Jill Kerby

RETIREMENT OPTIONS NEED PROFESSIONAL INPUT

A frequent letter I get from readers is about pensions, and specifically what their options are when the reach retirement age.

This letter, that I received last week from Ms McC was no different:  “Hi Jill, I’ve been reading your column for years and could use some advice. I am single, and worked for the same small company as a bookkeeper for nearly 30 years. I joined the DC pension fund a couple of years later. Before that I worked for two other firms but they didn’t have a pension scheme. Three years ago I gave up work to become my elderly mother’s carer, for which I receive the full carer’s allowance [of €214 per week for someone under age 66]. I was earning about €50,000 when I left.”

“I will turn 65 this month and can collect my occupational pension. Next year I will be 66 and will get my State contributory pension.

“I’ve been in touch with my old company about my pension and at the moment it is worth about €220,000 (which is a pleasant surprise). I was sent out a booklet about what I can do with it, which I lost. But I wasn’t sure what any of it meant anyway. My old boss said the best thing would be for me to take my tax free lump sum and then an annuity, but can you recommend someone I can talk to? I have never had a financial adviser.”

Seeking professional advice is a message I’ve tried to promote at every opportunity over the years and I’m delighted that this reader agreed.

I have suggested that she contact the Society of Financial Planners of Ireland – www.sfpi.ie - to see if there is a SFPI member or practice operating in or near her midlands town and for her to arrange a consultation.

SFPI members are trained to take a holistic approach to a client’s financial position so a comprehensive review would lay out all her options, not just about what she might do with her pension fund, but also what sort of retirement she would like to have and whether it is achievable.

Ideally, you do this much earlier so you can adjust your aspirations, or even increase your funding to have a better chance of meeting them, but it’s never too late to get professional impartial advice especially about annuities.

The other reason Ms McC should deal with a good financial planner is that they can also check out the implications of any income that she may get or draw down from her occupational pension fund on her Carer’s Allowance (CA) which is a means-tested benefit. Currently, to qualify for the €214 weekly benefit, the first €332.50 of any income is disregarded, as is the asset value of their own family home.

From June, depending on what she does with her occupational pension fund, that income if it is high enough, could, theoretically, trigger a means testing of her Carer’s Allowance, according to the Department of Social Protection rules regarding this benefit. 

But an adviser I spoke to said that with such a modest pension fund (especially after she takes her tax free lump sum of €75,000) the balance is unlikely to trigger any means-testing.

“With annuity rates still so low, even a bog standard, single annuity* worth €145k would probably only produce an income of about €5,500 a year,” he explained. “At just €105.70 a week this amount is still well below the means-tested earnings limit (€332.50) for her to qualify for the full CA.”

(*It is the cost of adding a spouse’s pension, a five year payment guarantee and especially an indexing benefit that results in an even lower private annuity income for a new pensioner.)

The other pension fund choice other than buying an annuity that Ms McC will be presented with if she meets the financial planner is to consider keeping her fund under investment in an Approved (Minimum) Retirement Fund. 

Annual growth from the ARMF/ARF and even capital from the ARF can be taken “but a €145,000 investment is unlikely to produce enough income to trigger a cut in the CA payment.”

As this reader’s case show, retirement planning can be complicated, even for people without large pension funds.

She needs to take into account all of the consequences of the post-retirement choices she makes, including the fact that when she does collect her own pension next year there will be one final surprise: you can only receive one state benefit at a time. 

Luckily, a part-exception is made for people claiming Carer’s and Ms McC, is likely to still qualify for the half-Carer’s payment, or €126 (half of €252, the full payment for Carer’s aged 66 and over.)

Together with her state and private pensions Ms McC should end up with an income of about c€474.00 a week.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

FINANCIAL LITERACY IS MORE THAN JUST KNOWING HOW TO COUNT YOUR CHANGE

Why is it that some surveys report that the Irish declare themselves to be among the happiest people in the world, yet we are also come at the bottom others about our ability to handle money appropriately?

Being financially illiterate, most people would agree, can be a big cause of unhappiness, particularly when it results in years of unrelenting debt.

The obvious simplistic answer perhaps is that money really doesn’t equate with happiness and that many of us really to regard it as a necessary evil. Many people, the victims of rapacious governments, incompetent politicians and bureaucrats, of heartless landlords, employers, banks and playground bullies, (“your lunch money or your life”) would certainly agree.

Nevertheless, there’s nothing bucolic about a subsistence existence; just ask someone who lives hand to mouth or from paycheque to paycheque.

The recent Cambridge University/UCL literacy survey that was highlighted last week by the MoneyWhizz adviser Frank Conway, a long-time advocate of personal finance education in Irish schools, found that Ireland came bottom of the 31 participating countries when it came to working out how much change we might be due in a shop, the unit cost of an item, in calculating discounts on items like a season ticket to a sporting event or even in our ability to read a basic performance graph on a personal investment report, like a pension.

The probably reason (as opposed to a visceral dislike of ‘money’) is that most people never learn how to do these things as children or young people. Schools don’t money modules as part of the junior and senior cycle curriculum/exams and there is less emphasis on numeric skills. We all rely more on calculators and digital cash registers than brainpower to work out what things cost and how much change we’re due.

The relentless drive towards a cashless society isn’t helping: debit cards and smartphone apps that effortlessly tap for items worth less than €30 (soon to be €50) means that our acknowledgment of the value we put on what we buy and how much they cost is disappearing. Sub-consciously, tap-to-pay also affirms the retail culture of instant gratification and conspicuous consumption.

The lack of control of discretionary spending, say financial advisers, is not just a huge impediment to your day-to-day financial health, but to the long term wealth creation.

If you think this is an exaggeration, keep track of all those thoughtless, small tapped payments every day for a month and see what piece of essential spending they add up to. Is it your broadband bill, monthly car insurance, grocery bill…the rent?  And will you have to dig out the credit card (at 20% annual interest) a couple of days before payday to fill up the tank on your hire purchase car?

Learning how much change you’re due in a shop, or the unit pricing of an item is a pretty basic math skill. If you have children you can get a refresher course from their maths books.

But true financial literacy is also about having a clear understanding of more subtle features, like how much money you actually need, as opposed to how much you want. It certainly helps to understand the power of compound interest, the magical or destructive effect that time has on money.

The child who automatically saves or invests a percentage of their money/earnings right from the beginning, that provides a decent return above inflation can amass considerable wealth by middle age.

The reverse lesson is just as informative: the interest paid on money borrowed to buy liabilities with no asset value will turn them into a debt slave in no time at all.

The parent that introduces their child to a good deposit account and eventually to low cost investment vehicles, but mostly through their own good spending and borrowing habits, will them with a more valuable gift than any expensive toy or ‘lifestyle’ funded by other people’s money.

Being financially literate isn’t difficult once you know the rules:

-       Earn your money before you spend it.

-       Live within your means. Live below your means during tough times.

-       Be a regular saver, the unofficial motto of the credit union movement. Join one.

-       Do a budget. On one page list your essential spending, on the other, your discretionary spending. Keep the entries on the second page as small as possible.

-       Understand compound interest. A large variable rate mortgage payable from a small, variable income is a weapon of mass destruction.

-       Avoid convenient, expensive credit, another weapon of mass destruction.

Finally, assume the worst of your government whose aim is to extract at least 50% of everything you earn in taxes and levies. The smaller your debts the easier it will be cope with their extra, periodic claims on your income and wealth.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

PRIVATE CANCER SCREENING MAY PROVIDE PEACE OF MIND…AT A COST

How much confidence do you have today in the operation and management of the Irish health service?

Enough to lose weight, drink and eat less (or eat more healthily)? To give up smoking and to take more exercise, be more mindful of your mental health?

Enough to pay more in taxes – or extra, by going private - for more for preventative health interventions that have been proven to improve your health, like inoculations, regular health screenings and checks and timely GP and consultant visits?

Good health comes at a cost; and it’s a lot higher than most of expect.

The recent HSE scandal over the CervicalCheck programme is a reminder that while these ‘free’ cancer screening tests – the others are the breast and bowel cancer screening – have saved many lives, in reality they are both costly to operate and are not infallible. 

The outsourcing of much of the cervical testing to a laboratory in another country on cost grounds in 2008 may prove to be more costly to the State than if they had decided to put resources into local laboratory testing rather than using a Texas based laboratory.

We won’t know for sure exactly what went wrong at the testing end until the current investigation has been completed.  But what we do know is that the highly bureaucratic administration of CervicalCheck has showed how easy things can go wrong on the accountability front, that is when no one takes ownership of mistakes, instead passing them along to someone further down the line.

Lack of proper accountability in state-owned institutions; the regular cover-up of errors or mistakes; the court-led actions that patients and citizens must resort to for redress when something has gone very wrong; is pretty much what happens in every large, highly centralised, politically driven, tax-funded, loss-making organisation, such as a ‘national health service’.

Ireland’s HSE is no different, with its high ratio of administrators to medical personnel and poor accountability record.

(Since 2015, overall employees in the HSE has gone up by 11.5%. but the number of administrators has increased by over 17%. There are just over six administrators to every medical consultant here, compared to just over three to one in the UK, which they consider excessive.)

No extra amount of money pouring into the HSE each year seems to be able to lighten the medical loads of front-line staff, to reduce in-patient waiting times or to produce the same or better patient outcomes when compared to other EU countries with similar budgets.

Good health in Ireland, unless you happen to come from a family with superb genes, is certainly not a given, even if you do try to take care of yourself and you avail of every ‘free’ service going.

As every responsible GP and health practitioner has stated in the last few weeks, anyone invited for a cervical, breast or bowel screening should still attend their appointment. Even the cervical misdiagnosis victim and whistleblower Vicky Phelan has urged Irish women not to ignore their Cervical Check appointment.

The reality, however, is that this particular screening programme is now in crisis and there will very likely be delays if thousands of women – on the advice of their GPs - who are concerned about previous test results end up being retested. 

Therefore any woman who wants a test urgently or who has reservations about the state funded screening programmes, or who may no longer qualify for the free test – for example, women aged over 60 (over 64 for BreastCheck) should arrange for a private test. 

Most GPs, local health clinics, specialist clinics, like the Well Woman Centres in Dublin and Cork, the private hospitals offer private cervical smear tests. My own (limited) research last week found that samples are nearly always sent to Irish laboratories and the results are usually sent back to the doctor or clinic and the patient within 10 days. (It takes at least four weeks for the free CervicalCheck results to be sent to the doctor or clinician.)  The cost is typically €80-€85. (A mammogram typically costs €180-€200 at private hospital.)  Tax relief of 20% can be claimed by filing a Med 1 form with the Revenue.

Private health insurance customers should also check their benefits to see if their insurer/plan recommends a clinic or hospital that performs individual private cancer screens. Most policies that include outpatient benefits will pay a part or all of the cost of the test, depending on the cost of your plan.

The VHI, Laya Healthcare and Irish Life Health each offer a range of comprehensive clinical health checkups to both individual and corporate customers (usually once every two years). How much of the cost they pay, which can cost many hundreds of euro, again depends on your plan.

It can be quite complicated and time-consuming to find out about these offers, of which there are hundreds, so use a good health insurance broker to help find the most suitable and affordable one for you and your family.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

A BETTER GP SERVICE IS THE GOAL BUT WHO PAYS?

Discussions between the Department of Health and the nation’s General Practitioners are underway, and for all our sakes, we have to hope that they go well. The alternative – more early retirements, more emigration, more villages and towns without a family doctor - is not an outcome that anyone would welcome.

Pressure on the Irish GP service has been ramping up for the past decade as a result of the government’s austerity measures or FEMPI, the financial emergency measures in the public interest that were imposed after the 2008 economic crisis.

The c38% cut in doctor’s fees and support income for staff salaries and overheads, and more recently, the adding of the under-6s to the GP patient rolls has ramped up an existing crisis that can only be remedied by a comprehensive and properly funded new GP contract.

Restoring that money however, will cost about €120 million extra a year, about the same amount that the HSE is in deficit, per quarter, and productivity is still an issue, says the government.

The doctors meanwhile insist it isn’t just about money, but also about the mountain of paperwork and regulations, and the bureaucratisation of their health care that they argue has diminished their ability to properly do their real job, caring for the medical needs of their patients.

And those patients are getting older: as a nation we are living longer, surviving complex and complicated illnesses and conditions, but without the proportionate scaling up of access to in-hospital treatment in particular, let alone better community services.

Recent surveys by the Irish College of General Practitioners show –thankfully - that more young medical graduates want to become GPs, but also that nearly 20% of new GPs emigrate to countries where both pay and conditions are better.

Another worrying set of statistics is that while there are now over 20 million GP consultations annually in Ireland, we only have about 76 GPs per 100,000 population while in Canada and Australia that GP per population ratio is 100 to 100,000. Meanwhile nearly one in five of our GPs are over 60.

Not only do we need more family doctors in Ireland, but they need to be better remunerated for the average 50 hours a week they spend in their surgeries.

Under our General Medical Services scheme, GPs are a paid a single annual payment per medical card holder and while these amounts differ, depending on the patient (adult, child, nursing home resident, etc) it averages at about €9 per month, or €108 annually. (A doctor treating a private patient can expect a fee of between €50-€60 per visit.)

The GP shortage in the UK is even greater than here. Visits are free but waiting lists are long and doctor’s earnings are down 11% since 2008. Last year their number fell to 34,592 compared to 33,872 in 2015.

But the biggest concern there – and one we need to be aware of - is the waiting time for a GP visit. In a 2016/17 survey of its members, the Royal College of General Practitioners found that patients had to wait more than a week for an appointment on over 80 million occasions, which they estimate will rise to 102 million by 2022, even with the promised recruitment of another 5,000 GPs. Despite considerable improvements in community care for the elderly in the UK, A&E presentations are soaring. (There is no A&E charge in the UK, as there is here.)

In Ireland GP waiting times are not the issue that they are in the UK, mainly because about 55% of the population are required to pay for their visits and a relatively large cohort with private health insurance have outpatient benefits that pay for all or part of the GP fee. (Popular healthcare cash plans, like HSE.ie also include GP cover.)

Are we moving closer to a UK model for general practice with everyone entitled to receive free visits and treatment?

That seems to be the government’s intention and many Irish doctors heartily approve.  But not all GPs believe free visits are workable until both their numbers and the pay they receive increases. If their annual general meetings are anything to go by, many continue to express their contempt for the HSE’s poor track record in managing and allocating existing resources and especially the chronic shortage of both hospital beds and community care services for the elderly.

Meanwhile, if you don’t have private health insurance and you don’t qualify for a medical or GP-only card, you certainly should be setting up a household contingency or emergency fund that can be dipped into to help pay for unexpected medical expenses like GP bills, A&E visits (when you don’t have a GP letter), or the €75 public bed charge for an overnight hospital stay.

Being ill is enough of a personal crisis without turning it into a financial one.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

WE’RE ALREADY UNHAPPY ABOUT THE WAY OUR CARS ARE TAXED…

A recent survey by the tax refund company, asked 3,000 adults what they thought about motor tax.

Not surprisingly, 83% of respondents to Taxback.com said they’d support changing it or abolishing it. I expect the same might happen if 3,000 people (or 300,000) were asked their views about property tax and how it is already being predicted to be one of the most contentious issues next year when it is scheduled to be reset by the government. 

The motor tax survey results broke down this way.

27%    -   Those buying 2007 car should not have to pay up to 3-4 more for road tax than someone that buys a similar brand new €100,000 car
25%    -    I think the tax systems should be overhauled completed – scrap motor tax, increase tax on fuel so those who use their car pay more
17%     -   Motor tax should be based on the cost of the car
16%     -    I think that the current system is perfectly fair
15%      -   The system should be changed as CO2 is no longer the best measure of what’s good for the environment

Taxback’s director Barry Flanagan’s take on these findings focussed on what he thinks is really bothering the majority of the respondent’s – that basing the car tax on the emissions level is unfair.

“The emissions-based motor tax bands might bring cost efficiencies for drivers of [post July 2008] newer cars, but drivers who are just outside the cut-off point, are perhaps understandably frustrated by having to pay up to 3 times more tax than for a model just a year or two older.”
 
He noted that the road tax on a 1.2 Volkswagen Polo diesel/petrol car registered up to 01 July 2008 would cost €330 a year while the tax for the same diesel model registered in 2011, however would fall into motor tax band A2 and cost just €180 annually, a difference of €150. Someone with a 2008 BMW 525D (3.0 diesel) would currently pay €570 in motor tax while someone with the same 2007 registered car would pay €1494 a year in tax.

“It would appear, from these simple examples that, in effect, the current tax system rewards those with higher incomes, as they can afford post-2008 cars, and penalises lower income earners,” said Mr Flanagan.”

“Almost a quarter of respondents said that they believe motor tax should be scrapped completely in favour of tax increases on fuel so those who use their car pay more.

“The merits of this are not altogether difficult to see…a person who commutes by public transport during the week, only uses a car on weekends and clocks just 3,000km per year, pays the exact same amount of motor tax as a person with the same car, but who uses their car seven days a week covering huge distances, racking up 60,000km per year.”

This motor tax survey is worth noting because a far bigger debate – on the way property is taxed – is inevitable.

Should we tax residential properties at all given that they’ve been purchased with after tax income, interest-bearing loans (that do not attract any or much tax relief anymore) and for many who bought pre-2008, huge stamp duty charges?

Is it fair that owners of the same size property, but a very different value, pay the same rate of tax, and average of 0.18% of market value?  Should our homes be taxed on their size or their market value, regardless of their location? 

Should only properties that enjoy significant local services and benefits – mains water and sewerage, proper roads and street lighting, easy access to schools, shops and other amenities – pay property tax?

As the 2019 reset deadline approaches, all of these questions are circling political meetings at local and national level; they’re beginning to be raised by community groups and homeless services and charities, and by the thousands of homeowners who have ‘warehoused’ half their mortgage debt, but could see their tax double on a property that might even still be in negative equity.

Many city houses or apartments that were worth between €300,000 - €350,000 in 2013 have doubled in value since then, report Daft and MyHome. If the LPT is not reduced or revised next year, tax bills will at least double to €1,125 - €1,215.

The stakes are considerably higher on getting a property tax right than they are for getting a motor tax right. The tax issues are also at the heart of the ongoing ‘have and have-not’ property crisis. And it isn’t just the LPT that will be under the microscope, but all the other taxes associated with home ownership, from mortgage interest and capital allowance relief to our generous capital gains tax and inheritance tax rates and the subsidies that people with no property are paying to those who do.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

TIME TO TAKE SIDES – CASH OR CASHLESS?

It has been some time since I opened The Child’s backpack and found a note from the teacher instructing me to send him back to class with €5 or €10 or €20 for to pay for the latest school outing, or for vital class printouts/books/plants/charity collections / sports day prizes…etc.

We’d then go through the same process with the Scouts.

Either the school/Scout envelope included cash notes or a cheque. But those were the days when everyone still used cheques and the banks didn’t look upon them like used tissues to be processed by a machine in their increasingly empty lobbies.

On February 28, the National Payments Plan, an agency set up by the Central Bank of Ireland five years ago to help ease us into electronic payments and a future cashless society, announced a pilot project for schools that would see the end of cash payments like those above.

 “About time too!” I can hear parents saying everywhere. With cheques being rapidly phased out and parents resorting to rummage around the bottom of handbags and down the side of sofas to find the right number of notes, this is a win-win for schools and parents.

But how far should cashless transactions go?  Have we become so enamoured with the idea of not having to use notes and coins anymore that we lose sight of the bigger picture of loss of privacy (hello, Facebook!) and the further encroachment of Big Brother – the state and its agencies – into our lives. And what about how much power this gives Bigger Brother, the private banking

Contactless purchases have become so commonplace – one in every four payments now - that I find myself (unfairly) bristling at retailer who don’t feed my little purchases under €30 (and soon to be €50). People with proper Smart-phones use tap-on debit apps, instantly bypassing their debit card and the need for printed sales receipts.

Interestingly, as the use of cash continues to fall - Banking and Payments Federation Ireland (BPFI) expect that cashless transactions will surpass the use of cash and cheques here in just two years - a country that has been at the forefront of the cashless revolution for the past two decades, Sweden, is starting to have serious reservations about the consequences of being entirely cashless.

Last February, reported The Guardian, its central bank governor, Stefan Ingves warned that soon all payments for goods and services by Swedes will be controlled by their four private banks.  He wants new legislation to secure public (ie government) control over the payments system.

“Most citizens would feel uncomfortable to surrender these social functions to private companies,” he is quoted as saying. “It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities.”

Anyone whose bank account has been hacked, or their on-line service interrupted – Ulster Bank customers went weeks without proper access to their money a few summers ago – knows first hand how vulnerable they would be it a there was a focussed, technological attack by dedicated criminal, especially if they were sponsored by a hostile government.

A former Swedish police commissioner Björn Eriksson, 72, who leads a group called Cash Rebellion, or Kontantupproret, which had been dismissed as a bunch of old cranks has also warned about living so close to Russia and in having too much faith in the banking system to always do the right thing.

In Ireland we neither trust in the banks or government as much as Swedes do, but like the Swedes we’ve enthusiastically embraced the convenience, simplicity and lower costs associated with contactless payments and on-line spending.

GPs, taxi-drivers, pharmacists, petrol stations and soon, even primary schools (and of course the Revenue) will mainly see the security upside of this remarkable technology.  One of the main arguments that governments use for the use of less and less cash is that it makes illegal transactions less attractive, presuming of course that they, and their tax authorities will always be able to check everyone’s bank account records and spending activity.

Central bankers assure us that cash transactions aren’t going anywhere. (Really?  Their statistics show an exponential fall.)

How would you feel – how would I feel - if some day we could never again move our wages or savings into cash, because you wanted to make a perfectly legal, transaction that would be completely private?  Or you had nowhere to safeguard your money from being monitored, traced and ultimately, accessed by the agencies that control the power switch.

I no more want to exclusively return to paper money and metal coins than I fancy writing this copy on a manual typewriter.

But that doesn’t mean we shouldn’t be having a serious conversation about a cashless society, before it happens. 

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

NERVOUS ABOUT THE STOCK MARKETS? DO SOMETHING ABOUT IT

Anyone who nervously watches their stock portfolio or pension fund value, checking daily unit-prices in the papers or on-line, is probably feeling a little uneasy.

They might not even be sleeping very well, depending on the kinds of stocks and funds they own.

And if they also follow Donald Trump’s tweets, which regularly include the president taking credit for any and all improvement in the US economy and especially about how well the stock market has done since his election, might be doubly concerned.

With the US markets having giving up all growth since last December, Trump  has become remarkably tight-lipped about the trillion dollar losses that have been racked up by American corporations.

For someone like Trump, for whom ratings are everything and big numbers constitute success, the reverse on Wall Street will be ignored until and if the Dow, NasDaq and S+P 500 pick up again.

And that may not happen too soon say some pessimistic commentators, at least not until everyone is clearer about the outcome of his latest tarriff war, his lack of progress on delivering infrastructure promises, the consumer spending slowdown and the worrying growth in the US budget deficit.  Had he simply stepped back and after getting his tax cut bill through and waited for the impact of the repatriation of billions of corporate dollars held offshor, recent headlines might have been more positive.

However, the markets have an uncanny knack of shadowing the political world and as one long deceased British prime minister once put it, that world is determined by “events, dear boy, events”.

If you, like Donald Trump, think every little surge or fall in share prices deserves attention, then you’re going to be on a perpetual roller coaster ride that is going to end in tears for you too.

Instead, you need to be asking, so what if the Dow is down nearly 3.5% since the start of the year?  Or the S&P 500 is down by nearly -2.3%, the FTSE 100 by -8.36% and the EuroStoxx 50, DAX and Nikkei by nearly -8%.

Apple and Facebook share prices – no doubt to the chagrin of their thousands of employees in Ireland who own some – have hit some volatility in the last month in particular (Facebook down by c5%).

But that shouldn’t matter a toss unless you’ve chosen to invest all your savings or especially pension fund money in any single share or market, despite the fact that last year the Dow jumped by 25%, the S&P by 19% and the high tech market, the NasDaq by 28%. (Even with big tech firms taking a hit, the NasDaq was still up just over 1.5%, year-to-date, at time of writing). 

Analysts and commentators are just as split in trying to explain what’s been happening in the Spring of 2018 as they were in the Spring of 2009 or 2010 when some predicted that it would take decades to restore the confidence and wealth that was lost after the 2008 crash of the financial sector.

The worst fears – that it was 1929 all over – never materialised of course. Bankrupt banks were bailed out, central banks forced interest rates down to zero levels to prevent mass corporate, state and individual bankruptcies and the bill was passed onto future generations.

Since then the debt mountains have just got higher, and the new normal is a mixture of low growth, uneven employment and a huge widening of the wealth gap.

And so it will continue so long as the money markets and their players (including pension funds) continue to be favoured with a regime of low interest rates and access to cheap finance from central banks. If market corrections are a natural part of investing, then we shouldn’t be in the least surprised at what has happened this Spring.

If you have a financial plan – and you should – then stick with it (my financial adviser keeps reminding me.) If you’re anxious about the markets…stop listening to the business news or reading the daily market reports.

If your plan is properly comprehensive and includes savings, protection insurance, modest debt, prudent spending and there is an investment strategy in place that you understand and can live with… then you’ve done what you can. 

The markets produce daily price snapshots. No one can accurately predict tomorrow’s price, let alone next months’. But if you do want to be pro-active and say, you belong to an occupational pension fund, and are getting closer to retirement request a meeting with your pension administrator or trustee. 

Don’t just ask about past performance, or how they think the fund will do for the next year. They don’t know.  Instead, get them to explain how widely – or narrowly - your assets are invested. 

And if they’re really doing their job, they’ll also explain the impact of all the fees, charges and commissions you’re paying, no matter how the markets perform.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

Will You Outlive Your Pension? Let’s Hope Not

I once knew an elderly man who said one of the great delights of his old age was that his teeth would outlive him. He was someone who had survived the Great Depression, the Juno Beach landings and was born long before the marvels of modern dentistry (especially in rural Quebec and fluoride-free Montreal).

 I hope my pensions – my private one and the State one - outlive me.

The government’s intention, as laid out in the most recent report on the state of pensions in this country (I’ve lost track of how many there have been over the past 27 years since I’ve been reporting them) is that the broad changes  proposed in the Roadmap for  Pensions Reform 2018-2023 will do just that and make the three pension pillars – the State Pension, Private Pensions and Public Sector Pensions – affordable and sustainable.

Last week this column looked at how a new SSIA-like auto-enrolment pension should increase pension coverage from its current low rate of just under 50% and how by linking PRSI contributions to years worked will provide people with a better idea, at any stage in their working lives, of the kind of total retirement income they can expect.

The PRSI changes are especially critical given the wholly unsatisfactory treatment of workers – most of them women retiring since 2012 - who were forced to or voluntarily gave up employed work for a number of years, only to return to the workforce.

The annual averaging of their PRSI contributions over their lifetime has worked against at least 42,000 people who have been shortchanged. The anomaly was finally recognized and ends officially on March 30. Those affected will be returned to their full pension entitlements by the first quarter of 2019 and can expect a benefit refund for post-2012 loss of income. 

The restoration was necessary if only to ensure that the ‘total contributions approach’ could be included in the just published Roadmap which states that

in the future a minimum number of payments – still undisclosed – will be necessary to qualify for a full State pension and pro-rata pensions will apply for everyone else.

The government will also consider allowing workers “without a full social insurance contribution record increase their retirement provision by choosing to continue making PRSI contributions beyond State pension age and up to the actual date of retirement,” something that already happens in the UK.

This is an important development since the Roadmap also makes it clear that compulsory retirement dates need to go, especially the traditional 65 birthday which then results in workers having to apply for Jobseekers Benefit until they reach age 66 and can claim their State Pension. (Anyone retiring from 2021 will need to be 67 before their state benefits can be claimed so could end up on a Jobseeker’s payment for two years if forced to retire at 65.)

Not only are most Irish workers (outside of heavy industrial or farm sectors) more than capable of working well into their 60s, many people in our post-industrial society only start their full-time working careers in their 30s after years of graduate education, training, internships and contract employment. 

For them, a compulsory retirement in their mid-60s is unlikely to ever produce sufficient combined private/State pension income.

The Roadmap also sets out reforms to public sector pensions, but mostly enshrine changes that have already happened – like the extra Pension Related Deduction that was introduced as a consequence of the post 2008 financial crisis; from January 2019 it will be turned into a permanent Additional Superannuation Contribution.   

Also, public servants hired before April 2004 will have a new compulsory retirement age of 70 (though any 23 year hired by the government in March 2004 is unlikely to be surprised to find that all their friends in the private sector will also be retiring at 70 by 2054.)  

Are these two changes enough to guarantee the sustainability of this pension pillar?  Both the State and Public Service pension systems are woefully underfunded at the moment and future unfunded deficits are already reckoned to be in the hundreds of billions of euro.

The Roadmap claims, at least for public service pensions, that these measures will be enough. But success – the continuation of indexed, service-related pension of up to 50% of career-averaged earnings – will still be entirely dependent on pay-as-you-go general taxation. There is no mention of a new, invested, National Pension Reserve Fund.

The Roadmap for Pensions is an ambitious document and worth reading, (see www.social.ie ) all the more so since it will need a steady stream of taxation to keep funding our State and public sector pensions,  and positive global investment returns to support private sector pensions.

If only for these reasons, if you haven’t made any provision for your retirement yet, the best response of all to this Roadmap…is to hire a good, independent, impartial pension adviser. 

Time may not be on your side.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

THE PENSIONS ROADMAP NEEDS MORE SIGNPOSTS

The Beast from the East upstaged one of the two big policy announcements the government made at the start of the month – the Pensions Roadmap.

Like the ambitious National Development Plan 2040, The Roadmap for Pensions Reform 2018-2023 includes multiple threads for the reform of private, state and public service pensions, but a much shorter time-frame:  by 2021, all private sector workers – and their employers – who do not already participate in an occupational pension scheme are going to be signed up for an auto-enrolment scheme that will involve contributions from worker, boss and a top up from the government.

The State Pension will also be reformed in tandem with the the introduction of the auto-enrolment one, making it more fair, transparent and sustainable, claims the government.

With a public consultation process about to begin, The Roadmap is “ambitious but achievable”, said Mairead O’Mahony, of Mercer consultants. It is also very necessary given that fewer than half of private sector workers are saving for retirement and Mercer research shows that  “70%...expect to live past 80, yet only 24% feel they will be able to afford to live comfortably for that length of time.”

O’Mahoney especially welcomed how the PRSI funded state pension is to be redesigned, with the number of lifetime contributions reflecting the final income (currently a maximum €12,663 or c34% of the average industrial wage).This simpler, more transparent ‘Total Contributions’ approach will allow workers to easily calculate what their combined final state and private pension income will be when they retire.  It’s also been suggested that workers who defer taking their state pension at age 66 (or 68 by 2028) will enjoy a higher income when they do finally decide to take it.

What the Roadmap hasn’t definitively determined is exactly how much worker, employer and state will have to pay into the new scheme, nor how tax relief will work. Government is understood to be considering a flat-rate tax relief of 30%, halfway between the current standard 20% people earning under €34,800 now get on their pension contributions and the marginal 40% rate relief that people earning over that amount receive.

Getting the tax incentive right will be important: in Ireland we don’t tax income diverted into a pension or any growth in the fund. The tax is paid when the fund (less a tax free amount) is turned into retirement income. (In other countries, like Australia it is the reverse and the pension income is entirely tax free.)

Will higher earners balk at being signed up to a pension that not only taxes a portion of the savings they contribute at 40%, but also taxes – at 40% - pension income that exceeds the lower standard income limit? The current system avoids this kind of double taxation by not taxing contributions, but it is extra generous if the pensioner’s total income ends up only attracting a 20% tax rate.

Pension advisers worry about another anomaly: what happens to people earning more than €34,800 who are self-employed, company directors with private pensions or have a PRSA – a personal retirement savings account - because their employer doesn’t operate an occupational scheme?  Will the 40% tax relief they currently get on their pension contributions be reduced to 30%?

The other concern about the Roadmap’s proposed new private pension – aside from the reluctance of employers to have to pay into it (at the moment no employer is compelled to provide any retirement provision for their workers) – is how the new auto-enrolment funds will be administered and invested. Will workers have a choice of investment provider or fund, or will there be a ‘default’ strategy? Part of the reluctance of many people to take out a pension, whether they are employed by a company or work for themselves, is the element of chance involved in the putting money into investment markets, and the notoriously high and the still opaque charges that too many investment firms and their agents apply to Defined Contribution pension plans.

This question of safeguards, not just to guarantee the honest and efficient administration of the money but to actually provide a positive return after decades of saving – is going to have to be addressed.

What workers want are Defined Benefit pensions – a pension that reflects the worker’s final income and years of service. But these are few and far between outside a select number of private and semi-state companies and the civil service, the latter whose indexed, DB pensions are paid from direct taxation.

But without those DB safeguards, the auto-enrolment pension being proposed in this Roadmap is going to a hard sell to many people who may have little spare income and have other saving priorities, like buying a home.

Next week: how the Pensions Roadmap proposes to change the State old age pension and public service pensions.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

FAMILY HEALTH INSURANCE PLANS BECOME MORE AFFORDABLE

The first quarter of any new year is the busiest for health insurance renewals with about half of the entire c2.2 million members of the three private healthcare companies deciding whether to keep their existing plan, and as so often happens, pay the inevitable increased premium.

Not so this year.

According to health insurance adviser Dermot Goode of TotalHealthCover.ie the three insurers, VHI, LayaHeath and IrishLifeHealth have begun reversing the cost of premiums on a significant number of their plans, a process that finally recognises the financial health of their companies – and from April, a reduction in Health Insurance the nation.

For VHI, the state-owned insurer, dropping the cost of plans has been justified by the fact that they are in profit and have sufficient reserves in place (something that was not the case for many years). Like many publicly owned companies (owned in this case by the people of Ireland) it is now in a position to properly reward its shareholder/customers.

The ongoing difficulties in the management of the public health service – long waiting lists for diagnostic and treatment services, a shortage of hospital beds, poor access to timely out-patient treatments continues. 

For many parents, who may now have the extra money to add their children to their own policies it is access to out-patient services that are often the most important: being able to afford to bring their children (over the age of 6) to the GP or a specialist quickly; securing tests when worrying symptoms appear,  avoiding multiple doses of antibiotics while waiting to see for example, if a safe, effective tonsilectomy operation will ‘cure’ their child.

With all three insurers having announced significant price reductions, I asked Dermot Goode to list his top family plans. You don’t have to have your children on the same plan – a different plan might be apppropriate, but the family ones will often include added discounts.

VHI Healthcare

“VHI reduced most of their plans by 5%-7% from March 1,” explained Dermot. “They are also continuing with their 50% discounted offer for child cover on plans such as One Plan Family (€149) and Parent & Kids Excess (€155).  We prefer the latter plan as the excess is only €75 per private hospital stay.

“The One Plan 250 scheme from VHI has now been reduced from €916 to €855 per adult and this offers reasonably good hospital cover with the first two claims subject to a €250 excess (€150 for day-case).  This plan has shortfalls on certain orthopaedic and ophthalmic procedures when carried out in private hospitals which needs to be noted.

“A family of two adults on One Plan 250 and the kids on Parent & Kids Excess will cost €2,108 for the year.”

Laya Healthcare

“Laya Healthcare offer free cover for the second and subsequent child under 18 on their Essential Health 300 and Essential Connect Family schemes,” said Dermot explained, adding that “on the latter plan, you pay €239 for the first child and the remaining children are insured free of charge.

“For young adults thinking of joining, the Essential Health 300 offers good value at €895.  This plans covers all public and private hospitals with a €300 excess payable on the first two admissions per person.  This excess reduces to €125 for each day-case procedure in private hospitals.”

A family of two adults and two children, “will cost €2,025 for the year on the Essential Health 300 scheme, but I understand that Laya will be replacing this deal with a better offering from April 1 in that they will be giving free cover for the second and subsequent child on seven different plans with the best of them being the Flex 125 Choice.”

Irish Life Health

“Good news from Irish Life Health is that they have just announced that they will be reducing the cost of many of their public hospital (level 1) schemes from April 1 in line with the health insurance levy reductions,” Dermot told us.  “The company is also still offering discounted rates for children under 18 on their Select Plus (€180) and Nurture Plans (€179).  

“It has also launched a new range of Benefit Plans with Benefit 2 – well priced at €875 per adult – covers most public and private hospitals with a €300 excess per private hospital stay, reducing to €150 for day-case procedures.”  However, this plan, he added also has some orthopaedic and cardiac procedure shortfalls at  private hospitals. A family of four on the Nurture plan will pay €2,108.

Finally, he listed his recommended ‘Corporate’ Adult plans:

VHI Company Plan Plus Level 1.3 at €1,128 per adult (includes day-to-day);

Laya Simply Connect at €1,180 per adult (includes day-to-day) and

Irish Life Health 4D Health at €1,045 per adult (day-to-day cover not included)

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.