Should I go for the buyout option on my DB pension plan?

QI AM female, 48 years of age and I have been with my current employer for 21 years. For the first 15 years I was a member of the defined benefit pension scheme, but this has now closed and has been replaced by a defined contribution scheme. I have been offered a buyout option of €220,000 on my defined benefit of a pension of €18,000 at age 65. Is there a general metric to assess whether a buyout option is good value?

ATHERE are many variables, so there is no definite answer. If you were retiring now at age 65, you would need roughly €460,000 to buy a pension of €18,000, according to chief executive of the Irish Association of Pension Funds Jerry Moriarty. If your DB pension includes a spouse’s pension or annual increases, which many do, then the value may be far greater than €460,000.

You have 17 years to go, so have to consider how much the €220,000 pot could grow to before you hit 65. If you took it now, invested it and it grew by 5pc per annum, you could be slightly ahead at about €504,000, but you would be taking more risk than if you held out for the promised annual pension of €18,000. There is also no way of knowing what the cost of buying an annuity will be at age 65. On the other hand, you also need to consider whether the DB scheme might wind-up before age 65, and the funding level of the scheme. If the scheme wasn’t fully funded you might end up having your benefits reduced, Mr Moriarty said.

If you have low tolerance for risk, the prospect of a promised defined benefit might be more attractive, whereas if you are comfortable taking investment risk or have concerns about the future funding of the defined benefit scheme, then maybe the buyout option is for you. Get independent financial advice before making your decision.

QI RECENTLY changed my health insurance cover and shortly afterwards I was hospitalised. I was told by my new insurer that I would be fully covered but my claim still hasn’t been paid and I’m now getting reminders directly from the hospital, which is a cause of concern. Did I do the right thing by switching?

AIf you were satisfied that the benefits on the new plan matched your cover requirements, then you did the right thing to switch. Whenever you change provider and a claim is submitted, your new insurer has to contact your previous health insurer to verify your previous cover details before paying the claim, according to Dermot Goode of TotalHealthCover.ie.

They need to check for cover upgrades and also to make sure that you’ve already served all your waiting periods. This information is usually shared quickly between insurers so that claims are settled promptly, but sometimes there can be a delay.

In these cases, some hospitals are issuing reminders directly to patients in an effort to expedite the payment of the claim. If this happens, the advice is to contact your insurer immediately to enquire why the claim is still pending or unpaid. If information is still outstanding from your previous insurer, then one call to it normally resolves the matter. If there are further delays, make a formal complaint to your insurer and refer to your previous call (which will be recorded) where it was confirmed that full cover would apply. Insurers are normally very quick to investigate these cases, Mr Goode says.

QWE are a retired couple, spending around €4,000 a year on health insurance which is a massive outlay for us as we are both on small pensions. I am told I should consider a small excess or even a corporate plan to reduce our costs. But I am worried about making any changes at this stage in our lives. Should I give serious consideration to these options?

AThe answer is yes. Too many members simply auto-renew on dated plans and miss out on huge savings. Taking on a small excess for private hospital admissions is the best way to knock hundreds off the cost of your cover, according to Dermot Goode of TotalHealthCover. ie. These excesses apply per stay, not per night. There are many quality corporate plans on the market and these are available to all irrespective of your age or occupation. However, if you are receiving medical treatment requiring frequent day-case procedures in private hospitals, then an excess-based corporate plan may not be in your interest, unless the annual savings are substantial.

Mr Goode says excellent excess-based plans available in the market include the likes of 4D Health 2 from Irish Life Health, Simply Connect Plus from Laya and PMI 3613 from VHI, which all costs between €1,188 and €1,250 per adult.