Jill Kerby

YOUNG TRAVELLERS NEED THE RIGHT MEDICAL, TRAVEL INSURANCE

If you thought choosing health insurance was complicated, you’d be right.

With over 400 plans available from the three health insurance companies – VHI, Laya Healthcare and Irish Life Health, it is far better to use the services of a good health insurance broker both when choosing your first policy and at renewal time.

I practice what I preach:  this year, my husband and I will save about €300 by sticking with our same Laya plan (Simple Connect), but this time slightly adjusting the excess amounts we will pay and to the refund we get for outpatient treatments.

Our annual review is the perfect opportunity to not only try and reduce our premium – or at worse, to not pay any more – but to assess the state of our health as we get older. So far, so lucky: we’ve had few claims (especially hospital events) and the extra excess we’re taking on is certainly affordable. (That’s what an emergency savings account is for.)

“The older you get, the more likely you are to make claims,” says the specialist health broker Dermot Goode of Totalhealthcover.ie.  While premiums have finally come down, too many health insurance customers are still not switching. “Anyone who has been with the same provider/plan for more than two years, is paying too much.”

But this is also the time of year when many college students are off on summer student work visas, or are preparing to take time out after their Leaving Cert to work for a year.  At least three of our friend’s children will be working in the US, Canada and Australia for up to two years, and their travel and health insurance needs are a big concern for their families.

“I’m afraid that there’s no simple solution that applies to every young person who goes travelling,” says Dermot Goode.  “It all depends on where they are going, how long they will be gone for and what are they going to be working at.”

According to Goode, the first mistake parents make is to assume that the travel abroad benefits on their private health insurance or their child’s European/EEA health insurance card will be sufficient to meet the cost of any and all emergency health needs. 

This is not the case. Depending on the private insurance plan there may or may not be sufficient overseas cover, he explained.

The EU/EEA (and Switzerland) health insurance card will allow access to public medical treatment if your young person falls ill or has an accident, said Goode, but in some countries they may still be billed for all or part of their treatment and the card it does not include repatriation.  

The other problem with relying on a health insurance plan is that even generous overseas medical benefits “may not be sufficient to meet the astronomical cost of medical treatment in the United States in particular.”

“Also, ordinary health insurance plans only cover up to 45 days of overseas cover. If your son or daughter is away longer than that – as many are if they have J1 visas – their plan is not going to be valid outside that period.

 “The same applies if they decide to take six months or a year travelling or if they have work visas.”  What they need at the very least, he said, is an annual multi-trip policy which will allow for extended travel periods (of up to 180 days) or a back-packer policy that covers medical/travels expenses for up to a year.  He warns, however that these extended benefit policies can be quite expensive if they include dangerous sports or activities.

Even more expensive, said Goode, is medical/travel cover for young people who take up any kind of risk-rated work abroad, including building work.

“What they work at is going to be a complicating factor. If your son or daughter is a waitress, or working at a computer their extended multi-trip or back-pack insurance may be fine. But in more dangerous jobs they need to enhanced cover.  Goode recommends VHI’s international health insurance plan but even such a plan requires pre-approval depending on the work that is done. These policies, he warned, “are both risk-rated for age and activity.”

The other problem that young travellers who are abroad for longer periods face is that once their ordinary health insurance membership has lapsed, reconnecting may be complicated by new waiting times. “If you have been a VHI international policy holder, that won’t apply,” said Goode “and you can rejoin your old company and plan without penalty. People who are over 34 when they return to Ireland, may, however, be subject to age-related loading.

Medical/travel insurance is essential.  Illnesses, accidents can happen. Turning them into financial disasters is avoidable.

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

Is €100k the right income ceiling at which to cut off Child Benefit?

It seems that every summer, the government of the day sets off at least one little tax reform bomblet that rattles the windows of middle Ireland, resulting in the inevitable denunciation of whatever ‘reform’ the grim apparatchik in the Department of Finance had suggested to enrich the Exchequer next October on Budget Day

Earlier this month it was the hoary old chestnut of the means testing of Child Benefit; last year it was the more original idea of taxing capital gains on private residences. (I helped set the RTE phone lines on fire after supporting that idea on the Today with Sean O’Rourke programme.)

Needless to say, both these ‘flyers’ sank pretty quickly after being denounced by ‘senior government officials’ – in the case of child benefit, by the Taoiseach himself.

I’ve been in favour of the means-testing of social welfare benefits, well, forever.  And so is the government which has always applied means-testing to some, but not to others, even if they are clearly linked to PRSI contributions.

For example, it means-tests Non-Contributory State Pensions and the Household Benefits Package (the energy allowance, TV licence, etc). The Qualified Adult Dependent Payment is means-tested as is the Carer’s Allowance and Job-Seeker’s Allowance. Access to public housing and housing benefits paid to private sector tenants is means-tested, as is the Working Family Payment and even the Non-Contributory Guardian’s Payment (in this case the child’s assets are means-tested).

The principal behind means-testing is simple enough: people with sufficient assets  - income, savings, capital gains do not need a social welfare payment that would have a better outcome if paid to people and families with much lower incomes or assets.

Difficulty arises in establishing the definition of ‘sufficient’ and what the political impact would be for the government party that dared introduce it

The suggestion that an €100,000 income might be sufficient for the introduction of child benefit means-testing is a case in point. To anyone struggling on minimum wage, or living in emergency accommodation, it’s a fortune.

But as the Taoiseach suggested, ‘Earning €100,000 does not mean you are rich in this country.’  And he’s right.

Imagine an educated, professional married couple in their mid to late 30s, both working full time in the private sector and both earning €50k. Imagine that they have two young children, the youngest of whom is in crèche. The couple own a mortgaged house worth c€300,000, drive one nearly new car (the other partner takes public transport).

Welcome to middle income, middle class, middle Ireland, whose typical, income and city-based expenses I have broken down:

Aside from earning a joint €100,000 income plus a tax-free annual child benefit of €3,360, this couple, like over half of all private sector workers, do not have a private pension fund. But they do pay approximately €31,000 in tax, USC and PRSI and have about €69,000 left over (or €6,030 a month) with which to meet all their monthly costs.

Once they pay typical annual mortgage and related compulsory insurance payments of €21,000 they also pay for groceries and lunches (€10,400); crèche fees and after school care for the primary school aged child (€15,600); travel expenses (€7,200); utilities – energy, mobiles, broadband (€2,760); private health insurance (a Laya healthcare adult plan with the children going free) of €1,728. Christmas and holidays cost €4,000 and clothing, €2,400). They are now left with €7,644 or €637 a month to meet all their other expenses.

That sounds like a lot of money, but note that I haven’t estimated any other debt repayments other than the mortgage and car payment. How realistic is that?

This couple, aside from their PRSI contributions towards the State Pension have no other retirement fund. At their age they should be saving 15%-20% of their gross income if they want to have any kind of comfortable old age.

Nor do they have a contingency or emergency fund if they were hit with a big unexpected bill or illness.  They have no additional life insurance, nor a long term education fund for their kids. (On their income there will be no 3rd level grants.)  I haven’t even included the costs of uniforms and books and school donations or First Communions/Birthdays/Anniversaries.

Realistically, how far can that additional €637 a month stretch.

Should the tax free Child Benefit – and other universal benefits - be means-tested?

Of course they should. But the government needs to take into account the total financial position of the family or individual, how many children they have, their essential financial commitments and reasonable expectations.

Personally, I’d be in favour of income tax reform over a reformed benefit systems. Families with small children to raise (and house, educate, clothe, etc) should be getting generous tax relief per child, not a slice of their taxes back in the form of a welfare payment from the State…

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

YOUR LETTERS: INVESTMENTS, ILLNESS COVER & DEBT

Ms MC writes:  I bought a buy-to-let house in 2005 for €160,000 and sold it in 2015 for €90,000, a loss of €70,000. Clearly, there was no capital gains on that transaction.  However I have another buy-to-let house and if and when I decide to sell it, I am likely to make a profit as I have had it since 2002. I bought it for €152,000 and it is currently valued at about €240,000, so I might make a profit of €88,000. I have spent plenty on repairs and new windows, doors and a new garage roof. Can I offset the loss of the 2015 house sale  against a possible profit of the current house sale?

CGT losses can be carried forward and used against any future capital gain. If you make your expected €88,000 gain on the house you purchased in 2002, the entire €70,000 loss on the 2005 house can be written off.  You will only pay 33% CGT on the €10,000 profit balance, less your personal annual CGT allowance of €1,270.

Mr RH writes: I have a Geared High Yield Fund S9 and a Trilogy II S9 with Bank of Ireland that took a hammering back in the day. Its value has only just recovered to the initial investment. Should I just pull the plug? Really what I'm asking is, can you recommend somewhere that is reliably good and safe and still gives me some growth?

Gearing is an additional risk that many small investors are unfamiliar with and involves the investment manager using borrowed money (as well as your money and everyone else’s in the pooled fund) to boost the volume of assets being purchased.  The great danger is that the servicing cost of that money might go up, and/or that the value of the fund assets in the fund will fall. These funds tend to also incur expensive fees, charges and sales commissions.

You don’t say how much you invested or for how long you’ve held onto this fund, but it clearly has been a loss-maker.  I suggest you consult a good, fee-based financial adviser about other options. Do you have any debt - credit cards, a car loan or mortgage? Paying them off with this money automatically results in a guaranteed ‘return’ in the form of avoided future interest charges. ‘Growth’ of any kind, with effectively zero deposit interest being paid, requires taking investment risk.  A good adviser can take you through it and let you decide if another investment is worth doing, both in terms of the time you will tie up your money, and emotionally.

Ms PC writes: I am a teacher in full-time employment. I’d like to take out income protection insurance and I’ve heard varying opinions on the merits/disadvantages of this type of insurance. Would you recommend it? I am in my early 50’s with one daughter who is still in primary school.

As a full time teacher my understanding is that you are already covered in the event of illness/serious illness, with up to full pay for at least a year (if you fall seriously ill) and then another six months on half pay. Teachers who exhaust their serious sick pay benefit may be able to apply for up to four years worth of Temporary Rehabilitation Remuneration. Check with the Department of Education to confirm this and then see what options exist if you can never return to work. If you are worried that this benefit would be insufficient, you could look into buying a private Serious Illness policy from a life assurance company. These pay tax-free cash lump sums for a selected group of serious illnesses/conditions, but they aren’t cheap:  the older you are, and the longer the duration of the policy, the more expensive they become. Also, pre-existing illnesses or condition could result in a premium ‘loading’ that may make the cost unaffordable. Ideally, you take out a policy like this until retirement age.  They offer some financial peace of mind, but at a price.

Ms MG writes: I am 63 years of age have six children and was unfortunately a stay at home mother with a good credit history until our mortgage fell into arrears. Now I find myself unable to borrow anything but have remaining credit card debt of €12,000. I have a bank account with a small overdraft facility and €8,000 saved in the local credit union. My husband is a gambler and his state pension is paid into my account each week. I earn €350 a month as a cleaner. I need some financial advice and guidance.

I’m so very sorry to read about your difficult financial position. From your (longer) letter it sounds as if you are estranged from your husband and that any other financial assistance is very irregular.  If you haven’t already done so, you need to contact your local MABS office, the free money and budgeting advice service. In association with MABS, the Insolvency Service of Ireland have debt solutions (see www.backontrack.ie) which are designed just for people like you.  Good luck.

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

WILL AIRBnB REGULATIONS KILL OFF YOUR GOLDEN GOOSE?

The occasional trundling sound of wheeled suitcases outside my front windows in Kilmainham now competes with all the other traffic noise, especially the ambulance sirens en route to the A&E department at St James Hospital.

As an occasional suitcase trumbler myself, I don’t mind. But then none of my immediate neighbours rent their spare rooms so I’m never inconvenienced by late night arrivals or an entire home being rented out to noisy, visiting hen and stag parties.

Meanwhile, the more distant neighbours who are AirBnB hosts – retirees living on small pensions and young families with big mortgages - certainly appreciate the extra cash. This is a popular neighbourhood with quick public transport routes into the city centre and lots of historic sights.

New proposals on regulating AirBnB are expected to further heat up the debate about private property rights:  how far should the government go in restricting short term letting at a time when over 9,500 people are homeless and the cost of accommodation is soaring?

AirBnB is already complaining that we have a very restrictive regime in Ireland on the numbers of days you can rent, how many people can use the property and the number of rooms you can rent before you must apply for a change of planning, as a corporate AirBnB host with your local authority.

This is only fair, say critics since actual hotels and traditional BnBs are highly regulated in terms of fire and safety laws, must pay rates as well as corporate taxes.  The expected proposal will limit the number of days that the occasional AirBnB host will be able to let out their room (s) in their family home, or the entire home as a short term let. The number will vary from area to area.

AirBnB has certainly contributed to the property shortage in Dublin: the property and letting website Daft.ie shows that more than half of all lettings in Dublin - c5,500 – are now short term AirBnB rentals.  It is a common statistic in many other popular European tourist cities where public housing in particular has not kept up with demand.

Bad planning, the post-2008 debt legacy, inept politicians, mass tourism and the lure of bigger short term returns by property owners have all fed high the rolling property crises across so many cities her and in the EU.

Whether you live in Dublin or Dubrovnik, in the end, the huge potential returns from the AirBnB model – whether you rent a room per occasional night or by the month/year – is more attractive than becoming a registered BnB owner or a fully registered landlord. 

For many, even the tax free, regulation-lite Irish Rent-a-Room scheme in which you can earn €14,000 a year renting a room or rooms in your home, is just not as attractive as the higher yielding (and less personal) AirBnB option.

So alluring is the higher AirBnB yield that I know of student tenants in Dublin who are now advertising on closed, pseudo AirBnB social media sites for replacements as each of their fellow tenants graduate and either return home or find other accommodation closer to new jobs.

New student tenants of, say, a two bedroom, four-bed apartment are, I was told, so desperate for even a shared place to sleep that they are willing to pay by the night a la AirBnB. The other three, whose rent (if it is in a major city) is controlled by Rent Pressure Zone rules keep paying the usual rent to their landlord, but pocket the difference for the fourth bed, tax-free.

Regardless of your personal views of property ownership, governments are convinced that AirBnB is contributing to housing shortages (albeit mostly of their making). The numbers of consecutive days that can be let out have all been restricted in Paris, New York, London, Amsterdam, Barcelona, Berlin and other popular tourist destinations.

If you are already an Irish AirBnB host and are renting your entire property in a Rent Pressure Zone area, you might want to reconsider your profit targets.

Meanwhile, all income from AirBnB lettings is subject to income tax but under Schedule D Class A Trade Income, just like any other business.  Unlike someone who rents a property fulltime, AirBnB hosts cannot claim the same tax reliefs or deductions.  Always get proper advice before you make any tax assumptions.

Anyone who has not registered as an AirBnB host with the Revenue is asking for trouble. They know who you are because the company is obliged to furnish your details to the Revenue. Being unregistered risks not only a back-tax payment but penalties and surcharges and a very chance of being audited.  Renters who sublet a room via AirBnB also have to register with the Revenue, but should seek permission from the owner first.

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