Q&A

I started a new job six months ago. When I signed my contract, I was asked if I had a company pension with my previous employer and I said no as the only pension I had was one I had set up myself and was contributing to monthly for the last three years.

Pensions

One of the benefits of my new employer is a non-contributory defined-benefit pension. Recently somebody has told me I can only have one pension scheme. Is this true? If it is true, can I ask my employer to contribute to my private pension instead of the company one, as I don't think I will be with my current employer when I become pensionable!

Mr F.T., email

It is no longer true that you can have only one pension scheme although that was the case until fairly recently.

The nub of the matter is tax relief. Tax relief on pension contributions is about the most generous relief still available under the Irish tax code, with the Government granting relief at people's marginal rate of taxation.

That can mean that every pound you pay into a pension is worth up to 42 per cent more than if you had to contribute solely on the basis of after-tax earnings. Not bad, although, as you would expect, there are upper limits on the amount you can pay into a pension for tax relief purposes.

Anyway, as part of the rules to ensure that people don't benefit twice over, there has been until recently a prohibition on continuing to operate a personal pension while being a member of an occupational scheme.

The changed nature of the modern workforce and the problems created by a series of pensions scattered across a career was one of the driving forces behind recent pensions reforms.

Apart from the lowering of the bar on eligibility for occupational schemes (vesting) to two years' employment from five, the Government also introduced Personal Retirement Savings Accounts (PRSAs) to address the modern realities of employment, including periods out of the workforce.

However, these have yet to prove their worth and, in any case, they are unlikely to share the benefit of occupational schemes where employers contribute to the scheme.

The good news from your point of view is that it is also no longer the case that you have to close or freeze your personal pension scheme when joining an occupational scheme.

What you can do is continue paying into your personal pension and take up the offer of membership of your current employer's non-contributory defined-benefit scheme.

However, there is one catch and that is that while you do both you will be unable to claim tax relief on the payments to your personal pension.

This is a price worth paying for someone in the scenario you outline.

The purpose of the clause, I gather, was to take account of the more mobile workforce. People who took out personal pension plans, in which commissions and charges were front-loaded (disproportionately paid in the early years of the scheme) found they had practically nothing left of their contributions when they were forced to freeze or close the plan as they joined an occupational scheme.

As the Government is looking to encourage personal pension provision this was seen as counterproductive, hence the new option.

The change, introduced by the Minister for Finance in last year's Budget - the one that he announced in December 2002 - is especially worthwhile for you as your current employer is offering a defined-benefit scheme and is not asking for any contributions. This is a threatened species these days and if you find one, you should hold on to it with both hands.

As you say, you may not stay long with this employer but circumstances change and you just might.

Property

I have just moved into my first new house and luckily enough have just received the cheque for the sought-after first-time buyers' grant. At 27, I'm single with no dependants and would consider now as a good time for me to make some financial moves.

I had purchased off plans the four-bedroomed semi-detached house last year in Dublin in a good area for 280,000; they are now selling at 380,000. I would think the house could be worth more as it is now fully furnished. My question is at this stage, three monthly mortgage instalments later, could I start looking out for another property or is it too early?

Also considering the equity now on the house, would it be possible to raise an amount of money which I could use as a deposit for another house? I wouldn't have an extraordinary amount of cash in the bank, but luckily enough my job is secure and perks such as company car, phone, and laptop minimise a lot of my outgoings. This had worked to my advantage when initially qualifying for the first house.

P.S., Dublin

You don't want to stand still, do you? While there is still a lot of enthusiasm for investing in property, it is important to remember the risks. This is especially so in a case like yours where, notwithstanding the substantial rise in the value of your home, you are still looking at paying out on a mortgage of something up to €250,000.

Just as with stocks, it is very important to remember that historical performance is no guide to the future. This is true also in the case of housing, where we do have the added advantage of having influencing factors that are more clearly visible.

After a spell when house prices have risen so dramatically, no commentator is expecting anything other than a slowdown in the rate of growth and many see the prospect of a housing bust as the key threat to our current well-being.

For someone in your position, I would suggest it is too early to start thinking about moving yet. In the first place, you would probably be facing a bill for repayment of any stamp duty which, as a first-time buyer, you secured relief on. That relief, however, is dependent on you keeping the property as your principal private residence for five years.

On your second proposition, using the equity already built up in the property to leverage funds for the purchase of an additional property, I think you will find that the banks share my sense of caution.

While their essential guide is your ability to repay any loan that they might advance, they will almost certainly want to see a track record of more than three months before lending on a second property, especially as you concede you have little in the way of savings.

Property ownership can be very satisfying but overexposing yourself financially could turn that into a nightmare.

By all means try, if you wish, but I would advise you to slow down a bit, get a couple of years repayments on to your credit record and then, if you choose, look again.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.