tax free and gives you in excess of 40% tax relief. This is still one of the best deals in town.

With regard to pension fund performance, have you any idea how well they have performed since April 2009???

Why dont you look at fund performance over the previous 30 year period and you may be pleasantly surprised how pension funds have performed.

You are on here bragging about your options and what you and the missus may or may not do with your money and there are people struggling to pay their gas bills..

I suppose your diamond shoes maybe too tight too. Seriously get a grip and stop moaning about a levy of €600 on every €100,000 in your pension fund.

tenchi-fan

In my opinion, your private pension fund is not safe. It might be relatively tax efficient but the risk is too high. The government may nationalise it and "invest" it in green energy and broadband for rural areas.

However, the government will make sure you pay every last penny to the banks regardless of how high the banks hike variable rates and if you get into difficulty paying your mortgage you will be unable to draw money from your pension to help with payments.

jetfiremuck

tenchi-fan wrote: »

In my opinion, your private pension fund is not safe. It might be relatively tax efficient but the risk is too high. The government may nationalise it and "invest" it in green energy and broadband for rural areas.

However, the government will make sure you pay every last penny to the banks regardless of how high the banks hike variable rates and if you get into difficulty paying your mortgage you will be unable to draw money from your pension to help with payments.

Does anyone get the fact that the Gov never do without. Whatever they need money wise they get.


You are correct 100%. remember deposits before DIRT. Who saw the Universal service charge coming ditto for pensions clawback. The people who purchased
green cars for low road tax wait until those rates go up. Depending on future growth in private pensions is like saying past performance is a better yardstick for future growth. Dont believe it. There are penalties etc for early withdrawls from pensions + all the tax due, what then... You still have a mortgage at God knows what interest rate

sceptre

Moved to Banking & Insurance & Pensions - the Irish Economy forum is for discussion of the Irish economy and aspects of it while personal enquiries are far more at home in the B&I&P forum or Investments & Markets forum.

Bens

Just an update.
Stopped our pension contributions. Only the employer contributions going in now. If they dont go to the pensions we dont get them so not much point trying to stop them.

I also found out its impossible to get your money back before you retire, unless you emigrate. Then you can move your fund. We may yet do this.

We're on a tracker rate so, I went into the bank this week to talk to the manager. I told her that I would if they gave us 10% on top of each overpayment we make, then we would divert our current pension payments into the mortgage. This would be about €2000 a month extra off the mortgage, so I asked for credit of €2200 every time we paid €2000.
Mortgage would be paid off faster and they wouldnt lose out on the tracker rate we have, because they are surely losing out on it now.

She didnt seem impressed, but would ask her area manager. She is to get back to me this week. Worth a shot.

Jim2007

Bens wrote: »

Just an update.
Stopped our pension contributions. Only the employer contributions going in now. If they dont go to the pensions we dont get them so not much point trying to stop them.

I also found out its impossible to get your money back before you retire, unless you emigrate. Then you can move your fund. We may yet do this.

We're on a tracker rate so, I went into the bank this week to talk to the manager. I told her that I would if they gave us 10% on top of each overpayment we make, then we would divert our current pension payments into the mortgage. This would be about €2000 a month extra off the mortgage, so I asked for credit of €2200 every time we paid €2000.
Mortgage would be paid off faster and they wouldnt lose out on the tracker rate we have, because they are surely losing out on it now.

She didnt seem impressed, but would ask her area manager. She is to get back to me this week. Worth a shot.

I consider this a very high risk strategy! You are now more or less staking everything on a single asset, in single asset class, an asset that in the current circumstances is very difficult to value. In addition you seem to have failed to consider the introduction of wealth tax as is common in most Euro zone countries.

Good luck,

Jim.

Bens

Jim2007 wrote: »

I consider this a very high risk strategy! You are now more or less staking everything on a single asset, in single asset class, an asset that in the current circumstances is very difficult to value. In addition you seem to have failed to consider the introduction of wealth tax as is common in most Euro zone countries.

Good luck,

Jim.

The whole pension thing has changed now.

The biggest risk now is that the government comes in to help itself to my money that I have saved in my pension whenever they feel like it and there is none left when I retire.

I will not put anymore money into their hands. I will now pay my mortgage off quickly and then invest myself with the money left over every month after the mortgage has been paid. Even tracking the indexes would do much better than what the fund managers have already done.

I called the bank again today to see if they had no answer. Nobody called me back.

Bens

Some more news today.
I got a call from the area manager of the bank.
First he tried to get me to start a pension with the bank, but I made it clear what I wanted.

They are going for my offer. I think he had already decided before, but chanced his arm to try to sell a pension to me.

They are adding 10% to each of our payments if we overpay by €2000 a month.
I didnt think they would go for it after nobody called back yesterday. Excellent news.

To make up the €2000, we have to add to what we arent paying into the pensions anymore since no tax relief, but I prefer this than putting the money into pensions out of our control and into the grubby hands of the government.

It was Ulster Bank (formerly First Active) if anyone is interested in trying this themselves.

Jim2007

BeardyFunzo wrote: »

You would have to wonder why anyone under forty has a pension at all.

Two reasons actually, first the longer the period the better the chance of achieving reasonable returns and second compound interest, the 8th wonder of the world as Einstein says.

It is almost 30 years ago since myself and a friend of mine started contributing to our pension funds, not because we were particularly enlightened about it, but because it is the law here in Switzerland. On top of that we packed all we could in the personal retirement savings accounts with a view to retirement at 55. During the same period we have seen the tax relief reduced to a quarter, we've had two government levies and we've lost about 12% because the fund was under funded and had to be restructured, And we've seen the gains written off twice due to market conditions, most recently the current economic conditions has seen us loose the gains of the last 10 years. My friend retired at the end of March at the ripe old age of 50 on a pension of about about €30,000pa plus a state pension of of about €15K which will start on his 65th birthday and I'll be doing the same in a few years time.

The main reason this worked out is because we started so early, there was sufficient time for our investments to recover and in the good times the compounding ensured that we made substantial gains.

The later you start the less chance you have of being able to recover a misfortune and of course the more expensive it will be since you will not be able to take advantage of compounding in the short term.

BeardyFunzo wrote: »

Paying off the mortgage makes the most sense. Option 2 is the most efficient use of your money if you can get that rate.

It's about the same as putting all your cash in say BOI shares and hoping they will rise in the next view years! I know that sounds crazy but consider this, there is no real market for either so it is difficult to determine value, there is no real reason for either to rise in the short term at least and even if the over all economy does well, you still may loose because you are betting on a single asset in a single asset class.

Every time there is a financial crises we here the same cry 'this time it's different', but it is not! Our tools for handling this have not changed:
- You can't entirely avoid financial risk, but you can substantially reduce the risk by diversification
- Make time your friend, meaning have plenty of it so your investments have time to recover
- Pay attention to your asset allocation because it will be the major contributor to performance over time, ensure that it is appropriate for your stage in life
- Trade lightly and stay invested

This is the strategy I've followed for the past 30 years through good and bad times and I see no reason to change now.

Jim.