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Category : News

What are the risks to your investments?

When we’re designing an investment portfolio for our clients, we take into account quite a number of considerations. We start by understanding your investment goals and time horizons, and then we build a full understanding of your liquidity requirements, any asset class preferences that you might have and also the returns that you expect.

This final element brings the whole area of risk into the discussion – what your appetite is for risk and also your capacity to withstand any shocks within your portfolio. We look to build a portfolio for you that, in an overall sense, reflects this appetite and capacity for risk. We want you to achieve your investment objectives, while at the same time ensuring you can get a good night’s sleep and not lie awake worrying about your investments.

We’re asked a lot about risk in an overall sense and also more specifically about the different types of risk and how they might impact your portfolio. So we thought it would be useful to set out some of the main risks that can have an impact on an investment portfolio.

However we want to start with a note of caution. This is not an exhaustive list; it is simply a list of the main risks. Please note that the magnitude and impact of risks change all of the time too, as investment conditions change. Of course we’re always happy to answer any specific questions that you have in relation to any of these risks.

 

Economic Risk

This is certainly one of the most recognised risks. When there is a major economic shift, this can have quite a significant impact on investment portfolios. The last time we saw one of these was in 2008 / 2009 when the near-collapse of the banking industry plunged the world into recession, having a significant impact on investment portfolios around the world.

 

Geopolitical Risk

These are politically led events that happen across the world that create risks, which don’t always play out as expected. For example when President Trump was elected, many commentators thought that this would herald a swift decline in investment portfolios. However the opposite turned out to be the case – the S&P 500 index is up 21% since he was elected! But on the other hand, what impact would an escalation of the situation in North Korea have?

 

Market Risk

This is where individual shares can be dragged down as a result of a significant market downturn in their sector, as opposed to issues that may be affecting the individual company itself. Probably better known as collateral damage!

 

Currency Risk

This risk is impacted by changes within a single country or region. The value of a currency will be impacted by economic events that are specific to that country (along with other factors). So while the investment performance of (let’s say) British stocks that you hold may perform in line with expectations, the value of Sterling will have an impact on your investment too, either increasing or reducing the value when transferring the money back into Euros.

 

Interest Rate Risks

We’ve all become very accustomed to an extremely low interest rate environment. However nothing lasts forever, and we are seeing signs around the world of interest rates beginning to increase, albeit quite slowly. These will impact different asset classes. For example, as interest rates rise, the yield on existing bonds falls, as investors will get a higher return from new bonds issued. Fixed interest (bond) fund managers in particular watch interest rates like a hawk! In the same vein, inflation has an impact on some bonds (where a fixed rate of interest is paid), so inflation risk is another that is carefully monitored by fixed interest fund managers in particular.

 

Credit Risk

Bonds are effectively loans made by investors to issuers (governments or companies usually) in return for a coupon each year and repayment of the loan (investment) at the end of the term. There is always a risk, sometimes very small and at other times bigger that the issuer will default on the repayment of the loan. Higher risk issuers have to pay a higher coupon (rate of return) to attract money to make this risk attractive to an investor.

 

As stated earlier, this is not an exhaustive list of risks! We all face risks every day in relation to every aspect of our lives, managing investments is no different. However the critical lesson is to be clear about your appetite and capacity for risk, and to ensure that your portfolio reflects this. Then you can leave the fund management experts to worry about all of these individual risks, as they seek to achieve the returns you expect in order to meet your investment goals and objectives.

In your 30s and thinking of retirement – are you mad?

Well the short answer is no, you’re not mad to be thinking about retirement in your 30’s. Of course it is not going to be foremost in your mind as there are lots of competing priorities – a house to be bought, maybe a wedding to be celebrated or a family to be started. And these also don’t take into account the holidays, cars and social life that are there to be enjoyed!

So planning for retirement is probably well down the list…

But it’s a problem that won’t go away, instead the challenge gets significantly greater as time marches on for a couple of reasons. First of all any savings made in your 30’s have more years to benefit from the magic of compound interest and will have a much bigger impact on your retirement outcomes than money saved in later years. Secondly, the state old age pension scheme is under enormous pressure due to Ireland’s ageing population. By the time people who are in their 30’s today actually get to retirement, state benefits will look very different; will they be paid later, paid at a lower level or means tested? Maybe people will face a combination of all of these…

So what can you do to positively impact your own retirement outcomes?

 

Adopt a savings mind-set

This is an important starting point – to recognise the importance of saving for different timeframes, including retirement. We’re not suggesting that you stop spending, as life is definitely for living! But we are suggesting that you take a balanced approach to your finances; spend money on things that matter to you, avoid frittering money away and take a strategic approach to your financial future rather than simply hoping everything will turn out ok! Saving money is a key pillar of a strategic approach to your finances.

 

Pay yourself first

We sometimes find with clients who are in or around their 30’s that while the intention to save for retirement is there, the reality is that it just doesn’t happen. Saving for retirement falls to the bottom of a long list of priorities and usually doesn’t make the cut. So our advice is to reverse the priorities. Pay yourself (by saving) first, immediately after you get paid each month. As a result, something else will suffer – this will usually be a discretionary spend (such as that 2nd coffee bought every day, the extra takeaway dinner every week) that actually adds little value to your life.

 

Understand the impact of debt

Debt plays an important role in all of our lives, whether it is a mortgage for your house or a loan for a car etc. We all know the folly of running up credit card debts and also borrowing to fund your lifestyle. However simply the availability of debt can really hurt your retirement planning too. Take the example of someone who gets a salary increase. This increases spending / saving power. Some people unfortunately see this as an opportunity to immediately change the car and borrow more money as additional repayments can now be afforded. Yes you’re driving a nicer car, but your salary increase now has no impact on improving your financial future. We’re not killjoys who think you should save every extra euro, but salary increases should reward you both today and tomorrow.

 

Don’t waste windfalls

Similar to the last point, windfalls that quite often are in the shape of pay bonuses are an opportunity to dial up your enjoyment of life today (after all you’ve earned it), while also improving your future. Set yourself a personal commitment to save x% of any windfalls you get for your long-term future, while enjoying the balance of that bonus today.

And really achieving balance is the key point that we are attempting to make. Yes enjoy the financial opportunities that present themselves to you today. But don’t do it at the total expense of your financial future later in life.

 

Avail of any “free” retirement support

This final point applies to anyone who is fortunate enough to have a benevolent employer who agrees to pay into a pension scheme for you. This will often be done on the basis of “matching” your own commitment, up to a certain limit. Don’t let this opportunity pass you by!  This is effectively free money for you and a reward for sound financial behaviour carried out by you. Always avail of this opportunity to the maximum that you are able, as it is usually offered on a “use it or lose it” basis – if you don’t avail of your employer’s matching contribution in a given year, you can’t come back looking for it later.

 

As we said at the outset, we understand that planning your retirement is not going to be at the top of anyone’s wish list while in their 30’s. However by embedding some good financial habits, you can hugely improve the quality of your life, both today and in the future.

5 ways to pay less tax

Tax is a necessary evil. If we want to live in a country with access to public services, taxation is the system used to pay for these services. We can (and do!) argue and moan about the different levels of tax payable and whether they are levied fairly. But at the end of the day, the money to be used for public services has to be collected somewhere.

While most people accept that tax must be collected, most people certainly do not want to pay more than their fair share. So as we approach the 31st October tax payment deadline for individuals, we’ve set out 5 ways that can help you to reduce your tax burden either now or in the future. All of these are perfectly legitimate and are not considered aggressive tax practices – they are simply good tax housekeeping that is sometimes ignored.

 

Claim relief for your medical expenses

It still amazes us how many people let this one slip by… You can claim standard rate relief (20%) for all the medical expenses that you pay for – typically your own, your family’s and in some cases where you pay other people’s expenses. Most medical costs qualify and when you add up all those doctor visits, prescriptions, physio sessions, hospital consultations, x-rays etc., they can amount to a tidy sum. On top of this, some dental procedures such as crowns and gum treatments also qualify. Your claim is reduced by amounts claimed back from health insurers.

The process is so simple. You claim as part of your tax return and you can even go back and claim for the last four years. There might be the cost of a holiday coming back to you, to help the recovery from all your ails…

 

Make a pension / AVC contribution

With this one, you need to make a pension contribution payment in order to gain the benefit, but there is a growing awareness of the need to provide for our own retirement needs. The state pension scheme is creaking at the seams and the state retirement age has already slipped out to age 68 – who knows how much further out it will go? We all need to save our futures, and pensions are usually the most effective way to do so.

Pension contributions attract a number of tax benefits,

  1. Your contributions qualify for marginal (higher) rate tax relief within certain limits
  2. Your pension fund grows free of all taxes
  3. You can take a portion of your fund tax-free at retirement, with other tax mitigating strategies being deployed in relation to the balance.

 

Annual gift exemption

Another one to save tax in the future. When you die and leave wealth behind you, this often results in tax liabilities for your estate beneficiaries. One of the ways to reduce this tax liability is to gift money to your future beneficiaries while you’re still alive. Any person can gift another person up to €3,000 p.a. without a tax liability. So for example, a couple in their later years could each gift €3,000 to their children, sons & daughters-in-law and their grandchildren etc. every year. They don’t have to be directly related. This could significantly reduce the amount eventually to be inherited and could significantly reduce or remove any tax liability.

 

Be clever with financial protection

Some people unfortunately still think that all life assurance policies and illness benefits are all the same. They are not. Some can be used for specific purposes while attracting tax benefits – for example Section 60 policies that are used to pay an inheritance tax bill are exempt from inheritance tax themselves. Others such as certain life assurance policies and Permanent Health Insurance policies qualify for income tax relief on the premiums.

This area can be quite complex. Give us a call and we’ll simplify it all for you and find the most tax efficient route for you.

 

And then there’s the rest…

And still there are many more reliefs and exemptions available, some of which may apply to you. So make yourself aware of all of the reliefs available. Whether you’ve kids in college, have spent money renovating your home, are taking a training course or are commuting on public transport or cycling to work, there are potential tax saving opportunities out there for you. A little bit of research or a conversation with us just might help you to reduce that unwelcome tax burden that you are shouldering.

Financial planning is not about products

In financial planning businesses such as our own, a relatively small proportion of our time is spent dealing with the implementation and servicing of financial products on behalf of our clients. Because financial planning is so much deeper than simply putting products in place.

Instead our clients today come to us with relatively simple questions (that are in fact quite complex) such as “Will we always be ok?” or “Have we enough money?” There’s no easy answers to these ones! Because to answer them, we need to know what sort of a life you want to lead, and then we need to put a cost on that life. It’s only then that we can start to develop a financial plan to help you achieve that life, help you build a risk appropriate investment portfolio, plan for your retirement and protect yourself if that’s what your plan requires.

But sometimes our clients approach us about other financial challenges they might have, or indeed simply want to bounce ideas off us! We’re delighted to help and give you an opinion if we can. And if we can’t help you directly ourselves, we often know someone who can actually help you.

Here are some of the areas we’ve been asked about.

 

Tax Advice for Individuals

Business owners and professionals will usually have an accountant. Many PAYE workers don’t. That doesn’t mean that you can’t benefit from tax advice; some of you may want information about annual gift exemptions, others may want general tax advice. We’ve been asked many tax questions over the years. With some of these, we can give you the answer. However if we can’t help you ourselves, we have relationships with some accountancy and tax firms that will provide you with the services you need.

 

Advice about Bank Accounts

We came across a situation some time back with a client where neither their bank manager nor their accountant had spoken to them about the importance of having multiple signatories on their bank accounts, both personal and business accounts. We believe that this is simple, practical advice in most situations, but of course each situation should be looked at on it’s own merits. Unfortunately in this particular case the client died and his wife ended up in an awful situation of being unable to access his / their money without jumping through all types of legal hoops… This is an area you should consider – would a death or incapacity of one of you be made worse by being unable to access cash in bank accounts?

 

Enduring Power of Attorney

This is a legal document that can be set up by a person during their life when in good mental health. It allows another specially appointed person to take actions on their behalf should they become incapacitated through illness in the future. This prevents assets being frozen and going under the control of the courts and allows the person acting on your behalf to make a range of personal care decisions on your behalf.

Anyone who has been through this situation, needing to access the assets of a relative who has lost their mental capacity (e.g. to pay for their care) will know the value of having an enduring power of attorney in place. It can be incredibly frustrating being unable to carry out simple actions on the person’s behalf without it.

At the same time, many people also draw up a “Living Will” which captures their preferences in relation to areas such as end of life care, their preferences in terms of resuscitation etc. when very ill or close to death.

We suggest that you give this some thought and if it is something you want to progress; the best place to start is with your solicitor. They will talk you through the process and then draw up the papers that are needed to put the enduring power of attorney in place.

 

A Will

Yes we still come across clients from time to time who don’t have a will in place. We always strongly suggest that you get this in place. It is a relatively simple process, usually carried out with the help of a solicitor. However the benefits are significant. It enables you to ensure your assets are distributed as you intend on your death and that this process is carried out as painlessly as possible.

These are just some of the areas that we’ve been asked about. While our primary role is to help you build a robust financial plan and then put in place financial solutions to achieve your financial objectives, we’ve a pretty broad perspective of a range of related areas. So don’t be afraid to ask! As we said earlier, if we can’t help you, we probably know someone who can.

Are you a cohabiting couple? Get protection advice!

According to the Census carried out in 2011, 12% of families in Ireland are now made up of cohabiting couples.  This cohort of our population still faces some unique challenges when it comes to personal finance and inheritance. In this article, we’re going to identify some of the significant issues to be managed, and set out why it is so important for cohabiting couples to get expert financial advice. Not doing so could result in some very expensive tax liabilities down the road!

 

The Background

In 2010 the Civil Partnership and Certain Rights and Obligations of Cohabitants Act was enacted. This Act conferred rights similar to those of a married couple on registered civil partners and qualified cohabitants. The rights extended though are different for both.

Registered civil partners now have automatic rights to each other’s estates on death. This entitlement was not extended to cohabiting couples, who can apply for a provision out of the deceased’s estate but have to pay inheritance tax on it.

As a result, it is critically important that cohabiting couples get expert financial advice in order to avoid inheritance tax bills in the future.

 

The family home

As cohabiting couples are not treated for tax purposes in the same way as married or civil partnership couples, the death of one partner could result in a sizeable tax bill for the surviving partner. First of all, cohabiting couples should make themselves aware of the qualification conditions for Family Home Relief, which allows a complete exemption from Inheritance Tax and Capital Gains Tax if those conditions are met. This relief is available to any two individuals, which of course includes cohabiting couples. Meeting these conditions could result in a significant tax saving on the death of a partner.

 

Mortgage Protection

Mortgage Protection will be put in place as a condition of gaining mortgage approval. This policy repays the loan to the bank in the event of death of a borrower. Should the conditions of Family Home Relief not be met, there is a potential tax liability for the survivor on the death of their cohabiting partner as their Inheritance Tax Threshold (the amount on which you don’t pay tax) is only €16,250.

In the worst case scenario, if one partner alone bought the house and subsequently died, their surviving partner’s tax liability could be based on the full value of the house (less the threshold amount) – a very sizeable bill.

Arranging mortgage protection on a joint life basis might give rise to a potential tax liability, as could the inheritance of the property itself.  Solutions we would consider could include,

  • Increasing the amount of life cover to cover the inheritance tax liability
  • Taking out a “life of another” policy
  • Taking out a section 72 policy to specifically pay the tax

We suggest strongly that you seek our advice to find the very best solution for you.

 

Personal & Family Protection

As cohabitants have no automatic rights to their deceased’s partners assets, unless they have a will in place the proceeds of a life assurance contract could even end up in the hands of the deceased’s next of kin. This can be avoided by the policy being structured correctly. Again we will examine your specific circumstances and advise you on the optimal route to ensure that on your death, your assets end up with your intended beneficiary and in the most tax efficient way possible.  There are very important considerations around the type of policy to be used and who pays the premium, in order to ensure the most tax efficient solution.

 

Small gift exemption

In Ireland there is a small-gift exemption, which allows anyone to gift up to €3,000 in any tax year to anyone else with no attaching tax liability. This can be done every year and is an effective way for cohabiting couples to transfer some wealth to each other and for parents to transfer wealth to their children – €6,000 is allowed each year from 2 parents to each child. This can really add up over time!

Cohabiting couples can use this exemption very effectively where one partner is financially dependant on the other. In order to avoid a liability for inheritance tax, it is crucially important that the person who will benefit from the policy actually pays the premium from his or her own means. If they don’t have means and their partner pays the policy, they are liable for inheritance tax on the death of their partner. The small gift exemption can be used to transfer wealth to the partner without means, who can then use this to pay the premium. This will enable the policy owner to pay the premium where he/she doesn’t earn an income.

 

The goal of this article is to give cohabiting couples a flavour of some of the important issues they need to consider in relation to their personal finances. We will be delighted to talk you through your specific situation, and help you ensure you avoid any nasty surprises at a later stage.

What’s the story with SME’s and pension schemes?

Small & Medium Enterprises (SME’s) and pensions schemes… they don’t appear too often in the same sentence! Pensions are a real issue for employees working in these small businesses and a headache for their employers. So what is the current situation and what needs to be done?

 

Pension coverage is at historically low levels

With the economic crash, pension coverage levels fell dramatically in Ireland. At the end of 2005, 56% of the working population in Ireland were in pensions schemes. Roll on a decade later and this figure had fallen to just 46%.

However these figures include public servants who we know are all included in pension schemes. So when you look at the private sector only in Ireland, the coverage figure at the end of 2015 is a lowly 33%.

We also know that almost all large employers in the private sector have pension schemes for their employees, which in turn means that pension coverage for SME workers is a lot less than this one third figure…

 

Do SME workers need pensions?

The answer to this is a resounding yes! The maximum state contributory pension for someone aged under 80 in Ireland today is €238.30 per week. While politicians like to increase this figure, it is becoming ever more difficult to do so. Unfortunately old age pensions and pensions for public servants are paid out of tax receipts; there is no pot of money that has been saved to pay for these. Today there are approx. 5 people working (and paying tax) for every retired person (taking money from central funds). But by 2040 this ratio will have halved, so there will be less money coming in and more going out.

Old age pension rates are very unlikely to ever provide more than subsistence benefit levels. Workers need to plan their retirements themselves.

 

Why is the problem so acute among SME’s?

There are a number of reasons for this, and all of them valid. However that fact doesn’t make the problem go away…

First of all, many SME businesses started from nothing. Many started in the owner’s kitchen or garage, as they pursued their wish or need to build a business themselves. Taking earnings out of the business was a challenge in itself, never mind funding a pension! Employees were then hired as needed, often pushing the earnings of the owner back again for a period of time until the new employee became productive. Funding pensions remained down the priority list. If the owner didn’t have a pension scheme, the employees were unlikely to have one either.

Then as SME’s moved on to a more sound footing, why were pension schemes not introduced? Some of the reason may be down to the increased flexibility that exists within SME businesses. The owner decides how much will be paid to an employee in total – usually he / she will be happy for the employee to decide the split between salary and pension. More often than not, the employee wants to maximise income today, so they take all of their earnings as salary. So part of the reason is down to choices made by employees in SME businesses. Corporates on the other hand are much more rigid. When you join a large organisation and agree a salary figure, you are also automatically enrolled in the pension scheme. You’re not given the option to opt out of the pension scheme and take the money as cash instead.

We also know that SME businesses were very hard hit during the economic crash as they don’t tend to have deep pockets or wealthy shareholders behind them. As a result, they slashed costs in their businesses simply to survive. Pension contributions were one of these costs.

 

So what needs to be done?

Unfortunately the problem is not going to go away for employees in SME businesses. There are a few stakeholders to bringing about change.

Employers in SME businesses need to start thinking a bit more like large companies. Pensions are a social requirement for workers today. They are doing a disservice to employees to look after them while working, but to then effectively set them adrift in their later years. SME employers often also underestimate the value of pensions in recruiting the best people into their businesses and then retaining them. Pension schemes are a really important and valued employee benefit.

Employees need to take ownership themselves too. This is not their employer’s problem. If employees want more than simply eking out an existence in retirement, they need to take some pain today. This is either in the form of lower earnings and a pension contribution by their employer, or saving for retirement themselves.

The state has a role to play too. First of all, tax relief must continue to play an important role in encouraging people to save for retirement. However more needs to be done… And this may be in the form of mandatory pensions, where employers are obliged to provide pensions for their employees. This system operates in a many countries around the world, and is currently being studied by policy makers in Ireland. Watch this space – you’re going to hear a lot of discussion about auto-enrolment in pension schemes in the coming years.

 

If you are an SME owner or an employee and want to start taking control of this issue yourself before being forced by auto-enrolment, give us a call. We’ll be delighted to guide you.

What’s changed over the last decade?

History teaches us many things. Particularly if we’re looking for a bit of guidance in prudent personal financial management, the last decade offers us a wealth of useful lessons.

During the last decade we’ve seen a (hopefully) once in a lifetime global economic collapse, the entire banking system teetering on the brink, followed by a deep recession. However thankfully now in Ireland (although unfortunately not in every corner of the country), we’ve seen a strong recovery in recent years to a point where it appears the boom times are back! So what can we learn from all of this, particularly as we hear that dreaded “boom” word??

 

Be careful who you listen to

Let’s start with the European Central Bank’s Monthly Bulletin of March 2007 that said,

“Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. External conditions thus provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum.

“Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency.”

Well, how about that! Within a few short months the global economy started to implode, and the whole EU project faced desperate times with the emergence of the PIIGS economies – do you remember them? These were also the days of Dublin taxi drivers boasting about the 3 properties (never to be built) they had bought for a song on a beach in Bulgaria.

So be careful who you listen to and be very circumspect about market noise and the latest “sure fire” investment opportunity.

 

Keep a long-term perspective

When you are looking at your pension fund, or your risk rated investment portfolio, you need to maintain a long-term focus. There’s always a huge temptation to try and time the market, but this is folly.

The people who suffered most in the economic collapse were those who had no plan and tried to call the market. These people typically sold assets such as shares or property after significant falls in value and then after suffering so much, were very slow to re-enter the market and missed most of the recovery. In fact, stock markets had pretty much fully recovered in 2011, but many people were out of the market for much of the recovery period and their portfolios did not recover. In fact the S&P 500 rose by almost 200% (196.2% to be exact) from the eight years from March 2009, rewarding people who stayed invested.

People with a plan typically stuck to it and avoided making short-term calls. They did not make large scale asset movements and as a result they experienced the collapse, but more importantly also the recovery in the markets.

 

Diversification is key

Back to those Dublin taxi drivers, and many other people in Ireland, this is one lesson in particular that was bitterly learned. Ireland’s love of property above all other assets hit many people very hard. No matter what your investment objectives are, it is very important that you protect yourself by not being over-exposed to any one asset category in particular.

 

Keep emotion out of it

If investing were a science then there would simply be a formula for success. We all know this is not the case. Our successes (and failures!) are strongly affected by uncontrollable market factors, which emotionally affect us and cloud our judgement.

The people who tend to suffer most are those who exhibit extreme emotions in relation to investing. Being too greedy is a recipe for disaster in a rising market, as these people often don’t take the opportunity to lock in any gains. In a falling market, excessive fear is also a big enemy as people exit the market and are too fearful to re-enter, thus missing a market recovery. The answer is to make investment decisions on logic alone…both yours and that of your adviser!

 

Have a safety net

The economic collapse resulted in a lot of pain for many people, with salary reductions and a large increase in unemployment being two of the most unwelcome effects.  For these people, cashflow became an immediate issue as their non-discretionary outgoings (such as mortgage and other loan repayments) typically did not reduce in line with the fall in income. This caused significant issues for people with no cash buffer as they struggled to deal with banks and other creditors, resulting in significant financial pressure, stress and a dramatic fall-off in their lifestyle. Going forwards, many people have prudently prioritised a cash (or other liquid asset) buffer as one of their investment objectives.

 

Don’t go it alone

As people saw their portfolios collapsing and faced uncertainty about their financial futures, it became more and more difficult to make rational decisions. This is where a trusted voice became extremely valuable and for many, that voice was their financial adviser. We’re able to stand back, remove the emotion from the situation and provide clear thinking in a difficult situation. Sometimes the advice might be to do nothing. For others, we can help you face up to your situation and plan on how to deal with it.

Having that second opinion, apart from the positive impact it will have on your financial wellbeing will also seriously reduce your stress levels!
So in summary, our advice is to have a financial plan and stick to it. Tune out of the market noise and watch the horizon rather than the next hill. And let us help you to keep emotion out of your decision making and to stay on the right track.

Minimise the impact of divorce on your financial plan

A marriage breakup is usually a traumatic time. Very significant life decisions are needed about custody of children and access arrangements, and where each party will live. Often relations between the parties become quite fraught… and then financial arrangements need to be agreed.

At this stage, the difficult areas of dividing up the assets, maintenance payments and agreeing the ongoing repayment of debt need to be tackled. Having a financial planner involved in this process is very valuable, as they will approach the task in hand without emotion. Our job is simply to achieve the very best outcome in relation to the financial issues that will inevitably arise.

So to help you, here are some of the areas that we can help you with.

 

We’ll start with our lack of emotion!

We’re actually as emotional as the next person… except when it comes to our clients’ finances! At this highly charged time, it is invaluable to have someone at the table who will leave emotion at the door, and who will look coldly at the financial picture. Sometimes a potential solution such as selling a family home in order to buy two smaller homes needs to be voiced, but often it is difficult for both parties to agree this themselves. Having a voice of reason can save a lot of time, expense and additional heartache.

 

Make sure you get (the right) life cover in place

Once an agreement for maintenance payments are put in place to support the other spouse and children, it is very important that life cover is put in place to secure these payments in the event of death. However we strongly suggest that you seek advice in relation to the type of policy and the beneficiary profile in order to reduce the Capital Acquisitions Tax (CAT) liability on receipt of the benefit.

If you are the recipient of maintenance payments, it is also important to ensure your ex-spouse has adequate income protection cover should he/she be unable to work because of illness or injury.  Also we’ll help you to ensure that you retain any health insurance cover, as lapses in cover can lead to increased cost or indeed reduced coverage down the road.

 

Be realistic about household expenses

This is particularly important if you previously didn’t pay too much attention to the money being spent by you and your ex-spouse each month. If you are to be the recipient of maintenance payments in the future, you need to immediately take a forensic look at what is spent to maintain the family. You need to track and document your monthly expenses very diligently, and also think through the one-off expenses that arise during the year – motor expenses, education expenses, holidays, club fees, insurance costs etc.

All of these costs quickly add up and we can help you think through them all. However we don’t have a magic wand to make them go away – the reality going forwards is that a single income may / will have to sustain two households, so sacrifices often need to be made.

 

Pensions are a minefield – we’ll help you through it

Pensions are complex beasts at the best of times. On divorce they become even more complicated. We can help you to ensure an equitable solution in relation to an ex-spouse’s pension, through the application for a Pension Adjustment Order (PAO). This entitles you to a share of your ex-spouse’s pension fund.

There are different ways that these can be established. The benefits for both parties can remain in the pension scheme until the pension scheme member retires, or instead the non-member can transfer their share of the assets to their own arrangement. We’ll help you identify what’s the right approach for you.

 

We’ll help you to minimise the tax bite

This can emerge in many ways. If people are generally inexperienced in financial matters, we can help you structure your income tax payments to avoid any nasty (big) tax bills. We can also advise you in relation to the transfer of assets between both parties to ensure this is done as tax efficiently as possible. And we can help you reduce where possible any future inheritance tax liabilities.

 

Divorce is very difficult and the financial repercussions can be immense. Don’t let them spin out of control – we can help you maximise the value of every euro that is available.

What’s all this talk about auto enrolment in pension schemes?

You might have heard references in the media to “universal pensions” and to “auto enrolment” of employees in pension schemes. So we thought it might be useful to give you some thoughts about our thinking on these concepts.

 

What are universal pensions and auto enrolment?

Universal pensions are pretty much what it says on the tin. It is a concept of every adult (or at least every working adult) having retirement savings in place to help fund their old age, when they are no longer working.

Auto enrolment is a similar concept, but this time aimed at all employers who would be obliged to include all of their employees in a pension scheme. At the moment, some do and many don’t. An employee would automatically have to be included in a pension scheme by their employer, with contributions paid by the employer, the employee and the state (via some form of tax relief). The employee could then choose to opt out if he/she so wished.

 

Why might auto enrolment be introduced?

Because Ireland has a looming retirement crisis. State old age pensions, which provide subsistence level benefits only, are likely to be under significant pressure in the future as they are paid out of current tax revenues – there are no savings in place to pay them. So today’s workers pay tax, which funds the payments to pensioners today. Currently there are 5 people working for every pensioner. However this rate will halve by 2040. There will be less money coming in and more going out – the cost of state pensions are increasing by approx. €200m each year.

So the government has a problem and needs people to save for their retirement themselves. And this challenge is only getting bigger too, as a result of the collapse of the economy. In 2009, private pension coverage in Ireland (those with pension funding in place) was 51.2% of workers. However by the end of 2015, this figure had fallen to 46.7% coverage. When you look at the private sector alone (excluding all public servants), coverage levels are down at less than one third of employees. So the issue is that under the current voluntary system, a great proportion of workers simply don’t (or are unable to) make provision for their future needs. The government has articulated that auto enrolment is the main plank of a potential solution to driving up coverage levels.

 

When might it be introduced?

This is the big question! Auto enrolment is certainly a number of years away as it’s one of those nettles that successive governments have failed to grasp. However it appears to now be on the horizon within the Dept. of Social Protection. There’s no doubt that it will take some time to design a scheme, gain agreement with all social partners and then implement the scheme. Maybe we’ll see it in the early 2020’s?

 

Is auto enrolment the way to go?

First of all, Ireland is not the only country with this ageing population and retirement challenge. Auto enrolment has been introduced successfully in a number of countries around the world, and as recently as 2012 in the UK. As a result, pension coverage in the UK jumped from 47% in 2012 (similar to our coverage today) to 66% last year. So the results have been very encouraging there and in other countries such as Australia, New Zealand and Singapore.

The benefit also of following these countries is that there are also lessons to be learned from mistakes that they made. Any system that is introduced needs to minimise the administrative burden for employers. Any new system also needs to avoid a “race to the bottom” where employers with good pension schemes in place for employees might reduce benefits to the minimum allowed under auto enrolment.

 

How will it impact you?

We work hard with all of clients, encouraging structured retirement planning. After all, our goal is to help you to live the life that you want to live, without money being an insurmountable hurdle. Retirement planning is central to the achievement of this goal. So if you’re following a structured retirement plan, then auto enrolment will not impact you at all as it is aimed at people with no retirement funding in place. If you have no pension funding in place, auto enrolment will get you started, through your employer setting up a scheme.

But waiting for auto enrolment is not the answer. This has been one of the biggest political cans kicked down the road by successive governments. Don’t risk your future waiting for this to stop. Come and talk to us and we’ll help you to start taking control of your financial future in retirement.