Q I was all set up to buy a home recently — and the mortgage had been approved. Unfortunately, I ran into problems getting mortgage protection insurance as I am obese and as a result, my bank won't release the mortgage. Do you have any advice on how I could get over this stumbling block — or do I need to kiss goodbye to my dream of getting a home? Mary, Co Cork
A My understanding from the banks is that they will not allow the mortgage to go ahead without mortgage protection insurance — a type of cover designed to pay off your mortgage if you die. For a bank to entertain any idea of proceeding with a mortgage without mortgage protection insurance in place, it will need to see evidence of two to three letters from life insurers who have declined you — or postponed an offer of — mortgage protection insurance.
If you haven't done so already, contact a life and pensions broker who can give you access to five or six different life companies operating in the Irish market. Most banks are tied agents — which means the bank can only offer the product of one life insurer and could charge more for life insurance than a broker. Brokers on the other hand are not tied agents so they will generally offer you good advice and a choice of providers. The providers which a broker has access to may have different underwriting rules to those that have already declined you mortgage protection insurance — and so you may be able to secure the cover from a broker as a result.
Be aware though that the underwriting rules and decisions across the major life offices in the Irish market tend to be very similar.
Outside of the Irish market, there are a number of specialist firms in the UK who are prepared to look at more high-risk cases (that is, where individuals struggle to secure insurance because they are deemed too high an insurance risk). However, you should first check whether your lender will be happy to accept cover from these providers. You should also be aware that these specialist UK-based providers are likely to be regulated differently than Irish providers — and so you may not have the same protections with this insurance as you would have were you to buy from an insurance provider regulated in Ireland.
You may have some other form of life cover in place that you took out before — if this is the case and if this existing life policy is not assigned to any bank or lending institution, you may be able to assign it to your mortgage provider to provide some level of security for your new mortgage. However, the amount you're insured for under this existing policy would need to be at least equal to the value of your mortgage and run for the same term.
Q I'm about to get a very substantial tax-free lump sum from my pension. I'm married, our mortgage is paid off, we have no other debts, our children have all flown the nest, and we have no financial commitments bar the typical day-to-day household costs. My wife, having worked as a homemaker for most of her life, will only get the State pension when she reaches State retirement age. What do people typically do with this lump sum and do you have any advice how I should make the most of mine? Tom, Co Mayo
A The stage you are at in life now is very much the stereotypical retirement scenario — as you have no borrowings, no dependants — and you're comfortable with your pension income and the day-to-day costs you're facing in retirement. However, each individual and their circumstances are unique. So should you wish to invest this lump sum, it would be very important that you get some independent financial advice from an authorised financial adviser. Your financial adviser would be able to gauge your appetite for investment risk, determine what investment products are most suitable to you — and help you identify your financial priorities and needs.
One option would be to invest your lump sum in a unit-linked investment fund. This would typically allow you to invest in a range of assets such as equities (shares), commercial property, bonds (both government and corporate) and cash. The ideal minimum term for such an investment would be five to seven years but plans are open-ended and you dictate the term.
History has proven the length of time you stay invested in such funds is critical to your overall returns and the advice would typically be to stick with the plan (that is, the minimum investment term and beyond).
Be aware that you may lose some (or even all) of your money after investing in something — hence the importance of choosing a suitable product and getting independent financial advice.
Of course, you may decide not to invest your money at all — you may wish to set a good chunk of it aside to cover any possible medical or nursing home bills you, or your wife, may face in your old age. You may wish to spend some of your money on a bucket list holiday, earmark some of that money as an inheritance for your children, or set some of it aside for your wife so she has more than the State pension to get by on when she retires. So be sure to know your financial priorities and needs for the years ahead — and to make any decisions on your lump sum around this.
Q I have a small self-administered pension (SSAP) valued at around €800,000. Recently my broker advised me to convert my SSAP to a Personal Retirement Bond (PRB). We had never discussed this before as the plan was to convert to an Approved Retirement Fund (ARF) on retirement. What are the advantages of proceeding with this — and are there any disadvantages? Tom, Co Louth
A There could be a whole myriad of reasons that your broker advised you to switch to a PRB. Possibly the reason your broker is advising you to convert the SSAP to a PRB is the IORP II Directive. This is recent EU pension legislation which impacts the way occupational pension schemes in Ireland (including SSAPs) are administered. The new rules which have come in under IORP II have limited the amount of a pension scheme which can be invested in unregulated assets (such as property).
Direct property investments are very popular under SSAPs. For this reason, many SSAPs may transition to PRBs as IORP II does not apply to PRBs and therefore these property investments could continue as before — unhindered by this new EU legislation. It is important that you understand the differences between a PRB and SSAP before making any decision.
As a PRB is a pension policy in your sole name, you have control in terms of your PRB provider, fund choice and charging structure (such as annual fund management fees) — you do not have a trust or pensioner trustee involved. You can invest 100pc of the funds in a PRB in property and you can borrow though a PRB to purchase property. You don't have to invest predominantly in regulated markets and you don't have to be properly diversified in your investments — though this could be a disadvantage as well as an advantage. A PRB cannot take any further contributions or premiums (such as a lump sum or regular premiums).
Given the amount of money involved here, it would be wise to get independent financial advice.