Max out pension for tax relief or invest in stocks?

Max out your pension. Your pension buys stocks for you. So due to tax relief, a pension allows you to buy stocks at a discount.

I don't disagree with your first and third points, although your third point could be equally applied to capital gains taxes going up.

What's this about gov raiding pension funds though? Wasn't that just for public service worker pensions?

Deleted User wrote: »

Hi there.....

What do you think I should do?

Edit: Am also overpaying my Mortgage and should be mortgage free in 10 years.

Hi,

I think you need to answer the following questions, in order to try and get the best answer to your initial question about what to do with your surplus funds. Otherwise, despite best intentions from people here, they may give the wrong advice because they were not aware of something important in your personal circumstances.

• How secure is your job (is it public / private sector etc.) ?
• Have you any cash put away for an emergency (6-12 months is usually recommended) ?
• Do you have health insurance, life assurance (more important if you have a partner, or other dependents) ?
• Is there any other income coming into the household, aside from your salary ?
• Do you have, or plan to have children (because if you do, then your regular costs are going to increase, you'll need to plan for college fees etc.)
• What's the rate on your mortgage (and is it fixed, standard variable or even a tracker) ?
• Do you happen to have any Capital Gains Losses carried forward from previous investments (in equities, property etc.) ?

Answers to the above, will assist in highlighting whether or not you need to continue to reduce debt ahead of schedule, may need the surplus cash some time in the future before you retire etc.

Hi,

Thanks for the replies.

In light of your responses, I'd increase my pension contributions, to take advantage of the tax breaks.

Tenigate is correct to remind us all of what happened during the recession, when the government dipped into peoples private pension funds. It was an extreme situation that the government found itself in and in real terms, the impact wasn't anything like the benefits that most of us had all enjoyed from the tax breaks when we invested the pension funds in the first place. That's before we also consider the growth that occurred tax free within many of our pension funds, for the years before the government put it's hand in our pockets.

Notwithstanding the potential for capital gains if you invest in equities (and the tax relief of €1,270 per person, per year), there is also a risk of capital loss. Many of the main markets have gone up quite significantly in recent years, so it's debatable as to how much more growth there may be in the principal western equity markets over the next few years. Also, lets not forget, the US has been raising interest rates and plans to increase them further. The UK has made some noises about raising rates later this year, while the EU is showing economic growth so may bring a hault to buying bonds and thereafter, look at raising rates too. Increasing interest rates are generally not good for the equity market, with investors redirecting funds into the Bond market instead (and the longer term impact of rate increases being the increased cost of debt servicing, for many of the businesses quoted on the equity markets, along with potential slowdown in trade as spending slows down).

You seem comfortable in terms of not having to rely on one salary to keep the lights on, and having some emergency cash put away etc. So. liquidity doesn't seem to be a major concern for you at the moment (if it was, then investing in equities that could be sold in an emergency might be the right choice). You may want to slowly increase the amount you have saved though, if you are thinking about having kids at some stage in the future, and when that time comes, you might then want to revisit the amount you are putting into your pension.

Also, I'd look into doing something with that mortgage rate and quickly, if you are in a position to refinance (i.e. not in negative equity). The rate is very high. Some of the banks are offering very competitive rates, some also offer cash incentives to move (but you need to keep an eye on the actual lending rates here and be mindful of any trying to get you into a long term fixed rate - unless it's extremely attractive). You could benefit by reducing monthly outgoings, or perhaps by shortening the term of your homeloan (which could assist with your aspiration to have it repaid in 10 years).

In addition to looking at your mortgage, also look at how much you are paying for your Mortgage Protection Policy, to cover your mortgage. If you reduce the rate of your homeloan, or shorten the term of the loan, you may well be paying too much for your MPP premiums. Furthermore, premiums rates have reduced over the last 5-10 years, so MPPs are significantly more competitive now than they once were. Stay away from the Banks when getting quotes, the likes of Low.ie often have far cheaper rates on offer (and I've no connection here, just in case you are wondering )

Just my 2 cents worth.

Best of luck whatever you decide to do