Household deposits in Ireland stood at €135bn at the end of September 2021. This leaves us scratching our heads a bit… This money is earning no interest, in some cases negative interest rates are applied and the value of this money is falling as inflation reappears in the Irish economy. Money sitting in a bank account is making people poorer. So why are deposits at record levels?
There’s no doubt that some people are completely risk averse and see deposits as risk free. Yes they are guaranteed up to €100,000 in each institution, but they are also guaranteed to make you poorer in the current zero interest environment with inflation gathering pace. Other people may have had poor experiences with investments before the financial crash, others may like to know they can access their cash at the drop of a hat. For others, it’s down to inertia – the money’s fine in the bank and it’s too much hassle to move it (tip: it’s not difficult at all). We recognise some of these reasons for holding cash, but surely there has to be a better way? Some money on deposit often makes sense There’s no doubt that an emergency fund that is immediately accessible in a case of crisis is a very valuable asset. Deposits can make sense here, or indeed if you have a very short time horizon before using the money. But these reasons often don’t require placing all of your money on deposit where it will earn zero or negative interest rates. Inflation is the enemy for deposit holders today Inflation was forecasted at 1.5% - 2% for 2021 and the same again for 2022. This is the silent killer for deposit holders, reducing their purchasing power and making them poorer as their money sits on deposit earning no interest. We always come back to diversification When we advise people regarding their assets, we always come back to diversification and not having all your eggs in one basket. Deposits play a role in most investment strategies, but so potentially do other asset classes such as property, equities, bonds etc. A carefully crafted investment strategy considers your time horizon, your appetite and capacity for risk, and the broad range of asset classes available to you. The goal is to create a strategy that will enable you to achieve your investment objectives, while living within your stated risk parameters. Get your money working for you So what do you do, because no-one wants their wealth to just dwindle away? We think that you start by deciding what you want your money to do, what your actual objectives are. When you’re clear about these, have a chat with us. We’ll help you to clarify your timeframes and your attitude to risk. Then we can come up with a plan to help you achieve those objectives. The plan may well entail some of your money remaining on deposit. However, going forwards your assets will be aligned with achieving your own stated objectives. This beats watching your wealth drain away in the bank.
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Why would I need life insurance as well as my death in service benefit provided by my employer?8/2/2023 If you’ve got a death in service benefit through your employer, you may be thinking you do not need life insurance as well.
The level of cover set under your death in service benefit is determined by your employer and so you may want to consider whether this amount would be enough to support your loved ones should anything happen to you. Would the lump sum provided by your employer’s scheme be enough to cover debts and maintain your family’s lifestyle? What if you left your current employment, to change jobs or retire? You no longer have that death in service benefit in place once you leave your job. While you could take out life insurance after leaving a job, it is important remember that premiums rise with age. When getting a mortgage, it is a requirement that you have life cover in place to cover this loan and you will not have the option so assign your death in service benefit to your mortgage as circumstances can change and the term of your death in service is not guaranteed and the amount of your benefit may not cover the amount of your loan. Therefore, it is important to take out additional life assurance to have consistent cover in place regardless of the changes that occur in your career. It is also beneficial to have this cover in place early as you can decide the level of cover that is sufficient, you can avail of lower premiums, and it can be assigned to a mortgage if required. You can buy life insurance anytime and keep it whether you’re working or not. One in eight couples now are cohabiting and not married. What many do not realise, is that they don’t have the same rights as married couples or civil partnerships, which can result in some devastating financial shocks down the road… Thankfully some of these can be at least partially mitigated, but they require careful planning in advance.
When the Civil Partnership and Certain Rights and Obligations of Cohabitants Act was enacted in 2010, it conferred rights like those of a married couple on registered civil partners and qualified cohabitants. However, the rights extended are different for both. Registered civil partners now have automatic rights to each other’s estates on death. This entitlement was not extended to cohabiting couples, who can apply for a provision out of the deceased’s estate but have to pay inheritance tax on it. As a result, it is critically important that cohabiting couples get expert financial advice in order to avoid inheritance tax bills in the future. Here are a few areas that cohabiting couples should make themselves aware of. The family home As cohabiting couples are not treated for tax purposes in the same way as married or civil partnership couples, the death of one partner could result in a sizeable tax bill for the surviving partner. Cohabiting couples need to understand the qualifying conditions for Family Home Relief, which can allow a complete exemption from Inheritance Tax and Capital Gains Tax if certain conditions are met. Meeting these conditions could result in a significant tax saving for the survivor in a cohabiting relationship on the death of their partner. Life Assurance Cohabitants have no automatic rights to their deceased’s partners assets. This can result in a tax burden or even assets such as the proceeds from a life assurance policy not ending up in the hands of the people you want them to. To counteract this, once a will is in place, it is very important that life assurance policies are set up correctly to ensure your assets end up with your intended beneficiary in the most tax efficient way possible. Each individual situation must be evaluated and then the type of policy to be used and also who pays the premium should be considered, in order to ensure the most tax efficient solution. Mortgage Protection Policy A mortgage protection policy needs to be arranged very carefully by cohabiting couples when taking out a loan to buy their home. Simply arranging this on a joint life basis might give rise to a potential tax liability, as could the inheritance of the property itself. Unfortunately, the Inheritance tax threshold for cohabiting couples falls into the lowest tier (Group C) of only €16,250, usually resulting in a significant tax bill. Solutions we would consider include, • A “life of another” policy • Having sufficient life cover to also cover the inheritance tax liability • A section 72 policy to specifically pay the inheritance tax liability. There are other ways that the financial challenges faced by cohabiting couples can be mitigated, such as using the small gifts exemption to transfer wealth while both parties are alive. However the key ingredient is expert advice. If you are living in a cohabiting relationship, give us a call and we will review your specific situation and advise you accordingly. |
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