Should we pay off mortgage or invest in AVCs?
The important thing here is that the amount you save in tax relief will exceed the cost of servicing your home loan. So, unless, you have strong personal reasons to clear the home loan, I would suggest you focus instead on the pension side of things.
AVCs are a form of defined contribution scheme, where your eventual pension pot is determined by the investment performance of the money you invest and it is true that pension investment performance has been nothing to write home about in the past 10 or even 15 years.
However, that has been an extraordinary period for pension investment, with two collapses in stock markets, a property crash and global recession.
There is never any guarantee on investment performance – some commentators consider stocks are still overvalued – but the industry will be hoping for better returns over the next decade if they are to persuade people to invest for the long term. So, do you opt to invest in your pension or your husband’s?
It is certainly the case that the longer the investment term, the greater the benefit of smoothing – i.e. evening out the impact of short-term investment volatility.
However, a more crucial consideration is your likely financial position when your husband retires. Will there be sufficient income at that stage to live as you would choose? Does any occupational scheme of which he is a member make provision for a spousal pension after he dies? This is important given that he will be around 80 when you retire.
What sort of pension will your own occupational scheme or existing pension arrangement provide?
These are all considerations you need to address before locking in your money for 13, or even 25 years. Of course it is always possible to put some of your accumulated savings in AVCs for each of you.
Naturally, the risk profile of any investment would be affected by the investment term.If you are going to proceed with a lump sum investment in AVCs – or investment of smaller lump sums over a couple of years to maximise relief – you should certainly get some independent professional pension advice from a broker – and by independent I mean not one attached to your bank or assurance company.
Finally, there is a lot of talk about changes to pensions in tomorrow’s budget. Some change is certainly on the cards, but it is not likely to impact on most ordinary workers.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.