Category Archives: Blog

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Buying Property Through Your Pension

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One of the most tax efficient ways to purchase a property (residential or commercial) in Ireland is to get your pension to buy it.

Provided you have the funds in place or you and your company can move funds into a pension structure the property can be purchased, renovated, rented and sold in an extremely tax efficient way.

Key Tax Benefits

  • An Employer or company can move money from the business to a pension fund tax free
  • Rental Income paid to the pension fund is NOT subject to tax
  • Legal costs, property maintenance, repair and agency fees can all be paid for by the pension fund.
  • The cash (rental income) in the pension fund can be invested and grow tax free.
  • The property when sold is NOT liable to Capital Gains Tax (CGT)
  • When the property is sold and the pension is retired (from Age 50+) 25% of the fund is paid out tax efficiently. The remaining 75% can be invested in an Approved Retirement Fund (ARF) where investment growth is tax free.
  • If you die before the property is sold or the pension is retired your spouse can inherit the full value of the pension fund tax free.
  • If you die after retirement but before you sell the property then the full pension can be transferred to your spouse.

So how does it work?

Step 1 – Find a property to purchase.

Step 2 – Set up the Pension structure to facilitate the purchase using either a Personal Retirement Savings Account (PRSA) or a Small Self-Administered Pension (SSAP) Scheme.

Step 3 – Make contributions (as an Employee and/or from your Company) and/or transfer your existing pension funds to the scheme.

Step 4 – Your new pension buys the property (with money that has never been taxed!). You can also use the funds in your pension to make repairs or improvements to the property rather than have to pay from your own taxed income.

Step 5 – Property is rented with the (tax free!) rental income directed in to your pension bank account.

At Retirement (Age 50+) you can sell the property and retire the pension. Under current pension regulations you can take 25% (up to a maximum limit of €200,000) of the value of the sale plus the rental income tax free.

If you don’t want to sell the property but want to retire the pension you can still take out up to 25% of the cash in the bank account tax free. At that point the pension structure that the property is in will simply transfer from a PRSA/SSAP to a post-retirement structure called an Approved Retirement Fund (ARF).

When you do eventually sell the property there is no Capital Gains Tax to be paid!

Important Points To Note

  1. The property has to be “at arm’s length” between you and the tenant. You cannot rent the property to a family member, colleague, employee or connected party.
  2. The vendor cannot be a family member, colleague, employee or connected party.
  3. The rental of the property has to be done using a property agent listed on the pension provider’s register and the property must be registered with the RTB.
  4. Investing your full pension in one asset class, in one property location is considered a high risk investment particularly if you need to sell the asset at a time when property prices or rental yields are not favourable.
  5. In certain circumstances borrowing through the pension fund may be permitted to purchase the property. This is not something I would generally recommend as it would increase the investment risk of the asset.

Like all aspects of Retirement Planning, when considering buying property through your pension it is vital that you get impartial financial advice from a regulated adviser who will assess your options and make a recommendation that is appropriate and unique to your needs.

If you’re looking to buy a property with a pension contact Daragh Coleman from Coleman Financial Planning on 01 5313711 or dcoleman@colemanfinancialplanning.ie

 

Blog

Understanding the Pension Auto Enrolment Scheme

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Background

Ireland is currently the only OECD country that does not have a mandatory pension scheme for employees. Finally, after over 20 years of discussion and consultation, legislation was last week introduced to the Dáil that will pave the way for a new retirement planning scheme – Pension Auto Enrolment Scheme – for over 800,000 employees.

When does it start?

The target launch date is officially late 2024 but at this point it is likely to be early 2025 when the new scheme will be up and running.

Who is the scheme for?

Any employee aged from 23-60 who is earning over €20,000 p.a. up to a maximum of €80,000 p.a. and is not an existing active member of a company pension scheme will be automatically enrolled in the new scheme.

Employees who are already contributing to a company pension scheme will not be included.

How much is contributed?

For every €3 saved, the Government will put in €1, up to a limit. So, if an employee were to save €100 a month, the Government will add another €33. On top of this, an employer will also have to gradually match any contributions made by up to 6% of salary. This will start off at just 1.5% but gradually increase to 6% by year 10.

Years Employee Contribution Employer Contribution Government Contribution
1-3 1.5% 1.5% 0.5%
4-6 3% 3% 1%
7-9 4.5% 4.5% 1.5%
10+ 6% 6% 2%

Source: Department of Social Protection (2022)

How does an employee join?

The mechanics of the scheme have yet to be confirmed but once it is launched it is likely that monthly pension contributions will be automatically collected from Employers and Employees just the same as your other salary deductions (e.g. PRSI, USC etc.). The contributions will appear on the employees payslip.

Does an employee have to join the scheme?

As the name suggests, employees are automatically included in the scheme but they have the option to opt out after the first month.

What does it mean for employers? 

Most large employers in Ireland have existing pension plans in place so may feel they will not be impacted by these changes. But often membership of these plans is voluntary, meaning that not all employees have become members of the plan. Therefore, employers will need to decide whether to open their existing plans up to all employees to auto-enrol all non-members to their existing plan or to instead allow for the auto-enrolment of non-members to the new State auto-enrolment system.

Smaller employers will also need to decide if they should enter the State auto-enrolment system or obtain a flexible traditional occupational scheme which affords generous tax relief.

Employers who currently have pension schemes that restrict the eligibility to join the scheme they will have to decide to opt for the state’s auto-enrolment or adapt an existing plan. For those employers it is vital that they assess their options now ahead of these changes and adjust their budgets to meet the additional costs of employee remuneration.

For many businesses that means higher staff related costs but it should also be viewed as an investment in their people and will likely attract and retain good quality employees.

Summary & Observations

Any initiative that gets people saving for their retirement should be seen as a positive. In other countries where AE has been introduced, the “opt-out” rate is low as employees very quickly get used to the habit of saving for their retirement, which ultimately provides a savings pot of money that will help replace their income when they retire.

However, when compared to pension schemes in the private sector the proposed AE scheme is very much the poor relation.

There is little flexibility in terms of contribution levels, there is no ongoing investment or financial planning advice provided and the tax relief available through private pension schemes is significantly more generous for anyone paying the higher rate of tax.

Pension Auto Enrolment will definitely result in a change in culture in Ireland where people will be of the mindset that if they are in employment then they should always be saving for their retirement. However, this scheme is ideally suited for entry level employees and people on salaries taxed at the standard rate.

If you’d like to discuss Pension Auto Enrolment or your own pension arrangement just get in touch with Daragh at Coleman Financial Services on 01 5313711 or 086 385 9208 to arrange a suitable appointment.

Blog

When I’m not at work…I’m singing!

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As some of you may know (I tend to mention it from time to time!), one of my favourite things to do in my spare time is sing with my choir.

It’s a well-known fact that group singing is one of the most effective forms of managing your mental health. It can be daunting and challenging but the rewards are worth every bit of the effort.

About 5 years ago I joined the St. Mary’s College Singers and in that time I have been fortunate enough to perform with an amazing group of people in a wide variety of locations for different occasions.

We’ve had the opportunity to showcase our talents in concerts both locally and internationally, with performances in Italy, UK, Portugal, and France.

We regularly participate in official college ceremonies, choral competitions (we’ve been lucky enough to have won a few!), Christmas Carol events and Music Festivals. We’ve also had the privilege of singing at wedding and funeral ceremonies within our extended choir family. We’ve sung in theatres, restaurants, pubs (a lot!), TV studios, shopping centres, airports, open-air events, on stages and under stages.

Christmas is our busiest time of the year, the highlight of which is our annual Peace On Earth concert in Christchurch Cathedral where we raise funds for Aidlink.  We’re also performing in Dun Laoghaire and Dundrum Town Centre so if you hear us come over and drop a few quid in the buckets.

Last year we raised over €30,000 for our chosen charities.

If you would like to support our charities here is a link to the causes we are helping out this year;

Here is a brief sample from this year’s performance in Christchurch.

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Which is better Serious Illness or Income Protection?

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Introduction

There is no single right answer to this question. As with other areas of financial planning, it depends on your own individual circumstances. What is your occupation, your financial situation, your life stage, do you have dependants and what are your financial goals? These are just some of the questions which can help you answer which product is better for you.

In summary, Income Protection and Serious Illness are both types of insurance plans designed to provide financial security in times of need. While they share the goal of safeguarding you against financial hardships, they differ significantly in their scope, benefits, and the scenarios they are designed to address.

The Differences

The main difference is that Serious Illness cover pays a once-off lump sum when you claim. Whereas Income Protection pays a regular income. There are also differences in the way tax is treated on both the premiums and benefit. In addition, there are also a range of other differences that need to be considered.

Income Protection

Income protection cover primarily focuses on replacing a portion of your income if you’re unable to work due to illness or injury. This product usually pays out a percentage of your regular income, ensuring you have a steady stream of money to cover essential expenses such as mortgage or rent, bills, and daily living costs. The payout is generally a monthly benefit and continues until you can return to work, retire, or until the policy term ends.

Serious Illness Cover

On the other hand, serious illness cover provides a lump sum payment if you are diagnosed with a specific serious illness listed in the policy conditions. These illnesses would usually include cancer(s) and heart conditions as well as illnesses like MND and Dementia. Unlike income protection, serious illness cover doesn’t replace lost income but provides a one-time lump sum payment upon diagnosis of a covered condition. This payment can help ease the financial burden of medical expenses or adjustments to your lifestyle, such as modifying your home for accessibility or seeking specialized treatments.

Serious Illness Income Protection
Pays a lump sum Pays a regular income
Covers only the illnesses specified in your plan Covers any illness, injury or disability that prevents you from working
Tax relief is not available on your premiums Tax relief is available on your premiums
Benefit payments are tax free Benefit payments are taxed
The plan stops once you have claimed You can claim as many times as you need (once you continue to pay premiums)
Cover available regardless of your occupation Cover is occupation dependent

 

As you can see from the above, there are important key differences between the two types of products. Combine these with your own requirements and you’ll see that there are many factors to be considered. When considering which type of cover to choose you need to consider the type of financial protection you need, the scope of coverage provided by the product, the cost and amount and duration of cover payment.

Conclusion

Choosing between income protection cover and serious illness cover will depend on your individual circumstances, financial needs, and risk tolerance. Both products serve crucial roles but differing roles in providing financial security. We can help you better understand what each cover will provide for you, and which will better meet your own requirements. Just contact us at Coleman Financial Planning to have a chat.

Blog

6 Ways to get Financially Fit for your Retirement

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Introduction

Retirement marks a significant milestone in life. It’s a time where you can finally take a step back and unwind. However, making sure you are financially fit for retirement is extremely important. People are living longer and leading more active lives in retirement. As a result, it is more important than ever for you to think about where your income will come from when you retire. Here are a couple of the essential steps we advise to ensure you are financially fit for your retirement.

  1. START EARLY

One of the golden rules of retirement planning is to start as early as possible (but it is also never too late!). The power of compounding works wonders over time. Even small, regular contributions to your retirement fund can grow substantially over the years. Remember there is significant tax relief on pension contributions that you can also avail of.

  1. SET GOALS

Determine your retirement goals – where you want to live, what activities you want to pursue, and the kind of lifestyle you wish to have. If you have clear goals, it will help you estimate how much money you need to save for the lifestyle you want in retirement.

  1. DIVERSIFY INVESTMENTS

Diversification is key to managing risk. Spread your investments across various asset classes like stocks, bonds and property. Diversification can help you achieve better returns while mitigating potential losses. Many pension plans offer access to multi-asset funds at different risk levels which can help you diversify at a level that suits you.

  1. CLEAR DEBTS

Entering retirement with debt can put a significant strain on your finances. Prioritize clearing in particular high-interest debts like your mortgage and credit cards. Being debt-free allows you to enjoy your retirement without the burden of monthly payments.

  1. LIVING LONGER

With advancements in healthcare, people are living longer. Plan your finances with the expectation that you might live well into your 80s or 90s. This means ensuring your savings can sustain you for several decades. Retiring at 68 could mean you still have 20+ years ahead of you.

  1. GET PROFESSIONAL ADVICE

While the idea of retirement can seem very attractive putting a financial plan in place for it is very important but can be daunting. That’s where we can help. Don’t hesitate to seek advice from Coleman Financial Planning to help you plan the retirement you deserve. Just get in touch to start planning your financially fit retirement.

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

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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.

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Inheritance tax planning for you and your family

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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

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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

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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

 

 

 

 

 

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An Investment Savings Plan to meet your future needs

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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%.