What Is Salary Protection and Why Should You Care?

Imagine this: you're living your life, working hard, paying bills, maybe saving a little on the side. Then, out of the blue, something happens—a serious illness or injury—and you can’t work for a while. Now, ask yourself: how long could you manage without your income? Weeks? Months? What would happen to your bills, mortgage, or rent? Would your savings cover everything? 

That’s where salary protection, or income protection, comes in. Think of it as a safety net for your pay cheque. If you’re unable to work due to illness or injury, this insurance can pay you up to two-thirds of your salary until you’re fit to return to work, or even until retirement if necessary. It’s like having a backup plan to keep the lights on and the fridge full while you recover. 

How It Works 

Salary protection (also known as income protection) isn’t about scaring you—it’s about being prepared. Let’s say you earn €60,000 a year. With income protection, you could receive up to €40,000 annually if you couldn’t work, even after your employer stops paying you. And here’s the good news: the government gives you a helping hand with this. You can get tax-relief on the premiums you pay at your highest tax rate, making it more affordable than you might think. 

 Why It Matters 

Many people assume their job will cover them if they’re unable to work, but the reality is that most employers only provide sick pay for a few weeks or months at best. After that, you’re often left relying on savings or social welfare, which might not be enough to cover your regular expenses. 

Simple Questions to Ask Yourself 

• How long would my job pay me if I got seriously ill or injured? 

• What would happen if my income stopped for 6 months or a year? 

• Would my family and I be able to manage financially?

Peace of Mind 

Income protection isn’t about expecting the worst—it’s about being ready for it. Just like you insure your car or home, it makes sense to protect what keeps everything running: your income. Talk to a financial advisor or insurer to see what works for you, and ensure your family’s financial stability no matter what life throws your way. 

Having salary protection in place is like knowing you’ve got a lifeline, just in case. It’s one less thing to worry about, so you can focus on getting back on your feet. 

Extra benefits on Life Assurance…at no extra cost

Life Assurance can go beyond helping with financial protection and most companies can include several additional benefits at no extra cost when you set up a policy. Some examples of these complimentary benefits include:

1.    An option to receive a second opinion on a medical diagnosis. This service gives customers access to over 50,000 world leading experts who can double check a diagnosis, investigate alternatives, and get additional treatment options for any condition affecting a person’s quality of life. The life assurance provider will put you in touch with the most suitable expert to answer any questions you might have, give a second opinion and provide a comprehensive report to help you and your treating doctor select the best course of action.

2.    A Digital GP service – this is a private doctor service offering customers and their immediate family access to clinical advice and guidance without having to wait for a face-to-face appointment. It is not for medical emergencies but can be used in the same manner as using a local GP. They can prescribe medication and issue referrals if needed.

3.    Various specialist therapies - such as Bereavement Counselling, Speech and Language Therapy, Face-to-face second medical opinion, Mental Health Counselling, Complementary therapies or Physiotherapy for specific serious health conditions. These are just some examples of additional benefits offered with a life policy.

4.    One month's free cover - your cover starts as soon as your application is accepted but the cost of the first month is covered by the life company and your first premium starts in the second month of the policy.

5.    Stay covered for longer - you can have Term Assurance up until you turn age 91 and alternative life cover beyond that – this is the oldest age offered by any life insurance provider. People are living longer these days, so having the option to extend life cover to reflect this, is useful.

6.    A Get Fit Programme - this is another option with one life company, it includes personalised nutritional recommendations, and an exercise plan designed by a team of nutritional experts.

7.    Children’s Life Cover – many companies automatically include an amount of life cover allocated to children of the policy owner, until they reach the age of 18 (or age 21 if in full time education)

As a broker, I have access to the leading life companies and can tailor your life cover depending on your needs.

€100 into Savings vs Pension

Some clients prefer to save directly into a savings plan, rather than a pension, mostly due to ease of access. With a pension you could be required to wait until your sixties to access funds, so the limitations are not the same as with a savings plan.

At times it is hard to show people the benefit of long-term savings in a pension, as the tax relief on pension contributions and the tax-free growth on pension plans isn’t always obvious. So, let’s see if we can give it a go today.

As an example, let’s look at a person, who wants to invest/save €100 a month for 30 years in an investment savings plan, while trying to match the kind of growth an aggressive pension fund would target. Savings outside of a pension are usually subject to tax on the growth and can be between 25%-41% depending on your investment. Let’s work off 33% tax (same as DIRT tax) on investment growth for this example.

In a pension, if you qualify for tax-relief and are contributing €100 a month, you will get tax-relief of €20 or €40 depending on your marginal tax rate. This means that you will be paying €20 or €40 less tax or to look at it another way, if you chose instead to take that €100 as income (to invest outside of a pension), you would effectively only have €80/€60 in your hand after income tax has been deducted.

For this exercise, I am going to work off the following assumptions.

1.    Saving €100 per month for 30 years, both invested in a fund that has exact same charges and fund return.

2.    Tax-relief on the pension at 20% or 40% and tax-free growth allows a contribution of €125 or €166.67 to your pension for €100 cost.

3.    Gross roll-up tax of 33% tax on the savings plan (you pay growth on tax at end of policy)

After 30 years

Savings value      €67,574

Pension value €103,907 (20%) or €138,546 (40%)

Now, out of the pension you may have to pay some income tax when you are drawing it down. You will currently get a portion of it tax-free and the remainder of the funds are subject to income tax. However, at retirement, most people’s income goes down substantially and in many cases people pay far less or no income tax on their pension deductions. For example, a retired couple over 65 can earn €36,000 income before being subject to income tax.

Automatic Enrolment is expected to start in 2025

The Automatic Enrolment Retirement Savings System is to provide a retirement plan for people without a work or private pension to save for retirement, which will supplement the State Pension.

Why is it being introduced?

*  Not many people have work or private pensions and will only depend on the State Pension when they retire. This means that they may experience a drop in income when they retire which could lead to a fall in their standard of living.

*  Ireland has an aging population, in the future there will be fewer people of working age to support the retired population. To make sure people have enough money when they retire, it is important that people start saving for their future now.

Who will be automatically enrolled?

• Current and new employees aged between 23 and 60 years of age and earning €20,000 or above per annum will be automatically enrolled.

• Employees earning below €20,000 per annum and employees aged under 23 and over 60 will be able to ‘opt-in’ to the system.

• Employer contributions will be limited to a qualifying earnings threshold of €80,000.

How will it work for employees?

~  Unless an employee is a member of a scheme already, contributions during the first six months of membership will be compulsory. Opt out is available after this time and a refund of employee contributions.

~  Members who opt-out will be automatically re-enrolled after two years but will have the ability to opt-out again under the same circumstances outlined above.

~  Invested funds and scheme membership will follow the member when members change employments.

~  Contributions are calculated on your gross salary, starting at 1.5% of your salary and will gradually increase to 6% by year 10. For every €3 that you contribute to your pension fund, your employer will put in €3, and the Government will put in €1. This means that for every €3 you contribute, €7 will be added to your account.

How will it work for employers?

>  Employees will be automatically enrolled with the National Automatic Enrolment Retirement Savings Authority by their employer via payroll software.

>  Employers will be required to make a matching (tax deductible) contribution on behalf of the employee i.e. at a specified contribution rate.

>  Any existing company pension schemes will run parallel to auto-enrolment. Any employees that have a record via payroll of either employee or employer contributions will not be auto-enrolled.

>  Self-employed individuals will not be included in the auto-enrolment scheme.

PLEASE NOTE : This information is correct as of May 2024 - the details of Auto Enrolment are being updated regularly so visit https://www.gov.ie/en/campaigns/0ab04-automatic-enrolment-for-pensions-hub/ for the most recent information.

Do you have more than one pension?

When I am carrying out a financial review with people, I look at all of their finances and quite often there are areas that require further research. One such area is tracking a person’s pension / pensions from older employments.

What I am finding is that people may have forgotten details or don’t have much knowledge about these older pensions. So, I can help them obtain details such as where the policy is being held, what their current options are and making sure that they are clear on the pros/cons of what they can do.

Questions that arise:

•   Can / should I encash it ?

•   Can / should I move it ?

•   Do I lose out by doing anything with it ?

•   Is my money safe ?

I find some clients leave their pensions in their older employer schemes more out of fear rather than looking at their options and forming a strategy. This leaves them exposed on a number of accounts. There is a chance they may forget about the policy or the pension administrators may not keep in contact with the clients (example: change of clients address or contact details).

In general, the biggest benefit of moving your pension out of a former employers’ pension plan is that you will have direct control over it and you do not need to concern yourself with contacting an extra 3rd party which could include Trustees and/or your previous employer. You can usually move it into a new pension arrangement or a Retirement Bond in your own name.

Depending on a person’s circumstance, it can make sense to preserve the benefits in what is called a Retirement Bond. This is your own personal pension and importantly, it preserves the exact benefits that you would have had in your employers’ pension.

What a lot of people do not realise, is that if you were to move your old pension arrangement into, for example, a PRSA pension plan, you could be missing out on benefits that do not transfer over to a PRSA. A lot of pension schemes have a tax-free lump sum option which is not available in PRSA’s. This means that there may be cases where people are losing out by moving their pension into a PRSA.

Another benefit of a Retirement Bond is that if you have preserved benefits in these plans, you normally have access to them from age 50. If you have merged your pensions together or moved it to an active PRSA, you may have to wait longer to drawdown the benefits.

New Mortgage Protection Practices for Cancer Survivors

A new code of practice for underwriting mortgage protection policies for cancer survivors has recently been launched by Insurance Ireland. This is very positive option and good news for clients who have beaten cancer.

The COP (Code of Practice) is a framework which will allow those who have survived a cancer diagnoses to be exempt from the normal underwriting process for their cancer history in specific circumstances. This means that an applicant will get normal premium rates for their cancer medical history, as opposed to a loading on the rate or other underwriting decision.

The criteria for cases applied for may include the following.

·         New applications should be for mortgage protection, life cover only.

·         The maximum acceptable level of life cover per life, is the lesser of the mortgage amount or €500,000.

·         The application can only relate to primary private residence – first time buyers, home mover and re-mortgages for example (does not apply to second property, holiday or buy-to-let properties).

·         For the mortgage protection cover to be valid the mortgage amount must be drawn down from the lender. So, a mortgage life cover application on its own, without a mortgage being in place cannot be used as family protection cover.

·         The applicant must have ended their cancer active treatment and their cancer must have been in remission for more than 7 years prior to their application.

In order for the process to work in an applicant’s favour, they must disclose their cancer medical history when requested. By not correctly disclosing a cancer history and treatment details when asked, there can be serious implications should a claim occur in the future.

Just on a separate note, some cancer survivors don’t have to have ended treatment or be in remission longer than 7 years to be able to get life insurance cover. I have previously set up a life protection policy for a cancer survivor who had successfully claimed on a Specified Illness policy some time before.

Do I have enough Life Assurance cover?

It is understood that if you plan to purchase a property in Ireland, you will be required to have a Mortgage Protection policy in place. This policy is used to pay back the mortgage loan amount in the event of death.

Is Mortgage Protection enough life cover? Depending on your age and whether you have a family or dependents, then no, Mortgage Protection alone is regularly not enough.

Why would I need more Life Assurance cover? A salary coming into a household is used for bills, loans, savings, and other big life events. If this salary ceases in the event of death, a replacement will be needed to cover the shortfall. If you have a young family, you will need more cover as you will need any benefits to last for a longer time.

How much is enough? We tend to avoid thinking about losing our loved ones, let alone the financial consequences. There is more than one way to work out how much life cover you might need. A basic starting point is to multiply your gross salary or your household annual expenses by a factor of eight.

The following Dual Life Assurance quotations are an example of the cost for a couple who are non-smokers and with the option of conversion (this allows you to convert your policy before the term ends to a new policy without the need to provide medical evidence).

The term is for 10 years, and the cover is €250,000. The premiums below cover both lives and is dual cover (meaning the amount of €250,000 will be paid out for each individual life in the event of death).

Sample quotes December 2023

You may require less Life Assurance cover in the case where; your dependents are financially independent, you have death-in-service benefit through your job, you have substantial savings, or you have investments or a property which could provide an income or be sold.

It is beneficial to know that at various times throughout the year, life companies can offer special discounts on premiums to brokers. For example, one company is currently offering 6 months cashback on certain new protection policies.