Pensions: Exercise for your long-term financial wellbeing!

I have a wife, three young children and I work for myself. It can be tough to find time to get the exercise that I would like. I know exercise will help me feel better and will more than likely be extremely beneficial to me in the long-term if I keep it up. As such I have started to do a boxcercise class.

For me, exercise is not just about feeling good now; it’s about trying to feel good in the future. It’s about trying to condition my body to be healthy and strong and in the long term I hope it might extend my life. I know that exercise can improve my immune system which in turn may allow me to be more active in my later years.

A Pension is a personal retirement savings account (PRSA). You could say its exercise for your financial wellbeing. It’s about putting the work in now, so that you may benefit in the long term, particularly in your later years when you may not have the same opportunities to enhance your financial health.

There are days when for numerous reasons I really don’t want to get out to do the boxcercise. The days I push myself to get up and do it, I feel better and the days I give in and rest, I feel a little guilty. I can honestly say that any client that comes to me at retirement is happy when they have a Pension of their own to drawdown. In many cases they express remorse that they didn’t save more when they had the opportunity to do so.

Like exercise, the sooner you start contributing to a Pension the better the potential long term benefits. I know that I would prefer to retire as young as I can, but I also know that will be very much dependant on my physical health and my financial health. In both cases, I can only commit so much time/money now, but a little bit of both is better than nothing of either.

Questions on old Pensions left behind...perhaps even ones forgotten!

In this article I will run through some of the most frequently asked questions in relation to old paid up pensions. These are pensions that you may have had with a previous employer that you never moved or enquired about at the time you left employment.

How do I get information about my old Pension?

In most cases you should be receiving annual benefit statements with general details (including the value) of your Pension. If you are unsure where to look, the company’s human resource department (or Employee Pension department if there is one) is a good start.

Can I bring my pension with me when I move employment?

In most cases, when you leave employment, you have several options. Indeed you are entitled to request “leaving service options” which sets out exactly what you can do with your Pension. This can intimidate and confuse people but if it’s explained correctly I find people are more confident moving their Pension into their own name.

Will I lose out if I move out of the old Pension arrangement?

The only way of knowing is by enquiring about the benefits currently on the Pension plan, but in many cases you can actually benefit from moving your Pension funds into your own name.

If you do move a pension to your own name one of the biggest benefits is that you get direct access/information sent to you personally about you Pension. Some people like having complete control over their Pension and like not having to contact a Trustee (or old employer) anytime they want information regarding their Pension.

What can Drumgoole Financial Services Limited do for you?

Part of my job is to help people arrange their pensions together into an efficient/transparent portfolio. In simple terms this means you know exactly what you have and where you have it.

When many people move on from a job, they leave their Pension paid up (sitting idle) in their old Pension arrangement. I have had clients contact me who have had no correspondence in relation to their Pension for one reason or another.

Do you intend on relying on the government for assistance?

If you are currently employed and not saving into a Pension arrangement, have you ever thought about what retirement will be like? Have you dreamt of spending time with the grandchildren or going on nice breaks away every few months in your twilight years?

If retirement is not something you “dream” about, it is certainly something you should have in the back of your mind. A pension is a savings policy designed to subsidise the drop in income when we retire. The current state Pension is €230.30 per week (€11,975 per year).

Recently the age at which a person is entitled to receive the state Pension has increased. Some economical commentators think that the government may phase out the benefits of the state Pension over time. They could do this by raising the retirement age further or even by simply not increasing the current Pension entitlements (which will reduce the spending power over time).

A big question that people should consider now is that if they are comfortable with the thought of leaving the fate of their retirement in the hands of future governments? One of the biggest advantages of a Pension is that the more you have at your retirement age, the more financial control and flexibility you will have over how you spend your retirement.

Worried about applying for Life Assurance because of your health?

I was speaking with a neighbour recently about Life cover and they were concerned about whether or not they would get Life cover. There were specific health concerns in their family that convinced them that they would not be able to get life assurance. I thought it might give some people peace of mind to know a few things about the medical side of a Life Assurance application.

Genetic test

Under the provisions of Part 4 of the Disability Act 2005, an insurer cannot request, take into account or process the results of genetic tests.  This applies to both positive and negative tests. The recent public discussions about the BRCA gene would probably be the most recent example of a gene that would be covered under this act.

However this exception does not change your legal obligation to provide the insurance company with full details of any symptoms experienced, non-genetic laboratory tests or investigations, treatment, and family history when answering the questions on the application form.

Other Concerns

I have spoken to people who are reluctant to send in an application because they want to improve their current health by losing more weight or giving up smoking. This is not a very prudent strategy because of the potential implications to their family if they were to pass away before reaching their healthy goal.

The important thing to remember is that until you put in an application you will never be fully sure if your current health situation will make any difference. There is a lot of incorrect assumptions about Life assurance medical underwriting that prevent people from trying to either improve on their existing cover or taking out a new plan.

There are specialised Life companies who offer Life Assurance to people who are medically higher risk but have been declined by mainstream Life companies in Ireland. I would encourage people to not let their current health situation put them applying for the Life assurance they want.

Some Life Assurance Queries

If you are in doubt as to whether or not you should review/change your life cover, you should be aware that in practically all cases, you get no benefit from remaining in your existing cover for the entire term. Hopefully the next few questions will help clarify some of the regular queries I have been receiving.

Question: When I took out my Mortgage, the Mortgage Lender insisted that I take out something called a Mortgage Protection policy, what exactly is this?

 A Mortgage Protection Policy is a Life Assurance policy. This is the cheapest Form of Life Assurance available and starts from as little as €10 per month. The cover on this kind of policy decreases over time as the policy is designed simply to pay off the balance of your Mortgage if you should pass away at any time.

Question: Other than for a mortgage, why would I want any Life Assurance?

Life Assurance should be thought of like Car Insurance in that you are not taking the cover out so that you get a financial gain. You are taking out both types of cover to protect yourself (or your family) in the event that you need to make a claim on these policies. Ideally, you will never need to make a claim on either, unless something happens that requires you to do so.

Question: Is it easy to change my Life Assurance?

Yes, it is very easy and once your medical situation hasn’t changed since you originally took out your cover, you may make significant savings for the exact same cover. Indeed you may even be able to get added benefits on your Life assurance while also saving money at the same time.

Benefits of having a Financial Adviser

Do you have to take out a new policy if you contact me? . . . . . . .

I have had great meetings with local clients over the years, many of whom had never dealt with a financial adviser. One of the things I hear is that people were reluctant to contact me because they were concerned that they might feel obliged to act on the advice I provide that may be an extra expense that they just don’t need.

As a financial adviser, one of the most important things for me to grow my business is to have a significant amount of clients on my books. As such, a person who moves existing policies to my company is just as important as a person taking out a new policy.

What is “existing business”?

If you have a mortgage, you will most likely have a mortgage protection plan. If you have had Pensions (or currently have one) in previous employments, they could very well be still sitting paid up waiting to be moved into a Plan in your own name. You may have savings or an investment policy that hasn’t matured yet or is just working away as it always has, but you have never really reviewed exactly if it is performing to your expectations.

If a client is happy with my advice (whether it is on new or old business), they have the option to move their policies onto my agency. This changes nothing in relation to the benefits of their plan. It only authorises me to contact the life office, as a person’s broker, to get information (values etc.) on the client’s behalf. I am not authorised to make any changes to the plan and the client can contact the Life office themselves directly as normal.

The benefits to a client are that they may not have a broker looking after their interest. I can keep an eye on the cost of a plan and recommend cheaper alternatives if the opportunity arises. I can keep an eye on a savings or Pension plan to make sure it’s reviewed appropriate to your needs and is invested in a fund that matches your investment goal or retirement plans.

A Story for the New Year

I met with a client (Oliver) recently who received their Pension retirement options from a major Financial Institution. They were given two options and weren’t particularly happy with either of these options. Luckily they contacted me to see if there was anything else they could do and indeed I was able to discuss a third option.

Oliver:

“When I went into the bank to discuss my Pension retirement options, the direct sales staff member was very friendly but I didn’t fully understand the Pension options they had discussed with me. After the meeting, I spoke with my brother in law about my disappointment at the options I had been given and he passed me on Oran’s number who he said was very thorough in his business dealings.

When I sat down with Oran, I showed him what I had received from the bank. During our meeting I discussed my concerns and we discussed my options in depth. Afterwards, I felt much more confident in my understanding of the options available to me. Better still, I was surprised to learn that there was another option that I could explore that had not been discussed with me when I was in with the bank adviser.

I am extremely happy that I was able to discuss my concerns with Oran. I really feel like I have a professional adviser I trust and whom I feel is looking after my best interests.”

It is important to remember that Direct Agents of large banks and Life & Pension Companies are only able to advise you on the products and services they can sell. These agents are not obliged to discuss alternative or potentially cheaper/better options. As a result, in some cases, I have spoken with people who have not received the advice or policy they really wanted.

This story is relevant for Life Assurance, Investment and Pension products that can differ from company to company. As we enter a New Year, with all our New Year promises still (hopefully) intact, maybe it’s a good time to consider if you are getting good value on your policy or receiving the best advice for your financial situation.