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Wednesday, August 17, 2022

Is it wise to stop saving in pensions as a way to deal with high prices?

Q The living crisis has really made me struggle to meet my needs. I am well paid but now I have to spend a lot to go to work. If things remain as they are, I am at risk of falling behind on my mortgage or car loan. I am currently paying 5 percent of my salary to my work pension – with my boss paying an equal contribution. To free up some income, I’ve decided to withhold those pension contributions – is it a good idea? I am in my early forties. Sean, Co Carey

a The main priority for you should be to maintain your current lifestyle while meeting your financial obligations.

You have entered into financial agreements with financial institutions for a car loan to provide transportation to and from a rural area and a mortgage to provide housing. A default on these loans can have a significant impact on your future borrowing abilities and can make future borrowings more expensive. Therefore, reducing the chances of defaulting on those loans is the right course of action.

The danger of completely withholding your pension contributions is that you could become accustomed to having extra disposable income each month. Also, by withholding contributions, you are missing out on the tax relief available on pension contributions, and you are also missing out on the employer’s contribution of 5 percent of the salary. This is important and this money invested correctly over 20 or more years will be vital to sustaining your lifestyle once you stop working.

Instead of withholding all contributions, discuss with your employer the minimum employee contribution that is required to receive matching employer contributions. You may have to pay only 3pc or 4pc of your salary to get the employer’s equivalent contribution. This will keep the investment in your pension and allow you to retain the benefits of tax relief – as well as freeing up income.

Once you’ve reduced your pension contributions — or indeed, if you decide to stop your contributions altogether, create a comprehensive budget. There are budgeting tools online at ccpc.ie and mabs.ie that can help you create a workable budget together. This budgeting exercise will help you identify areas where you may be able to save the income on your current expenditure so that you can return the pension contribution of at least 5 per cent of your salary at the earliest.

To remain on critical illness cover while switching mortgage

Q I am considering changing my mortgage to another bank. I have mortgage protection insurance on my current mortgage – and because of the health condition, it includes critical illness protection. How can I make sure I don’t lose the critical illness cover in my mortgage protection insurance when I switch? Can I Face Higher Premiums on My Mortgage Protection Insurance After Converting My Mortgage? When I switch I don’t borrow any more from the new lender, so the outstanding mortgage will be the same. nial, co dublin

a As a condition of your loan with your existing lender, you were required to obtain mortgage security. Effectively you are covering the risk to your lender of dying before you can repay your mortgage.

Under your policy, the life cover amount would have been at least equal to the loan amount. Similarly, the term of the policy must at least match the term of the loan.

In the event of your death during the term of your mortgage, the life insurance benefit on the policy will eliminate the outstanding mortgage – and property ownership will be made your property debt-free.

You have also built critical illness cover in this policy.

While not likely to be a condition of a mortgage offer, it is always a good plan to include critical illness in a mortgage protection policy if it is affordable and within your budget. If you change mortgages, you pay the amount owed on your mortgage to your current lender and therefore there is no need to hand over the mortgage protection policy to your current lender.

As long as you don’t borrow more from your new lender and extend the term of the mortgage, your existing mortgage protection policy can be reassigned to the new lender and retain all the benefits you currently have. Will go There will be no higher premium or change in the existing benefits on your existing policy.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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