Who doesn’t love a pay rise? Or a windfall. Or a boost in the return of your savings or investments? Sometimes, however, depending on your circumstances, a marginal pay rise can cost you more than you might think.
Take a €5,000 pay rise, for example. The net return to you of this is just €2,400, or €216 a month, if you're a higher-rate taxpayer. And yet it could put you out of reach of getting a grant for third level, which could be worth about €72,000 for three children; from getting a medical card in your senescence, and discounted childcare.
Yes, most of us might prefer to have their own means to do as they wish with them, rather than depending on state benefits. But, when you consider some of the thresholds for these often substantial benefits, it can make you stop and think.
Cheaper childcare: eligible on earnings of up to €102,000
Following the recent enhancements to the affordable childcare scheme, many families who otherwise would not have benefited now find themselves set to enjoy greater benefits from late 2019. While still not nearly enough to cover the swingeing costs of childcare, the increases are nonetheless an improvement.
But if you earn that little bit too much, you’ll find yourself outside the scope altogether.
Consider a family with three children (aged two, five and seven) earning €102,000 gross, and another similar family earning €105,000 gross.
The former family will get to keep about €60,000 of after-tax income once pension deductions have been made. That means they will be able to qualify for the childcare scheme. Instead of just getting a universal subsidy, to which everyone is entitled, of €20 a week, they will get enhanced payments of up to €92 a week. That will help to reduce their monthly childcare bill by €368, or some €4,416 a year.
The other family might get to keep an extra €1,440 a year thanks to their higher pretax income. However, the family will only get the universal subsidy of €20 a week, or €1,040 a year. So, despite earning €3,000 extra a year, this family is actually worse off by almost €2,000 a year.
State non-contributory pension: eligible on earnings of up to €13,390
If you don’t have enough stamps to qualify for a State pension – which is not means tested – you will be entitled only to a non-contributory pension.
This is paid out a rate of up to €232 a week (€237 from March 2019). However, this payment is means tested. How much you get each week will depend on how much other income you have.
If you qualify for the full payment, for example, you’ll get €12,064 a year, or €180,960 over a period of 15 years. If your other income is sufficient that your your payment is reduced, however, you’ll get just €4.50 a week according to the Department of Employment Affairs and Social Protection.
Consider the example of someone with €45,800 in savings and no other income. Based on the applicable means test, they would be entitled to a weekly payment of €212 a week, or €11,024 a year.
However, the payment declines with each €1,000 of “capital”, such as savings or property – other than the home you live in, which is exempt. While the first €20,000 of savings is disregarded, each €1,000 of capital after this between €20,000 and €30,000 is deemed to equate to weekly “means” of €1. This rises to €4 a week on capital of more than €40,000. So, someone with savings of €50,400, would be considered to have “means” of €70 a week, which reduces the weekly non-contributory pension payment to €192 a week.
Medical card: eligible on earnings up to €46,800
Over the course of a lifetime, having a medical card can mean significant savings. Free GP services and outpatient services in public hospitals; free emergency department visits; free inpatient hospital stays; a charge of just €1.50 per prescription; as well as cheaper care for your teeth, eyes and ears are just some of the benefits.
And medical cards can bring you other unexpected benefits, such as lower tax rates, cheaper childcare and a free school bus.
But there are strict criteria in order to qualify for one. Typically, for example, a single person living alone should not have income above €184 a week to qualify, while a couple a couple with three children can earn up to €383.50 a week (€19,942 a year) to qualify.
Where the limits are looser, however, is when it comes to the over-70s. Since 2009, a means test applies even to older people looking to get a card. To qualify, you should not have a pretax weekly income (pensions, savings, investments and some property are taken into account) of more than €500 for a single person or €900 a week for couple. That translates as €26,000 a year for single person and €46,800 for a couple.
And, even then, you might still be entitled to a “discretionary card”. These are based on the circumstances of your health, and not your income. There are about 100,000 such cards in use, and an ESRI report in 2015 found that one in five of those in the highest income decile have a medical card, presumably through this method.
Third-level grants: eligible on earnings up to €60,000
It can cost the bones of €12,000 a year to send a child to college away from home, or about €5,000 if they live at home – you can expect to pay €3,000 in the annual student contribution alone. Clearly, any way of defraying these costs is extremely welcome. After all, a family of three children could be down the guts of €150,000 in after-tax income if all three go to four-year courses in college and live away from home.
If you’re eligible for grant funding, the sums can look dramatically different. In a household with three dependent children, for example, the child going to university will get a full maintenance payment plus free “fees” if the household “reckonable” income – which can exclude income sources such as child benefit – is €39,875 or less.
This works out at €3,025 a year for someone living away from home, and €1,215 for those living at home. Even if the parents earn up to €45,790, they will still qualify for a payment, albeit at a lesser 25 per cent (€755 away from home/€305 at home).
And the bigger the family the higher income you’re allowed. With four to seven children, for example, you can get the full grant on income of €43,810 a year (up to €50,325 leaves you eligible for part grant), or income of €47,575 for eight or more children (€54,630 for part grant).
A special rate of almost €6,000 a year applies to families where income is not more than €23,500.
Higher income thresholds apply when it comes to tuition and the student contribution charge. For example, if you’re earning €49,840 you can get 50 per cent discount on tuition fees (where applicable) as well as 50 per cent on the student contribution of €3,000. You can also qualify for a 50 per cent discount on the student contribution fee if household income is €54,240 or less, and there are up to four children.
And it gets easier to qualify if you have more than one child in third-level education, as each additional family member will increase the full maintenance and partial fee grant categories by €4,830, and the part maintenance categories by €4,670.
The grant scheme isn’t the answer to everything: funds will still have to be found for college. But it can and does help. It means that income of almost €60,000 could see the student contribution charge fall to €1,500 each for two children, while a family with three children qualifying from the full grant could see those total fees of up to €150,000 drop to about €77,700 thanks to savings of €36,000 on the student contribution, and a similar amount, €36,300, in total maintenance payments.
Remember, as some returning emigrants will have discovered to their dismay, to qualify for a grant you must have been at home for three of the last five years. But if you were living in the European Union, the European Economic Area or Switzerland, you may still qualify for tuition, though not for maintenance payments.
Fair Deal: eligible on net pension of up to about €75,000
With nursing home care costing upwards of €50,000 a year – and as much as €70,000 – securing support under the Fair Deal will be crucial for many. But if your income or assets are too great, you won't benefit at all from the scheme.
As part of the application, you have to undergo a financial assessment, which works out how much you should contribute towards your care.
Someone living in a local authority house, with no assets and the State pension (non-contributory) of €182 a week as their only income will qualify for the scheme, for example. They will pay 80 per cent of their weekly income for it – €145.60. Based on a weekly bed rate of €800, this means the State is contributing €654.40 a week for care.
But, depending on your annual income and assets, you might find that Fair Deal is not so fair. Tom Murray, a consultant and adviser with fairdealadvice.ie, says that for probably between 10 and 20 per cent of the population, opting for Fair Deal can be more expensive than paying up front themselves. This is typically because you have to contribute 80 per cent of your annual income and 7.5 per cent of your assets. The charge on your family home is limited to three years.
He suggests people with assets of between €1.5 million and €2 million, with a net pension of €75,000 (of which 80 per cent or €60,000 would go to Fair Deal) might get no benefit from the scheme.
And, apart from missing out on the State benefit if you fall into this cohort, you’ll also be paying higher fees. Murray points to the Fair Deal nursing home rates that can be “substantially lower” than the private rates. The only upside is that you will qualify for tax relief on nursing home fees.
