Category Archives: Blog

Blog

Recent ‘Game Changing’ Positive Amendments to Pension Rules For Company Directors

Comment

Earlier this year the Finance Act included some significant positive changes to the pension regulations in Ireland.

Up until January, the maximum pension contribution that a company could make to a Director or Employee’s pension was calculated using a number of different factors including your years of service, your age, the size of your existing pension fund and the number of years you have until retirement.

This method would typically allow a business to put a multiple of salary from the company bank account directly in to the individuals pension before the company year end.

For a company with a lot of cash on the balance sheet this method of pension funding was attractive but it was limited to a certain amount each year and therefore it could take a while to extract a lot of money out of the company.

In January 2023 the Finance Act effectively changed the funding limit from a yearly calculation to a lifetime limit.

This means that a company can now make a pension contribution to a Personal Retirement Savings Account (PRSA) of up to €2 million in one single contribution.

In addition to that, the restriction of only permitting 50% of your pension invest in a single asset (i.e. property) has also been removed meaning you can now use your full PRSA fund to purchase an investment property tax free.

These amendments certainly took the industry by surprise and there is some suggestion that these rule changes may be closed off given the big uptake in PRSA applications and the resultant reduction in personal and corporate tax collected by the exchequer next year.

For now there has never been as big an opportunity for company owners and directors to extract as much money from their business as tax efficiently as possible.

If you would like to explore the new pension funding rules in more detail, contact me at dcoleman@colemanfinancialplanning.ie or call 01 5313711 or through our website here.

Blog, Uncategorised

Inheritance tax planning for you and your family

Comment

They say that the two guarantees in life are death and taxes but what many people overlook are the actual tax implications that arise when they eventually die. This is where understanding inheritance tax is critical.

Capital Acquisitions Tax

The current tax laws will allow a child receive a gift or inheritance from a parent of up to €335,000 in their lifetime. Any amount above that is charged Capital Acquisition Tax at 33%.

This tax bill can a significant issue for the recipient, particularly if the asset they are inheriting is illiquid, like a property or business.

This threshold was as high as €540,000 back in 2008 but since then successive governments have been tightening the net while at the same time increasing the tax rate. As a result people are finding themselves in receipt a significant tax bill.

 C.A.T. Example
Value of Asset  € 1,000,000
Less Tax-Free Threshold -€ 335,000
Taxable Balance  € 665,000
Tax Bill for the Receiver € 219,450

 

More and more of my clients are enquiring about this lately and by far the most effective way to minimise an inheritance tax bill is to use the proceeds of a life assurance policy.

Section 72 Life Assurance

A Section 72 Life Assurance Whole of Life policy can be set up by the person gifting the asset so that on death the life cover is used to reduce or eliminate the tax bill of the person in receipt of the inheritance.

By effecting this type of policy the person in receipt of the asset can avoid a scenario of being forced in to selling the property or business at potentially below market value.

Section 72 policies are usually set up by a husband and wife on a “dual life, second death” basis but can also be written on a single life basis.

The following table shows indicative pricing and the breakeven point for cover of €1,000,000.

Both Aged Annual Premium Breakeven Point
55 €                      15,400 65 Years
65 €                      27,740 36 Years
70 €                      39,460 25 Years

If you need to assess your estate planning needs or would like further information on how to tax efficiently manage your assets contact Coleman Financial Planning today on (01) 5313711.

Blog

20 Ways to jump start your financial future

Comment

The cost of living crisis is changing how we manage money. The following is a comprehensive list that includes some starting points, as well as some more complex strategies, for those who want to jump start their financial future and make a long-term commitment to financial success.

Improve your financial literacy

Don’t know much about managing your money? The Competition and Consumer Protection Commission provides impartial and comprehensive information to help you make the best financial decisions for your needs covering saving and budgeting, interest and debt, investments and retirement, and more.

Start a money journal

Explore your attitude towards money, your hopes and fears and your dreams for financial success. Doing so can help you crystallise your long-term goals so you can make a plan for the future.

Write down your long-term life and financial goals

Include them in your journal, along with a timeline for achieving them.

Reconcile your bank accounts

Check your bank account debits against the payments you’ve made, and make sure any pending bills are either paid or scheduled.

Compare interest rates for savings accounts

This is a perfect place to start building or expanding your emergency fund. While you’re at it, commit to saving a specific euro amount or percentage of your income each month.

Make an extra credit card payment

If you carry a balance on your credit cards, start paying down the card with the highest interest charge.

Determine your net worth

List your assets (what you own), estimate what each is worth and add up the total. Next, list your liabilities (what you owe), and add up the outstanding balances. Subtract your liabilities from your assets to determine your net worth.

Estimate how much money you need to retire

Wondering how much money you need to live comfortably in retirement? Use a free online retirement calculator to figure out a rough estimate. This is one to try.

Organise your important household and financial accounts

Would your loved ones know how to run your household or understand your last wishes if you became sick or injured, or died suddenly? Start organising your important documents and accounts, store them securely and share their location with a family member, financial planner and/or solicitor.

Create a budget and track your spending

To get a handle on where your money is going, try creating a budget and tracking your spending.

Automate your savings and investments

One of the least painful ways to save and invest is to automate the amounts you want to set aside each month, so you won’t be tempted to spend them.

Contribute to a retirement savings plan

If you don’t have access to a government or company pension, consider setting up your own retirement savings account. If your employer offers such a plan, consider your options for enrollment, and make a plan to participate in the programme.

Shop for insurance

Plan to purchase insurance to protect your assets in the event of an unplanned occurrence or death. Types of insurance coverage include health, life, income protection, serious illness insurance.

Look for ways to lower your monthly bills

As contracts for things like your mobile phone, cable service or utilities expire, do some comparison shopping to see if you can reduce your monthly spend. You may even be able to negotiate a lower rate with your current provider.

Create or update your will

If you have a will already, take the opportunity to review and update it as needed. If you need a will, schedule an appointment with a solicitor or appropriate estate planning professional to create one.

Make some extra money by selling unwanted items

Looking for a way to reduce clutter and make some quick cash? Explore the many online tools for selling your unwanted Before doing so, be sure to review secure ways to handle payment and delivery, and research common scams.

Create a personal document retention policy

Learn how long you should keep important paperwork, such as contracts, loan documents, tax returns or account statements. Create a system to purge documents you no longer need, and scan and save the ones you need to keep.

Talk money with your child

Does your child understand the concept of saving money? Help your child open a savings account and understand the basics of paying bills and building credit.

Start a 3rd level education savings fund for your child

While the average cost of sending a child to primary and secondary school might seem high, the expenses associated with third level education are in a different ballpark, with accommodation representing a substantial average annual cost. One measure families can take to help avoid putting their households under financial pressure is to ensure early planning around their children’s education, adopting measures such as early life savings schemes.

Make an appointment with a CERTIFIED FINANCIAL PLANNER™ professional

As the standard of excellence for financial planning, the CERTIFIED FINANCIAL PLANNER or CFP® certification helps the public identify financial planners who have met the rigorous competency, ethics and practice standards necessary to engage with financial planning clients. In addition, CFP professionals pledge to place their clients’ interests first, an important point for those looking to build a long-term, trustworthy relationship with a financial planner. If you are looking to talk to a CFP, then please just contact Daragh at Coleman Financial Planning.

Source: www.fpsb.ie, September 2022

Blog

Investing in Challenging Times

Comment

Having weathered a global pandemic over the last 2 years, you’d think we’d be due a bit of good news for a change. Unfortunately, 2022 will be a tough watch when the producers of Reeling In The Years get to work on their latest instalment. We are still investing in challenging times!

Rising interest rates, spiralling inflation, astronomical hikes in fuel prices and most tragically of all, Russia’s brutal invasion of Ukraine, have all been constant features in our daily news.

So, with so many economic and geopolitical issues going on is it any wonder, I am being asked regularly, is now a good time to invest?

The reality is that at any point in the last 200 years of the stock markets existing there has always been a reason not to invest.

Time IN the Market

The key to investing in challenging times is to remember that it is ALWAYS about time IN the market and not about TIMING the market.

The more time you apply to an investment, the lower the risk it becomes.

Making short term predictions or investing based on a ‘hunch’ is no different to walking in to Paddy Power and placing a bet.

Short Term Option

For individuals with money on deposit you will not be surprised to learn that the banks are not going to pass on the forthcoming interest rate hikes for quite some time. With inflation currently at a 30-year high, the real value of your savings is losing money.

Having said that, everyone should have at least 6 months net income on deposit. They should also have funds to cover emergencies and future large spends such as holidays, home improvements or family education costs for the next 3-5 years.

Don’t bother shopping around for a decent rate, your money on deposit is there to be accessible and secure not to generate growth.

Medium to Long Term Option

For those with savings that are not required in the short term or you want to have the funds 5 years from now you need to commit your money to an investment that will generate growth.

Long term consistent growth can only be achieved by investing in the great companies of the world. That is through stocks and shares or equities. The portion of your investment in equities should be linked to your comfort level and attitude to risk.

Diversify, diversify, diversify!

Applying time to your investment is one way to manage risk and generate growth. The other is to spread your investment across different asset classes.

A balanced investment will generally invest 50%-65% in global shares with the remainder spread between bonds, property, commodities, and cash.

Even within a balanced portfolio most funds will be invested in over 500 companies. So you are never putting all your eggs in one basket.

Be Disciplined – Stick to the plan

The final and most important component of investing in challenging times is to be disciplined and stick to the plan.

It is quite natural to want to cash in or step out of your investment during periods of volatility. History has taught us that a bell doesn’t ring when the market bottoms out. By attempting to invest when you think ‘the coast is clear’ is likely to result in you missing out on some of the days that deliver the strongest returns.

Seek Advice

Your investment should be structured around your needs and your risk tolerance. It should be viewed as an important element of your overall financial plan. For that reason, it is important to seek out advice. An impartial professional advisor will work with you throughout your investment journey.

To discuss the investment options that are the right fit for you just get in touch with us here.

 

Source: Charts from Dimensional Fund Advisors 2022

 

 

 

 

 

Blog

An Investment Savings Plan to meet your future needs

Comment

Many of you will have heard me talking about the 3 Savings Pots you need to have.

Saving for a future financial commitment such as 2nd or 3rd level education fees makes perfect financial planning sense. For the purposes of this article I’m going to focus on Pot 2 – The Medium Term Savings Plan.

A recent survey carried out by Zurich Life estimated that the average cost of sending your child to college is €6,178 per year.

And if the students are studying and living in rented accommodation the annual cost goes up to €12,109.

Eye watering figures when you look at them!

The solution to all financial challenges is to plan ahead and save regularly.

Saving money on deposit is fine for the short term. But with deposit rates at close to 0% p.a. and inflation currently around 5% p.a. the real value of your savings is being eroded.

However, if you commit your savings to an investment plan, you can benefit from steady, consistent growth over the medium to long term.

You can select a plan that is suited to your attitude to risk and your ability to ride out the short term periods when investment markets are rocky.

Using the example of a family saving to fund their two children (currently aged 10 & 12) going to college, the following savings would be required.

The investment saving plan can also be boosted by adding a lump sum at the start to reduce the monthly commitment or reduce the amount of years you need to invest for.

The key to having a successful investment savings plan is to;

  1. Know how much your savings goal is
  2. Select an investment profile that you are comfortable contributing to
  3. Stick to the plan

For more information on how to start your investment savings plan it is important to seek impartial and professional advice that is tailored specifically to your needs and experience. Just get in touch if you’d like to have a chat about your savings pots.

 

 

Please note source of all figures and charts above is Zurich Cost of Education in Ireland survey 2021. The figures quoted are based on the following assumptions;
  • Your dependant starts college when they are 19 years old.
  • Each dependant spends 4 years in college.
  • All dependants are assumed to have the same living arrangements while in college.
  • Student Accommodation is accommodation provided by the college whereas Rented Accommodation is privately rented accommodation.
  • We have allowed for inflation for all of the College Costs in the table above of 1% per annum from now until the first year that college starts.
  • No single contribution has been included in the estimated figures above.
  • The regular contribution per dependant ceases once that dependant starts college. The savings term for each dependant will vary.
  • We have allowed for an annual management charge of 1.25%, a regular contribution allocation rate of 101% and no surrender penalties, all of which may change. These assumptions are based on a standard charging structure.
  • A government insurance levy (currently 1%) applies to this policy. The contributions above are inclusive of this levy.
  • Your monthly contributions are assumed to increase by 1.5% each year from now until your dependant starts college.
  • For savings terms of 5 years or less we have assumed a gross investment return of 4.30% per annum on your savings. For savings terms greater than 5 years, we have assumed a gross investment return of 4.40% per annum on your savings. This is not a forecast because the value of your investment may grow at a faster or slower rate than assumed and the value of your investment may be expected to fall from time to time as well as rise.
  • We have assumed that on death, encashment, partial encashment or assignment of the policy or on each 8th policy anniversary, tax is deducted on the gains made at the current rate of taxation, being 41%.

 

Blog

What claims tell us about protection

Comment

In 2021, over 40% of the advice I provided to our clients was in the areas of personal, family or business protection. The specific needs being:

  • Mortgage Protection
  • Income Protection
  • Family Protection (i.e. Life Insurance & Specified Serious Illness Cover)
  • Shareholder Protection

I firmly believe that everyone should have a plan in place to provide financial security should something happen to them. I recently carried out a review of the Life Insurance market to assess what benefits were paid out in 2021. My findings, which I’ve outlined below, show just how important this can be to an individual and their family as we never know what life has in store for us.

Life Cover

  • The average of age of claims on death was 66
  • 46% of death claims were cancer related, 13% heart related

Specified Serious Illness Cover

  • Industry average age of claim for men was 54
  • Industry average age of claim for women was 52
  • 41% of claims for men were cancer related and 33% heart related
  • 78% of claims for women were cancer related (of which an average of 32% of cancer claims were on the diagnosis of breast cancer).

Source: Aviva Protection Claims 2021

Income Protection

  • Industry average age of claimant was 49
  • Reason for claim
    • Mental Health/Psychological = 24%
    • Musculoskeletal = 21%
    • Cancer = 19%

Source: Irish Life 2021 Protection Claims

 

I think the findings are very stark and show that it is a necessary element of a robust financial plan. No amount of money will relieve the upset of an unexpected death, illness or accident. But with proper planning you can alleviate the financial concerns a tragic event like this may bring.

If you’d like to talk about creating your individual plan just get in touch today.

 

Blog

When I’m not at work ……I’m studying (well, not anymore!)

Comment

In the Spring of 2020, during a pandemic induced period of reflection, I decided to put-off a decision that had been on my mind for a long time. To return to studying. After years of procrastination, I signed up to take on what would turn out to be one of the hardest academic challenges of my life…to become a Certified Financial Planner™ (CFP®).

In 2018, I completed the Certificate in Retirement Planning Advice (RPA) through the LIA. This course equipped me to provide advice with a higher level of pensions technical knowledge within the ever changing regulatory landscape of retirement planning.

The CFP® is a global recognition only awarded to individuals who have met “rigorous competency, and ethical and professional practice standards…..and have agreed to adhere to the principles of integrity, objectivity, competence, fairness, diligence, professionalism, confidentiality and compliance”.

In Ireland, the process to attaining the certification is by first completing the Graduate Diploma in Financial Planning. This is a 2 year course run through UCD and The Institute of Bankers. It comprises the following modules:

  • Financial & Data Analysis for Financial Planning
  • Tax & Estate Planning
  • Retirement Planning
  • Asset Management
  • Risk Management in Financial Planning
  • Integrated Personal Financial Planning

So after almost 2 years of remote lectures, assignments, exams and lots of late night studying I’m delighted to add my name to the growing list of CFP®’s in Ireland and around the world.

Blog

When I’m not at work, I’m Cycling!

Comment

Last year, in the height of another dreaded ‘lockdown’ I did what a lot of guys my age seem to do. I became a MAMIL (Middle Aged Man In Lycra)! As a kid I loved my BMX but for most of my life, cycling was always a means to an end. I enjoyed cycling to college or work but I never really saw the attraction in cycling for the sake of it.

However, after some encouragement from some long standing MAMIL friends, I took the plunge and got myself a road bike.

One of the first things I learned is that it’s not just about the bike. There is an infinite list of accessories, clothing and safety gear. And then there’s the sophisticated technology devices and apps to be got.

Fast forward 12 months and I am a fully-fledged MAMIL. I even find myself watching late night repeats of the Tour of Flanders on Eurosport to study cadence and climbing.

While I’ve probably missed the boat with the Tour de France, I have learnt that cycling can be for everyone. You’re never too late to start (a bit like a pension!) and it allows for all standards and levels of fitness.

Cycling is something you can do alone or in a group. I have had some of the best conversations with my friends while on the bike (as opposed to on a bar stool). Unlike meeting your friends in the pub, you always remember the conversation!

Mental health has become omnipresent in todays world but I genuinely feel that the greatest benefit cycling has given me is with my mental health.

Exercising in the fresh air has really helped get a good night’s sleep and sets me up for the following day.

If you are considering getting in to cycling, I would recommend the following tips:

  1. Do your research before you commit to buying a bike. Get advice from a few bike shops to understand what bike you are best suited to and use YouTube to verify.
  2. Don’t scrimp on the gear. Cycling gear can be expensive but the cheap stuff doesn’t last as long and will not protect you as much as the more established brands. Make a wish list of items you need/want and spread out when you buy them. Make sure to let people know what you want when coming up to Christmas and birthdays!
  3. Download the Strava App. It’s free and it is a great devise to record your trips. You’ll spend hours after your cycle analysing your data!
  4. If Road cycling is not for you, consider investing in an e-bike. You’ll still be exercising and can cover a lot of ground in a relatively short amount of time.

If you are fortunate enough to live in Dublin you have one of the best cycling facilities on your doorstep, free of charge! The Dublin mountains are a great challenge to conquer. The rewards you get the higher up you go are well worth the effort. Not only that, once you go over the other side you are immediately in the stunning natural countryside of beautiful county Wicklow.

If you want to take a break from the hills, then a spin out to Howth or around the Phoenix Park are just as impressive.

Blog

Pensions & Tax Relief….How does it work?

Comment

How does the area of pensions and tax relief work? Bottom line is that the State will incentivize you to save for your retirement by allowing you save some of your gross salary (i.e. income before tax is applied) in to a pension plan.

For example:

How much tax relief can I avail of?

Each individual is allowed tax relief based on their age and percentage of their salary.

Know your limits!

  • Don’t be greedy! The maximum salary you can claim relief on is €115,000 p.a. Therefore if your income is €500k p.a., you can still only claim relief up to the first €115,000 p.a.
  • If you are a member of a Company Pension scheme and your employer is making a contribution to your pension, this is NOT included in your salary limit (so you probably have plenty of scope to contribute up to your limit).
  • If you are a member of a Company PRSA Scheme and your employer is making a contribution to your pension, this IS included in your salary limit (so be careful not to exceed your limit).

Sounds good? There are even more tax benefits...

  • When you contribute to your pension, the money is invested in a fund where it is allowed grow TAX FREE! Unlike a deposit account where the growth is taxed annually, a pension fund can grow without the burden of the growth being taxed. This cumulative tax free growth is the key ingredient in your pension fund, providing you with a long and happy retirement.

What about the tax when you want to retire?

  • The tax relief doesn’t stop just because you want to retire! There are a few options but in general, the day you retire you can get at least 25% of your total pot transferred in to your bank account TAX FREE!
  • The balance of your fund can remain invested and grow TAX FREE!
  • Whenever you do drawdown on the balance of the fund you are liable to income tax. However, there are various structures and ways to minimise the tax liability at that point.

What if I die and I haven’t spent all of my pension fund?

  • Even on death your pension can be tax efficient!
  • If you die and still have a pension fund (pre or post Retirement) it doesn’t die with you. Instead, your family can inherit your pension in a much more tax efficient way than if you had left them a property or money in a bank account.

So in summary you can get…

  • Tax relief on your pension contributions
  • Tax free growth on your pension fund
  • Tax free growth on your retirement fund until you draw it down
  • Tax efficient access to your pension fund throughout your retirement
  • Tax efficient transfer of your funds to your estate on death
  • Tax free lump sum at retirement age

With all aspects of Personal Financial Planning, it is important to get professional impartial advice that is specific to your own needs and circumstances.

For an initial chat to see if we are suited to working with you, simply get in touch.

Blog, Investment Advice, Investments

Time, not timing, is important

Comment

This time last year, investment analysts were predicting a positive, albeit modest growth in the global stock market for 2021.

Looking back now we can see that most experts were too conservative in their assessments. The Global Stock Market finished off the year 32% up on the previous year. 

There are a number of factors that led to that investment growth, not least the rise in energy stocks, a low interest rate environment as well as the continuing boom in technology related companies.

For our pension and long term savings clients who have their investments in well diversified funds, you have benefited from being invested in the great companies of the world.

The outlook for 2022 is for growth to continue but at a slower pace than what we have become used to.

Rising inflation has already meant that the great companies of the world have had to adjust their spending and all the signs are pointing toward the start of rising interest rates in the US. This will affect the ability for those companies to borrow and/or service their existing debt.

So while the market is expected to cool that doesn’t mean growth stops.

As investors with money in Pension funds or long term savings, the number 1 rule when markets are turbulent is to remain focused on your original objective and stick to the plan.

The following video is a great illustration of how to avoid falling into the emotional investment trap.

As always, if you have questions about your investments, savings or retirement planning, seek qualified impartial advice from a trusted adviser. You can contact us here for an initial chat.