Age 61, 20% tax payer, 40% pension contributions

Daddy Ireland

I have 52k spare that I wont need up to age 65 when I retire. My pension pot is currently 220k all in cash. I earn 36k and contribute just 1,200 p.a and employer contributes 6k.
With no interest to be got is it worth it for me to pay in 40% of my salary to my pension over the next 4 years and draw on my savings as a substitute for lost net income. Thanks for any thoughts on this.

homer911

Yes, you can withdraw a quarter of your pension pot tax free at retirement, up to 800k (200k)
https://www.pensionsauthority.ie/en/lifecycle/tax/tax_on_lump_sums_at_retirement/

Daddy Ireland

Thanks. But does it make financial sense to do it.

The J Stands for Jay

Daddy Ireland wrote: »

Thanks. But does it make financial sense to do it.

That depends

Do you have other funds you could access in case of a financial emergency before you're 65?

If you pay it into the pension now, Revenue will give you 40% of it back in tax relief (assuming your contributions are under the limit). You'll get back ¼ of it (+/- growth/losses) tax free (assuming your total lump sum is less than 200k). The balance will have tax, prsi and USC deducted. If the deductions work out less than the tax relief you got, then it will be worthwhile (assuming the difference is greater than you could've earned investing outside the pension in the meantime). The deductions will likely be less, as they are only on ¼ of the amount, and you may have better tax credits and cut offs then than you do now (depending am age and circumstances). You'll probably need to crunch the tax numbers to get yourself the answer to this part.

Browney7

OP, what do you plan on investing the remainder in after age 65? I'm just curious why you are 100% cash - if you planned on taking an annuity at retirement, a lifestyle fund option would have you going to long bonds by now and if you plan to go the ARF route, are you going to remain in cash?

Is there any overtime available to you in current role - that way you could benefit from the 40% relief. If you will be paying tax at 20% on drawdown after retirement due to having other incomes, it may not make huge sense to max out contributions only getting 20% relief.

endacl

You can avoid a certain amount of tax by asking your employer to up your contributions at source, and pay yourself the income difference each year from your savings fund. At 61, you could be directing 40% of your income into your pension.

Edit! On closer reading of your OP, yeah... exactly what you said...

Another option might be a 5 year state savings bond. Do the maths. Would you end up with more with the interest earned, or the tax saved?

Daddy Ireland

McGaggs wrote: »

That depends

Do you have other funds you could access in case of a financial emergency before you're 65?

If you pay it into the pension now, Revenue will give you 40% of it back in tax relief (assuming your contributions are under the limit). You'll get back ¼ of it (+/- growth/losses) tax free (assuming your total lump sum is less than 200k). The balance will have tax, prsi and USC deducted. If the deductions work out less than the tax relief you got, then it will be worthwhile (assuming the difference is greater than you could've earned investing outside the pension in the meantime). The deductions will likely be less, as they are only on ¼ of the amount, and you may have better tax credits and cut offs then than you do now (depending am age and circumstances). You'll probably need to crunch the tax numbers to get yourself the answer to this part.

Yes I have other funds about 25k.
Revenue will only give me 20% relief as not earning enough.

Daddy Ireland

Browney7 wrote: »

OP, what do you plan on investing the remainder in after age 65? I'm just curious why you are 100% cash - if you planned on taking an annuity at retirement, a lifestyle fund option would have you going to long bonds by now and if you plan to go the ARF route, are you going to remain in cash?

Is there any overtime available to you in current role - that way you could benefit from the 40% relief. If you will be paying tax at 20% on drawdown after retirement due to having other incomes, it may not make huge sense to max out contributions only getting 20% relief.

Plan to invest in ARF/AMRF at 65 probably a risk rating 2 e.g Zurich Life Prisms. Am 100% in cash because I am happy to live with no return between now and then and take out 25% then. Couldn't live with volatility of last year.
Not taking an annuity. No overtime available.

Daddy Ireland

endacl wrote: »

You can avoid a certain amount of tax by asking your employer to up your contributions at source, and pay yourself the income difference each year from your savings fund. At 61, you could be directing 40% of your income into your pension.

Edit! On closer reading of your OP, yeah... exactly what you said...

Another option might be a 5 year state savings bond. Do the maths. Would you end up with more with the interest earned, or the tax saved?

Sorry, don't understand what you mean by Edit comment. Not sure how asking employer will help me.
Will do the maths on interest earned v tax saved.

CIARAN_BOYLE

If you dont get 40% relief I'd consider other investment options instead of a pension. I would definitely invest somewhere other than case.

The J Stands for Jay

Daddy Ireland wrote: »

Yes I have other funds about 25k.
Revenue will only give me 20% relief as not earning enough.

Not worth it on 20% tax