Q: I am due a pay rise at work in the summer. My manager has confirmed that I will get a 10pc rise. I am 48, and we have a small mortgage and some savings. I want to use this extra cash wisely. At the moment, our household budget works well, so I don’t just want this extra cash assimilated into that and spent on things that are not needed. I am thinking of putting a little extra into my pension. I already contribute 5pc into my work pension scheme and my employer matches it. But I don’t really want my employer to know that I am putting the pay rise into my pension. Is there any way around this?
A: Essentially, what you are looking to do is make some additional voluntary contributions (AVCs) to your pension.
This is a financially savvy move, according to the chief executive of the Irish Association of Pension Funds Jerry Moriarty.
You are not currently using the maximum contribution tax relief available to you (25pc of your salary), so further contributions will prove tax-efficient. Your predicament around your employer is understandable.
However, the only way around this is to set up your own personal retirement savings account (PRSA) AVC.
The upsides are privacy and greater investment options, and flexibility.
But the downside is that you will likely be paying higher charges than those in your group scheme.
Before you can make a fully informed decision, you should check whether or not your employer would match higher contributions.
As many now do so, you would miss out on those if you went down the PRSA route. You also won’t get tax relief directly through a PRSA, as the contributions won’t be deducted via the payroll system. You should take financial advice, Mr Moriarty said.
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