Pharmacists in Smoking Cessation

Now, this saver has learned
the lesson and so immediately
uses the €10,000 to reduce
the loan to just €10,000
and as they can afford the
€394 monthly, they repay
this too, which means the
loan is repaid in two years
and four months. Now they
can continue to save the
€394 for the remaining two
years and eight months and
they will have total cash on
deposit of €10,700 by that
time. Resolving to no longer
pay for debt when savings
are underperforming lowers
the interest cost on the car
loan in our example by close
to €3,000 when compared to
the original. The change also
delivered a slightly increased
deposit lump sum.
This is but one simple
example and far greater
savings are enjoyed, of
course, when the numbers
are bigger. We have met some
professionals where the
savings from this relatively
simple alteration run into the
tens of thousands and more.
Resolve to review
your debts
It would seem almost
blindingly obvious, but the
quicker anyone can
repay their most
expensive debts,
the better, and
so you might
think that our
lenders arrange
our finances in this
manner. However,
what is good for
borrowers is not necessarily
good for the lender and so, in
truth, lenders often have us
repaying our least expensive
debts quickly and our more
expensive ones slowly, sizeably
increasing our real costs as
they do so.
Most people we meet have
two major debts in their lives,
a home loan and some form
of business or investment
loan. Typically, lenders will
lend us money for our homes
over long periods of time
(20-30 years) and for our
businesses (or investments)
over relatively shorter periods.
However, as the latter loans
attract substantial tax relief,
while for most, a home
loan no longer enjoys such
benefits, the reality is that
the business/investment loan
is cheaper to repay, yet it
typically requires repayment
in a far shorter time scale.
Take another example
where someone has just
recently borrowed €200,000
for a home purchase, as well
as also borrowing another
€200,000 for an investment
property purchase. The home
loan is over 25 years at an
interest rate of 3.8% and
the net cost will be €1,023
per month; the total cost to
repay this loan is €306,900.
This borrower also has the
other €200,000 loan, on
which 80% of the interest is
tax deductible (figures here
assume a top rate tax-payer)
and assuming a 4.95% interest
rate and a 10-year repayment
term, the net monthly
repayment will be €2,106
per month; the total cost of
repaying this loan is €252,720.
If, for example, this
borrower had known
of the benefits he/
she would enjoy
by altering the
terms, and for
this example we
will assume the
home loan was
taken over 10 years
and the other loan over
25 years, then the net cost of
repaying these loans would
fall by approximately €18,715
(rounded to nearest €5). This is
the same total borrowing, over
the same total term with the
same headline interest rates,
but altering how and when
you repay these loans lowers
the costs by close to €750 per
annum.
Once again, the savings
you could enjoy by reviewing
your existing loans may be
far greater than the numbers
illustrated here. One thing is
for sure, you will not enjoy
savings if you do not act.
Your lenders will not do this
for you, as the restructuring
outlined does not deliver their
agenda, which is to lower the
bank’s risks, not yours. Only
you can ensure you pay as
little as possible for your loans
so resolve today to review
them; the savings could be
huge. If you have neither the
time nor personal expertise
to self-review, meet a truly
impartial adviser and see if
they may be able to help. You
will pay a fee to such a person
but with the savings to come,
any fee should be more than
self-financing.
Resolve to de-tax your
long-term savings
Tax, plain and simple, is the
greatest liability in our lives
and tax, therefore, is the
greatest obstacle to
any of us achieving
our long-term
ambitions. Most
people are saving
for their future,
but this is how they
do so. . .
They earn money
Pay tax on that money
Save the after-tax amount
Then pay MORE tax on the
returns
However, there is a piece of
legislation on the Irish Statute
Books that allows any of us
to. . .
Earn Money
Pay no tax on the amount of
income being saved
Save this amount before
tax is paid
Then pay no tax on the returns
When we compare these
two methodologies, even
when we add back all taxes
that may be payable later, the
same money, invested in the
same place, producing the
same annual returns, delivers
total returns to you of at
least 50% more; by changing
how you save money you can
increase the value of your
long-term savings by more
than half.
What I am referring to here
is “retirement legislation” but
not necessarily a pension.
Pensions are insurance
policies, sold by commissionremunerated
salesmen and
the tax benefits granted are
often completely eroded by
the various fees and charges
levied within these off-theshelf
products. However,
private retirement plans are
available, which provide far
superior security to savers
than the insurance policies
and allow investment into all
types of assets, including cash
deposits, property and direct
equities.
If you have any form of
long-term savings, be that
inside an existing
insured pension
or elsewhere, you
may be able to
effectively bolt a
“turbo charger”
to those savings
by changing how
they are made.
Again, resolve today to
investigate this potential for
yourself; speak to someone
who can give you the
information you need and,
where possible, make sure you
claim the tax benefits that
retirement legislation allows
you to claim.
Kilian A. Neville, QFA, is
Managing Director at Neville
& Partners Ltd. Neville &
Partners has been approved as
a Preferred Supplier to the IPU.
For further details, email ask@
nevilleandpartners.ie.
IPUREVIEW FEBRUARY 2017 51