Mortgage holders benefiting from the ECB rate cut could use savings towards putting their pension back on track

Following the ECB rate reduction announced yesterday, Bank of Ireland Life today, 16th January 2009, encourages pension savers to consider topping-up their monthly pension contributions using their new found savings.

For example, a 40 year old who started their pension ten years ago, has seen a fall of about one-third in the value of his pension fund. And the average savings gained by mortgage holders today is €82 per month (based on a €300,000 mortgage over 30 years on a tracker mortgage set at 1% above the ECB rate). This €82* in monthly mortgage savings will allow a pension top-up of €140 after higher rate tax relief has been applied, going towards putting their pension fund back on track.

Bank of Ireland Life says that pension savers who act now will be taking back some control over their financial future. Those who don’t review their pension in light of recent market falls may be disappointed later on when it’s too late to do anything.

*A monthly pension top-up of €140 will cost pension savers paying higher rate tax only €82. The net cost can be reduced by a further 6% in PRSI tax relief if the pension saver is an employee.

Started Pension: 30 yrs
Current Age: 40 yrs
Retirement Age: 65 yrs
Current pension payment (indexed annually to protect against inflation) €591 Net cost of increased pension payment of €140*
(indexed annually to protect against inflation
Projected Retirement Fund at age 65 if no increase in pension contributions €587,662 Estimated Retirement Fund at age 65 after top-up €693,025

Commenting on the pension figure analysis, Stephen Byrne, Pensions Manager, Bank of Ireland Life said; “Rather than rely solely on markets rebounding to their Celtic Tiger highs, Bank of Ireland Life are recommending that pension savers review their pension in light of the savings that yesterday’s ECB rate cut has produced. While history has shown us that markets can make very significant gains following severe falls, pension savers should not rely on this alone.”


Notes to Editors:

Assumptions for worked example:

  • Starting age: 30.5 years (DoB: 01/06/1968)
  • Current age: 40.5 years (DoB: 01/06/1968)
  • Pension premium and annual salary index at 3% per annum.
  • Normal Retirement Age: 65 years
  • Assumes 6% p.a. gross investment growth
  • 1% annual management fee
  • 3% premium charge for premiums > €1,000 per month and 5% premium charge for premiums < €1,000 per month
  • Tax relief is claimed at the higher rate of income tax
  • Legislation/Revenue Rules do not change from now until retirement

Pension Contribution Tax Relief Limits:

Age Percentage of Net Relevant Earnings / Remuneration
Up to 29 years 15%
30 to 39 years 20%
40 to 49 years 25%
50 to 54 years 30%
55 to 59 years 35%
60 and over 40%

The Government has set certain limits on the percentage of earnings on which you can claim tax relief and on the maximum benefits that you may have at retirement. It is important to remember that tax relief is not automatically guaranteed; you must meet the Revenue requirements. Benefits at retirement may be subject to tax.

For further information contact:

Laura Erskine
Public Relations Manager
Bank of Ireland Life
Tel: 01 617 2586
Mob: 086 856 2929

Sharon McDonnell
Group Consumer Communications Manager
Bank of Ireland
Tel: 01 604 3750
Mob: 087 226 9324

Warning: The value of your investment may go down as well as up.

Warning: Past performance is not a reliable guide to future performanceq

The content of this document is for information purposes only and does not constitute an offer or recommendation to buy or sell any investment or to subscribe to any investment management or advisory service.

New Ireland Assurance Company plc trading as Bank of Ireland Life is regulated by the Financial Regulator and is a member of the Bank of Ireland Group.