The squeeze is on with the cost of food, gas, electricity and petrol rising - and many people are also worried about their jobs. There are, however, ways of coping, reports Jill Kerby
The troika are pressing the government to make good on its commitments to widen the Irish tax base with the introduction of a property tax from next year and by further cutting the cost of both healthcare and social welfare costs. Child benefit payments could be affected.
Between more belt-tightening, rising oil prices and poor grain harvests in both North America and Europe, where can you find more savings in your household budget?
Irish consumers showing signs of price comparison fatigue, experts claim. The latest survey from the National Consumer Agency suggests that only 32% of us switched suppliers of key services and products this past year compared to 43% of us in 2011.
The survey also showed that just 67% of consumers have never checked to see if there was a better current account available, or savings and investment providers, while 62% said that they have never checked to see if there is a better deal available for their TV services or gas supply. Nearly 60% of respondents have never checked for cheaper electricity or fixed telephone line provider.
Ann Fitzgerald, chief executive of the NCA urged consumers “to make sure they are getting the best deal even if they are happy with their current provider. Deals which businesses offer change quite frequently and consumers should constantly be on the lookout for better value.”
The biggest costs, especially for families, continue to be housing, food and transportation, followed by utilities and insurance contracts and education costs. Families with very young children are still spending the equivalent of another monthly mortgage repayment on childcare.
“People with variable rate mortgage repayments need to address the fact that they only way interest rates are going for them is up,” says Karl Deeter, operations manager with Irish Mortgage Brokers.
Lenders like Permanent TSB – “perversely” are offering discount variable rates for mortgage holders with less than 50% loan to value positions, said Deeter, but overall variable and fixed interest rates are rising. Switching to a different provider is nearly impossible and borrowers are now tied down to their existing mortgage providers.
“Anyone who doesn’t have a tracker or is already in a fixed rate should be trying to reduce the term of their loan in order to reduce their debt,” said Deeter. A flexible way to do this is to accelerate their repayments.
Struggling home-owners – and the latest Central Bank figures show that over 11% of all mortgage holders are now in arrears - who are finding it increasingly difficult to repay their loan in full every month and are at risk of falling into arrears are advised by MABS, the money advice and budgeting service to contact their lender sooner than later and to consider seeking mortgage forbearance terms under the Code of Conduct on Mortgage Arrears.
Mortgage repayments can fall by a third or more by switching to interest-only repayments, the most common form of forbearance available, according to the Central Bank.
The worst drought in nearly 60 years in North America and heavy rainfall in Northern Europe means that the grain harvest will be down and prices for grain based staples like bread and pasta to go up in the coming months, but also the cost of meat, dairy and poultry products.
Beef wholesale prices are up as much as 20% in the past year; lamb is 10%-15% higher. Higher oil prices are also pushing up grocery prices as shops pass on some of their higher heating, cooling and electricity prices and some butchers (see panel) are warning that there is a time lag between higher fuel and meat prices and prices could still go up sharply between now and Christmas.
The National Consumer Agency grocery price watch site, The Economiser (www.economiser.ie) helps to analyse how you are spending your grocery budget compared to the national average for your household’s size and the ages of occupants.
A typical family of five – two parents and three children, two of whom are over age 13, spend an average of €683 on grocery store shopping according to the NCA.
If your bill is higher than this average, it suggests a number of practical ways to reduce your food bills, including comparison shopping by unit price by weight or size, using coupons and discount offers and by buying only what you need, then preparing meals in advance and freezing them to cut down on food wastage, which, the Environmental Protection Agency estimates can accounts for 30% of an annual Irish family’s food bill.
We may not be shopping around as much for better insurance and utility deals, but inertia is costly, according to David Kerr of the popular price comparison website, www.bonkers.ie
According to the Commission for Energy Regulation, the average Irish household uses 13,800 kWh of gas per year and 5,300 kWh of electricity per year at a cost about €876 and €727 respectively.
By inputting existing monthly bills and tariffs into the bonkers.ie calculators, a typical electricity and gas user can save up to €250 over the course of a year by switching providers. Bonkers estimates that typical internet and broadband users can save up to €200 on their contracts by switching to better providers.
Significant savings can also be achieved by mobile phone users eliminating land-line contracts altogether or reverting to all in one phone/internet/broadband contract.
Motor and home insurance savings are also achievable by using comparison sites, on-line brokers or by checking the latest National Consumer Agency survey (www.nca.ie). But insurance brokers like Sean O’Connell of the Insurance Shop in Dublin warn that chasing the lowest motor or buildings and contents premium is not always the best strategy if you overlook the fine print of the contracts.
“One way to reduce the cost of your insurance,” said O’Connell “is to increase your excess – the amount you are willing to pay if you make a claim.” The higher the excess, the lower the annual premium while you maintain the widest cover, such as all important no-claims bonus protection clause in the case of motor insurance.
“Cancellations are going through the roof,” according to specialist health insurance broker, Dermot Goode of healthinsurancesavings.ie.Higher unemployment, taxation and the cost of living generally is taking its toll, said Goode, but a combination of the health insurance levy that is imposed by the government and higher charges for a public bed is also to blame.
Goode is worried that the annual health insurance levy - €285 for an adult and €95 for a child which subsidises the loss-making state owned insurer the VHI, could rise sharply in the new year if the government is to meet its requirement to fully capitalise and regulate the VHI by the December 2013 deadline set by the European Commission.
Meanwhile, all the health insurers are now imposing 12 month locked in contract dates, he said. “There are no penalty-free switches anymore, so you need to give yourself time to make sure you are in the right plan before your renewal date if you want to save money.”
The new family offers, especially GloHealth’s Basic plan in which children under age three go free, and which costs just €520 a year per adult “are very good value” said Goode. “Until Sept 22, the VHI has three plans on special offer with under 18s going for half price while Aviva has a special offer that is knocking 20% off the cost of child cover. Laya’s 3-2-1 special discount offer is coming to an end but they still have some good corporate plan offers available.”
Another way to lower health insurance costs, said Goode is to opt for a higher excess option where available which can annual premiums by as much as 10%-20%, he said.
Term insurance protection costs have been falling in recent years, say brokers. Protection insurance policies should be reviewed every few years as a matter of course, according to financial advisor Liam Ferguson of Ferguson & Associates.
“Yes, we can often find savings by reviewing individual life or income protection policies,” he said, “but my experience is that far greater savings are to be had when the actual amount of cover needed is properly established instead of deciding how much money you can afford and then taking out cover on that basis.”
Some policyholders may find that they are over-insured after a review, said Ferguson or have unnecessary policies that they had forgotten about and that no longer suit their needs.
Excise and motor fuel costs – already 20% higher this year - are almost certain to go up again in the December budget.
AA Ireland estimates that a typical family car uses between 1200 and 1500 litres of petrol a year and at €1.70 a litre of petrol it now costs €1,400 more a year to fill the tank than it did three years ago. Approximately 60% of the cost of a litre of petrol and 50% of a litre of diesel is accounted for by excise tax and VAT, said AA spokesman Conor Faughnan, with the forecourt owner’s margin as low as 5%.
Motorists can reduce their fuel bills by using price apps like www.pumps.ie that provide daily updated petrol station prices according to your location. Keeping your vehicle in good working order, especially the tyres, not overfilling the boot, avoiding using air conditioning and driving at steady speeds on motorways will all avoid excessive fuel use, according to the AA.
The only way to avoid the expected increases to vehicle registration and road taxes in the December budget is to drive a smaller engine vehicle. A typical family-sized saloon car with a 1901-2000cc engine costs €660 to tax while a typical five seater hatch-back with a 1401-1500cc costs just €384, an annual savings of €276.
Employees who can ditch their car in favour of public transport or even a pedal cycle may qualify for the Tax Saver Commuter Scheme or the Cycle to Work Scheme in which the cost of commuter tickets or a bicycle (and safety equipment), which are paid or subsidised by their employer, are not subject to income tax, PRSI or benefit in kind tax.