I am a single man in my late 50’s and would like to ask about using equity in my home to make retirement more comfortable. I came to the Civil Administration late in the day, five years ago. Although I will receive a pension, this will of course be much less than if I had spent my career in this field. I am part of the exclusive pension system, which I think is completely incomprehensible.
I worked for almost 20 years in the UK, where I was born, as a teacher, and then moved to Ireland in my late 30s. I’ll be getting a state pension from the UK and I chose to withdraw my teacher’s pension at 55 – yes, I have declared this – because my starting salary in the public administration was not good.
I have been working in Ireland since I left university here 19 years ago. Before the state administration, this was in the private sector, where I just paid the standard PRSI.
I aim to pay off my mortgage in a couple of years; the house is probably worth about 300,000 €. I have no relatives and have no intention of handing over the property to my two horrible siblings I do not talk to, or their children.
How can I free up equity in the property to make my pension more comfortable without leaving myself at the mercy of predatory investment companies?
I would also be grateful if you could explain how it affects my state pension here to get a state pension in the UK?
– Mr PJ, email
Employment is constantly more mobile – both between the private and public sectors and between different countries. As a result, there are many people who will end up in about the same position as you.
First, the good news. It seems that you have managed to build up some retirement benefits consistently throughout your career. Unfortunately for you, during your 19 years working in the private sector here in Ireland, these only amounted to the basic state pension because you did not make any pension provision from the private sector.
In addition, your UK teacher’s pension, which is already well below the maximum available due to your shortened career in the sector, will have been adversely affected by your decision to start reducing it at 55.
These are personal decisions that everyone must make based on their circumstances at the time. There is no point in living in need to maintain a pension payment that you may or may not be able to live to enjoy later in life, or may not need as much at that time. In your case, given your low starting salary in the central government, you chose to take out the teacher’s pension earlier than you might have.
When you retire, you will currently have four different parts of your pension income. First there will be this, albeit reduced, teacher pension, then the pension from your current salaried employment.
You came to the job as a 53-year-old, so you only have 12 years to build up a pension right if you decide to retire at the minimum retirement age. But even though Irish officials can retire at 65, there is nothing to force them to do so. They can continue to work until they are 70, which in your case would certainly help to increase your pension income – and the lump sum that you would also receive.
Those who continue to work after 65 are not allowed to take out their Irish state pension until they retire, I understand, but then you will receive the benefit of your salary. You will also have the benefit of the UK government pension starting at the UK government retirement age – currently 67.
Until 2016, the UK had both a basic state pension and an extra state pension, or Serps. This has now been replaced by a new state pension system. I understand that you as a teacher and member of the teacher’s pension will have been contracted from the supplementary pension and this will be reflected in your right to the new general pension.
At today’s rate, you would receive £ 141.85 a week if you were entitled to a full state pension, but since you worked in the UK for only 20 years, you would only receive part of it. As I understand it, you need 35 years of contributions for a full pension – it used to be 30 – so you get 20/35 parts of the tax rate, or about 81 pounds a week, or 94.50 €.
Of course, when you retire, these numbers will have risen.
Despite Brexit, there is nothing stopping you from getting your UK government pension directly from an Irish bank. You must contact the UK International Retirement Center authorities four months before your 67th birthday. Having your UK pensions paid to you here has no effect on the Irish State’s pension as they can both be assessed separately.
Then there is the Irish State pension. Again, this can get complicated. Under current rules, the pension is calculated on the basis of your PRSI payments during your working life in Ireland. This punishes people who took career breaks but who work for the benefit of those, like you, who came here in the middle of their careers and worked from then until retirement. On that basis, you would be entitled to a full state pension of € 253.30 per week at current prices.
However, we are moving to a new total contribution method that requires 40 years of contributions for full pension – or 2,080 weekly contributions. On that basis, you will receive a proportional pension as your PRSI contributions cease when you turn 66 (although this is subject to change). It would give you 27 years of fees and a state pension of about 171 euros at current rates.
From now on, you are entitled to the calculation that is most advantageous. The intention is to go fully against the total subsidy strategy, but it was thought that this would have happened earlier. You would assume that it will close the door for you before you reach 66 but this is Ireland, so nothing is certain.
So you may have more income than you think at that stage.
You rightly emphasize that you have declared your teacher’s pension in Ireland. This is relevant because state pensions are taxable where they, combined or together with other income, exceed any local tax-free threshold.
When it comes to releasing home equity in or near retirement, there are limited options. You either sell all or part of the property to a specialized finance house. Neither is particularly good value, but given your interest in maximizing your potential income during your lifetime with no intention of leaving assets behind you at death, they may appeal. You are referring to a “predatory investment company” but the fact is that no one lends to anyone who has no ability to make repayments except during a skewed arrangement that benefits the investor.
Seniors Money, which is traded as Spry Finance, lends money against the market value of the home. You can borrow a maximum of 15 percent of the market value at age 60, which increases by one percentage point for each additional year to a maximum of 45 percent at age 99. So, based on the current market value of your home, you can borrow around € 66,000 at age 67, or € 75,000 at age 70.
Obviously, the actual figure will be determined by the market value of your home at the time you go to borrow.
You can take out a first loan and return at a later age to borrow more, based on any increase in property value and your increased years.
Interest is added to the loan, which, if not repaid earlier, is based on the sale of the property when you die or leave it. Although interest rates can be alarming, the company says that your total debt will never exceed the value of the home.
As it seems that you are not particularly taken by your immediate family, this seems to be an option that would be worth considering using all the capital in the property to improve your standard of living.
The second option is housing decline. If you continue to own the property with a loan, during a home decline, you are in practice selling a share in the property.
In Ireland, the only company offering this service is called Home Plus. And since it will not have access to the property for a while, you will only get a fraction of the fair value of the stake you are selling. Home Plus CEO Ian Higgins openly noted, as an example, that a couple aged 67 and 70 who want to free up 25 percent of the value of their home must sell 72 percent of the property to his company.
In your case, with today’s values, it would give you an additional € 75,000 at a cost of 70 percent of your home.
The last option would be to find someone outside of either of these two formal structures who is willing to buy your home and at the same time give you an exclusive right of residence in it until you die. Since this would inevitably be a real estate investor, I expect that even if you could find such a person, the value they would pay would reflect the fact that they would not have access to the property until you die. You would also want to make sure that all purchase agreements were very carefully drafted to ensure that your right to live in the property was legally fully protected before you signed anything.
Send your questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice
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