Deemed disposal does not apply to pensions. Pensions are allowed to grow tax free.

Hiya apologies for the delay. As far as I know deemed disposal for ETFs still apply in a pension but it’s just managed by the fund itself.

Hiya, yes definitely if you can get a pension that performs well and has low fees then it can outperform an ETF portfolio outside of a pension. That said, the vast majority of people including clients of mine, are not in these pensions. There is so little financial education and hands on approach to managing a pension in the every day world. I’d actually be very surprised if the only fee you are paying is the 0.3% – this is likely the fund management charge only, there are likely other hidden fees like annual management charge (for operating the pension), commissions (which can be up to 50% for the first 2 years of contributions), bid/spread offer (when you actually sell/withdraw), allocation rates etc. All of these combined can completely negate any tax deferral savings and they are very good at hiding them. You also have the disadvantages of a pension too in terms of restrictions on access age, potential levies being applied by government (as they did previously) and other limitations/complications once you actually go to withdraw (there are added fees there too to convert to an ARF or annuity). For me, it’s very hard to buy into a pension given all of these issues but they can definitely make sense for many people.

> what would happen if the pension account made the average return it has made from 2015 to 2017 of 6.3%?

I see this now. However, I still think this deserves a post of its own. Thanks

The math here is loosely based on a pension fund returning 2.9% with “high management fees” and an Investment Portfolio returning 6.75%.

I believe pensions have changes a lot since 2012 (wow, almost 10 years ago), and I think that a modern pension scheme will definitely outperform an Investment Portfolio. Here is why:

– Pension Schemes have access to passive ETFs – that is, the pension returns can match (before fees) that of an Investment Portfolio. If you were to match the return rates in your spreadsheet, how would that change the picture?
– “High management fees” are not that high anymore – my pension fund of choice (a passive all world ETF that tracks the FTSE All World Index) has an Annual Management Charge of 0.3%. This means that my pension will lag the above Investment Portfolio by 0.3% only. This is a substantial difference to the figures used above (where pension return halved).

Do you think we could get a “Pensions vs. Investments Revisited” post to see how the math holds up? Thanks

Hi Shane, Thanks for reaching out. What I wrote in that post is wrong, I need to update it 🙂 I have since learned a bit more about it and documented my latest understanding here. https://mrsmoneyhacker.com/how-to-file-taxes-for-etfs-in-ireland/. Your understanding is correct, though the growth you pay tax on is only the growth from year 1 to 8 on the ETFS you bought in year 1, not the growth of all ETFS bought between year 1 and 8 if you get me.

Hi Megan,

As mentioned above, great write-up!

On this point however, you mention – “You are only charged on the gains from year 1 in year 8 and the gains from year 2 in year 9 …”. I find this conflicts with my current understanding after reading documentation elsewhere on the web.

My understanding was that you pay the accumulation of all growth that occurred from years 1 to 8 when you reach year 8, assuming you have not sold off your position.

Then, when you eventually sell off your position – say after 20 years, you are taxed 41% of the total gains made minus any deemed disposal taxes you had paid during your holding.

Would like to hear your take on this 🙂

Thanks Again!

Hi Eoin, Thanks! Funny you should ask. I actually just launched a member’s area with access to all my templates. Due to the amount of time it took to build it, I have put it behind a paywall but there are a decent set of tools in there to help with your analysis to help you find your own path to financial independence. You can see screenshots and such here before deciding. https://mrsmoneyhacker.com/member-area/

Also yes, the analysis includes the 8 year deemed disposal. You are not double taxed. You are only charged on the gains from year 1 in year 8 and the gains from year 2 in year 9 for example so you only ever pay the tax once. When you actually sell, the taxes you paid in previous years also act as a credit.

I’m trying to build such a spreadsheet myself at the moment. Any chance you could post it?

For the self invested scenario with ETFs, does the above take into account capital gains tax applied on the ETF after 8 years, then reinvested and taxed again after another 8 years etc.
Or maybe I misunderstand? I’ve been assuming you would be double/triple taxed again at year 16/24?