Redundancy and Tax-Free Lump Sums

I know I have done pieces before on the lines of “why would I need/use a financial adviser” but over the last few months I have engaged clients in a manner where they were delighted afterwards. The general sentiments were “I couldn’t of done that myself, I wouldn’t have known what to do”.

One client was asking me to help with their retirement options. They found the current brokerage looking after their pension were not great at explaining their options. I discussed their options with them, contacted the pension provider on their behalf and was able to get clarification on their Tax free lump sum. There was a question mark over whether they were still entitled to their tax free lump sum because they had signed a waiver when they were made redundant from their employment.

I made our client aware that there is a way of processing your claim that may allow you a pension tax free lump sum, even if you have signed the waiver. This option could be taken away with future pension legislation changes and is not available for all clients, but in this scenario I was able to confirm to my client that we can get her a Tax free lump sum from her pension.

In another situation , a client contacted me about their retirement options. Firstly, for some reason the pension company had not highlighted a tax free lump sum on their options (which I cleared up). Secondly, this client had a particular medical condition which meant I was able to look to get them a better Annuity (pension for life) offer. This is called an enhanced (impaired life) annuity and its basically more money in your pocket for nothing other then confirming your health details. If you meet a certain criteria you can basically get more income for your money.

Most people do not seem to realise that they are very likely paying commission on their policy if there is a broker that is looking after their plans (even if that broker is not advising them). Most pension arrangements have a broker managing them.

I get paid a commission for this service and clarify exactly what I am receiving. Not just that, I generally have been getting as much, if not more, for my clients while being able to provide them with my expertise and relative independence (I do not work with/for one company but have agencies with most of the major Pension/life offices).

Steps in creating a Personal Budget for 2023

When I first started out in the financial services industry, the primary role of a financial broker/adviser was one seen as somebody who basically sells products. One who might help you set up something you need or want like a pension, savings plan or some sort of protection policy. Quite often people would take these products out as they knew on some level they should have them, but they were quite often not completely sure of what the benefits these products would provide them or their family, if needed.

More recently, the role of a Financial Broker/Adviser is migrating to one that’s more about providing information, education and advice on the options for clients and working with the client to come up with a plan to prioritise and make sure they have the correct provisions specific to them and their needs.

Quite often, people approach me to do a financial review because they are in some ways unsure of how much money is coming in and going out, so they are unsure it if there is any room to amend their finances. If there is a combined income of anything greater than €80,000 coming into a household, a full financial review can be extremely enlightening.

One of the worst things in life, is the absence of knowledge on something, so one suggestion I suggest to people is to start the process yourself. Start thinking and discussing your goals in life for the short, medium and long term.

You should then start looking at what’s coming into your household and what’s going out of your household. With the availability of bank apps it is getting easier and easier to track our spending habits so there are less excuses now to keep putting it off. Try and focus on areas you can start to make savings. Simple things like changing utility bills and even reviewing your current mortgage rate can make significant savings.

Set out a plan and try to adjust your habits to fulfil that plan. Review it regularly, at least anytime there are significant changes in your personal and/or financial circumstances. Some people prefer to do it themselves and some prefer to have help with getting this process started, so they come to me for assistance. If you go to https://www.drumgoolebrokerage.ie/planning you can get an idea of the cost of the service and kind of process involved in doing short/medium and long term financial life goals.

Reviewing Your Finances

Do you ever imagine what you would like to do in retirement or when your mortgage is paid off or even to retire earlier than you thought? Or, perhaps you are even just curious as to how your finances look right now?

Some questions and comments I regularly hear when I meet people for a financial review:

>  I know I should save into a pension, but can you explain why it’s better than saving into a savings plan?

>  What will my pension pay me at retirement?

>  I am in my 50’s… is it worth my while starting a pension?

>  Is it true I may be able to drawdown my pension when I am age 50?

>  I am self-employed, can I protect my income if I am unable to work due to illness or injury?

>  I have pensions from a previous employment, can I get access to them on any level or what can I do with them?

>  I think I have mortgage cover, but I do not know what it does, can you explain it to me?

>  Should I pay more towards my mortgage and if so, what change will it have on my term and interest payments?

>  I don’t understand how a life assurance policy payment affects me if my partner dies.

>  What is the difference between Leaving Service Options and Retirement Options?

Should a person wish to avail of this financial planning service, it involves a once-off fee and a simple 3-step process:

1.    You will receive a link to a budget planner where you fill in your personal and financial details. This is a comprehensive budget and will take up to an hour to complete.

2.    You submit the planner and I review and prepare recommendations and advice.

3.    We meet to discuss the results of your budget, your priorities and how you can better manage your money from a savings / pension / life assurance perspective.

Following this, you decide what step to take next. Having control, knowledge and confidence in making financial decisions can provide peace of mind. Either way this process will at the very least be an education to anybody who has no current strategy for retirement or savings needs.

Once again… a time to reflect and not necessarily to act ...

Almost 2 years ago to the day the global financial markets crashed badly, as fears of the COVID brought uncertainty and fear. Nobody knew exactly what was going to happen or how long it was going to be before relative normality would resume. Well, it feels like it was just starting to get to that point and then Mr. Putin decides to invade Ukraine.

The following graphs show a prominent Global Equity (Stocks and Shares) fund during two particularly volatile event periods:

Global Financial Crisis 2007

COVID 2020

I would potentially expect a similar reaction in the markets now and indeed we are already seeing it as I type this (the day Russia invaded Ukraine). While the circumstances have changed, the same concerns apply, how bad is it going to get? How long might it last?

I wouldn’t care to predict anything at this time, nor would I cling to a mantra that “past performance would indicate a rebound”. That said, the reality is that past performance has usually shown this to be the case.

Leaving money on deposit is not exactly a perfect solution either as inflation looks to be climbing dramatically in some cases (energy prices). So, while your €100 may remain €100 in your bank account, its spending power could diminish.

In the past, the best course of action has been to “take no action” when it comes to investments when you see how the markets usually recover. This is not to say that this strategy suits all investors/clients. In some cases, it is important to take stock of what you have now and to take corrective actions to preserve your savings/pensions even when the value has fallen.

Cashflow Planning

The heading makes the task sound a bit boring, and slightly business-like… but the actuality of this term is something we all do in everyday life! Each month, most of us will have bills to pay, maybe a mortgage/rent, household utilities, insurance…followed by food/clothing bills, savings and hopefully some funds to put aside for a social life or something nice to enjoy as a reward for our hard work. This short-term planning is an important and smart habit to have and can help us be prepared for any unexpected bills or events that may occur along the way.

A secure online financial planning system we use for creating financial reviews can help with the long-term cashflow planning. It allows safe access to a portal where you input your expenditure/liabilities, savings/income and most importantly, your objectives now and further into the future. The more information you can input, the clearer the picture can be for your financial adviser and the more accurate the recommendation. It helps to highlight any areas where you may need to perhaps direct funds towards protecting yourself and your family or maybe towards saving for big life events such as starting a family, college fees, buying a property or preparing for life in retirement, to give some examples. Or maybe you have a dream of cruising around the world and want to figure out how you can make it happen!

Although this system helps identify the areas you need to focus on and it is planning for the long-term, nothing is ever set in stone and life can change in a heartbeat. The results and graphs can show you various scenarios throughout your life and the impact they may have on your finances.

Once we provide the results and recommendation, it is up to you to decide on the next step. As life can be ever-changing and unpredictable at times, we feel it is important to review your cashflow status every one to two years or should your circumstances change. So, as you have your monthly planning habits, an annual check-in on your cashflow plan will help give you peace of mind knowing you are using your money wisely and as best you can to achieve your goals.

Apart from mapping out a financial plan for the future, it is also a good opportunity to review any existing life policies or pensions you may have. Once you give signed instruction to a provider, your adviser can contact the life and pension companies on your behalf for further policy details. If you would like to see more information on cashflow planning, just visit www.drumgoolebrokerage.ie/planning.

You can retire today, what are you going to do?

I recently spent 2 hours going through a financial plan with a couple who are planning on retiring over the next few years. They have substantial savings in pensions and in the bank. They wanted to get an idea of how they might manage financially post-retirement and look at how some scenarios (new car, long holiday etc.) might affect their savings.

One thing I would like to point out is that these are new clients and they had built up their savings and pensions over a long period of time. They had already done a superb job building up their retirement nest egg, but they came to me to see what their options were and if they had enough to fund a comfortable lifestyle in retirement.

One question asked was “I was just wondering if based on our existing savings and pensions, can we afford to retire today if we want?”. So, we discussed what they have planned for retirement, what they roughly might need for a comfortable standard of living and it transpired that they could in fact afford to stop working today. In return, I asked them “Is there a reason why you would choose not to retire?”.

We then discussed whether they should try to grow their substantial savings which is currently sitting on deposit. I discussed the pros and cons of investing it (inflationary risk, negative interest rates) but also clarified that in their case, they actually didn’t need to invest the money.

We also discussed potential inheritance tax and I showed them an alternative plan that can cover the tax liability their children may accrue later down the line. The best part of this particular type of plan is the flexibility to change if their situation changes and the option to cash it out after a specific period of time.

If you are retiring soon and you are unsure of how life will look in retirement, you may find a financial review like this helpful. It may also help you make adjustments that could make a massive difference to what you might get from your pension. When you are in your 60’s, you can put up to 40% of your salary into your pension and get tax relief at your marginal rate.

In the next article I will show a simple example of how you could potentially make a savings pot of €120,000 on deposit turn into €200,000 in 5 years.

Money Skills for Kids

We recently decided it was time for our 3 young boys to learn the value of money and the importance of managing it. This was motivated by a need for them to understand how money is earned but also to start giving them small responsibilities in our home and life skills for the future.

We work so hard to ensure our children develop good manners, confidence, empathy along with many other important personal traits. Earning pocket money and taking care of it can teach a child to become independent and to make decisions for themselves.

A few ways to get them started…

1.    An opportunity to earn pocket money

Decide on a list of chores they can complete depending on their age. Pick a day and time to complete the weekly chores but also include some simple daily tasks to be completed e.g. Clearing the table after eating, emptying/filling dishwasher or washing dishes, putting rubbish into the bins. Agree on how much pocket money they can earn and a day that they will receive it each week.

2.  Set a budget... save vs spend

This will help them to understand the rewards of saving and being able to budget perhaps for something they would really like to buy in the future. Decide where they will store their pocket money and set out some goals using two separate pots.

• Spending Pot: Perhaps they would like to spend a fraction of their pocket money each week on something small, so help them to decide on an amount for this pot.

• Savings Pot: They may decide to save for something they would like to buy at some stage in the future or to maybe have spending money for holidays or a day out. If they have a goal amount, see if they can work out how much and how long they may need to save to get to that goal.

3.  Open a savings account

A savings account can be ideal for older children. It can help familiarise them with different financial terms used such as deposits, withdrawals, interest. It also brings a satisfaction if they can see their savings figure increase each week. Another option is to set up a Revolut junior account where you can transfer pocket money to their online account, and they can use a prepaid card. This would be handy now with the preference of contactless payments. They can also use the junior app to view their account balance, while parents have full control of the account.