Tax cuts and SSIA-style pensions: What financial advisers want for Christmas

Reduce personal tax burden and reintroduce a rent credit
Ian Prenty, Deloitte
Focus remains on the marginal tax rate of 52 per cent. Not only is the rate high, but the level of income at which the top rate kicks in (€70,000) is comparatively low. This results in Ireland having one of the highest personal tax burdens in the OECD.

Any incentive for investment in the domestic economy would be a welcome boost, particularly in industries hardest hit by the pandemic

Given the ongoing international war for talent combined with the flexibility that remote working might allow into the future, it is time that a roadmap is set out to demonstrate how the personal tax burden might be reduced over the coming years.

At a minimum, indexation of tax bands and credits to inflation would be welcome, while increasing the standard rate tax band further would be of particular benefit to the younger population entering the workforce.

It may be time to consider the reintroduction of a rent credit, the last version of which ended in 2017. A credit of 20 per cent of one month's rent would be a welcome relief for hard-pressed tenants until such time as housing supply increases and the rental market stabilises.

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Any incentive for investment in the domestic economy would be a welcome boost, particularly in industries hardest hit by the pandemic to help them get back on their feet. For example, individuals could be incentivised to loan money to businesses where interest payable on the loan is either tax-free or taxed at a reduced rate. Various parameters around timeframe for repayment and limits on interest rates could be set out.

Similarly, individuals could be given the opportunity to invest a small portion – say up to 10 per cent – of their pension fund in such a manner and receive an interest return.

The Home Renovation Incentive (HRI) no longer applies for work carried out or paid after December 31st, 2018. In light of the National Remote Work Strategy published in January 2021, it might be worth resurrecting the HRI for people who want to convert a room or attic for their home office.

Similarly, and given the increased focus on climate change during 2021 as a result of Cop26, it would be worth considering a tax credit for people who wish to retrofit their home or install solar panels.

Irish mortgage holders choose their own financial wellbeing
Martina Hennessy, doddl.ie
Given the substantial reductions in interest rates over the past 12 months, there is a huge opportunity for mortgage holders to save by switching their mortgage. My wish is that 2022 would be the year that the Irish mortgage holder chooses their own financial wellbeing over needlessly paying interest to their current bank.

All markers point towards the huge benefits of mortgage switching with the latest Central Bank review of switching activity in the Irish mortgage market highlighting that 61 per cent of eligible switchers could save more than €10,000. Yet we are still a nation that chooses to pay higher interest rates, rather than switch mortgage lender – or even look for a lower rate with our own lender.

A common misconception of mortgage switching is that it’s complex and it’s not worth the “hassle”. For our clients at Doddl, the main body of work is pulling together documentation to make the application. After that we push the process forward. I think many more people would switch if they were aware how financially beneficial it is, and how worthwhile engaging in the switching process is.

Our latest Doddl mortgage switching index shows that you can save up to €135 per month for every €100,000 you owe based on a 25-year term. This means that if you owe €300,000, you could save up to €405 per month.

The tide is turning, and the 12 months to end September 2021 saw the highest level of mortgage switching activity on record

Taking a very average three-year fixed term this would be €14,580 over that period, and a multiple of this if you consider the mortgage term.

Many lenders have started to reduce their documentation requirements for switching but with the introduction of open banking and a more digital mortgage application process becoming the norm, this will make the process of switching easier, reducing documentation and reducing timelines for switching.

The tide is turning, and the 12 months to end September 2021 saw the highest level of mortgage switching activity on record. I very much hope this trend continues into 2022 and that more people switch and save.

Premium rebate and a 24-hour private A&E service
Dermot Goode, totalhealthcover.ie
There are a number of items on our "wish list" regarding private health insurance. For example, the Minister for Health recently announced a once-off reduction in the health insurance levies that must be paid by every health insurance customer (resulting in savings of between €35-€45 per customer). Whilst this is welcome, we would like to see this become a permanent reduction for the benefit of all health insurance members.

Another issue with the market is that there are no real financial incentives for young people aged 26-33 to join health insurance. Discounts apply up to age 25, and age loadings from age 35 onwards, but in the interim, there’s no reason for them to join apart from their personal motivation to have cover.

For community rating to be sustainable, we need a steady influx of younger members, which reduces the upward pressure on claims costs for the rest of the membership.

A positive feature of the market now is that health insurance members can access private A&E clinics for routine medical treatment such as fractures, sprains etc. Unfortunately, many of these clinics only operate during normal working hours. We would like to see the insurers offering a 24-hour private A&E service whereby consumers can access these services at all times, thus relieving the pressure on our existing public health system.

Whilst we have no details on claims trends from the health insurers, it appears that overall claims are down on previous years. If this is the case, we would like to see each of the health insurers giving a further premium rebate to hard-pressed consumers.

Finally, we need more competition in the Irish health insurance market. In an ideal world, we would have at least five players in the market and this increased competition should lead to better overall benefits and potentially lower pricing.

Over to you Santa!

SSIA-style relief for pensions
Suzanne Cashin, Brewin Dolphin
There is an old saying in Ireland that "pensions are sold and never bought", and perhaps the reason for this, is the complexity of how the tax relief is granted.

A simple automatic indexation of contributions by, say, 5 per cent each year would not greatly impact on peoples' affordability

For many, the myriad of products and terminology make pensions a subject that is just too challenging. But could pensions learn from the Special Savings Incentive Account (SSIA) plan which was introduced about 20 years ago and was a roaring success.

In my view, the success of the SSIA scheme was primarily down to the tangible manner in which people could see the government’s credit added to their account. The saver, for example, saved €100 per month and they could then physically see the government’s €25 added to the account for them. People felt, therefore, they were getting a real benefit, as opposed to the current scheme of tax relief for pensions where they either have to reclaim it at their tax return each November, or it is notionally granted to them via their payslip.

A system of actual credits similar to the SSIA scheme would definitely make pensions’ tax relief easier for people to get their heads around and, I believe, increase pension coverage.

Compounding has a hugely positive impact on pensions savings, so a simple opt out, rather than opt in, for pension savers at the outset could hugely improve their outcome.

A simple automatic indexation of contributions by, say, 5 per cent each year would not greatly impact on peoples’ affordability but would, over a 20/30-year savings term, have a positive impact on the amount of savings in their final pension pot.

An “opt out” would work much better, because if people are automatically included in an indexation of premiums, it is unlikely, given human nature, that they would opt out of the scheme.

Financial literacy curriculum in schools
David Quinn, Investwise
There are a few points on my 2021 financial planning Christmas list – two of which are achievable and realistic. The final one is a bit more of a wish.

Firstly, I would like to see the introduction of a comprehensive financial literacy curriculum in the later stages of secondary school. I feel our financial literacy levels are lower than most other European countries when we leave school.

This education is more important now than ever, with so much misinformation and conflicting information available online.

Second is a reduction of the fund exit tax rates in Ireland. Currently gains and income on all funds, whether they are exchange traded funds (ETFs) or investment funds provided by the insurance companies and banks, are all taxed at 41 per cent. This tax on gains is automatically taken after eight years if there has not been a sale/withdrawal.

Other investment assets, such as property and direct equities, are taxed at 33 per cent on gains (capital gains tax when sold) and income tax rates on rent/dividends.

This situation is very unbalanced and has the unintended consequence of pushing investors towards higher risk portfolios investing in direct equities and property, and away from a balanced and diverse global portfolio. Some financial planners have been using UK investment trusts and North American ETFs to get access to CGT rules, but regulation and the availability of those options is becoming much more restricted.

My final wish is for there to be some stability in the investment markets in 2022/23. I see indications of bubbles in certain parts of the markets now, and I worry that some investors (particularly younger investors) are taking more risk than they realise in their self-directed portfolios. I hope we aren’t facing into another period like January-March, 2000, even though it does feel very similar, particularly with some US stocks and cryptocurrencies.