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Welcome to our Autumn newsletter.

With schools and colleges back into full swing and the evenings drawing in, Autumn is well and truly here. Thankfully there is now reason for increased optimism with the further easing of Covid restrictions and some semblance of what life was like pre-March 2020.

This is the time of year, traditionally known in our industry as “pension season”, where business owners and individuals make their year-end tax returns. In the first article “It’s time to talk pensions”, we’re reminded not only of the importance of funding for retirement but also of the many advantages there are in doing so.

As we see teenagers and young adults starting or returning to college for their first semester, the second article looks at “saving for future education costs”. This highlights how some forward planning can ease the financial burden incurred when it’s time for our children to head off to third level.

And finally, the article “It’s always a good time to review your cover” gives a quick summary of some of the different events that might prompt a review of your protection cover needs.

We hope you can find a few minutes to browse through the articles and should you wish to discuss any of the topics in more detail, we would be delighted to hear from you.

It’s Time To Talk Pensions

Talk of Pensions is in the air

Firstly, there is the seemingly never-ending debate about the issue of the Old Age Pension and the increase in the age from which it will become available. It is a fact that, firstly, as a population we are living longer and, secondly, we have an aging population. Combined these have the impact of creating a severe financial headache in regard to the sustainability of the current situation and no doubt government will have to make tough decisions in the near future.

This is also the time of year when we are faced with tax return deadlines and so the matter of making a Pension Contribution to your Pension Plan to reduce your potential tax bill arises. This in turn offers the opportunity to boost your own Pension Pot so that you lessen your dependence on the State Pension regardless of what government decisions are made.

Tax Benefits

There are three unique tax benefits that apply to a Revenue Approved Pension Plan that are not available elsewhere:

  • Tax Relief on Contributions – The contributions you make to your Pension Plan, within certain limits, are allowed in full as an expense against your income tax. In simple terms, for a top rate taxpayer, each €1000 contribution to your Plan reduces your tax bill by €400!!
  • Tax Free Growth – The investment growth achieved by your contribution is allowed grow completely tax free. This compares with most personal investment vehicles such as deposit accounts and personal savings accounts where any growth is subject to a tax charge as high as 41%
  • Tax Free Lump Sum on Retirement – On reaching retirement age you can take a large slice of your accumulated Pension Plan as a tax-free lump sum. This can be 25% of the value or up to 1.5 times your taxable income, depending on the type of Pension Plan you have.

Having a Pension Plan is not a luxury

We all have a general idea of what we would like to do in retirement, whether it’s playing golf, travelling, or taking up a hobby. However, in order to make those plans a reality we need to ensure we have the financial resources necessary. Relying solely on the State Pension certainly won’t do the business.

While your retirement may seem like a long way off, the sooner you start saving for it the better. If you are a member of an employer sponsored Pension Plan that may very well meet your needs but again you must ask if this is so or indeed consider whether you will stay with the same employer right through your working life.

Take Advice

Taking all things into consideration a good key to good pension planning is to have access to good advice.

Should you be making a Pension Contribution now?

Should you be reviewing your Retirement goals?

We would love to discuss and consider your options with you.

 

Saving for future education costs

Off to School

It’s amazing to think that the back-to-school season is now in full flow. For some it means their little ones have headed off on their first day in school when no doubt a tear or two was shed at the school entrance!! This should also be a time when you start to plan ahead for college fees bearing in mind that in recent years as many as six in ten parents expect to get into debt because of the costs associated with third level education.

The Cost of College in Ireland

Third level college fees in Ireland are capped at €3,000 per year, however, that is not the full extent of the costs. A recent piece in The Irish Independent stated that students looking to rent accommodation, in Dublin in particular, could face total costs in the region of €14,000 for the full academic year.

With most third level courses being three or four years in duration, you could be facing a jaw dropping total bill of close on €60,000. While this may be reduced somewhat by a student grant, you still need to think about other expenses that arise.

Create a Habit

If you wish to make plans the best starting point is to get into the habit of regular saving and to start a savings plan.

In general, the most effective way to accumulate sufficient funds to cover your future costs is via regular monthly contributions into a savings plan. Let’s look at an example of where you decide to contribute €250 per month from the day your child is born. When that child reaches their 18th birthday you will have set aside €54,000. This figure excludes any growth such as deposit interest or investment return the plan may achieve. Using a growth rate of 2% per annum compounded, for example, means that this figure increases to €64,236.

Bearing in mind that it is impossible to find a bank that will pay you a 2% interest rate you should consider other options and there are some….

Choosing the Right Savings Option

Most Life Assurance companies offer regular savings plans that give the investor access to a wide range of investment funds that align to their investment risk profile. Most plans will allow for the addition of a lump sum or increases in the contribution. It is recommended that plans of this nature are reviewed regularly to make sure that you are on the right track towards your target.

As with most financial decisions, having a fundamental plan is massively important when it comes to saving. As part of this plan you should consider your goals, affordability, suitability and having access to sound advice. As financial advisors we can remove some of the stress involved in putting a plan in place and making the right decision. With that in mind, please feel free to get in contact should you wish to discuss this area in more detail.

 

It’s always a good time to review your cover

Over the duration of our adult lives we often accumulate a number of life assurance policies all of which we may have accumulated for different reasons. For example, if you took out a mortgage to fund the purchase of your first or subsequent home, you most likely would have been required to put a life assurance policy in place (also known as mortgage protection) to satisfy the conditions of the loan. At the time, you may have taken out additional policies or were possibly advised to opt for specific benefit features in excess of the basic level of cover required. Bear in mind also that the policy (or policies) you took out at the time might not have been the most cost competitive due to the lender not having access to the full range of providers in the marketplace.

As we grow older and our circumstances change, our protection needs change accordingly.  Some of the factors that influence your protection needs include:

  • Number and age of dependants
  • Level of Earnings
  • Level of Debt
  • Type of Employment
  • Tax Planning
  • Affordability

Let’s look at these in more detail in terms of reviewing your protection needs.

Dependants

One of the key reasons for putting adequate protection cover in place is to ensure that your dependants are financially secure in the event of death (Life Assurance), contracting a serious illness (Specified Illness Cover) or being unable to work due to illness or injury (Income Protection).  One of the factors to consider in determining the term or duration of a policy is the age of your dependants and their level of financial dependency on you.  A general rule of thumb is to ensure that the end of the term of your life assurance policy coincides with your youngest child finishing third level education.  If you’ve recently had a child, perhaps the term of your policy needs adjusting?

Level of Earnings

Whether it be for Life Cover, Specified Illness Cover or Income Protection, the basis for most recommendations is your income or a multiple thereof depending on the type of cover you need.  If there is a considerable change in income, this should trigger a review of cover amounts.  For example, if your income increases you should ensure your Income Protection cover tallies with your level of earnings.

Level of Debt

It makes good financial sense to have, as a minimum, sufficient cover in place to eliminate liabilities in the event of your demise. As we mentioned earlier, life assurance is often a condition of a mortgage drawdown, however, that might not be the case in terms of commercial borrowings.  Therefore, it is worth reviewing that your levels of cover are sufficient and therefore avoiding a possible situation where your family may be forced to sell an asset to repay the outstanding loan amount.  There could also be a situation where you have cleared a mortgage or loan and your requirement for a policy no longer exists.

Type of Employment

You may be one of the lucky ones who are part of a company scheme that provides death in service benefits and possibly Income Protection (also referred to as Income Continuance or Permanent Health Insurance).  For the self-employed and employees who are not included in a company scheme, arrangements will need to be put in place on an individual basis.  Checking with your employer what (if any) benefits are in place is a worthwhile exercise and one which can form the basis for the levels of cover required in reviewing your protection needs.

Tax Planning

While none of us feel comfortable discussing the topic, death unfortunately is inevitable and with that comes the estate that you leave behind.   Inheritance tax can be significant depending on the size of your estate.  There are exemption thresholds in which beneficiaries can receive amounts tax free, but these are relatively low and there are situations where a large Capital Acquisitions Tax burden can fall on surviving family members.

Affordability

In an ideal world, we would simply put the necessary cover in place and that would be that. However, policies come at a cost and therefore affordability must be taken into account when both recommending and reviewing your cover.

As the article title states, it’s always a good time to review your cover.  If nothing else, you will ascertain if you are adequately covered and/or you’ll assure yourself that the cover you have is still fit for purpose and represents good value.  Why not get in touch as we are more than happy assist you in this regard.