Jill Kerby

APRIL HEALTHCARE LEVY WILL MEAN HIGHER INSURANCE COSTS

Anyone who is either renewing their health insurance or finds themselves in a public hospital bed soon, is in for a Spring money shock.

First, the public hospital bed.

Slipped in when no one was noticing on New Year’s Eve, the HSE announced that from January 1, 2017, the cost of a public hospital bed would go up to €80 a night from €75 for a maximum of 10 nights, unless the patient is a full medical card holder. (Infants up to six weeks old are not charged; women receiving maternity services and people with infectious conditions or children suffering from certain disabilities or disorders are also exempt.)

The hospital will either present you with this maximum €800 bill as they discharge you or they will send you the bill by post. If you have private health insurance but have been treated as a public patient, your insurer will refund you this cost. If you don’t have VHI, Laya or Irish Life Health insurance or a cash plan from the likes of HSF.ie, which will partly cover this expense depending on your policy, you will have to stump up for the overnight rate yourself.

Meanwhile, if you have private health insurance and are entitled to a private room in a public hospital, the overnight charge now ranges from €659 to €1,000 a night depending on the type of public hospital you’re attending and whether you are in a semi-private or private single room. 

However, there is no guarantee of such private accommodation, and many insured patients are also ending up on A&E trolleys or in public wards. Should you unwittingly admit to being a private insurance customer, the public hospital will bill your insurer for the full overnight private rate (which is averaging at €813 per night) even if you don’t get a private/semi-private room.

The blatant overcharging is one of the reason’s why private health insurance premiums have been soaring in recent years.  But from April, there will be another reason – yet another increase in the Health Insurance Levy which is to rise from the current rate of €403 to €444 for every adult policy that costs €1,000 or more and from €134 to €148 for a child’s policy. 

This levy, a ‘risk equalisation’ measure, is collected by every insurance company and paid to the State to effectively subsidise the VHI, the government’s own health insurer for its disproportionately larger group of older customers.  The levy was introduced in 2009 at a rate of €285 and €95 respectively.

Under our lifetime community rating system, everyone pays the same premium for the same product, regardless of age or state of health. In other words, older, sicker insurance holders are not penalised with higher premiums; instead they are subsidised by younger insurance holders who make fewer, less expensive claims.

However the legacy of so many older members at the VHI – which was a monopoly for 30 years until the mid-1990s, means that all c2.1 million private health insurance members subsidise the state company for their higher costs.

I’ve argued in this column many times that such high transfer payments could have been avoided or mitigated if the VHI had been broken up into a number of smaller companies and privatised. This was never done and it remains in the full ownership of the Department of Health.

What has happened – inevitably as the population ages and treatment costs increase – is that the risk equalisation charge just keeps going up and many younger people drop down to cheaper, lower benefit plans.

With nearly three quarters of all private health insurance customers renewing their policies in the first three months of a new year, you need to keep these still rising charges and levies in mind when shopping around for the most affordable policy. The cheapest plans do not provide the best value. Talk to a good broker.

For people on very tight budgets, and especially families who cannot afford health insurance, a cash health plan like www.HSF.ie may be a good option. These single premium plans (there are seven to choose from) cover every member of the family and provide a tax-free cash payment for medical expenses like hospital overnight and day cases, GP and consultants, prescriptions, dental, optical, physio, chiropractic and osteopathy and other alternative treatments, osteopathy, medical tests, surgical appliances, accident cover and even adoption and maternity grants.  Monthly premiums range from €11.28 to €65.45  (€135.36 to €785.40 per annum.)

Mid range HSF plans – at €369.60 and €508.20 per annum – will pretty much cover the overnight charge of €80 for a public hospital stay, up to 40 nights in any calendar year.  HSF membership won’t allow you to jump long waiting lists to get hospital treatment, but the cash payments will help cover the cost of some private diagnostic visits and treatments and if you do end up in hospital, the inevitable travel and parking costs once you get there.  jill@jillkerby.ie

HOW MUCH WOULD YOU – A LANDLORD - PAY FOR PEACE OF MIND?

Finding an affordable place to rent in Ireland – especially in the main cities and all of the greater Dublin area - has become such a political hot potato that most politicians I know prefer conversations about the state of the health service or Brexit.

With the average Dublin rent now rising by 15%, and between 10%-13% in the four other main cities. On February 1, 2017, there were just 4000 homes available to rent across the entire county, reports Daft.ie and while this is a 10% increase on the same date last year, it isn’t much better than in April 2007 when there were only 4,400 places to rent but a far lower number of people seeking rental accommodation.

The surging rental values have been clipped for existing tenants by the 4% rent increase cap that applies from January 2017 in the list of Rent Pressure Zones in Dublin and around the country.

The new regulations mean that fewer people will have ended up homeless after being unable to pay large increases once their two year rent freeze was up, but it’s done nothing to help others find an affordable home:  only a surge in affordable high rise accommodation in the cities can do that, and this is still some way off as are the implementation of other proposals to build more social and private houses and apartments; to renovate empty spaces above shops and businesses; force local authorities to renovate and repair (more quickly) the thousands of their own idle, vacant properties and to impose levies or surcharges and taxes on similar empty, abandoned and derelict private properties.

And while this is a very tough time to be an aspiring or existing tenant, especially for those in the latter category with limited budgets and the risk of evictions when their property is sold to vulture funds, the property nightmare continues for many of the 300,000 amateur landlords in this country.

Negative equity, mortgage arrears, high property-related taxes and charges have taken their toll, though rising capital values have provided an exit route for increasing numbers.

Nevertheless, stories still abound of tenants who have stopped paying their rent, have caused expensive damage, lost their jobs and have nowhere else to go, etc.  Such is the pressure at the Rental Tenancies Board that disputes can take up to five months to be resolved.

Both sides have their champions – the RTB as well as private agencies like the Residential Landlords Association and Threshold - but now a new commercial service has become available to landlords to help cover the costs of disputes and rental income default.

RentAssured.ie is an on-line insurance provider for private landlords with annual rental income of between €6,000 and €48,000.  The policy covers tenant rental defaults worth up to 11 months worth of rent; it offers rent dispute legal assistance worth up to €5,000 plus VAT; and compensation worth one month’s rent for malicious damages. It also offers two annual, free, pre-rental tenant checks by the credit service, Stubbs Gazette. The policy costs the equivalent of 2% of the annual rent. (For an €18,000 rental stream, that is, €1,500 x 12 months, the premium would be €360 per year.)

Here’s an example of how it works:  You own a three bedroom suburban house that you have been renting to a tenant for €1,500 a month. The tenant stopped paying his rent three months ago over a row about some malicious damage to the property- broken doors and windows that cost €500 to repair/replace.

The dispute went before the RTB, but just as it was to be heard – two months later – the tenant disappeared.  You have lost five months rent, less the one month deposit, plus the €500 for repairs and the €1,000 you spent taking the case to the RTB.

According to Robert Kelly of RentAssured.ie, assuming that this landlord met their policy qualifications – they had sought references, (in the case of a new tenant, Stubbs would do the check); provided a lease; took a one month deposit; reported the damage to the Gardai and followed the RTB landlord dispute protocols – the RentAssured policy would have paid out four of the five months lost rent, the €500 malicious damages and the €1,000 plus VAT dispute/legal costs (also done in association with Stubbs.)

With rental property is such tight supply, not every landlord will need a service like this, since there is a 60 day delay before claims can be made (as part of the initial RTB dispute period) but “it does provide a degree of comfort for landlords from a potential financial loss from rent default or damages” that they would otherwise not have had, says Kelly. 

But ‘once burned, twice shy’. Amateur landlords who haven’t been able to unload their property, but have had poor tenant experiences might want to carefully weigh up this insurance premium against potential future losses.

GETTING CHARGES DOWN BOOSTS INVESTMENT RETURNS

Investment funds that are sold in Ireland come with fees, charges and commissions, charges that will impact on the on-going and final value of your investment, especially a long term one, like a pension fund.

It is only in the past two decades that investment fund providers have been required to disclose all these charges in writing, yet anecdotal conversations that I have had over most of those years with readers, too often resulted in either the person telling me that they have no recollection of any discussion about charges or no recollection of the charges even if they did have such a discussion.

The reason why it is important to have a full grip on product and fund charges is to make it easier to shop around for the most suitable product and to compare how different charges can affect the value of your investment. The lower the charges, the better the long term financial outcome.

Since this can be time-consuming and complex, it’s always a good idea to use a good, independent, impartial broker or adviser. Otherwise you might be tempted just to settle with the best advertised product from a well know life assurance or investment company that, naturally, will only sell you their product.

The problem is that the vast majority of financial intermediaries in this country are paid by sales commission – that is, a small percentage of your investment contribution either upfront when the money is paid over to the investment company or as a ‘trail’ commission, usually over a period of years.

The commissions they receive will usually differ – some will be higher or lower.  It is in their personal financial interest, or that of their brokerage to sell product that carry the highest sales return.  And since not every prospective client who walks into their office will actually buy an income protection policy or a pension, or an investment fund for their children’s third level education, the commission they do collect from every third or fourth potential client needs to be sufficient to cover the salaries and overheads.

A fortnight ago, Aviva Life and Pensions announced that as part of a major review and streamlining of their products, that they were eliminating all policy fees and charges for new customers on their list of 23 different fund. These include old monthly policy administration fees that could amount to as much as €4.50 a month (another life company charges as much as €5.24 per month) and fund switching fees of c€20. There is now only a single management fee per fund, amounting to no more than 1% of the fund value. Over the course of a long term investment, like a pension, the savings could amount to as much as 8% of the fund value, I was told. (For a fund worth €500,000 that is the equivalent savings of €40,000.)

Meanwhile, last week the Central Bank announced that it is now reviewing the hundreds of submissions it received as part of its inquiry into commission payments to financial intermediaries. It will publish its recommendations later this year. 

Many of the industry submissions – from fund providers as well as brokers – favour maintaining the existing commission system on the grounds that fee-based advice would be too costly for the majority of Irish investors. Many added that in the UK, where commission has been abolished since 2012, there are now fewer intermediaries. If buyers do not pay an upfront fee, they must go directly to the manufacturer and lose the opportunity for independent advice.

What most of the supporters of commission always fail to note is that commission payments are paid by the buyer out of the money they hand over to be invested or from premiums collected for the life assurance product.  There is no such thing as “free” advice. You pay overtly – a fee – or covertly – by commission that may not always be properly explained.

Aviva are the first life and pensions company to abolish extraneous and outmoded policy administration fees. They admit that computerisation and technology no longer justifies some of them.  They accept there will be an associated cost to the company, but believe they’ll benefit with more sales and happier customers.

Should sales commissions also be abolished?

So long as an intermediary depends on commission and might be influenced by its size (for example, you get no commission if you recommend a Post Office savings scheme) the adviser’s impartiality has to queried.

Commission isn’t just about the number of euro being paid out; it also leaves the broker open to a charge that their advice is centred on the “product”, not the client.

Replacing it with a fee-based payment from the client that recognises the adviser’s expertise, the time spent on your case, focuses the relationship back where it should be – between the adviser and the client. Not the adviser and investment provider.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

NO ONE-SIZE-FITS-ALL SOLUTION TO A CASH WINDFALL

“I didn’t win the €88 million in the EuroMillions jackpot,” a reader from the Midlands wrote last week. “But I have recently inherited just over €120,000 from my late father, a former teacher. We were all a little surprised – I have three other siblings – since he and my late mother had lived quite well and we thought they only had their pensions and house which we sold for just over €250,000.

“My husband and I are in our early 50s, our youngest is nearly finished college. The other two live in the UK and Australia and have good jobs. I work part-time and my husband has a good job and pension. (He is also a teacher.)  Our house is paid off and we only have a few small loans, so we’re in no huge need for this money.  Any suggestions on where to invest it? (We have some savings which are paying only a tiny bit of interest.)”

I received quite a few emails and letters like this – and about sums as small as €5,000 - after the lottery win column. Most people only ever benefit from modest windfalls - an inheritance, a redundancy payment, a retirement lump sum or a capital gain after selling an asset like a property or a business they’ve spent a lifetime building.

Most people, in my experience, tend to be pretty conservative when they find themselves with an unexpected sum of money, even a large sum.  It’s size, relative to the person’s existing income and financial position will impact on investment decisions, say investment advisers. As will their immediate and longer term expectations for the money, their capacity to live with market risk and price volatility. Age play a big part too; a free-spending, ‘easy come, easy go’ approach is usually reserved for younger lottery winners or inheritance beneficiaries with few financial responsibilities and liabilities – like a mortgage and other bills, a family to support or chronic indebtedness.

In other words, there are simply no ‘one size fits all’ solutions whether the sum is €10,000, €100,000 or €1,000,000.

My correspondent from last week is also typical of the person who has no immediate money pressures who seeks some help in what to do with their good fortune. In such cases, financial advisers often report that after rewarding themselves and their loved ones with modest purchases, such clients often take a longer term view of the money, say, to pay for a wedding, or for retirement or to pass on to the next generation(s).

This is why the first step has to be a proper wealth review in order to confirm the status of this money, relative to their expectations and desires.  Has the person factored in the importance of clearing existing high cost credit card and personal loan debt, overdrafts, perhaps even higher variable rate mortgages or the real cost of long term liabilities, like medical and nursing costs in their advanced age?

No matter how large or small the amount at stake, a good adviser will ask you what your expectations are for your inheritance, retirement lump sum, capital gain, etc and plan around your answers.

No one can accurately predict investment growth consistently.  Which is why expecting positive results from a small collection of stocks or funds is also unrealistic.

The high tech stock you heard about – or even a single property fund producing high gross yields today, could still tank tomorrow, at great capital loss or be impacted, yet again by arbitrary government tax policies. The higher return, the higher the arrangement and management fund charges which will also eat into any return.

Only an independent, impartial financial adviser can advise our reader with the €120,000 inheritance where to invest her money, and only after a comprehensive, personal financial review.  It could be in the end that she and her husband simply won’t sleep if this money, which perhaps they ultimately want to leave to their grandchildren, was tied up in the bond or stock markets.

In that case, paying off the last of their debts and finding the safest deposit account might ultimately be where the cash remains. Or they might decide to disperse it as a contribution to higher education, or even seed capital for a grandchild’s business. 

What every beneficiary of an unexpected or earned windfall needs to accept is that genuinely suitable investment solutions are always going to be more bespoke that any popular, advertised ones.

And probably a lot safer too.