Pension question

khaldrogo

Hi,

I'm a bit late to the party in terms of a pension but I'm biting the bullet and starting one in earnest.
I met with a broker solely to discuss pension options but she started suggesting that income protection and life insurance were more important than a pension and to concentrate my investment there.
I'm a bit confused tbh and not sure if the broker is doing the right thing by me.
No family history of illness or conditions that would put me out of work. Job is as secure as anyone's as far as I know.
I've left the pension late so I'm anxious to get a move on with it and maximizing my investment. I don't want to waste money on superlatives if there's no need. Obviously with life insurance and income protection, you don't need it until you need it but the pension is a tangible asset IMO.

Any impartial advice?

Henry Ford III

Income protection and Life Aassurance aren't investments. If your circumstances meant that there'd be a financial crisis if you died prematurely or couldn't work for a while perhaps the advice was sound?

khaldrogo

Investments in the sense that you are investing into a fund/scheme to pay out in the event of losing a job and/or death. But I accept investment is not the correct word.

Back on point; I accept the advice may well be sound if the worst happened but equally a waste of money if nothing ever did, while paying into a pension is a guaranteed return.

I suppose I'm looking for advice from personal experience more than anything really. Has anyone been in this position themselves? What did they choose? Did they regret it?

Henry Ford III wrote:

Income protection and Life Aassurance aren't investments. If your circumstances meant that there'd be a financial crisis if you died prematurely or couldn't work for a while perhaps the advice was sound?

Henry Ford III

khaldrogo wrote: »

Investments in the sense that you are investing into a fund/scheme to pay out in the event of losing a job and/or death. But I accept investment is not the correct word.

Back on point; I accept the advice may well be sound if the worst happened but equally a waste of money if nothing ever did, while paying into a pension is a guaranteed return.

I suppose I'm looking for advice from personal experience more than anything really. Has anyone been in this position themselves? What did they choose? Did they regret it?

A tiny pension won't help you or your dependants if you're dead or long term sick.

p.s. No offence but you really should be having this discussion with whomever is advising you. That's what you're paying them for.

mrbrianj

Likewise, income protection and life assurance wont help with the bills when you reach retirement age.

Shedite27

Brokers are obliged to do a review of each situation, and propose a plan for you accordingly. They'll look at things in priority with the most immediate risk to the most remote risk:
1. Do you have enough to live day to day?
2. Can you save a bit for a rainy day?
3. Do you have some savings in case you lost your job?
4. Can you manage if illness meant you couldn't work for a while?
5. Are your family/debt okay if you were to die
6. Can you afford to pay into a private pension.

So they usually have a few recommendations before they get to Pension. Once you have ensured all your shorter term risks are covered, they recommend putting it into a Pension

khaldrogo

I have had this discussion with her and am worried about her motives behind her advise and am looking for impartial advise on the subject.

In terms of looking after my family if I got sick. Given current health and family history I don't feel I'm at any more risk than anyone else.

Henry Ford III wrote:

p.s. No offence but you really should be having this discussion with whomever is advising you. That's what you're paying them for.

Henry Ford III

khaldrogo wrote: »

I have had this discussion with her and am worried about her motives behind her advise and am looking for impartial advise on the subject.

In terms of looking after my family if I got sick. Given current health and family history I don't feel I'm at any more risk than anyone else.

A broker is supposed to be impartial. If you feel that's not the case then talk to someone else. Maybe someone fee based?

Best advice is paramount, and whilst any product sale can potentially generate a commission it must be disclosed, and overall renumeration agreed.

ANXIOUS

Did you enquire with your employer about an occupational pension scheme?

Are you self employed?

khaldrogo

ANXIOUS wrote:

Did you enquire with your employer about an occupational pension scheme?

Waiting to hear back from HR

ANXIOUS wrote:

Are you self employed?

No

ANXIOUS

khaldrogo wrote: »

Waiting to hear back from HR




No

The best place to start is with HR, most places will contribute something in addition to your contributions and they also may operate a Phi & death in service scheme.

Jim2007

khaldrogo wrote: »

In terms of looking after my family if I got sick. Given current health and family history I don't feel I'm at any more risk than anyone else.

That is simply nonsense, you have absolutely no idea what will happen tomorrow to prevent you from earning your income. You could fall down a stairs and be in a wheelchair for the rest of your life or you might go through life with out a hitch and retire in old age. The whole point is that you take out such cover because you have no idea what will happen....

You need to consider the following:
- How are you covered if you are unable to earn your living and what would be the consequence for those if any dependent on you?
- If you are incapacitated and need to have your home modified to meet your needs how can you finance it?
- If you need continuous care in such a situation, how can you finance it?

Now you could argue that you could rely on the state, but I honestly doubt very much that that would be a very pleasant way to have to live.

Once you have answers for those questions, you need to consider how to finance your retirement. How much will you need (usually aim for 60% - 80% of your current salary) and how you can accumulate the cash needed to finance it.

The idea that you can trade one against the other and everything will be alright is simply not the case because you have no idea what will come next...

And btw, a pension is not a guaranteed return. It will entirely depend on where the funds are invested and the economic circumstance of the period of the investment.

Liam D Ferguson

I'm a Financial Broker and if I'm looking at someone's financial position, I will stress the importance of having adequate protection against illness and death. All very well having a plan to save towards your retirement but such plans will fall apart if you are too sick to work. You're taking a big risk assuming that it won't happen to you, just because your health is good at this time.

As a general rule, the cost of protection would rarely be the same as the cost of putting money aside into a pension, so unless your budget only stretches to one or the other, you can do both.

That said, if your broker has made the recommendation that you should protect yourself and your income, you have understood the risks and have still decided that you just want to put money into a pension, then I'm sure your broker will arrange a pension for you.

khaldrogo

Liam D Ferguson wrote:

As a general rule, the cost of protection would rarely be the same as the cost of putting money aside into a pension, so unless your budget only stretches to one or the other, you can do both.

And if I could only afford 1, which would you say is more important?

khaldrogo

I should say. I'm not against the entire idea of income protection etc. Probably 5 years times I'll be in a different position financially and can afford both. At the minute I feel its more important to get a move on with the pension.

ANXIOUS

khaldrogo wrote: »

I should say. I'm not against the entire idea of income protection etc. Probably 5 years times I'll be in a different position financially and can afford both. At the minute I feel its more important to get a move on with the pension.

Have you checked with work? You could already have Phi.

mountai

ARE THERE ANY FIGURES AVAILABLE FOR THE AMOUNT OF CLAIMS THAT ARE TURNED DOWN IN THESE INCOME PROTECTION SCHEMES??

ANXIOUS

mountai wrote: »

ARE THERE ANY FIGURES AVAILABLE FOR THE AMOUNT OF CLAIMS THAT ARE TURNED DOWN IN THESE INCOME PROTECTION SCHEMES??

Yes.

mountai

Any chance you might share them please?

ANXIOUS

mountai wrote: »

Any chance you might share them please?

Here is the details from one assurance company.

https://www.irishtimes.com/business/personal-finance/new-ireland-pays-out-111m-for-life-insurance-claims-in-2017-1.3442474?mode=amp

khaldrogo

ANXIOUS wrote:

Have you checked with work? You could already have Phi.

Its not available at the moment

ANXIOUS

khaldrogo wrote: »

Its not available at the moment

How do you mean? Every employer has to give you access to a pension.

Liam D Ferguson

mountai wrote: »

ARE THERE ANY FIGURES AVAILABLE FOR THE AMOUNT OF CLAIMS THAT ARE TURNED DOWN IN THESE INCOME PROTECTION SCHEMES??

In 2017, Friends First paid 91% of new Income Protection claims. They paid out €37.5 million to over 1,500 Income Protection claimants in 2017.

Liam D Ferguson

khaldrogo wrote: »

And if I could only afford 1, which would you say is more important?

I've been working in this industry for around 29 years and in that time, I've dealt with quite a number of claimants on Income Protection and also death claims. When you meet the real people and their families, it does make you shudder to think what would have happened to them without the insurance. So for this reason, I personally tend to feel very strongly about the need to have financial insurance. Of course, the number of people I've met who have taken out policies and never had to claim on them is vastly higher - it's only a small percentage that need to claim and that's the nature of insurance. But because the consequences of having no insurance can be catastrophic if you happen to be one of the unlucky minority, personally I feel that it's a must.

That said, I'm aware that my opinions are based on my own experiences working in the industry. It's your money and therefore your call. I know nothing about your financial circumstances. Maybe a lack of insurance wouldn't be as catastrophic for you as for someone else.

Jim2007

khaldrogo wrote: »

And if I could only afford 1, which would you say is more important?

Nobody can tell you that for heaven sakes! If you're healthy all the way through then clearly the pension would have been the more important, if on the other hand you are not, then income protection would have been the way to go.

How much does income protection cost you in any case? I pay about 1% of my salary, which gives me 90% of my current salary while the kids are in college and 70% there after for my wife and I, should I face long term disability, I got two kids in college, I would not want to put their futures are risk, if I was not able to provide them with a decent education.

Jim2007

mountai wrote: »

ARE THERE ANY FIGURES AVAILABLE FOR THE AMOUNT OF CLAIMS THAT ARE TURNED DOWN IN THESE INCOME PROTECTION SCHEMES??

Unfortunately it is very difficult to make much sense of such figures without very details information about the nature of the reject claims. Especially preexisting conditions that were not reported, unusually high risk activities that were not reported etc...

The commitment from the insurance company's side is very long term, so they tend to use a very big magnifying glass and that catches a lot of people.

Heres Johnny

I was in the industry of advising professionally OP and first thing i will say to you is if you don't trust the advisor, which you don't, then walk away and talk to someone else. It's a big decision.

That said, her advice is sound. It is very important to protect yourself. Pensions build slowly and you may aim to have a few hundred grand in your fund to do you 20 odd years in retirement. And trust me you'll need it. Let's say 300 grand and you've 30 years to build this.

If, in 2 years time you get sick or have a serious accident and unable to work how will you pay into your pension. How will you pay your bills even. How will your family cope if you have dependents. If you die what will your family get? Probably just the 2 years on pension contributions which won't be much.

Yes the advisor will get paid if you take out the life insurance. But that doesn't mean it's wrong. The man that trained me had hundreds of clients. One man refused life cover and was just into investments and pensions. Died a few years after and he arrived with a cheque for the wife for a few thousand that the man's investments were worth. Didn't amount to much. Paid for funeral maybe but nothing left for wife and kids. His wife was upset with the advisor then. He said it was a tough day turning up with a small meaningless cheque for her.

That's why it's good advice. I'm glad your healthy now. You wouldn't get cover if you weren't. Listen to the advisor. Take it all on board. Hedge your bets a little. If you want to put 500 into a pension, put 450 and 50 into insurance. For example I pay 800 a month into my pension (40% of which goes against my tax bill) and 66 a month into life insurance which will pay 200k if I die and 100k if I get a serious illness. Also 20 quid goes to mortgage protection which clears mortgage whatever that might be at the time.

Jim2007

Liam D Ferguson wrote: »

Of course, the number of people I've met who have taken out policies and never had to claim on them is vastly higher - it's only a small percentage that need to claim and that's the nature of insurance.

I think that is something people don't get, it is basically a shared risk. Eventually the insurance company will end up paying out all the premiums they collect. In fact a well managed insurance company is one who pays out less than say 105% of the premiums.

Liam D Ferguson wrote: »

That said, I'm aware that my opinions are based on my own experiences working in the industry.

I don't have industry experience, but I know two people who need to make a claim on their insurance. One is a 34 year old father of a young baby, he hopped up on a table to change a light bulb and lost his balance. He is paralysed from the waist down!

khaldrogo

With respect, we are at very different stages of life. My wife earns more than me and my kids are a long time off college.

I feel, for me, that the pension is the way to go right now with a view for the rest in time. I was just looking for advice from anyone that had been in my position before and had to make the same decision.....

Heres Johnny

That should have all come up in conversation. If your family would be secure then there's no need identified. She should have asked about all your circumstances and then given advice. If you don't trust her motives as I've said then walk and go elsewhere. Advisors have 2 ears and 1 mouth for a reason!

Liam D Ferguson

khaldrogo wrote: »

With respect, we are at very different stages of life. My wife earns more than me and my kids are a long time off college.

I feel, for me, that the pension is the way to go right now with a view for the rest in time. I was just looking for advice from anyone that had been in my position before and had to make the same decision.....

This is a problem with asking for opinions on financial products in a public forum like Boards.ie. It is very relevant information that your wife earns more than you. Perhaps your family would be able to cope financially without your income. If this is the case, then it swings the argument towards putting money aside for a pension. Nobody who replied so far had the information about your wife's income until now. A Financial Broker will presumably have gathered all this information in a fact-find before making any recommendations. In fairness you couldn't be expected to post details of your income, your wife's income, your assets and liabilities on Boards.ie. But it's all relevant information for you to get a meaningful answer to your original query.