Author Archives: Ronan McCarthy

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    Phase 3? A good time to reflect and think about our future.

    The 29th of June saw the country move into Phase 3 of our COVID 19 environment and for most of the community it has probably been a unique period in all of our lives. Think of some of the phrases that are now part of our everyday vocabulary. Reproduction rate, social distancing, flattening the curve and PPE will all now be considered as potential entrants into next year’s Oxford Dictionary. Most social analysist will agreed that in terms of priorities in Life, our views have changed. We have had time to reflect and take a breath.

    One of the area’s that people are now content to assess is establishing a ‘Goal Mentality’ where savvy long-term goals become a focal point of planning. Both in terms of our personal lives and when financial planning needs to be evaluated. Every 5 years you delay in providing for a pension, potentially your pension fund will be half the value. This is due to the effect of investment returns, compound interest and the longevity of the term to retirement. Remember, a Pension is still one of the few financial products that tax relief is available on your premiums invested. Now could be the time to start setting aside some funds for either saving or Pension funding. If your family have a potential college fee situation in the next number of years; don’t hesitate, start now and have a nest egg for fees, accommodation and everyday living of your student. Private accommodation can cost between €8,500 and €10,000 p.a. It may be time to advance this savvy Goal mentality into a take ‘Control Mentality’ and give you and your family more control in terms of your financial planning.

    In recent months, the Economist magazine highlighted another new COVID phase and underlined the fact that ‘Slowbalisation is now the new form of Globalisation’. Now has been a time where we have seen the benefit of returning to local services and providers. That’s not to say that we all have indulged in on-line shopping which is a great facility in itself. But most of us realise the benefit in local service and products. The economy benefits, carbon footprints are reduced, and your community is enhanced. Remember, most local business have websites and can of course deal with you in the same capacity as a world brand. In this new world maybe it’s time to establish new business relationships that will meet your needs and requirements. This should be based on fundamental exchange of Trust, information exchange, quality and service. A new phenomenon in the marketplace is ‘merchandised truth’, where transparent transactions and visible content is available to the consumer as a given. The presence of Block chain technology is the most likely clear example. Remember the phase, ‘Stay at home, Stay local’. Why not do the same for either online services from retail or professional services in your locality or simply shop with confidence locally where all Covid 19 requirements are being adhered to.

    Please do feel free to contract Sandra, Aine or myself on any life assurance, Pension or investment issue that may be of interest to you.

    Continue to keep safe and well

    Cheers

    Ronan

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    Blog June 2020 – Zoom, Team, conference calls and even more coffee- all part of the of our new world of remote working.

     

    We hope you and all your family are keeping well and safe. As a country we should congratulate ourselves on how we’ve done to this point, but let’s not lose what we have gained. Take the advice, be sensible and respectful of others. I think everyone agrees that our working lives have changed dramatically for better or worse, but this new working world is something we will have to continually learn to work with. In this months Blog, we take a look at market conditions, protecting your biggest and most precious asset and living in the Zoom world 2020-21-22???

    Market digest:

    The bounce did come in March with Global equities up 35% from the lows at the beginning of the month. The NASDAQ is actually close to its previous high points, with the tech sector performing as ‘best in class’ in terms of most indexes. Fund managers looking to forward thinking stock choices where ‘working from home, playing at home and delivering to home’ are all part of the offering. The market has accessed the latest COVID 19 and is seeing improvements. The general perception is that a U-shaped recovery could be apparent with most economies opening up and returning to work gradually. However, we are at the very early stage of reopening and any reversion in the improvements and curve could dramatically affect the U -shaped recovery view. Government fiscal policies, Central Bank swift action and some positive news on consumer spending have also added to market confidence. But as usual the detail is in the small print. There are numerous risks to a recovery and markets continuing to rebound. Volitivity will be part and parcel of each month.  Brexit has not gone away, the US election is pending, China and US tensions will all have significant impact on whether a recovery in markets continue in the last quarter. The benefit of staying in the marketplace cannot be underestimated as a client seeking to transfer funds that had seem a fund drop by €24,000 from February to March to cash funds; only to bounce back by €19,500. Transferring into cash would have missed the rebound. As one fund manager advised ‘Bull markets take the stairs up, Bear markets that the lift down’.

    Zoom Town:

    The Harvard Business review issued an article recently centred on the new Zoom phenomenon and how ‘Zoom fatigue’ is appearing as one of the biggest searches on Google since March. Watching out for wrinkles, expressions, tone and other visuals can be draining. The article recommends: –

    1. Taking mini breaks

    Avoid if you can taking back to back calls and keep the minutes agenda based to 45 / 50 minutes. The longer the video call, the less focused attendees become. If the meeting drags on, allow people to drop in and out.

    1. Reduce what’s on your screen

    The less that can be seen on screen during your participation in the call the better. Close down the outlook screen, google and that excel sheet if you can. Human nature will sometimes mean people not only focusing on the individuals attending but also on their backgrounds. Plants, paintings, lamps or mirrors all provide distractions. Why add more to the mix. Turn down all these visual stimuluses that the brain may have to deal with and get down to business.

    1. Switch to a phone and emails if your Zoomed out

    It may be the case that your maxed out with ¾ Zoom calls and a simple telephone or email conversation situation would suit better. A change is as good as a rest.

    4. The intimate nature of video

    Yes, some people do find video and camera calls intimating. An attendee may feel your invading their personal space and this needs to be respected. A solution to this could be to return to the level of communication that this individual is used to i.e. FaceTime, WhatsApp, or phone call. If someone declines a Zoom call, that’s ok and a switch back to what gets the business done is the best option.

     

    Protect your biggest asset – FAMILY.

    We have been reviewing clients and have made certain recommendations to their current cover. Remember Dual Mortgage protection cover is available in the market now, with double the cover on the contract and in most instances for little or no increase in cost.

    If you’re in a non -pensionable job, why not take out pension term assurance FULL TAX RELIEF on your premium. Saving thousands over the term of the policy.

    Now is the time to check your Serious Illness cover as the terms and conditions could be affected in the future.

    ALL THIS COVER IS AVAILABABLE AT A 15% DISCOUNTED PREMIUM TO 30TH OF JUNE 2020.

     

    Keep, safe and well

     

    Ronan

     

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    April 2020

    As I sat down at home to put some thoughts together in this Covid 19 climate, the issue of market performance, economics and returns may not be foremost in people’s minds. The health of the world’s nations and a return to normal life with real people centric values are far more important.

    Our own firms work environment has changed drastically, with all staff working remotely. Zoom and team video calls are now normal daily events, with dress codes, kid interruptions and of course hair problems (me included) being part of the routine. Our fund manager providers are issuing daily updates on funds and market views, most necessary but sometimes overload springs to mind. However, let us take a quick look at some of the issues that have come to the fore this week.

     

    PLANES TRAINS AND AUTOMOBILES:
    I would recommend this John Candy movie in our lockdown times, but what really springs to mind is the price of crude oil. Going in negative territory is something never seen before. You could say that is was somewhat forced by the uniqueness of the end of the month (May) trading positions of most traders (storage and over supply), but most would agree that it is not just a simple technical trading position and more of an economic capacity issue. The worlds Air lines, general transport and manufacturing hugely reduced which would probably suggest that the recent bounce needs to be balanced with practical functional economic data. The world is taking a pause and the pumps are not pumping. A slight bounce has again happened today with our West Texas oil friends moving to $14 and Brent to $20. Perhaps due to Mr. Trumps latest views and intervention.

    After participating in several webinars this week one of our fund managers and providers have highlighted 3 main issues (which are related) that will affect our economic progression in these times.

    1. How deep will a recession be, its length and overall sectoral influences
    2. GDP
    3. Corporate profits in the up and coming quarters

    There is a recommendation to focus on sectoral investment, with a heavier emphasis on Health and Tech as to a negative to Energy sectors. In summary, the view is one of long-term investment when there is value in equity investment. It is also interesting to note that CRH and Glanbia have withdrawn profits guidance this week due to the COVID 19 crisis

     

    Aberdeen Standard CEO Keith Skeoch, advised last week that in his view the ‘Markets are passed the point of maximum panic’. We did see a strong bounce and bear market rally with a raise of 22%, but in general most sectors are down at least 20%.There may be a general consensus that we are at the cusp of the bear market to a correction point ?? Yet we are not past the peak of pessimism in all markets. Indeed, what the structural damage to companies over the next six months will illustrate where we may be going. Continued bad economic numbers and earnings will have to be dealt with.

    Finally, as we all know bear markets return to bull markets. The issue here is the uncertainty and the unknown in this pandemic. It is easy to say that staying in the market is the best strategy but an individual’s ability to deal with all this volitivity is where it’s really at.

    Keep safe and well. Mind your physical and mental health. Walk, run, dance (within 2km) and take care of each other. Once we do that, really, eventually, markets will take care of themselves.

    Cheers

    Ronan

     

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    ‘Stop 67’ Campaign – Pensions the Topic that has taken centre stage in our election countdown

     

    With the election at the end of the week on February the 8th, it’s interesting to see what topics came to focus, more importantly, what seems to have taken our politicians by surprise. I could be somewhat cynical and express the view that our political representatives are too far removed from understanding how important the contributory old age pension is both to people that may have a pension (private or occupational scheme) to most of us in the working population. The fact that each member of the Oireachtas will be in receipt of a DEFINED BENEFIT pension on completion of service, may have something to do with it. Terms and drawdown are even better if you have risen to ministerial positions. One could be of the view that due to these unique benefits; they are again too far away from the financial requirements of normal people in retirement.

    Most commentators would agree that the state pension arrangements have traditionally been a carrot for ruling parties to increase the grey vote when needed. A poultry increase when needed can lend to regular radio and TV sound bites where governing parties can again state the obvious. ‘Didn’t we increase your pension’. To counter the continuance of this practice, Pension authorities are trying to put into statute a requirement that the State pension can only be altered by two factors: –

    1. An increase annually linked to CPI
    2. A mortality assessment every 5 to 7 years

    It may be part of the pending bill in 2022, but we’ll have to wait and see.

     

    Private Sector Occupational Pensions and the Old Age Contributory Pension:

    The majority of occupational pension scheme will have a retirement age (NRA -normal retirement age) of 65. The current election campaign has proven hard for most politicians as the question of increasing the state pension to 67 would mean a gap in pension for most private pension employees of 2 years. This means being assessed for job seekers allowance for the 2-year gap. You may not qualify for this payment as your private pension arrangement may be deemed outside the threshold. So, should employers look at pushing out their staff occupational scheme to 66/67? In our view each scheme and group employees need to be assessed in terms of: –

    1. The age profile of the members
    2. Funding years to retirement
    3. Individual members personal situation in terms of another pension arrangement (Spouse etc)

    Remember, it may suit you as a member of such a scheme, to take your pension at NRA. This will provide you with a tax-free lump sum and the ability to draw income if approve retirement funds are invested in. You can of course, negotiate to receive pension benefit and continue to work. Alternatively, you could seek to have your pension funded for a further year or 2 and draw the benefit at age 66/67. Each individual situation is different, and a cart blanche decision to extend the retirement age of a scheme (NRA) may not be as black and white as it seems. Remember, there is a difference between the normal retirement age on a pension scheme and when the contributory old age pension is likely to kick in.

    Watch this space!!!!

    Ronan

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    Boris, Trump, Brexit, behavioural economics, Media optics, and the Markets.

     

     

    Some of my recent blogs about the markets have advised clients that most commentators would advise cautious equity exposure over the last 2 to 3 years. Yet the Dow Jones has moved to a bull type market with growth in the US been driven (amongst other things) by Trumps tax incentives and infrastructure drives. Behavioural economics has been defined as ‘a method of economic analysis that applies psychological insights into human behaviour to explain economic decision-making’. If we were to take a look at the human behaviour of our main world leaders, one could definitely say that their behaviour has a major insight on our economics. This can be said to be true over the centuries but as we now live in a digital world where globalisation rules the roust, our leader’s behaviour could be said to be even more influential.

     

     

     

     

    Remember this:

    ‘Well, I don’t know why I came here tonight
    I got the feeling that something ain’t right
    I’m so scared in case I fall off my chair
    And I’m wondering how I’ll get down the stairs
    Clowns to the left of me, jokers to the right
    Here I am, stuck in the middle with you’

     

     

    These are the lyrics of a song by Steelers Wheel, written in 1972, called ‘Stuck in the middle with you’. It could be said to sum up where we are today in terms of geo- political positions. Who are the clowns or the jokers, but like or not we are definitely stuck in the middle with them. Boris seems to think everything is feasible but perhaps in real terms he seeks to be just ‘plausible’ with no precise content. His media optics are contrived and controlled with one media outlet allowed to ask a question at each public event. The October deadline on Brexit with the consistent reminder of a no deal exit has increased market volitivity. Trump is Trump, and with the 2020 election not that far away, his focus on all things economic will center around his re -election. Looking at the Markets, Equity markets drifted somewhat yesterday. Earnings reports have seen a pullback in market results. Focus again will turn to the Fed and possible rate cuts this week, with markets expecting to 25bp cut. Meanwhile in the UK a December election beacons. Confused??? Maybe.

     

    Our Brokerage is nearly 21 years in operation. Therefore, our clients have experienced over two decades of market ups and downs. Each of our clients have their own individual attitude towards risk which is re viewed as they journey through their working lives. A single 30-year olds view will differ from a couple with 3 kids, as will an individual at 63 retiring at 65. Each will deal with market volitivity differently. However, human nature being what it is, each will want a return on investment irrespective of what level of risk they wish to take. In reality, this is not realistic. You will not get a return on your funds if you continue to invest in deposit like investments. So where can the medium risk individual investment? In my view considering the volitivity that has continued to be part of each daily market shift, clients should not have both feet in the market, but they should have a number of toes. Staying in the market is what is required but not to be over exposed to full equity content in your portfolio. It is interesting to note that if my parent’s investment €1 in the S & P 500 on my birthday over 50 years ago! the value of that €1 would now be worth over €140,000. Now 50 years is a very long investment term, but it does illustrate the fact that market participation plays a part in investment return.

     

    Cheers Ronan

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    Ronan’s Monthly Blog – Review of the cost of Serious illness cover could be on the way.

    Up to date news on Life and Serious illness cover, average cover, claims and costs review.

     

    We recently attended a seminar from one of the leading providers of Life and Serious illness cover. The session highlighted their experience on the average pay out on claims, the age of individual policy holders making the claim, Serious illness cover updates and indeed interesting reasons to have your ARF transferred to your next of kin correctly.

     

    A lot of Irish males like telling me and I quote “but sure she’ll get the house, what more would she want”. This statement is usually proclaimed by prospective clients when we are doing a review of their life cover (for mortgage and for their family). Try running a home and kids, with all the life- style expenses without one of the household salaries? Such a loss could see a house loose €35,000 a year, that being the average industrial wage. Do without this income for 10 years would mean a shortfall in income of over €350,000. You would still need the roof over your head therefore that simple statement does not ring through. Think long term and look at the bigger picture. Family life assurance cover should be in the region of at least €350,000 irrespective of your mortgage cover.

     

    Yet at this seminar the Life company stated that the average cover on their claims in 2018 was €100,801. Furthermore, the most common amount of cover on policies is just over €50,000. If you are in this space with this level of cover for your family, you really need to review your policy and cover. The cost of life assurance in Ireland is realistic and provides good value for money.

     

    Serious illness cover has been in the Irish market since 1993 and has developed from contracts offering between 15 to 30 illnesses being covered to contracts now that provide as much cover as reasonably possible. Fringe additional benefits such as hospital cover, partial payments and child cover are now part of most providers cover. Note that the cover is based strictly on the listed illnesses and the definitions provided in their policy documents. With the advances in medical provision, thankfully, early diagnoses and screening (notwithstanding the cervical cancer scandal) illnesses are being diagnosed earlier and people are surviving. The cost of the cover is now under pressure, with most insurers stating that a likely increase in premiums could happen in June/July of this year. Some providers are now even in a tender process with their re-insurers to strive to keep any increase as low as possible. Most agree that any increase will be in the region of 15%- 25%. Therefore, now is the time to act.

     

    The claims paid in 2018 for Serious illness cover by our host company illustrated the fact that the average claim was made by 51-year olds and were made up of the following
    1. 66% of male claims related to cancer
    2. 16% of male claims were for heart and stroke related illnesses
    3. 81% of all female claims were for cancer
    Notably 50% of the female cancer claims were related to Breast cancer.

     

    Please do think of the life and serious illness cover you have in place for yourself and your family. We will be delighted to review and recommend a suitable product that suits your needs and requirements.
    You can contact us at info@rmclifeandpensions.com and at 051-391777 or 0872765147

    Thanks
    Ronan

    # Figures provided by Zurich Life

     

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    Ronan’s Monthly Blog – Protecting your Biggest Asset – Family

     

    Back in 2010 I did an article (blog now) on our old website highlighting the need to keep your serious illness contracts up to date in terms of the illnesses covered. At the time support from Microsoft on the windows office 7 was to be discontinued and we tried to make comparisons with the need to switch from the old to the new in most situations. Most people will agree that the Microsoft packages are great software, but we all want and need the new versions with all the essential supports. Similarly, your 2010 serious illness contract will not have the same benefits or supports as the new contracts in the market place today. We all know the importance of updating your systems and not withstanding some specific factors (age / smoker/ non- smoker) the same could be said in assessing your families need for life and serious illness cover.

     

    Switching factors:

    Research has identified real issues that come to the fore that in some shape or form hinder people from considering switching providers of a practical service or product. Issues such as:

    A. Not knowing such options to change is available
    B. Blind loyalty
    C. Believing that they may be at a loss
    D. Risk aversion

    All the above come to the fore (consciously or unconsciously) when you may be thinking of switching a product or service. However, if these issues can be satisfied and your concerns assessed, looking at a new contract to cover your need for serious illness protection has to be ‘seriously’ considered.

    Claims and the facts:

    We constantly advise our clients that serious illness cover will NOT cover every ailment under the sun. Indeed, claims and payments will only be made on the listed and documented illnesses in the contract and policy document. However, the cover has become more expansive over the years and provides realistic cover and provision if/when such an untimely event happens in a family.

    If you do suffer a serious illness – what could you rely on?

    Firstly, you should check with your employer to see what sick-pay arrangements they have in place. You could be surprised at how generous (or how poor!) some sick-pay arrangements are. You should also review what cover you already have in place –are you familiar with the terms of your existing policies? Check with a financial broker or advisor if you are unsure.
    Consider the savings you have. Ask yourself how much you need to spend every month and work out how long your savings could last. Unfortunately for many Irish people, their savings may not last as long as they hoped.

    Providers in the market place now can cover up to 70 serious illnesses (your old policy with cover less than 30 were covered in the initial contracts brought to the market place) including the three most common: Cancer, Heart Attack and Stroke. In fact, in 2017 these three illnesses accounted for over 80% of all claims. *Also, insurers have altered their Cancer, Heart Attack and Stroke definitions. What this means is that they expect to pay out on more of these claims once no non- disclosures apply and the definitions of cover apply.

    So, What’s new:

    We feel that this review of your cover is best practice in order to ensure that your priorities are been meet in terms of providing cover for your family. More importantly we feel that’s it’s imperative that you’re aware of any changes that may be coming down the line regarding the above. With this in mind we are informing clients that there is likely to be an increase in Serious Illness premiums for new contracts in the 2nd or 3rd quarter of this year. Our providers have informed us that this is due to their Re-Insurers increasing their costs. It’s not that more people are becoming seriously ill and making more claims, but in reality people are living through these illnesses and living longer. Therefore, please do review your current contract as the older policies will not have the same level of cover as the newer market leaders. If you have no such cover in place, now is the time to act. If these increases happen in the coming month, why pay up to 25%/30% more in a few months for the same policy.

    Cheers Ronan

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    Ronan’s Monthly Blog – BREXIT

    The Real X-FACTOR – BREXIT AND RECENT MARKET ISSUES AND TRENDS

    Reading the words X-FACTOR in the same line as Brexit may seem ridiculous, but you may recognise some similar traits in each. Both could be said to have powerful egotistical characters and players, many individuals continually strive to better their positions, there’s great diversity in terms of opinions and direction, it goes on for ever!!!
    In reality, whatever the outcome at the end of March, it will affect our economy in one way or another. Exports of FMCG will have to manage new work practices in terms of new customs issues that may arises as a result of a hard Brexit and indeed the issue of currency fluctuations. Transport companies, farming and agriculturally linked business, pharma, could all be working in a brand-new work environment whichever way the final Brexit decision goes.We have also highlighted the fact that perhaps since 2016 the market has had a lot of disruptive factors in place, both geo- economic and in terms of fundamental economics. This disruption could be said to have come to a head since Christmas and has highlighted:

    1. The worst December market performance since the Great Depression
    2. Worries continue about the Fed and interest rates
    3. Quant easing stops
    4. White house disruption and closure
    5. Matters – last adult in the house resigns.
    6. Trade Wars, China etc

    As we reach the end of the first month of the year, the Brexit issue is now being perceived by some commentators as ‘a local issue’ and contagion in world markets is unlikely?? The FT in London is about 15% of the total equity volumes in world markets, with less than 5% of this firms listed trading in sterling. Indeed, in his recent newspaper article Economist Jim Power highlighted the fact that Brexit is both a threat and an opportunity to our economy. He notes that since we are a small and open economy, some of the issues are out of our control, but long-term strategies need to be put in place. Cost competitiveness, investment in infrastructure and a quality educated labour force are key to weathering any Brexit storm. Meanwhile, our neighbours in the UK are still divided as to the manner of their EU exit (or not). Industry leaders are voicing their opinion in a more vigorous manner as the deadline gets closers.

    Last week some of the UK’s largest employers – including Airbus, Europe’s largest aerospace manufacturer, which employs 14,000 people in the UK and supports another 110,000 through supply chains – warned of potentially disastrous effects of no deal on its UK activities. Tom Enders, the boss of Airbus, said: “Please don’t listen to the Brexiters’ madness, which asserts that because we have huge plants here, we will not move, and we will always be here. They are wrong.” Earnings and Geo political issues can be seen with Equities traded lower recently as the market digested some disappointing earnings from Caterpillar and Nvidia and Apple in particular. Nvidia cut their outlook citing ‘deteriorating macroeconomic conditions, particularly in China as did Apple’. In Europe ECB President Mario said that incoming information has continued to be weaker than expected over the past few months. Today the UK Parliament is due to vote re amendments to May’s Brexit deal, with reports that Theresa May is supporting the Brady amendment which calls for an alternative to an Irish backstop. What- ever the outcome there will be some volitivity and elements of contagion. Investors should be aware that their investments will fluctuate in value, with a long-term investment view required to be dominant over short-termism. Recent economic research on a hard Brexit highlights that this could mean a drop in economic performance of up to 4%. If your investment term is 8 to 10 years, staying in the market can in most instances be best practice. However, if you see your target on an investment maturity being in the next 2 years, a more passive attitude to full equity investment may be the course to take. In order words, reduce your exposure to equity content in your Pension/ lump sum investment. In the long-term markets recover and participation in same with a long-term investment view has traditionally yielded higher returns for the investor.

    Cheers Ronan

    Next time- Serious illness and the likely increase in premium costs coming soon

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    Ronan’s Monthly Blog – Pensions Auto – Enrolement

    The pensions landscape in Ireland has become very cluttered over the years with numerous product options available to strive to provide you with your pension benefits on retirement. Presently your pension may be part of your employers group pension scheme, you may be a Director/Owner of a small limited company where your choice has been to get your company to pay into an executive pension. Sole traders can opt for personal pensions or PRSA’s. You may have retired but continue to have a pension product in retirement such as an approved retirement fund, indeed you may have transferred a retained benefit from a previous employment situation into a personal retirement bond. Approximately 12 pension vehicle choices are available, depending on your employment type and income source or indeed your stage in life (pre or post retirement)

    Interestingly, pension coverage in Ireland has fallen from 44.9% of the population in 2009 to 33% in 2017. Our Governments response was to issue a roadmap in February 2018 to try and overhaul the pension landscape as described above. There is now an action play set in place for the next 5 years which has been presented to us in 6 different strands

    • Reform of the State Pension
    • Auto Enrolment Scheme
    • Improving Governance and Regulation
    • Supporting the operation of DB Schemes
    • Support fuller working lives

    These may seem aspirational in real terms, but it does highlight a commitment to eventually try and bridge the ever growing gap in individual pension funding. The bill (in its current draft form) will demand higher regulatory standards for trustees of schemes and has closer supervision and management of schemes imbedded in its content. With this in mind a “Master Trust” situation is likely to be established with multiple employer schemes being held under one specific master trust.

    OTHER ACTIONS UNDER THIS NEW ROAD MAP:

    There has also been an examination of the current pension situation by the Interdepartmental Pensions Reform Forum and Taxation Groups. Review of the marginal tax rate, tax relief, drawdown from ARF and other anomalies and inconsistencies are been taken into account. “Equalisation and Simplification” has dominated the department’s mindset. Even assessing lump sum tax free sum on drawdown in retirement is being examined. There has been a suggestion that the tax-free sums across the board will be based on 25% of the fund-A question may then arise as to where this leaves Defined Benefit schemes and indeed civil service pensions where in most instances’ individuals take their lump sum based on service and salary? Equality surely will have to take precedence. Whilst the rules of a Defined Contribution scheme differ from that of a Defined Benefit scheme in many ways, the current system strives to allow one to mirror the other. For example, Defined Contribution Occupational Scheme rules will allow individuals use the salary and service rule (known as the revenue uplifted scale) simple because the same rule exists in the Defined Benefit arena. Most commentators would agree that “Simplification may not come easy”. This new system will mean that employers will be obliged to enrol all employees aged between 23 and 60 who earn more than €20,000 where their employees are not already members of a registered scheme. The self employed and those under age 23 and over 60 can opt out. The department of social welfare and pensions have set a target contribution of 6% of gross salary by employer and employee with the state apply 2%. A Central Processing Authority will receive these new contributions and forward them to the four pension providers appointed under the scheme. Investment fund choice will be restricted to 3 lifestyle type funds, low medium or high risk. Annual management fees are proposed to be capped at 0.5%.

    WHERE TO GO FROM HERE:

    Considering the changes which are now coming down the line, we have been advising all our corporate clients to take control of this additional employer compliance situation now. This means that rather than have the concept imposed on you and your employees, you can develop a scheme that suits your needs and requirements. By setting up an occupational scheme now, your employees will appreciate the benefit and for employers, it attracts and maintains your talent pool.

    In summary, all employers need to be aware of the new AE system (Auto Enrolment) coming down the line in 2022. The overall concept of providing better pension coverage for all has to be applauded, however as outlined early in this blog “equalisation and simplification “doesn’t come easy”.

    If you’re an employer with even more questions, or feel burdened by the thoughts of pension funding for employees, please do give me a call on 087-2765147 or send me an email at ronan@rmclifeandpensions.com

     

    Cheers Ronan

    Next time- let’s think outside the box. Christmas is coming.

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    Ronan’s Monthly Blog – Inheritance

    Special Needs Trust – Whole of Life Cover – Trusts

    This summer we were delighted to be asked to present a specific concept and options to the South East branch of the Down syndrome association.We highlighted the nature of combining life assurance cover in conjunction with a special needs trust for the dependent child. In conjunction with a local legal firm, our presentation illustrated the need to establish the trust in order to make sure that each child will not be exposed to any reduction or elimination of their statuary payments from benefit allowances. Each parent will of course realise the need to provide for their child in the event of an untimely death.The structure of the trust and a whole of life insurance contract needs to be put in place to ring fence funds that may be required in the future for issues that may arise. Your dependant child could want education options, housing alterations, helper assistance etc etc. The trust and its trustees will provide for same with the additional funds coming from the life assurance policy. Since the individual dependent child would not inherit the funds into their account or estate, the trust takes the funds and the trustees of said fund act in a prudent and honest fashion in appropriating the funds as to the needs of the child in the future. It’s not complicated but most families do not set the concept up correctly, some putting the life assurance in place without the trust.
    The life assurance contract can be written on a single, joint life or joint life second death bases. Remember, you should have a traditional convention Whole of Life contract. There are new developments in the market where one specific provider gives the policy holder three choices

    1. To simply maintain the original cover and payments
    2. To stop payments after 15 years and protect the cover at that stage
    3. To take a refund of 70% of the premiums paid after 15 years
    The idea here is that your situation may change, and these options may prove attractive after 15 years.

    What happens to my AMRF/ARF when its passing to my children in an inheritance situation???

    When you come to retirement age and your pension options are outlined to you, the choice you make should take in the following considerations,

    1. Am I interested in a pension annuity and does the rate provided give a realistic income.
    2. Does the alternative of investing in approved retirement funds and taking income from these funds in retirement look more attractive.
    3. The AMRF/ARF route may also provide more flexibility as you can transfer to an annuity in retirement which would automatically attract a higher rate on your annuity.

    Both need to be assessed as each individual’s situation at retirement is different. However, with annuity rates being low, a lot of clients have preferred to place their retirement funds (after taking their tax-free sums) into approved funds. This allows these funds participate in potential market returns and in a way stagger their investment retirement income. Most clients would agree that from an estate planning and inheritance planning stand point, the AMRF/ARF route is more attractive. In this instance the fund will pass to your spouse but of course income from same will accrue tax on draw down in the normal way. The annuity route means reducing rates even further if you place guaranteed periods into the contract or indeed (as with most cases) have the income paid to the longest survivor.

    In terms of passing on the funds in an AMRF/ARF, normal rules apply. Inheritance tax on the fund will click into place, with an immediate tax of 30% applying to the fund for any children with a parent with such a pension vehicle investment. There is a solution. Insure the liability by means of a Whole of life insurance policy, under section 72 of the finance act. The holder of the AMRF/ARF takes out this policy and assigns it to Revenue for the expected liability. The average cost that we see with our clients is between €4000 and €6,000 p.a depending on the size of each individual fund.In some cases, clients cater for this expense by increasing their annual income drawdown. Remember a fund of €250,000 would attract a tax bill of €75,000. Reducing the fund to €175,000. Something to think about?

    Please do contract me on 087 -2765147 to discuss further.

     

    In summary, if you have placed some retirement funds in an AMRF/ARF and want to protect the asset transfer to your children, Whole of life section 72 contracts will protect same. Families that need to assess the protection of funds and assets for their children with special needs, the solution can be the establishment of a special needs trust in conjunction with the correct life assurance contract. As financial brokers with impartial expertise on Pensions, life assurance and investments, please do contact us and avail of our services, we will be delighted to help. (087/2765147) ronan@rmclifeandpensions.com

    Cheers Ronan

    Next time with Pension season on the way let’s take a look at the proposed government auto enrolment pension concept for 2022 and other pension topics that may be of interest.