By Dave Kavanagh

Something that crops up when people are planning ahead to protect them and their family’s financial future, is the fact that we don’t know exactly what the future holds. Will jobs and income change? How long will I maintain good health? Will I win the lottery jackpot in the next 3 years? The uncertainty of the future means that we often plan for a variety of occurrences. One important aspect of this planning is deciding on a term for things like Life Cover. A life cover plan can either be done for a specific term or it can be done as a “whole of life” plan. One of the problems with the old way of doing these was that the premiums were reviewed after a few years and could result in constant, substantial increases, often forcing people to either cancel them or accept a much lower level of cover. With “guaranteed whole of life” plans, you at least know exactly what the premium will always be and the level of cover but planning that far ahead can be costly. A relatively new method of dealing with this issue was introduced from one of the life companies, and it is an addition called “Life Changes Option”. This option gives the policy owners a number of choices once they have paid premiums for at least 15 years. They can then choose to either; a) Stop paying premiums and reduce the level of cover which stays in place until the cover is paid out, or b) Cancel the cover (if it is no longer required) and take a refund of up to 70% of all premiums previously paid, or c) Continue the plan as it is with the same level of cover and premiums. This option has become quite popular when people are looking to future-proof cover as it offers choices that can suit people’s changing circumstances. If they have cleared loans and have sufficient savings, a reduced level of cover might be ideal. If they have strong pensions and savings, they may no longer have a need for cover and can take back a lump sum. For more information on how this type of cover may suit you, ask your advisor or contact me for a free quotation.

Dave Kavanagh QFA has been advising people financially for over 25 years. For quotes or information (with no cost or obligation) he can be contacted by emailing info@financialcompanion.ie or use the contact form on www.financialcompanion.ie or @Davekav_advice on Twitter and Instagram. Combined with his previous role of gym/nutrition adviser, he regularly gives talks and workshops at seminars and events for groups, companies and government departments on financial wellbeing, positivity and motivation. As heard on RTE 2FM , LMFM and TV3.

By Dave Kavanagh

After many years and a number of delays, “Auto Enrolment” is due to commence in September of this year and is estimated to affect about 800,000 employees in Ireland. In a drive to make sure that people are planning for their income in retirement, auto enrolment is a process that will commence to deduct a payment from salary from the employee, which will be matched by the employer and have an additional contribution from Government. Initially, this will be 1.5% from the employee, 1.5% from the employer and 0.5% from Government. In years 4-6 this will increase to 3% from employees, 3% from the employer and 1% from Government, rising in years 7-9 to 4.5% from employees, 4.5% from employers and 1.5% from Government, and from year 10 and onwards, 6% employees, 6% employers and 2% from Government.
So who will be included in auto enrolment? Presently, the criteria for inclusion is employees aged 23-60 who earn at least €20,000 per annum and who are not included in an existing pension scheme that is deducted through payroll. So if someone is already included in a company pension scheme, a company PRSA scheme (personal retirement savings account) or even a personal PRSA plan that is deducted through payroll, they will not be included. Self employed people will also be exempt. If someone pays for their own personal pension or PRSA by direct debit from their own bank account, they can continue to do this but will also be included in auto enrolment. Of the 800,000 employees likely to be affected, it is estimated that 200,000 of these are on the higher tax rate of 40% and it is these higher rate tax payers that should consider an alternative option as the benefits to them will not be as good as the 40% tax relief on their contributions to a scheme done through their payroll.

By Dave Kavanagh

At times when the topic of insurance cover comes up, it’s usually Life Cover that springs to mind. Something that pays out a sum of money in the event of death is not everyone’s favourite topic over a coffee. But other types of cover, sometimes referred to as Living Benefits, should certainly be considered by anyone that would suffer a financial loss in certain eventualities. Firstly, Income Protection. If someone cannot work due to any illness or injury and suffers a loss of income, they can be paid up to 75% of their usual salary, either until they can return to work or up to a chosen retirement age if they can never return to work. Consider what the impact would be if your current salary dropped to the current state illness benefit for a couple of years. Next, Serious Illness Cover. This pays out a tax free lump sum on diagnosis of any of the illnesses that are covered. While companies in Ireland cover approximately 50-60 different illnesses (as well as many more minor events that pay partial payments) the vast majority of claims in Ireland, are for “The Big 5”, Cancer, Heart Disease, Stroke, Multiple Sclerosis and Loss of Independence. The key is to get cover in place while you are relatively young and in good health, not just because there is a much higher chance of being accepted for cover but because the premiums are so much cheaper. At present, a 29-year-old putting a convertible term plan with €250,000 life cover and €100,000 serious illness cover for a 30-year term, would cost €48.78 per month. A 49-year-old doing the same levels of cover but for only a 10-year term (both finishing at age 59) would cost €128.74 per month. Lastly, introduced in recent times is Multi Claim Protection Cover. Similar in many ways to Serious Illness Cover, this option allows people to claim for more events on a needs basis. For example, if someone has a heart attack, a percentage is paid out. If they were required to stay in hospital for a certain period, a further percentage is paid out, and again if follow up treatment is required, another payment. While everyone’s needs are different, it’s worth taking time to see what is right for you.

By Dave Kavanagh

In Ireland, inheritance tax and gift tax are both under Capital Acquisition Tax. In 2022 in Ireland, there was over €600 million collected in Capital Acquisition Tax. It also includes estates that may have been taxed in previous generations. For example, if someone left an estate worth €1,000,000 to an only daughter, she would (in the current tax year) have a tax bill of just under €200,000. After she pays the bill and puts what’s left in the bank, any interest is taxed (DIRT). Guess what happens when she passes and leaves her estate behind? It’s taxed again! So what has changed? Spouses can leave any amount to each other tax free. After that, the three new thresholds are, a) Children - €400,000, b) Other close relatives - €40,000 and c) All others (including cohabiting partners) - €20,000. Everything received above these is taxed at 33%.
So, is there any way to prevent it? There are two main actions that can either reduce or eradicate such a tax bill. The first is to take the time to plan when making a will. Let’s say a value of €900,000 was being left to 2 adult children. (Not a big estate if you combine a house, savings and a life policy). This would create a tax bill of over €16,000. Instead, if €800,000 of it was left to the 2 children and the balance between a few grandchildren (at least 5), there is no tax bill. The second thing that can be done is for the person leaving the estate to take out a Section 72 plan. This is a type of life policy that is allowed to pay any tax liability without adding to the value of the estate. It becomes particularly important for anybody that does not have children to plan things out, as even other relatives can only receive €40,000 before any balance is taxed. These thresholds are particularly important for anybody in the process of planning or making their will.

By Dave Kavanagh

When planning our family’s finances, one of the most important aspects is protecting against unexpected financial loss, yet many people often keep putting off making time to arrange it, (it’s not the most fun exercise!) despite the fact it can give them peace of mind, knowing that in the event of a fatality or a serious illness, their family do not suffer substantial financial loss. But what are they really saying? “I’ll have a look at that after Christmas”. Often replaced with “after Easter”, “after the holidays”, “after the kids go back to school” and a few others. What is actually being said is “I’ll name some time in the future so that I don’t have to deal with it now” (a bit like “I’ll start the diet on Monday/in January”). Let’s face it, you can easily find 30-60 minutes once a year to deal with something this important. You’ll be glad you took the time. “We have cover in place already”. Great. That is, if it’s been reviewed in the last few months, but on closer examination, it often hasn’t been looked at in years and circumstances have changed, it may no longer be suitable. It’s important to keep things relevant to your current personal circumstances. “Our bank sorted everything for us”. Your bank may have sorted a few things, but in most cases, banks are tied to one life company, so a fair comparison cannot be made, meaning you could be paying way over the odds for whatever the bank has put in place for you. Dealing with an advisor who is not tied to one company and can compare other options is the only way to make sure you get the best value. “I’m busy at present, I’ll give you a shout in a few months”. But the fact remains, if there is an activity that you like you will make time for it. Burying your head in the sand is rarely a successful solution to most problems. I often get the response, “I don’t have time” and then in the same conversation find out which Netflix series they have just binged. Make the time. Review your cover requirements.

By Dave Kavanagh

It’s a new year, a time when many people embark on making some positive changes or improvements in their lives. The most recognisable of these is the ‘losing weight/getting healthier” one. To give people more of an incentive to maintain what they start, it’s worth noting that if done properly, losing weight can have the added bonus of leaving you with more money at the end of each month. So how does that work?? Well, by “doing it properly” I refer to NOT going on a diet, or buying products with magic properties that will make the weight just fall off. Instead, making small, sustainable lifestyle changes. It can be adding some exercise in week 1, drinking more water (and less alcohol/sugar laden drinks) in week 2, reducing portion sizes in week 3, substituting things like chips for wholegrain rice or pasta in week 4, breaking the association of biscuits/cakes whenever you have a coffee or tea in week 5, etc., etc. Doing it this way, makes it sustainable and when weight is dropped slower over a longer period of time, it is far more likely to be kept off. So how does that help my finances?

When I analyse people’s spending budgets, it’s clear that takeaways, alcohol, sweets, cakes biscuits etc. pop up quite frequently. If you keep track of the savings when you cut down on many of these things, it’s easy to see how much you can save. One person I was helping used to enjoy her “treat” of a chocolate eclair most days. When she accepted that she felt bad after eating it and conceded that it was not helping her goal to lose weight, I suggested it was more of a punishment than a treat. I proposed that she put the money into a jar each day and when there was enough, to treat herself to a back massage, which can positively reinforce the good changes someone has made. Make the right choices, one day at a time.

By Dave Kavanagh

December is the time of year where traditionally we spend the most, is there a way to soften the impact? Of course there is. Firstly, manage expectations: Most people can’t remember what they got 2 years ago, so don’t put yourself under too much pressure for “big” presents. Next, leave the credit card at home: At about 20% interest, adding debt for things you don’t need to overspend on, only starts the new year off in a negative. Be realistic with food shopping: The shops are only closed for 1-2 days, do you really need to stock up so much? In the days/weeks after Christmas, make a list of all the things you bought but didn’t really need or through out, and keep it for next year, so you don’t repeat the same mistakes. Kris Kindle: Talk to family and close friends to agree to pick one person and buy them a present for a set limit, to ease the burden.

There are things you can also do all year round that can save you enough to cover the cost of Christmas: Switch utility providers, the savings can be quite substantial. Compare before you shop for larger items: Just because one store has a sign saying the fridge you want is reduced from €799 to €699, doesn’t mean that another store that does not have a sale on, isn’t selling the same fridge for €649. Take the time to shop around when your car or house insurance renewals come in, it can be well worth the effort. Review premiums that you pay regularly, such as mortgage protection or life cover, especially if they were taken out directly with a bank who could not compare. Finally, go through a few months’ bank statements: we regularly find people paying for things like subscriptions or gym memberships, that should have been cancelled years before or that they simply no longer require.

By Dave Kavanagh

I sometimes get told by people that they don’t have the time, or they are too busy, when it comes to arranging or updating their life cover, serious illness cover or income protection. (it’s not the most fun exercise!) despite the fact it can give them peace of mind, knowing that in the event of a fatality, a serious illness or being off work for a length of time, their family do not suffer substantial financial loss. But what are they really saying? “I’ll have a look at that after Christmas”. Often replaced with “after Easter”, “after the holidays”, “after the kids go back to school” and a few others. What is actually being said is “I’ll name some time in the future so that I don’t have to deal with it now” (a bit like “I’ll start the diet on Monday/in January”). Let’s face it, you can easily find 30-60 minutes once a year to deal with something this important. You’ll be glad you took the time. “We have cover in place already”. Great. That is if it’s been reviewed in the last few months, but on closer examination, it often hasn’t been looked at in years and circumstances have changed and it may no longer be suitable. It’s important to keep things relevant to your current personal circumstances. “Our bank sorted everything for us”. Your bank may have sorted a few things, but in most cases, banks are tied to one life company, so a fair comparison cannot be made, meaning you could be paying way over the odds for whatever the bank has put in place for you. Dealing with an advisor who is not tied to one company and can compare other options is the only way to make sure you get the best value. “I’m busy at present, I’ll give you a shout in a few months”. But the fact remains, if there is an activity that you like you will make time for it. Burying your head in the sand is rarely a successful solution to most problems. Someone once told me that they had no time and in the same conversation told me they had binge-watched 8 episodes of Game of Thrones. (They were also up to date on all the soap storylines!) If it’s important, make the time.

By Dave Kavanagh

Among the things that people in their 20’s, 30’s and 40’s are not over-enthusiastic about considering, is retirement planning. It’s too far away and they don’t want to visualise being in retirement. However, it is a simple fact, that the earlier someone starts planning for retirement, the better financially prepared they will be when it comes. The tax benefits alone should encourage people to get started. For example, someone on the 40% tax band that pays €200 per month into a pension, only actually pays €120 per month as they have full tax relief. The reverse way to consider that, is your €120 each month, instantly grows by over 66%!! (And that’s before any investment growth on your fund). If your future self in their 60’s could give you wise advice, it would be to get into the habit of having a regular deduction to plan for the future, in the same way you get used to having PAYE, PRSI or USC deducted.

With “Auto Enrolment” expected to come into force in early 2025, an estimated 800,000 workers in Ireland who do not currently have a pension arrangement, may find they will be compelled to participate in a scheme. While all details of the scheme are not yet finalised, it is likely that employees and employers will both contribute with possibly an additional contribution from Government. It is likely that any employees that pay for any form of pension through their payroll (whether the employer adds a contribution or not) will be exempt from having to join the new scheme. For most companies, it is relatively straight forward to offer a payroll deduction facility to their staff, which means the employee gets used to the deduction before their net pay and doesn’t think of it as an extra expense that they must pay for when they receive their salary. Whatever stage you are at, it is well worth making the time to consider your own retirement planning.

By Dave Kavanagh

There are very different cover requirements in terms of what stage of life you are at. This is primarily based on the financial loss that may occur in certain eventualities. For those in their 20’s or 30’s, they may have recently purchased their first home, maybe started a family, and are settling into a career. This is the stage with potentially, the biggest financial loss, as their mortgage may still be quite substantial, children are young (so will remain dependant for longer) and savings may not be built up yet (or were used to buy their home.) Planning is so important at this stage, to make sure their is sufficient life cover, serious illness cover and income protection. The good news is that the younger you are and the earlier you plan, the cheaper these types of protection are. The next stage, possible 40’s or 50’s, as children are older or grown up, mortgage balance is lower, and some savings have been built up. At this stage, it is a good time to “future proof” cover, while it is still relatively affordable and also, possible to be accepted for cover. It may be that health issues have occurred, needing you to avail of conversion options that are already in place with existing cover (if you don’t know if your cover has such an option, now is the time to check!) The financial loss may not be as potentially high as the earlier stage so lower amounts of cover are more appropriate. At the stage when people are coming close to, or have reached retirement, it will very much depend on their own, specific circumstances, as some may be mortgage-free and have good pension and savings in place. Others may still have a mortgage to clear and may not have made the same provisions for pension and savings. Either way, the specific, potential financial loss needs to be examined to make sure sufficient planning is in place. This could range from simply making sure things like funeral costs would be covered, up to planning that inheritance tax is cleared from any estate you may leave behind, by commencing a section 72 plan. Whichever stage you’re at, make the time to plan.