In a recent column, I reminded readers that with approximately half of all private health insurance renewals coming up in the first three months of the New Year, you needed to give yourself enough time to shop and compare prices if you wanted to avoid overpaying for your cover in 2016.
Health insurance is now a very big ticket – and essential – annual expense for the two million plus people who have this cover.
A couple can easily expect to pay €2,000 or more for a good, fairly comprehensive hospital plan and a typical family of two adults and two or three children, about €2,500.
Anyone paying more than these amounts, or who has not changed their plan or provider in the last two to three years “is almost certainly paying too much”, say well known specialist healthcare brokers, like Dermot Goode of www.totalhealthcover.ie and Roisin Lyons of www.lyonsfinancial.ie . Shopping around for better value in the huge marketplace of plans every year is a must.
But another ‘big ticket’ purchase that certainly should be addressed in the New Year is a personal pension.
Retirement planning should get as high a priority on the personal finance spending scale as health insurance but it doesn’t: the numbers of working Irish adults with a private occupational or personal pension is well below 50%, few of these people contribute enough and the state pension is failing to keep up with public expectations (since PRSI contributions are compulsory) and the ability of the state to meet those expectations.
So before this first month of the New Year is over, consider adding a pension or retirement planning as your second personal finance priority (after that health insurance renewal).
Here’s a useful checklist to consider:
* If you work in the private sector, do you have a personal pension in addition to an expectation for a state pension at age 66? Is it a defined contribution or defined benefit pension? Do you know how much your fund is currently worth? How much deferred income do you contribute? How much does your employer contribute (if it is an occupational scheme)?
* Are you claiming all your tax relief on your contributions? Private pensions attract top rate tax relief for anyone paying 40% income tax and every €100 paid into your pension will only cost you €60.
* If you are within 10 years of retirement age (which can be as young as 50 for some occupational scheme members) have you had your pension fund and the underlying assets independently reviewed? A proper review means no ugly surprises when you hit retirement – like discovering the fund is worth a lot less than your expectations. (The average personal occupational pension fund, according to Irish Life is worth only about €100,000 which, if annuitised, will only produce an income for life of between about €3,000-€5,000.)
* Pay an independent, impartial, fee-based adviser if you are setting up a pension, for a review or if you need post-retirement pension advice. Finding such a person is not easy. You can ask friends, family or colleagues for a recommendation, contact one of the broker organisations or check the inter-active member’s map on the website of the Society of Financial Planners of Ireland (www.sfpi.ie).
* A good pension review will include questions about your employment history, both here in Ireland and abroad. Foreign, repatriated pensions may have tax implications. Pension funds left abroad if you return to Ireland to keep working could have inheritance tax implications if the holder dies prematurely.
* The qualification rules for an Irish state pension have changed in recent years and you will now need 520 full rate employment contributions and a yearly average of at least 48 contributions. A minimum state pension can be paid if you have contributed at least 10 full-rate contributions from 1953 or later to the end of the tax year before you reach age 66.
* Pension Freedom Day last April in the UK means that private pension fund holders – even Irish holders – can access their pensions from age 55.
* Irish people in receipt of a UK state pension also have an opportunity to top up their weekly pension by £1- £25 by making a lump sum payment to the UK Department of Work and Pensions between now and the deadline for the top-ups which is April 5, 2017. (See MoneyTimes, 3/11/15) A good pension adviser can explain the benefits of the top up or even the voluntary purchase of UK social insurance contributions if you do not qualify for a full, UK pension at retirement.
* If you are one of the thousands of new, often young, employees in Ireland, the best thing you can do this year is to join the company pension or group PRSA and make a minimum contribution of 10% of your gross salary. The tax relief will reduce that bill significantly and you won’t notice the ‘loss’ within a short few months. Your lifestyle will quickly adapt to the bottom line on your payslip. Your retirement lifestyle will be all the better for it.
Jill’s 2016 edition of the TAB Guide to Money Pensions & Tax is now in all good bookshops. If you have a personal finance question for Jill, email her at jill@jillkerby.ie or write to her at Jill Kerby, The Munster Express, 37, The Quay, Waterford.
