Jill Kerby

READERS STILL LOOKING FOR INVESTMENT, PENSION ADVICE…

Your questions are always welcome. Here’s a selection from my postbag:

Mr and Mrs F:  We are a professional couple looking for financial advice and hope you can tell us how to find such a person?

This is one of the most common questions I receive, for good reason:  independent, impartial and fee-based advice is not easy to find in Ireland as most brokers and advisers accept sales commission for the products that they sell, whether for protection purposes (like life or health insurance) or investments, including pensions.  Since the new year, a broker or adviser cannot call themselves independent if they accept sales commission. I suggest you check out the interactive members map of the Society of Financial Planners of Ireland (www.sfpi.ie) for a fee-based, ‘independent’ planner with their own practice (many SFPI members work for banks, life assurance companies, stock-brokers and do not give impartial advice).  Ask about their professional background and training, how much they charge for an initial financial review and any set up and on-going fees.

Mrs CF writes: My daughter is 29, a chemical engineer who works for a US company and the major earner, though her partner is also working. has started working with a company.  She is the only EU employee and has to arrange her own pension. Any suggestions? 

Well done to your daughter for tackling this, though she should check to see if her US-based company is aware that they are obliged to provide access to a company Standard PRSA (Personal Retirement Savings Account) option for their employees if they don’t provide an occupational scheme. She should certainly get some independent advice about the kind of assets she should invest in, how much of her salary she contributes (15% at the moment, 20% from age 30-39) and the value of the tax relief.  A good adviser will also discuss with her income protection, life and health insurance if her company does not offer these benefits.

Mr PR writes: I have a pension pot of about €40,000 with Irish Life. When I turn 60 in February I’d like to take it and invest it myself. I don’t need the pension as I have a property rental portfolio and stock market investments. I know I can take 25% of the fund tax-free but I want to get my hands on the whole amount.  Leaving it there will cost me annual fees and low returns, whereas I know I can make an annual return of 20%.

Unfortunately there is no cost-free ‘take the pension money and run with it’ option when you hit 60. Your options are to take the 25% tax-free lump sum of €10,000 (or not); to encash the balance but pay top rate tax, USC and PRSI; to invest the balance in an approved minimum retirement fund (AMRF) unless you have a separate minimum pension income of €12,700. In that case you can invest the balance in an Approved Retirement Fund from which you can encash both capital and growth. You could also leave your pension fund where it is to continue growing until age 75 when you could then convert it into an ARF. 

“Your reader says he doesn’t need a pension,” commented the independent financial planner Marc Westlake of Global Wealth Management, “so why not leave it to grow tax free for another 15 years rather than pay over 50% tax and PRSI on it if he encashes it now? Yes, there are fees and charges, but it could also act as a whole of life insurance policy: if he dies before age 75 the fund value could go entirely tax-free to a spouse. If he dies after age 75 when it’s been ARF’d, it goes to his estate, where again it can be inherited tax-free by a spouse.”

Mr FB writes: My brother who lives in the USA and is very comfortable financially is going to give my wife and I some financial help over the next few years. Can you tell me what the tax implications are for this or is there a limit to what we can receive? We are both in the high tax bracket. 

Under our current Capital Acquisition Tax regulations you can receive tax free gifts or an inheritance up to €32,500 over your lifetime from your brother; your wife, because she is not a relative, can only receive €16,250. Each of your children (if you have any), as nieces or nephews, can also receive €32,500 from their uncle over their lifetime.  Once those limits are breached any further money, even if left in his will, is subject to 33% CAT tax. That is the only tax liability you face so your income tax rate is irrelevant. A way around these limits is for your brother to also give each of you a €3,000 annual gift. CAT rules allow anyone to give individual tax-free gifts up to €3,000 to anyone they wish, regardless of the relationship.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

WE’RE ON OUR OWN WHEN IT COMES TO INVESTING IN A STATE OF GOOD PERSONAL HEALTH

“Good health!” seems to be the default New Year greeting this year – and for good reason.  The health service continues to fail to provide what anyone with a beating pulse would describe as a consistently efficient and commendable service for the approximately €15.3 billion the state expends.

If good health is what you aspire to, you better be working hard to make it happen yourself.

It’s easy to blame the system.  The HSE is administration-heavy and light on essentials like sufficient hospital beds and front line staff to cope with rising demand from a rising and ageing population. It’s also deficient in well-funded and resourced preventative, community-based services.

A hospital-based service, mainly in cities (where most people now live) is always going to throw up seasonal and geographic anomalies; the inevitable result is that outlying patients will have poor access to even the most basic services, like GPs and non-critical A&E treatment. Seasonal demand (winter flu outbreaks) turns up the pressure to boiling point.

But that’s not the whole story.

As individuals, we’re sleepwalking ourselves into a toxic nightmare of future ill health that is only going to accelerate the rising costs and inefficiency of our already dysfunctional health service. And here’s how:

-       Our level of alcohol consumption remains higher than EU averages with c25% of drinkers, binge-drinking;

-       Despite 76% of the adult population claiming to exercise regularly, only 45% meet physical activity guidelines;

-       18% of the adult population are already obese, which is higher than the EU average. By 2027 this figure is expected to rise to 37%;

-       27% of all disease is related to behavioural risk factors (too much food, alcohol, tobacco use (just 19% today) and too little exercise);

-       Chronic illnesses now account for 80% of all GP visits 40% of hospital admissions and 75% of hospital bed days.

Compiled by the private health insurance company, Irish Life Health and part of its recent annual review presentation to financial journalists, the bad news didn’t end there. 

Looking ahead at the health and fitness prospects of the younger generation (15-24 year olds) it found that 30% of this age group are already overweight (19% of that number are 15 year olds) and 57% will likely be by the time they are age 35.

Irish girls in particular are less physically active than boys of the same age and that 90% of all secondary schools provide on two hours or less of PE a week, versus the recommended seven hours. (The good news is that compulsory PE could be added to the secondary school programme.)

Given the poor government response to all these long-recognised issues, it’s no wonder that all the private health insurance companies are spending millions on preventative health and wellness programmes for their customers:  Laya Health, the state-owned VHI and Irish Life Health have all been promoting fitness programmes in schools and community sports clubs; health screenings and incentives like wellness programmes, initially for their corporate clients but now rolled out for individuals (Laya’s HealthCoach and Irish Life Health’s BeneFit plan with its cashback benefit) and fitness and health social media blogs and member messages.

There is a clear financial correlation between customers – or taxpayers – remaining as healthy as possible or seeking early intervention when a health problem arises and long term profitability, admitted Laya’s Managing Director Donal Clancy. He thinks the private health providers should be working with the state to extend their positive health programmes within the HSE.

As this column has noted many times, in a country where 685,000 people sit on HSE treatment waiting lists (up from 459,000 in 2015); where even children are now lying on trolleys in A&E departments of the of the hildren’s hospitals and medical outcomes fall below the EU average (despite Ireland being the 4th highest spender on health) we need to take more personal responsibility for our health and that of our children.

It’s still January, resolution month. Many of us need to eat less, drink less, smoke less and get more exercise. Losing weight (don’t I know it!) could be the most rewarding thing you do for the next decade health-wise, let alone in 2018.

Consider getting a full medical check-up. Nearly 2.2 million of us have private health insurance. All three providers offer health checks, (Laya’s new 30 minute HealthCoach fitness check is free), in private clinics and hospitals and now, even on-line.  Depending on your plan and the type of check-up you receive you may be able to claim all or part of the cost.

And finally, if you don’t have private health insurance, reconsider that decision.

Contact a good health insurance broker to do the hard work of finding the best and most affordable policy. If your existing plan costs more than €1,800 and you haven’t reviewed it for the last couple of years, says Dermot Goode of totalhealthcover.ie, then you are overpaying.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

PENSION AUTO-ENROLMENT SHOULD NOT BE LONG-FINGERED

If there was a single piece of money advice you’d like to pass onto your children, grandchildren or just a young friend, what would it be?  To avoid debt? To earn your money before you spend it? To spend wisely by buying assets, not liabilities?

These are all terrific, timeless recommendations. But in this month of January, in this New Year of 2018, in this Ireland where the reality of our rapidly ageing population can no longer be dismissed (“we still have one of the youngest populations…”) there actually is a singular message that needs driving home: 

Start a pension today or end up working forever.

Every January, Irish Life, the country’s largest life assurance and pension provider gathers its chief department heads together holds a wide ranging media briefing for business journalists. I’ve been attending for more years than I care to admit.

The event is a PR opportunity – especially in ‘good’ years, as 2017 was for investment fund performance and growth – but it’s also an opportunity to raise some more warning flags about the state of the nation’s financial wealth and health, especially about pension coverage and contributions:

-       Private pension coverage has fallen to 47% in 2017 from 51% in 2009;

-       In the last five years the number of over 65’s has grown by 100,000 compared to just 44,000 people aged 15-65. In 20 years they will increase in number by 70% to make up over 20% of the population. This rate of increase is twice that of the EU average.

-       Four out of 5 working adults say they are not saving enough for retirement. Only 1 in 4 have a specific target income (and only one in three of them are over 45.)

-       The state pension is the number one source of income for 39% of women surveyed and 31% of men, but it only represents about a third of the average industrial wage.

-       84% of adults would welcome the introduction of an auto-enrollment private pension scheme with only 1 in 10 leaving it up to the government to choose the pension fund manager.

-       75% would like to have some emergency access to their money, especially, said 62% if some of the fund could be used to help with a deposit on a house.

-       Meanwhile, about 50% of those with a private pension are ‘confident’ they are ‘on track’ for a retirement income while, perversely, 1 out of 6 who have no pension ‘are confident’ they too ‘are on track’.

There are delusional people everywhere. Thinking you’ll have a comfortable retirement if you have no private pension confirms this, though some people do already (or will) own other assets that may provide income and capital at retirement or may even be certain of a substantial inheritance that may see them through their non-working years.

For most of us, retirement will have to be funded by deferred income in the form of voluntary tax-efficient pension contributions into an occupational or personal pension; market growth on those contributions (which hopefully include those of their employer); their obligatory PRSI contributions into the state pension system and hopefully, some other personal savings and assets accumulated over their working life.

Which is why Irish Life, which reported last week that their average customer’s contributory pension fund value is worth just c€120,000, fully supports the idea of the auto-enrolment system that would involve both workers and employers. 

Interesting, the survey found that the new pension may have to be called something else –the word ‘pension’ doesn’t inspire interest or enthusiasm, but they point to the successful introduction of unconventional auto-enrolment models in Australia (‘The Super’), New Zealand (‘Kiwi Saver’) and the UK (‘Nest’) as the models we too should be adopting here.

There’s never a good time to start a pension – there’s always a more pressing financial priority, like paying off student debt, putting together a down-payment for rented accommodation, let alone a first home. But every year that a young worker avoids paying into a pension scheme is another year of lost investment opportunity.

Pension funds work best when compound interest – the effect of time on money - is allowed to do its magic. Consistently contributing a percentage of your annual income into a well diversified, well-managed and lowest cost pension scheme, growing even at a relatively modest rate, but ideally from the moment you start working, means never having to worry about being able to retire.

Auto-enrolment can’t happen soon enough, though, being Ireland its roll-out will take longer than it should. The people surveyed by Irish Life in 2017 are overwhelmingly – 84% - in favour of it. The company claims that employer organisations they’ve met, are too.

 All that’s missing is the political will.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

WINTER WONDERLAND? IF ONLY…

It’s double whammy month:  the height of the storm and flu season. And if you haven’t battened down both these hatches, it could prove to be a very expensive one too.

So let’s start with the first significant storm of the new year - Storm Eleanor.

Here in Dublin we got off light:  the huge winds caused plenty of branches to sheer off the big sycamore trees outside my office on the South Circular Road, slates were loosened and outdoor Christmas lights were left hanging rather precariously.

The devastation in Galway, Mayo and Limerick was a very different matter, with people and businesses who have never been flooded before, facing weeks of expensive cleaning-up and repairs.

According to a specialist home insurance brokers, www.insuremyhouse.ie, their company was inundated before Storm Ophelia back in October with calls for last minute insurance cover; there would have been little or no warning for what arrived last week.

“The level of calls [then] corroborated something we already knew,” said Deirdre McCarthy of the company. “That there are very likely thousands of homeowners throughout the country who let their home insurance cover lapse at renewal date.

“While some people might go a long period of time without cover, anecdotal evidence suggests most “lapsers” go without coverage for an average of 3 – 4 weeks. While this might not seem like a long time, the crux of the matter is that if their property were to be damaged or burgled during this period, they would simply not be covered, and would have to foot the entirety of the repair or replacement bill themselves.”

Storm Eleanor – and the huge weather bomb that also hit the east and north east of America and Canada – that severe, record-breaking winter storms are no longer just a 50 year event.

“For some people it’s really just an “oops I didn’t realise” situation and for others it’s an “I don’t have the funds” issue,” says Ms McCarthy. “If it’s the latter we would advise that people should consider using a direct debit option for payment. We’ve also found that if people go without cover inadvertently and subsequently realise their error, they are sometimes likely to just continue as is without cover – and put the renewal on the long finger.”

Having proper insurance is all very well, but knowing what to do if you have to make a claim is also important.

Always call an experienced insurance assessor to act on your behalf with the insurance company’s agent, the claims adjustor. For a modest cut of the final settlement, the assessor will prepare a damage report, get you an independent repair quote and negotiate a fair, speedy and inevitably higher settlement than your insurer’s first offer. (Check out www.proinsuranceclaims.ie, with offices nationwide or ask your broker to recommend one.)

The other people who might be regretting not having made proper insurance provision – this time for their health – are those who have been waiting days on trolleys to be seen by exhausted accident and emergency personnel.

The A & E departments in private hospitals and the private minor illness and injury clinics are certainly busier at this time of year and have limited hours of operation – usually c9am-6pm and do not take ambulance cases. 

But if you suspect you’ve broken your wrist (my husband this past summer), or have appendicitis, not food poisoning (my son) or are worried that a worsening fever and cough might be turning into pneumonia (an elderly neighbour), then the last place you want your GP to send you this week is the local emergency department in a busy public hospital.

Some hospitals are under far more bed and trolley pressure than others but having the option of getting yourself or a loved one who is not critically ill to a private A & E requires having health insurance.

About a million private health insurance renewals happen in the first three months of the New Year, according to the specialist broker, Dermot Goode of www.totalhealthcover.ie.  The over-50s make the greatest number of claims and have highest health insurance cover, but are also more likely to be overpaying for cover.

Goode’s recommendation is that anyone who has remained on the oldest once popular VHI, Laya and Irish Life Health plans should prioritise a review “as they have been hit by multiple price hikes over the years.”  Switching to a similar but cheaper plan, even with their own provider that includes a small excess payment, says Goode can result in savings “of between €500 - €1,250 per adult. Remember, the older the plan held, the higher the likely savings.”

Winter will end sooner or later. The trick, as always is to get through with the least damage and expense by taking preventative measures. Call a good broker. Start 2018 as you intend to finish – saving money.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

Instead of a New Year’s resolution – Make small changes every month permanent

Are New Year resolutions for the hopelessly optimistic?  Diet clubs and gyms certainly hope so with new membership numbers soaring in January and February only to trail away a few weeks later.

That said, a grey Sunday afternoon in January at the kitchen table with a big pot of tea is the perfect time to face up to those red hot credit card bills that have just arrived in the post and to do something about improving your 2018 money habits. in 2018.

The secret to improving your personal finances – like dieting - is to make small changes, permanent. You do something positive. Then you do it again and again until it becomes a habit, just part of your usual routine.

For example, instead of using the credit card, you put it in a drawer to be used in emergencies only. Instead, you use the debit card or cash, both of which reduces the risk of overspending and doesn’t carry a 20% plus annual interest charge.  The tempting but expensive Visa or Mastercard is now out-of-sight, out-of-mind. Ideally, you cut up the card and avoid the €30 annual stamp fee duty as well.

Last year was, and 2018 will probably continue to be a tough year for anyone grappling with the on-going housing crisis. There isn’t much sign of wage growth to keep up with soaring rents and house prices, though it does look like there will be more supply of property and that the terrible tracker scandal could be coming to an end. 

Each of these financial ‘wellness’ suggestions for 2018 are realistic and practical so tick off as many as you can. They’re also time consuming, so don’t try to do them all at once. But put them all in place and a lifetime of good money and spending habits will be properly bedded down by next January. 

January:  Get the bad news out of the way. Pay off the Christmas debts right away so they don’t act as a drag on the rest of your year’s new spending. If you don’t have sufficient income or savings to clear the credit card bills, make an appointment at the Credit Union or bank (the latter probably on-line) and take out a small personal loan to clear the balance. Then cut up the credit card. It’s a plastic millstone round your neck. (Ditto for even more expensive store cards.)

Now sit down at the kitchen table (with your partner if you have one) and all your financial statements, contracts, weekly grocery and utility bills and work out exactly how much you earn and spend. Cut down on store bought coffee, buns, cigarettes, that extra pint or bottle of wine, takeaways. By cutting your discretionary spending you can now tackle your essential spending.

February:  This is the month you (and your partner) assign another afternoon to shopping around for better prices or tariffs for your other financial commitment you have: electricity, gas, broadband, mobile providers; motor, home, health, travel and pet insurance. Make a note of any contract maturity dates.  On-line comparison web-sites (like Bonkers.ie) or specialist insurance brokers can do much of the work for you. 

March:  You’ve sorted out the bigger ticket utility and insurance commitments and should see some substantial savings which, from this month can be put to good use in setting up a contingency fund or other regular savings accounts to pay for holidays, school costs or college fees, a new car, home renovations, etc. 

This is the month to start looking for an experienced independent, impartial financial adviser or planner. From January 1, under the Mifid 2 Directive, only fee-based financial advisers can call themselves “independent”, that is, give advice unrelated to any commission remuneration from product manufacturers. Once you find this person they will hopefully become a lifetime adviser just like your paid family doctor, lawyer, accountant, mechanic, handyman.  

April:  The meeting with your independent adviser should be the culmination of your months of effort to bring your finances under control and set up good money habits.  Bring your new budget and schedule of contracts, wage and bank statements along. The review should be comprehensive and the adviser will hopefully prepare a realistic financial plan for immediate and long term wealth creation and retirement provision, based on what you want and can achieve, and not on any financial product that would pay them a hefty sales commission. Expect plenty more meetings over the years as your life circumstances evolve. 

May: It’s nearly the summer. Your good money habits are now in place, but don’t forget to make a realistic holiday budget. Take the time to shop around for everything from the cost of getting to the airport to the flights, accommodation, car rental, food, drink, entertainment, travel insurance and souvenirs.

Then enjoy your guilt-free, well-deserved holiday. Your finances are on track…finally.