Connections Spring 2012
Welcome to our Spring 2012 edition of Connections I am pleased to introduce our Spring 2012 edition of Connections. The New Year commenced with a string of “price reductions” and “incentives” from all the major Life Assurance Companies in relation to Life Assurance, Serious Illness Cover and Personal Income Protection. In addition and in relation to Pension Planning, there are now very attractive deposit options available in the market for 3 and 5 year investment terms. We have also witnessed plenty of media and press coverage with regard to Health Insurance with Aviva Health now offering to cover “kids for free” for the first 12 months. All of these promotions across the Financial Planning Spectrum clearly indicate how important it is to review your existing arrangements at least once a year. During the month of January you will have received your policy summary schedule, detailing all of the arrangements you have in force with CMCC Financial Solutions. As always we strongly recommend that you review these plans at least once during 2012. In our Autumn 2011 edition we ran a competition seeking your feedback as to how we could improve our overall customer service.
A big thank you for all your entries and the lucky winner of a one4all voucher was Tomas Geraghty, Headford, Co. Galway. Tomas is pictured on page 8 receiving his voucher in our Galway office. The two runners up were Katie Moran, Edenderry, Co. Offaly and Nicola O’Reilly, Dublin 15, who also received one4all vouchers. Thank you again for all your entries and I hope the winners enjoy spending their vouchers! Finally, enjoy St. Patrick’s Day and the upcoming Bank Holiday weekend. Here’s hoping for a fine day and I hope you manage to get out to your local parade. With the final series of 6 Nation’s games being played, Ireland have the small matter of an evening time date with the “auld enemy” in Twickenham. My colleague Marie McNamara will have far more important matters on her mind as she marries Pat Casey and we wish them both well for the future. Conor Murray
CMCC Financial Solutions
MARKET REVIEW & OUTLOOK by Conor Murray
are committed to protecting the Euro currency and are willing to take the strong action that is needed. The deal in December should go some way to providing this reassurance. Ultimately, a solution to the Euro problems will be reached because in my opinion, there is no alternative.
Outlook for 2012
Looking Back at 2011 2011 turned out to be another difficult year as markets were hit by a number of issues that dented investor confidence. The early part of 2011 showed some strong equity gains with commentators quite optimistic on the global economy. However, the Libyan crisis, the Japanese earthquake and more significantly the various EU/ IMF bailouts all served to dampen this optimism. The last quarter has seen the Eurozone debt crisis take centre stage again. The markets confidence in the ability of the Eurozone countries to protect their currency waivered. Towards the end of December, the ECB offered Eurozone banks access to 3 year term funding, in an effort to alleviate possible strains on bank funding in 2012. A total of €489 billion in funds were lent to the banks on these terms. It was hoped that the banks would use some of this money to buy the debt of peripheral countries and so alleviate the debt crisis. While this is a step in the right direction, it is not likely to be sufficient on its own. There is no short term fix to the fundamental and complex problems facing the Euro. Markets are looking for reassurance that European leaders
Let’s start with some positive news! Investment markets have performed well in January with most equity funds returning almost 10% for the month. The reasons for this strong performance is twofold – (1) Fund Flows are starting to move in a positive direction for stocks, with some evidence suggesting that investors are starting to get back into the markets (although the amount of cash on the sidelines remains extremely high). (2) The underlying improved economic conditions have seen a continued trend of better-than-expected jobs market data in the US. Monthly jobs growth and unemployment data from the US has been surprisingly strong of late.
So what for the remainder of 2012? Well, as I regularly quote on these pages, “The short term outlook is always uncertain.” Although economic and market data is looking better than it did several months ago, it is important to remember that significant downside risks remain. The European debt crisis still has the potential to spiral out of control and investors need to keep an eye on potentially rising oil prices. On balance, however, the positives outweigh the negatives.
Central banks remain highly committed to promoting better economic growth and while we are not expecting to see a clear resolution for the European debt crisis, we do expect it to remain reasonably well contained. Given this backdrop, it is likely that modest levels of economic growth should continue, which should help pave the way for risk asset out-performance. Even though some of the more recent data in the US has been reasonably good, investors are focusing on another looming recession in Europe and downside risks to growth elsewhere. While resurgence in commodity prices could add to upside inflation risks, it is otherwise likely that inflation pressures should remain reasonably modest. No major countries are seeking currency strength and this is a key indicator that policymakers are not concerned. It is also worth noting that the global economy continues to grow. Globally, most companies remain in solid shape with lower levels of debt, higher cash balances and lower cost bases than 5 years ago. There remains, however, plenty of room for further improvement as equity markets remain far below the high points achieved in 2007. Investing is the commitment of money in order to achieve a financial return. In the case of investment funds, this is a medium to long term commitment. While it is important to pay attention to the short term market movements and in particular how these impact on the investors risk appetite, it is more important not to lose sight of the long term nature of any investment. I am once again reminded of a Warren Buffet quote “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years”.
CMCC Financial Solutions
WHY BUY LIFE ASSURANCE? by Mary Fitzpatrick
Security against lending Generally, the first time we consider taking a life assurance policy is when we are in the process of purchasing a home or rental property, at which point the lending institution may insist that a life assurance policy of equal value to the loan amount is affected and assigned as security against the loan. This protects the institution as it ensures that the mortgage balance will be covered by the life assurance policy in the event of death. It also ensures that the burden of the mortgage is not passed on to your estate. Mary Fitzpatrick
Deciding whether you need life insurance can be a complicated process. The decision can be even harder when you are young and healthy. We explore below the benefits of life assurance and the numerous options available to you when deciding on the type of life assurance plan you need.
€ “You may be the sole income earner in your household or the main bread winner, in which case, income replacement is vital in the event of death.”
Providing for Your Dependents If You Die The second most obvious reason why someone should invest in life assurance is income replacement. You may be the sole income earner in your household or the main bread winner, in which case, income replacement is vital in the event of death. Aside from the day to day running of the household you may want to factor in long term financial objectives like providing for children’s education. In the absence of regular income, any savings provision made will diminish quickly when used to cover daily expenses. Putting in place a family protection plan to cover a specified portion of income will ease the burden.
You also have the option of buying a whole of life policy or an indexed linked policy. There are several types and sub categories of each type, and they usually pay a benefit to your beneficiaries when you die. The premium you pay will depend on the policy you purchase.
How Much Do You Need? The amount of life assurance that you need depends on what you want it to cover. Look at how much you earn, and how many years your family will need to replace that income if you die prematurely, versus how much you have already saved. Also look at which items that you want to make sure would be paid for, such as college fees for your children and any outstanding debt.
Reviewing Your Plan Like all things in life it is very important to review your existing life assurance arrangements on a regular basis. Reviewing your plan ensures that the level of cover originally affected is still sufficient to meet your needs and secondly gives you the opportunity to ensure you are paying the most competitive premium for the cover. The life assurance industry has become very competitive and this has resulted in many premium reductions over the past number of years.
You Have Options You have the option of buying a term assurance policy which would cover you for a set number of years, generally ranging from 10 to 30 years. These policies pay a benefit only during the term of the plan. These can be a good option if you want coverage for a set period, say, until the children finish college.
The Bottom Line Life assurance is not for everyone. But you should not dismiss it without doing some research. If you have others who depend on you financially, it is very likely that you need it. We can help you to decide which type of policy is best for you. Buying life assurance can be one of the best financial steps that you take for you and your family.
CMCC Financial Solutions
LIFE ASSURANCE & SERIOUS ILLNESS CLAIMS STATISTICS 2011 by Stephen Cox
an average payment of more than €59,000 per claim.
Each year Life Assurance companies do a review of protection claims paid in the previous year. The aim of this exercise is to both improve the claims process and to help customers better understand the importance of having cover in place. This important exercise gives life companies an opportunity to emphasise how important life assurance can be in securing your family’s future in the event of the unthinkable. It also allows customers to see what the main causes of claims were in the preceding year. Cancer was once again the main cause of claims for both death and specified illness benefit in 2011. Statistics released from Irish Life recently highlight the level and types of claims that occurred in 2011. Overall Irish Life paid more than €81 million in death benefit to 1,311 dependents – an average payment of just over €62,000 per claim, and paid out almost €36 million in specified illness cover in respect of more than 600 claims,
In 2011, for example, Irish Life settled a €100,000 claim with a 39 year old shop assistant just eight weeks after she took out her serious illness cover. A 35 year old can obtain life assurance and accelerated specified illness cover in the sum of €100,000 over a term of 15 years for just €10 a week. This policy will pay out on the earlier of diagnosis of a specified illness (as outlined in the policy conditions) or death. €10 a week for the peace of mind that €100,000 worth of cover provides is extraordinarily good value. It is also significant that almost 4 in every 10 accident-related death claims involved people under the age of 40, highlighting the need for people to take out life assurance at an early age. Accidents accounted for 11% of the death claims settled last year and a large proportion of these accidentrelated claims involved young people.
Specified Illness Claims • In 2011, Irish Life paid out over €35.8 million in specified illness claims. • The average payment was €59,379 per claim. • The average age of adult claims was 50. • The main causes of claims were as follows: - malignant cancer 62% - heart-related conditions 22% - strokes 4% - multiple sclerosis 4%.
Death Claims • In 2011, Irish Life paid out more than €81.5 million in death claims • The average payment was €62,158 per claim. • The average age of adult claims was 61. • Cancer was the biggest cause of claims, accounting for 44% of total claims.
A sample of actual Specified Illness Claims paid out in 2011 Age Gender
Cause of Claim
Loss of independence
Legal profession €500,000
Once again these figures show how important it is for Irish people to take steps to look after their dependents in the case of serious illness, or worse still death. Death and specified illness cover are one of the best value insurance products available and it’s important to emphasise that this sort of financial protection is just as important for those on lower incomes as it is for those on higher incomes.
CMCC Financial Solutions
HEALTH INSURANCE “REMOVING THE FEAR ABOUT CHANGING PROVIDER” by Marie McNamara With debate on going, people want to know more about their options and Independent Financial Advisers are increasingly becoming the voice of the consumer amidst the confusion.
Every day of the week, we open the newspaper or turn on the radio and hear extensive debate about private health insurance. Most recently, we read of the government’s decision to increase the levy on health insurance policies by 40% approx. There has also been extensive media coverage of the price and benefit changes applied to health insurance plans by the three players in the market, VHI, Quinn Healthcare and Aviva.
“Switching is actually hassle free. You have the right to change your health insurance plan, or insurer, without penalty at your renewal date.”
Over recent months we have seen a large increase in the number of customers contacting us to seek advice about their health insurance cover. These customers aren’t just looking for a price saving, rather they are trying to understand their options and most importantly what is the best cover for their personal and family needs. There are 3 insurers offering free kids cover at the moment but customers are finding it difficult to figure out which offer is best for them. So, if recent public debate has left you with more questions than answers about your private health insurance needs, there’s an easy solution that will help you decide what’s right for you. Call us today and let us help you.
Are you concerned that switching is too much hassle? Switching is actually hassle free. You have the right to change your health insurance plan, or insurer, without penalty at your renewal date. In some cases not only can you benefit from a lower premium, you can also enjoy superior cover than your existing health plan, giving you more than one reason to make the change.
Switching is as easy as:
On receipt of your renewal contact us to provide information in relation to your existing plan. We will then compare cover and provide alternative options.
Once you are happy with our recommendation complete the health application and put your cover in place.
Contact your previous provider to cancel your cover.
Are you concerned about waiting periods? Once you have served your initial waiting periods with your previous insurer you do not have to reserve them again, so you will be covered as you would have been before for all of the benefits that you had on your previous plan. It is important to note however if a new plan offers enhanced benefits over and above those offered by your existing plan, you will have to serve initial waiting periods in respect of those enhanced benefits. On the other hand it’s never too late to start! You may have to serve initial and pre-existing waiting periods, so why not start now? The waiting periods that you will have to serve will depend on your age on joining a health insurance plan. It is important to remember also, if you allow your health insurance plan to lapse for 13 weeks or more, you may have to start all of your waiting periods over again. Act now – renew your policy!
CMCC Financial Solutions
WHERE TO FROM HERE FOR THE ECB LENDING INTEREST RATE? by Peadar Gardiner The European Central Bank held interest rates steady again on 9th February at a record low of 1%. The move had been widely expected. Interest rates dropped to 1% in May 2009, and continued to stay at a record low until April 2011, when the ECB raised rates by a quarter of a percentage point. A second rise followed in July 2011, bringing the main interest rate to 1.5%.
“At CMCC Financial Solutions, our own view is that the Central Bank will cut rates one last time in this easing cycle to 0.75 per cent at some point in the March-May period.”
The ECB had planned to increase the rates further but changed their minds because of the slowdown in the global economy and the worsening euro zone debt crisis. Interest rates were lowered by a quarter of a percent in November and again in December last, bringing them back to 1%. At a press conference after the announcement on February 9th, ECB president Mario Draghi said tentative signs of stabilisation in the euro zone economy remained over the past month but uncertainty remains high. “Available survey indicators confirm some tentative signs of stabilisation of economic activity at low levels around the turn of the year,” Mr Draghi said, adding there were still substantial downside risks to the economy from the sovereign debt crisis engulfing much of the euro zone periphery. As I write the speculation is that the ECB may lower interest rates further when it meets again either this month or next month. “The Central Bank has never cut its benchmark rate below 1.00% and some members of the governing council are reluctant to take it below that floor,” Bloxham
Stockbrokers said in a recent note, “Fresh ECB staff inflation and growth forecasts in March could give the council grounds to reduce rates further.” At CMCC Financial Solutions, our own view is that the Central Bank will cut rates one last time in this easing cycle to 0.75 per cent at some point in the March-May period. This will bring more relief to hard pressed Irish mortgage holders, though that’s about as good as it will get. Tracker mortgage holders will benefit and the institutions may or may not pass on the full 0.25% reduction, or part there of, to their standard variable rate clients. “There is very little incentive for the ECB to do anything or say anything. It wants to see how things play out,” said Société Génerale economist James Nixon. “The ECB has already done a lot”.
CMCC Financial Solutions
WHAT NOW FOR THE STATE PENSION? by Conor Carey
With the level of funding that the taxpayer has injected into the country’s Banks and all the talk of a second EU/IMF bailout on the cards, many people are asking the question – will the government be in a position to provide a state old age pension into the future?
“Simply put, you cannot be sure the state will provide you, in your old age, with the same level of pension income and other benefits as are provided currently.”
The state old age pension personal rate is currently €230.30 per week or €436.60 per week with an adult dependant allowance. Demographic changes in Ireland, as in countries across the EU, will put pressure on government finances as the cost of the state pension and health care for the elderly increase. Currently in Ireland there are 6 adults of working age for every 1 adult over 65, but this ratio is predicted to fall to 2 to 1 by 2050. Steps taken in the past to plan for this demographic change can no longer be relied upon. The National Pension Reserve Fund was established to help meet the cost of social and public service pensions from 2025 but is now being used to make investments in Irish banks as directed by the Minister for Finance. Simply put, you cannot be sure the state will provide you, in your old age, with the same level of pension income and other benefits as are provided currently. Legislation is now in place that will increase the age at which the state pension becomes payable in the future. These changes are happening soon and you need to look now at the impact they will have on your plans for retirement. A person turning 50 this year will not receive the state pension until they reach their 68th birthday.
Life expectancy for those born in Ireland is now 76 years for men and 81 for women. Whilst increasing life expectancy is a good thing, it is also something you need to consider when planning for your retirement. If your retirement fund is to last longer you either need to set aside more or take a lower income each year in retirement as your savings may need to last for up to 30 years or more. There is one golden rule when planning for your retirement – hesitation is fatal! The longer you hold off on starting your pension, the less time you have to build up your retirement nest egg. Despite the all-pervasive doom and gloom which seems to surround the country at the moment, there are still sound reasons for providing for your retirement, not least of which is the tax relief available on contributions which, contrary to pre-Budget speculation, is still available at your marginal rate. So, don’t put it off any longer – contact us today and start planning for your retirement now. It will involve some pain in the short term but will be well worth it in the long run!
CMCC Financial Solutions
COMPETITION WINNERS CONGRATULATIONS ALSO TO OUR RUNNERS UP, AS FOLLOWS;
Tomas Geraghty accepting his one4all voucher from Conor Carey.
FREE FINANCIAL HEALTH CHECK At CMCC Financial Solutions we provide a free and confidential Financial Health Check covering areas such as Pensions, Life Cover, Income Protection, Mortgages and Savings & Investment Opportunities.
Benefits • • • • •
Completely free of charge and confidential Advice from a qualified financial adviser No obligation to purchase We’ll meet you when and where it suits you best It’s quick, a full review will take just one hour
CMCC Financial Solutions is regulated by the Central Bank of Ireland.
Katie Moran, Edenderry, Co. Offaly and Nicola O’Reilly, Dublin 15
TO BOOK AN APPOINTMENT
CONTACT Dublin Office: Arena House Arena Road Sandyford Dublin 18.
Galway Office: 2 The Friary Main Street Headford Co. Galway.
Tel: + 353 1 2130733
Tel: + 353 93 34033
3633. Feb. ‘12