What should you do with the tax refund or savings that you will be getting back in your pocket as a result of Budget 2016? If you have dependents, this is a great opportunity to address not just expensive outstanding debts, but shortfalls in your insurance protection and pension contributions.
Last week’s Budget was a classic, pre-election ‘something for everyone’ giveaway. But we live in the real world, not an imaginary one where politicians only do what is really best for the nation and not to get re-elected.
The reality this week is that everyone with an earned income or pension income is better off, mainly because of a claw-back of the hated Universal Social Charge rates, small increases in child benefit, the state pension and the cost of GP visits.
Meanwhile two important, though relatively smaller cohorts – low earners and the self-employed – will see their gross incomes rise to €9.15 an hour or €708 over a full year and €550 respectively as the minimum wage goes up and an earned tax credit is awarded for the first time. (The latter will gradually rise to the same €1,650 that PAYE workers receive.)
Families are big winners.
They will see their annual, tax-free child benefit payment for one child go from €1,620 to €1680; from €3,240 to €3,360 for two children; from €4,860 to €5,040; from €6,480 to €6,720, etc.
On top of their USC adjustment (worth €780 for a young family of four with an income of €57,500) and extra child benefit of €120, from next September this family can avail of another 15 hours per week of pre-school care that is worth €12.50 per child per day for five days a week for the nine month school year. This is worth approximately €2,000 plus a year per child.
The extension of free GP cards for all children under age 12, assuming just four GP visits per child per year, would also be worth between €400 and €480 a year depending if the parent normally pays between €50-€60 per GP visit.
A family with two young children earning a modest €57,500 can expect an extra €900 a year, even before GP card savings.
Finally, pensioners are also big Budget winners, especially those aged over 70 who already enjoy a lower USC rate of 3.5% if their total pension income is less than €60,000 a year, will see that rate fall to 3%.
The contributory state pension increases by €156 a year to nearly €12,156 and the pensioner will get another €173 towards the restoration of their Christmas bonus (€327 for a couple).
An older person in receipt of the carer’s allowance will see their weekly payment also rise by €156 a year; the rolling out of the universal GP card to everyone aged 70 and over could be worth between €300 and €420 a year to them if they pay €50 or €60 per visit.
A couple aged over 70, with an income of €48,000 (including two state pensions), with one of them in receipt of a carer’s allowance, will benefit by as much as €1,640 when the higher pension (x 2) and carer’s payments, Christmas bonus, lower USC and free GP cards (x 2) are all added up.
The tax cuts and extra benefits mean that while the minimum wage earner will probably see much of their windfall disappear in extra rent payments (many still live with their parents), for families and older people the extra cash can fill some important spending gaps.
Surveys over the last year have shown that life insurance cover for adults with dependents is now below 47%. Some, with mortgage difficulties have reportedly stopped paying mortgage protection insurance, and even worse, home or motor insurance.
Their first priority should be to activate lapsed policies and/or to take out straightforward term life insurance. Depending on the parents’ age, premiums could be as cheap as €10 month per €100,000 cover. If income protection cover is not included as an employment benefit the parent should also consider taking out this policy. Premiums are also age and job related.
Paying down expensive debt, like credit card balances and hire purchase loans is another prudent option.
Older people may want to spend some of their windfall on improving their winter heating allocation, repairing or upgrading inefficient boilers or heaters.
They may also now be able afford private home assistance care where needed or even in upgrading private health insurance.
Budget 16 may not have directly addressed two of the biggest elephants in the room: the housing shortage and mortgage crisis but for tens of thousands it has provided some leeway to protect their dependents from disaster…and some extra comfort for older people.
And that’s nothing to sneeze after seven years of take, take, take.
Do you have a personal finance question for Jill? Write to her at The Munster Express, 37, The Quay, Waterford X91 DC 83 or by email: firstname.lastname@example.org