Am I making TOO MANY AVCs? - 27 Y with 10% employer, compulsory 6.375% employee, and 8.625% AVC

[brigid48]

Good morning Irishpersonalfinance,

Am I making too many AVCs?

Context:

1. My employer has mandatory pension scheme after 6 months, I joined and had 1st payslip today.
2. I am 27-years old and thus fall into

 

[thesandlapper]

@brigid48 The fact you have a compulsory contribution would indicate to me that it is an occupational pension scheme.

As such your employer contribution doesn't count and you're not over contributing.

 

[brigid48]

@thesandlapper Thanks syc0pat,

Appreciate the help and prompt response, enjoy your Wednesday.

 

[vickyh]

@brigid48 Employer contributions don't count towards the 15% limit you're paying, you have it maxed out which is a good thing assuming you can afford it

 

[brigid48]

@vickyh Thanks voyager2406,

I can see my error, Revenue probably don't even see how much the employer is contributing. I was looking at a High Taxable pay and wondering why it was 15% instead of 25%, then I remembered that the 10% from employer is only coming into the pot and not the payslip.

I can afford it, I've been budgeting quite well since the start of Covid and with the current state of bank interest rates I'm trying to get as many AVCs in as I can.

Appreciate the prompt response too, have a good Wednesday!

 

[baptist1611]

@brigid48

Employer contributions don't count towards the 15% limit you're paying

Uh, the employer contributions can count towards the 15%. Depending on the type of account.

PRSA's for example:

The employer's contributions are treated the same as the employee's for tax relief purposes. For example, an employee aged 29 contributes 5% of their earnings to a PRSA and the employer contributes a further 10%, the employee is treated as making a total contribution of 15%.

https://www.citizensinformation.ie/...ons/personal_retirement_savings_accounts.html

So what you want to do is find out what type of pension is this, and your pension provider should be able to state this clearly.

 

[gez77]

@baptist1611 The employers contribution only counts if they are contributing to a PRSA, not if they're paying into a Occupational Pension scheme, no?

 

[baptist1611]

@gez77 Yeah that's my understanding so you just need to ask which you have.

 

[brigid48]

@baptist1611 Hi the_one_jt,

I do indeed have an Occupational Pension type account, and not a PRSA.

 

[baptist1611]

@brigid48 Then you are all set for the max tax relief.

As the other person mentioned arguably there may be better investments after the compulsory amount. IMO that's not really true with tax relief but it does sort of depend on the pension fee's and luck in your other investments. Some argue save the money and then get a house. A house is also is an investment and could wind up being a mistake. AVC's provide immediate benefits, with very little downside.

 

[vickyh]

@baptist1611 Thanks for the correction wrt account type!

 

[hermit76]

@brigid48 AVC's don't guarantee a satisfactory return. I'm retired and fortunately enjoying the fruits of a solid pension scheme. I'd recommend that you get to know the stock market and buy into a monthly investment newsletter (e. g. small company Share watch ) or the "investors chronicle" and research the firm's you are interested in. Buying shares through Irish stockbroking firm's is VERY expensive so check out " revolute". This will be an enjoyable, higher risk journey that will educate and reward you in the longer term.

 

[hazelnutoc]

@hermit76 Very bad advice for a number of reasons.

Revolut charge pretty high fees if you make more than three transactions a month IIRC.

Secondly, trying to stock pick yourself is notoriously difficult and damn near impossible to consistently outperform indexes such as the S & P 500. It has even been shown that in most cases fund managers whose full time job is actively investing can't even beat the market. So your average Joe is going to be even less able to do so.

And finally, with the tax advantages of investing the money in your pension, you are going to need to consistently achieve a return of 66.7 % just to stand still on your investment when compared to investing in a pension (i.e. if you invest €10k in your pension, the net cost to you is €6k. If you were to invest €6k in the stock market, the net cost to you is €6k. So in order to increase the value of your investment to 10k, you would need a achieve a 4k profit, a return of 66.7% to put you in the same position as if you had invested the money in your pension. So a massive, impossible return is required to just stand still.

 

[brigid48]

@hermit76 Thanks TheJitters,

However, I'm not interested in the stock market at the moment.

I'm saving for mortgage deposit, so trying to keep assets liquid for next 1-2 years. The pension is a safer long term bet and I'd been following flowchart sticky on this Reddit to maximize the AVCs.

It's in my post-mortgage plan to invest as it is something I would like to learn, but I've very little bandwidth at moment to get involved.