Dominic Coyle answers your queries

Maximising your pension payout

I am a director employee holding 25 per cent shares in my company and have a separate pension income of around €30,000 from a previous employment.

I opened an executive pension with Bank of Ireland Life in December 1999, with a normal retirement date in March 2011.

Total contributions made up to the end of 2004 were €138,718.74 and yet the value of the fund was only €139,277.40. By the end of last year, contributions of €157,764.81 resulted in a fund value €180,933.99.

Regular premiums during that time were approximately €19,000 each year and the rest (spread across the years) were either employer or employee voluntary payments.

Have I picked the worst possible managed fund or are these figures to be expected over the period in question?

I had three very good years during the period in question and my salary, which I adjust to minimise tax liability and maximise pension - while I'm not actually dependent on the salary - was relatively high. It has been lower since then and as I get older is likely to remain low. My understanding is that:

(a) I can fund my new pension to provide a pension equal to 66 per cent of "final" salary; but also that

(b) any salary achieved for three consecutive years in the last 10 years before retirement will qualify as this "final salary"; and

(c) that there is nothing from a taxation point of view to stop me retiring early if I wish (ie ahead of "normal retirement date" of March 2011).

I find it difficult to extract clear statements from the BoI Life people and would appreciate if you could advise whether my understanding is correct?

I want to avoid an overfunding situation, put the maximum into my pension scheme and draw down the minimum taxable salary (as I'm on 42 per cent tax rate). If you are able to indicate how I could use (a) to calculate what the maximum I can contribute from the employer as an extra lump sum payment each year that would greatly help me.

Mr P.W., Wicklow

Did you pick the worst possible managed fund or are these figures to be expected over the period in question? No. As it happens, you picked one of the best managed funds over that period.

Managed funds, as a group, managed to lose money over the five-year period to the end of 2004 as the technology bubble burst - and that's even before the impact of charges on your balance.

Bank of Ireland was, by some way, the best performer amongst its peers over that timescale largely down to its more cautious approach to technology and biotech stocks.

You are right when you say that you are allowed to fund your pension up to 66 per cent of final salary - but remember that you can also build in provisions to allow a spousal pension or inflation-proof that pension, all of which will cost if you are drawing down an annuity.

In terms of defining final remuneration, the Revenue has definitions that run to more than a page of its pensions manual. It does state quite clearly that there is an option for people to take the "average of the total emoluments for any three or more consecutive years ending not earlier than 10 years before the relevant date".

That would indicate that you could take a start point 12 years before you retire. Now, I should warn you that there is a limiting provision in respect of 20 per cent directors - a position in which you find yourself - and I cannot decipher what precisely its implications are for you.

However, your provider, Bank of Ireland, should certainly be able to assist you given that they are qualified advisers in this specific area. If not, have a chat with the Revenue. You have nothing to hide.

In relation to early retirement, I can see nothing from a taxation point of view to stop you retiring early. The one impact is that your pension fund will have to last you a longer period but that is a matter of budgeting for you.

Nationwide

Our mortgage is with Irish Nationwide. It is in joint names, my husband's being the first name. He has an Irish Nationwide deposit share account which he opened in 1990 containing about €200.

My question is whether it would be a good idea to add my names to the share account, making it the first name, so as to avail of a double payout? We're not greedy but in the past we had great difficulties dealing with Irish Nationwide and a double payout from them would be a lovely way to end our relationship with Michael Fingleton.

Ms C.R., Mayo

I would be very careful about tinkering with the savings account. In any case, I think you might find yourselves qualifying for a double payout when the building society eventually demutualises and sells itself to a larger rival.

The very useful "Frequently Asked Questions" page on the Irish Nationwide website states that Irish Nationwide members could benefit twice over if they qualify as a borrower and as a saver.

The more serious issue for you both is whether your husband's savings account qualifies for a payout. The society has made it clear that only share accounts qualify the holders as members of the mutual. The name of your husband's account is, not unusually, anomalous on this issue - being called a deposit share account.

Essentially, you will need to check with Irish Nationwide that the account does qualify as a share account.

The eligibility rules for savers and borrowers in the event of demutualisation are also different. Borrowers only have to have accounts open on the December 31st prior to the meeting that decides to pursue demutualisation. Savers on the other hand have different financial thresholds, depending on when they opened their account. For some time, that threshold has been €20,000 even though it could have been as low as €200 when your husband first opened his account.

By changing the names on the account, the society might deem it a new account and it would fall outside the eligibility requirements. You would definitely need to check with the society before making any such move. My advice would be to leave things as they are.

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.