Getting extra retirement income from my home – The Irish Times


I am a single man in his late 50s and would like to ask about using my home equity to make retirement more comfortable. I joined the public service late in the day, five years ago. Even if I will have a pension, obviously it will be much less than if I had made my career in this field. I am in the Single Public Service Pension Scheme, which I find totally incomprehensible.

I worked for almost 20 years in the UK, where I was born, as a teacher, then moved to Ireland in my late thirties. I will be getting a state pension from the UK and I chose to take my teacher’s pension at 55 – yes I said so – because my starting salary in the civil service was not high .

I have worked in Ireland since leaving university 19 years ago. Before the civil service, it was in the private sector, where I just paid the standard PRSI.

My goal is to pay off my mortgage in a few years; the house is probably worth around €300,000. I have no dependents and have no intention of leaving the property to my two horrible siblings who I don’t talk to, or their children.

How can I free up equity from property to make my retirement more comfortable without leaving myself at the mercy of predatory investment companies?

I would also appreciate it if you could explain how getting a UK state pension impacts my state pension here?

Mr. PJ, e-mail

Employment is increasingly mobile, both between the private and public sectors and between different countries. As a result, many people will find themselves in much the same situation as you.

First, the good news. It looks like you’ve been able to steadily accumulate retirement benefits throughout your career. Unfortunately for you, in your 19 years working in the private sector here in Ireland, this has only been the basic state pension, as you have no pension provided for in the private sector.

In addition, your UK teacher’s pension, already well below the maximum available due to your truncated career in the sector, will have been negatively affected by your decision to start withdrawing it at 55.

These are personal decisions that everyone must make based on their current situation. There is no point in living in scarcity to maintain a pension payment that you may or may not benefit from later in life, or that you may not need as much then. In your case, given your low starting salary in the civil service, you chose to collect the teacher’s pension earlier than you could have.

When you retire, you will currently have four different streams of retirement income. First there will be this teacher’s pension, although lowered, and then the pension from your present job in the civil service.

You joined the civil service at the age of 53, so you will only have 12 years to constitute a right to retirement if you decide to retire at the minimum retirement age. However, while Irish civil servants can retire at 65, they are under no obligation to do so. They can continue to work until age 70, which in your case would certainly help increase your retirement income – and the retirement capital you would also be owed.

Those who continue to work beyond the age of 65 are not allowed to withdraw their Irish state pension until retirement, I suppose, but then you will benefit from your salary. You will also get the UK State pension which comes into effect at UK State retirement age – currently 67.

Until 2016, the UK had both a basic state pension and a supplementary state pension, or Serps. This has been replaced by a new public pension scheme. As I understand it, as a teacher and a member of the teachers’ pension scheme, you will have opted out of the additional state pension and this will be reflected in your rights under the new state pension.

At the current rate you’d get £141.85 a week if you were entitled to a full state pension, but as you’ve only worked in the UK for 20 years you’d only get part of it . If I understand correctly you need 35 years of contributions for a full pension – it was 30 years – so you’ll get 20/35ths of the rate, or about £81 a week, or €94.50.

Of course, by the time you retire, those numbers will have increased.

There is nothing stopping you from receiving your UK state pension directly from an Irish bank, despite Brexit. You will need to contact the authorities at the UK’s International Pensions Center four months before your 67th birthday. Paying your UK pensions here has no impact on the Irish state 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. It penalizes people who took career breaks, but works in favor of those, like you, who came here mid-career and worked until retirement. On this basis, you would be entitled to a full state pension of €253.30 per week at current rates.

However, we are moving to a new total contribution approach that requires 40 years of contributions for a full pension — or 2,080 weekly contributions. On this basis, you will receive a pro rata pension as your PRSI contributions will cease once you reach age 66 (although this may change). That would give you 27 years of contributions and a state pension of around €171 at the current rate.

From now on, you are entitled to the most favorable calculation. The intention is to move fully to the total contributions approach, but it was understood that this would have happened before now. You would assume this will shut the door on you before you hit 66, but this is Ireland so nothing is certain.

So you may have more income than you think at this point.

You rightly point out that you declared your retirement as a teacher in Ireland. This is relevant because state pensions are taxable when, when combined or with other income, they exceed any local tax exemption threshold.

Equity release

When it comes to unlocking home equity in or near retirement, the options are limited. You sell all or part of the property to a specialized finance house. Neither is particularly cheap, but given your interest in maximizing your potential income over your lifetime without any intention of leaving assets behind upon death, they might appeal to you. You talk about “predatory investment companies”, but the fact is that no one lends to someone who doesn’t have the ability to repay, except in an unbalanced arrangement that favors the investor.

Seniors Money, trading as Spry Finance, lends money based on the market value of the home. You can borrow a maximum of 15% of this market value at age 60, increasing by one percentage point for each additional year to a maximum of 45% at age 99. So, on the current market value of your home, you could 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 an initial loan and come back later to borrow more, depending on any increase in property value and your additional years.

Interest is added to the loan which, if not repaid sooner, is payable on the sale of the property when you die or vacate it. Although interest can add up alarmingly, the company says your total liability will never exceed the value of the home.

Since it seems like you’re not particularly attracted to your immediate family, using all the equity in the property to improve your standard of living seems like an option worth considering.

The other option is residential reversion. When you continue to own the property with a loan, under residential reversion, you are effectively selling an interest in the property.

In Ireland, the only company offering this service is called Home Plus. And, since he won’t have access to the property for a while, you’ll only get a fraction of the actual value of the stake you’re selling. Home Plus managing director Ian Higgins transparently noted, as an example, that a couple aged 67 and 70 looking to free up 25% of their home’s value would need to sell 72% of the property to his business.

In your case, on today’s values, that would give you an additional $75,000 at a cost of 70% of your home.

The final option would be to find someone outside of either of these two formal structures willing to buy your home while granting you exclusive residency rights until your death. 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 property before your death. You would also want to make sure that any sales agreement has been drawn up very carefully to ensure that your right to live in the property is fully legally protected before you sign anything.

Please send queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or email [email protected]. This column is a reading service and is not intended to replace professional advice


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