Baby on the way - time to review our finances.

[help999]

Age: 36
Spouse’s/Partner's age:32
Not married.

Number and age of children: 0 but 1 the making.


Income and expenditure
Annual gross income from employment or profession: base pay €41k, €61k all in including shift Allowance and Rostered overtime. Annual Bonus = Average 10% of Base Pay.
Annual gross income of spouse: 32k, No bonus

Monthly take-home pay €3500 & €2500

Type of employment: Me private, partner Public health

In general are you:
(a) spending more than you earn, or
(b) saving?
50/50 Saving & speding.
2 cars but we own them, one is worth about €12k the other is worth about €1k



Summary of Assets and Liabilities
Home Owner home value €385k
Mortgage €269k, 29 years left @2.95% currently switching to 2.15% in the next two weeks.
Cash of €5k,
Partner has 10K cash
Defined Benefit pension fund: I dont know what is in it, I pay 6% company pay 10%.
Death in service pay out if I die is 3 x times base salary. Circa €125k
Partner is on the Single Public Service Pension Scheme
Company shares : €45k, only €10k matured at time of writing elligble to take out without paying income tax.
If I buy shares with bonus we don't have pay income tax on the money if we leave them mature for 3 years.
I have about €5k worth of shares bought from bonus that will mature every year.



Other borrowings – car loans/personal loans etc

Used 12k in cash to buy a car rather than go finance or borrow.
Partner has 3K personal loan with bank 1.5years left.



Other information which might be relevant

Life insurance: Only Mortgage protection duel cover for the mortgage.


What specific question do you have or what issues are of concern to you?

I am looking for advice on Income protection and Critical illness cover.
My company sick policy says-The Company Sick Pay Scheme is totally discretionary and each case will be examined on its own merits. All payments made under the sick pay scheme are exclusive of social welfare payments, which must be claimed directly by the employee. Eligible employees will receive pay less social welfare for a maximum of 13 weeks over a rolling 12 month period at a rate determined by the Company. Rates of payment during absences vary for those on shift and those paid at an hourly rate – contact Payroll for details. Income Continuance Payment Income continuance payment replaces sick benefit payments when an employee is absent for more than 13 weeks during a rolling 52 week period. At the discretion of the Company, Income Continuance payments may be made by the company or by an insurance company. Income continuance pay is normally 75% of pay at the time of illness less 1.5 time State pension. Payment of income continuance is made through payroll in the normal way.
My partner has 3 months full pay less welfare, 3 months half pay less welfare then knotting from work.

I cannot get a definite answer from my payroll what the amount of sick pay is that they pay during the first 13 weeks.
I don't know how much level of cover I need as I cant get an answer from the company.
De we need income protection?
Do we need critical illness protection?
Do I cash in my matured shares and pay down the mortgage or what should i do with the money each year.
What do we do when we have a baby are we prepared financially given the figures I put in.
If one or both of us get sick or is out of work long term like when having a baby are we financially ready?
Thanks

 

[Brendan Burgess]

A simple thing first

Partner has 10K cash

Partner has 3K personal loan with bank 1.5years left.

Why are they paying interest on €3k while they have €10k cash earning nothing? Clear the loan.

Brendan

 

[Brendan Burgess]

Company shares : €45k, only €10k matured at time of writing elligble to take out without paying income tax.
If I buy shares with bonus we don't have pay income tax on the money if we leave them mature for 3 years.
I have about €5k worth of shares bought from bonus that will mature every year.

I don't fully follow this. But the general principle is that you should sell shares as soon as it is tax-efficient to do so.

Your salary depends on your employer. You should not have a substantial part of your wealth depending on them as well.

So sell the €10k and pay it off the mortgage.

Brendan

 

[Brendan Burgess]

I cannot get a definite answer from my payroll what the amount of sick pay is that they pay during the first 13 weeks.
I don't know how much level of cover I need as I cant get an answer from the company.
De we need income protection?
Do we need critical illness protection?

As your company has a defined benefit pension scheme, it is very likely that their sick pay would be generous.

Income protection and critical illness are expensive. And when you come to claim, you find that the particular illness you have isn't actually covered. So you have been paying a premium and getting back very little.

Assuming you are in good health, then rely on the company scheme. But use the premiums you would have paid to pay down the mortgage.

Brendan

 

[Pinoy adventure]

Clear the personal loan from cash & off load the shares,once off loaded put it off the mortgage.

 

[help999]

Thanks Brendan and all, As soon as the mortgage switch is compete i will draw out the Shares and pay down the mortgage.
Brendan, you don't rate the Income protection and critical illness to a hi stead so i take it there a no go. thanks.
We will also pay off the loan, i no it seems silly paying over 6.8% to keep money in a savings account earning Zero.

 

[Brendan Burgess]

you don't rate the Income protection and critical illness to a hi stead so i take it there a no go.

Not sure what a "hi stead" is. But, no, I don't think people should pay for income protection or critical illness.

You pay too high a price for the small risk involved.

Brendan

 

[help999]

Hi, Sorry Spelling mistake on my part. The definition of High Stead or Good Stead is
"If you say that something will stand someone in good stead, you mean that it will be very useful to them in the future"

Yes it is very expensive. So I will use the premiums that I was going to be paying to pay down the mortgage.

What do most people do after maternity leave is up and maternity income stops. Thanks

 

[Mrs Vimes]

Defined Benefit pension fund: I dont know what is in it, I pay 6% company pay 10%.


My company sick policy says-The Company Sick Pay Scheme is totally discretionary and each case will be examined on its own merits.

This sounds more like a defined contribution scheme.

If the Company Sick pay scheme is totally discretionary it may be unwise to rely on it.

If you get your outgoings low enough you could survive quite well on benefits should the worst happen.

After mat leave is up people either shell out for childcare and return to work or rely on one income, or often switch to part-time, by utilising parental leave one/two days a week, etc.

 

[Brendan Burgess]

Defined Benefit pension fund: I dont know what is in it, I pay 6% company pay 10%.

This sounds more like a defined contribution scheme.

A very good point. In any event, 10% from the employer is higher than average, I think?

@help999 This is very important. You should find out what type it is.

If it is a Defined Benefit Scheme then there won't be a pot with your name on it. There will be an undertaking from the fund to pay you a percentage of your salary when you retire.

If it is Defined Contribution - then there will be a pot with your name on it.

Brendan

 

[help999]

A very good point. In any event, 10% from the employer is higher than average, I think?

@help999 This is very important. You should find out what type it is.

If it is a Defined Benefit Scheme then there won't be a pot with your name on it. There will be an undertaking from the fund to pay you a percentage of your salary when you retire.

If it is Defined Contribution - then there will be a pot with your name on it.

Brendan

It is Defined Benefit. Which is better Benefit or Contribution

EFFECTIVE DATE	AMOUNT	SALARY TYPE
01/04/2021	€ xx,xxx	DB Basic Salary

 

[help999]

This sounds more like a defined contribution scheme.

If the Company Sick pay scheme is totally discretionary it may be unwise to rely on it.

If you get your outgoings low enough you could survive quite well on benefits should the worst happen.

After mat leave is up people either shell out for childcare and return to work or rely on one income, or often switch to part-time, by utilising parental leave one/two days a week, etc.

Thank you.
They do say ''Income Continuance Payment replaces sick benefit payments when an employee is absent for more than 13 weeks during a rolling 52 week period. At the discretion of the Company, Income Continuance payments may be made by the company or by an insurance company. Income continuance pay is normally 75% of pay at the time of illness less 1.5 time State pension. Talking to people that were out sick more than 6 months they did get something from the company.

 

[_OkGo_]

I cannot get a definite answer from my payroll what the amount of sick pay is that they pay during the first 13 weeks.
I don't know how much level of cover I need as I cant get an answer from the company.
De we need income protection?
Do we need critical illness protection?
Do I cash in my matured shares and pay down the mortgage or what should i do with the money each year.
What do we do when we have a baby are we prepared financially given the figures I put in.
If one or both of us get sick or is out of work long term like when having a baby are we financially ready?

Your priorities are all wrong here, why are you worrying about sick pay. Are you planning on taking it? And similarly, the IP and critical illness are too expensive for what they deliver, you don't really need them. Every salesperson will tell you about ''Mary'' down the road who took out a policy and how it worked out great for her.

You should not pay anything off your mortgage until you return to work after maternity leave. I'm assuming it is you, the high earner, that will be going on mat leave.

You only have €12k cash between you after the loan is paid off. What are your plans for maternity leave and how much of your salary is topped up by your employer? If your employer tops up your 6 months maternity leave to 100%, this is still likely to be your base salary so your income during those 6 months will be down a lot. If you plan to take the further 3 months unpaid, you really need to saving for that now. The €10k in matured shares can probably cover this too but there will be a lot of additional spend on getting ready for your baby

And on your return to work, childcare will cost about ~€1k/m depending on where you are or maybe you will have family help to avoid this cost? The children's allowance and NCS can help with this cost. Will you be able to return to full shift & overtime with a baby or will your income reduce because you can't do these hours?

Once everything settles, you should direct any excess savings and all yearly vesting shares to overpaying your mortgage.

 

[help999]

Your priorities are all wrong here, why are you worrying about sick pay. Are you planning on taking it? And similarly, the IP and critical illness are too expensive for what they deliver, you don't really need them. Every salesperson will tell you about ''Mary'' down the road who took out a policy and how it worked out great for her.

You should not pay anything off your mortgage until you return to work after maternity leave. I'm assuming it is you, the high earner, that will be going on mat leave.

You only have €12k cash between you after the loan is paid off. What are your plans for maternity leave and how much of your salary is topped up by your employer? If your employer tops up your 6 months maternity leave to 100%, this is still likely to be your base salary so your income during those 6 months will be down a lot. If you plan to take the further 3 months unpaid, you really need to saving for that now. The €10k in matured shares can probably cover this too but there will be a lot of additional spend on getting ready for your baby

And on your return to work, childcare will cost about ~€1k/m depending on where you are or maybe you will have family help to avoid this cost? The children's allowance and NCS can help with this cost. Will you be able to return to full shift & overtime with a baby or will your income reduce because you can't do these hours?

Once everything settles, you should direct any excess savings and all yearly vesting shares to overpaying your mortgage.

-No it is the Lower Earner who will be on maternity if all going well and we do have a baby.
-My partner will get the maternity leave from her employer- Under the health service maternity pay scheme you are entitled to basic pay and normal fixed allowances less any maternity benefit.
-Yes only 12k in cash after loan paid off.
-How do mothers that don't work get by when they are finished maternity leave? They don't take maternity leave because they are not working.
-Could my partner not just claim social welfare after maternity leave is up?

 

[_OkGo_]

-My partner will get the maternity leave from her employer- Under the health service maternity pay scheme you are entitled to basic pay and normal fixed allowances less any maternity benefit.

So you are saying that for the 26 week maternity leave, your partner will effectively receive 100% of their regular income, is that correct?

-How do mothers that don't work get by when they are finished maternity leave? They don't take maternity leave because they are not working.

Probably with great difficulty

-Could my partner not just claim social welfare after maternity leave is up?

I am far from an expert on social welfare but that is not how it works. The additional entitlement is 16 weeks of unpaid leave from employment. There is no maternity benefit or social welfare available for this. You either take it or return to work.

I still think you are hung up on the wrong things. It would be better if you lay out your plans for maternity leave ( paid and unpaid) and your plans for childcare afterwards. Then you will be get better advice for your situation

 

[DublinHead54]

I don't fully follow this. But the general principle is that you should sell shares as soon as it is tax-efficient to do so.

Your salary depends on your employer. You should not have a substantial part of your wealth depending on them as well.

So sell the €10k and pay it off the mortgage.

Brendan

Probably an approved profit sharing scheme whereby you forego some of your cash bonus for company shares instead. The purchase of the shares is not subject to income tax the way a cash bonus is provided you keep them for 3 years (I think is the timeline). Of course you are exposed. to the price fluctuations of the shares over that time.

So I assume OP has 45k of company shares through this scheme which he has built up annually and a portion will hit the 3 year 'maturity' mark each year going forward.

 

[help999]

Probably an approved profit sharing scheme whereby you forego some of your cash bonus for company shares instead. The purchase of the shares is not subject to income tax the way a cash bonus is provided you keep them for 3 years (I think is the timeline). Of course you are exposed. to the price fluctuations of the shares over that time.

So I assume OP has 45k of company shares through this scheme which he has built up annually and a portion will hit the 3 year 'maturity' mark each year going forward.

Yes Dublin bay, you are 100% correct.

 

[help999]

So you are saying that for the 26 week maternity leave, your partner will effectively receive 100% of their regular income, is that correct?


Probably with great difficulty


I am far from an expert on social welfare but that is not how it works. The additional entitlement is 16 weeks of unpaid leave from employment. There is no maternity benefit or social welfare available for this. You either take it or return to work.

I still think you are hung up on the wrong things. It would be better if you lay out your plans for maternity leave ( paid and unpaid) and your plans for childcare afterwards. Then you will be get better advice for your situation

Its about 90% of full pay as partner will lose out on an allowance she gets while working a weekend.

Partner was planning on taking as much time off as needed until child is old enough to be able to put in to childcare. Our current early start late finish working hours also dont suit for picking up and dropping off at childcare. So i dono what we are going to do to be honest.

 

[_OkGo_]

Ok so between now and your due date, you will both be on full income. For the the next 26 weeks, your partner will be on 90% but you will also be getting the children's allowance so there won't be much change in your income level up to the end of the paid maternity leave.

Personally I think you should try to take all of the 16 weeks unpaid. We did it and it was great for my spouse but I understand that not everyone can afford to do it. So if it is want you both want, then you need to set aside savings over the next few months to cover this period.

After that, your partner will probably have another 3-4 weeks of annual leave & bank holidays that all accrue during maternity leave so this is normally an additional month that will be paid. Effectively, your spouse could have ~30 weeks paid and 16 weeks unpaid before your child needs to go to childcare. There is also the option of using the 5 weeks parents leave (increasing to 7weeks). You are both entitled to this and it is supported by a DSP payment. Your partner could take hers at the end of her maternity leave and you could (if you wish) take yours after that meaning you could effectively keep your child out off childcare until they just over a year old

The graphic below is from Citizen's information and explains the differences well. Have a read of the different types of leave available here.

Our current early start late finish working hours also dont suit for picking up and dropping off at childcare. So i dono what we are going to do to be honest

Financially I think you are in a position to handle as much of the unpaid leave as you choose. Your biggest challenge is from 1 year on and the practicalities of childcare/working and all that goes with it. It's probably worth talking to your employers soon about how flexible they can be around this. It is probably more difficult to manage if you are both in rostered/shift work environments where it is not as easy to be flexible but still worth having that conversation with your respective managers

And again, you should check out the subsidy calculator for the NCS and plug in your own income details. I think with your income levels you will be entitled to a decent subsidy so at least the financial impact of childcare might not be so bad for you. One less thing to worry about if you can figure out the work scheduling.