Q I feel very late to the party with this question. I’m 58 and have never saved into a pension. I always just pushed it down the line, or thought I could rely on the State pension, but I realise now it just won’t be enough. Is there any point starting a pension at this stage and where would my best place be to start?
A It is never too late to start a pension, according to Mark Reilly, Pensions Proposition Lead, Royal London. Beyond the investment growth potential, it is worth it alone for the pension tax relief. He said this is probably the most underappreciated gift we have from the Exchequer.
When you pay money into a pension policy, you can claim back from Revenue part of your contributions – either 20pc or 40pc in tax relief, depending on your tax bracket. For example, if you are in the 40pc bracket, a €100 contribution would only cost you €60 after tax relief, Mr Reilly said.
Your choices around the type of investment and risk you take on will be very different to someone in their 20s. But there is a lot of scope to contribute in your 50s and into your 60s.
You will benefit from the tax relief and you will be able to take some of your pension investment out as a tax-free lump sum a couple of years later. Everyone has different financial goals for retirement.
How much to contribute and what to contribute towards it are very much a personal decision and a strategy that needs to be worked out with a financial broker.
Q My wife and I currently have a VHI health insurance policy called Company Plan Executive (Excess). This is quite an expensive plan but up to now, this was paid for by my employer. As I have now retired I would have to pay this myself shortly when it is due for renewal. Can you recommend another plan with similar benefits but at a lower cost please, either with VHI or another provider? I am 63 and my wife is 60.
A This is one of these plans that is designed specifically to fully cover the high-tech hospitals in Dublin, which are the Blackrock Clinic and Mater Private, according to broker Dermot Goode of TotalHealthCover.ie.
To retain identical cover, the couple may have to remain on the same plan, he said. All other lower-cost alternatives may involve some reduction in cover for these high-tech hospitals.
Mr Goode said it was worth bearing in mind their current plan is one of the schemes being withdrawn by VHI and it is being replaced by the Company Plan Executive scheme which will cost the same but there is no excess payable on each claim in the facilities. All equivalent plans with the other insurers are either the same cost or more expensive.
Q I recently heard about the importance of having a good financial IQ. What is it and how can it impact financial wellbeing?
A Financial IQ is having a good understanding of how money works in general, according to Frank Conway, founder of financial wellbeing provider MoneyWhizz and a qualified financial adviser.
When it comes to long-term financial wellbeing, having a good working knowledge of topics such as inflation, compound interest, credit card debt and even personal credit reports are key to good financial planning and long-term financial wellbeing.
If we take inflation, while it was not a major factor in financial planning for almost a decade, it has recently resurfaced.
Today, across the eurozone, inflation is above 3pc.
Many people in Ireland have large amounts of money on deposit earning little or nothing in interest.
As inflation rises, the real value of that money falls. If we take someone with €10,000 on deposit earning no interest, with inflation at 3pc, it means the ‘buying power’ of that over a 12-month period will fall to €9,700,
This €300 drop will continue to compound every year.
To counter the corrosive impact of inflation, one should explore ways to grow the value of money, Mr Conway says.
There are a number of options: to enrol in a pension or invest outside of the pension structure. Both harness the power of compound growth over time brilliantly.
However, the pension route is more efficient due to the many tax advantages.
While not all investments are the same, the general objective is to invest so that the investment return is greater than the prevailing rate of inflation.