The Sunday Times - Money Comment 15/03/09

Posted by Jill Kerby on March 15 2009 @ 22:12

Health insurance cuts for children

Vhi Healthcare reduces 2009 premium for Children on Plan B and Plan B Options 

200,000 children and their families to benefit.


4th March 2009:  Vhi Healthcare today announced the introduction of reduced premiums for children under the age of eighteen on its most popular plans, Plan B and Plan B Options. The company has reduced the 2009 premiums for children on these plans to €200 - a reduction of at least €100 per child with effect from 1st April 2009.  


Commenting on today’s announcement Mr. Jimmy Tolan, CEO, Vhi Healthcare said 

“We have been listening to the issues and concerns that are being raised by parents in conversations with staff in our contact centre. The reality is that families in Ireland are feeling the impacts of the deteriorating global economic environment and are experiencing changed financial circumstances. Despite this, many parents consider it very important to have the highest quality health insurance cover in place for their families.”


“To support these parents we have introduced reduced premiums for children. Almost 200,000 children and their parents will benefit from this measure and we hope that this will go some way to help alleviate the pressures on families. The reduced premiums for children on Plan B and Plan B Options will be funded through expected savings of €20m achieved through a range of cost containment initiatives right across the organisation including negotiations with providers of medical services.”


Vhi Healthcare will write to all members who are renewing their policies in April to advise them of this new rate.  The company will also write to all members who renewed with us in January to March ’09 to advise them of the reduction in their policies (from 1st April).  Members renewing at a later stage of the year will be advised of the revised pricing as their renewal falls due.


Vhi Healthcare is Ireland’s only not for profit specialist health insurer with over fifty years experience.  In 2009, Vhi Healthcare expects that over 90% of its customers premium income will be spent in ensuring that’s its customer’s medical needs are met.



Foreclosures in US and here 

House Repossession Remains at Very Low Level, says IBF 


Data published today by the Irish Banking Federation (IBF) confirms that house repossession remains at a very low level here.  The total number of houses repossessed by all mainstream mortgage lenders in 2008 was 96.  At 0.01%, this represents a fraction of the total number of mortgages issued.  

The level of repossession of residential properties in Ireland is very low by international standards.  For example, for every 10,000 mortgages issued, 1 results in repossession here compared to 35 in the UK – demonstrating a significantly different approach to arrears management between the two markets.

Furthermore, the recent introduction on a statutory basis of the Code of Practice on Mortgage Arrears (which builds on the original IBF voluntary code), and its extension to cover all mortgage lenders, will provide an added measure of reassurance to mortgage borrowers at this time.  Under the Code:

〈        Lenders must adopt flexible procedures for handling mortgage arrears and assist the borrower as far as possible – whereby consideration can be given on a case-by-case basis to deferral of payments, extending term of mortgage, changing type of mortgage, or capitalising arrears and interest

〈        Lenders must wait at least 6 months (12 months for the two recapitalised banks) from the time of arrears first arising before applying to the court to commence legal action for repossession.


“While the number of repossession applications to the courts has increased, this number bears little or no relation to the actual number of properties repossessed”, according to IBF’s Chief Executive, Pat Farrell.  “Increased activity in this area is reflective of the general economic slowdown and we can expect this to continue to be the case.  However, the importance and value of early communication by borrowers with their lenders cannot be emphasised enough.  Where repayment difficulties arise for some borrowers because of changed economic or social circumstances, the borrower should talk to his/her lender at the earliest opportunity”, he stated. 



But not in the USA`: Mortgage delinquencies took their biggest quarterly jump on record in the fourth quarter of 2008, hitting a record 7.88% of loans outstanding, the Mortgage Bankers Association said Thursday. The delinquency rate, which includes loans that are at least one payment past due but not yet in foreclosure, was up from 6.99% in the third quarter and from 5.82% a year earlier. The rate of new foreclosures was up slightly to 1.08%, putting 3.30% of mortgages somewhere in the foreclosure process. The combined percent of loans past due and in foreclosure jumped to a seasonally adjusted 11.18%, the highest since the MBA began keeping records in 1972.


Interesting pension idea – nationalise DB pension funds

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The Sunday Times - Money Comment 08/03/09

Posted by Jill Kerby on March 08 2009 @ 22:15

A pensions consultant told me recently that he’s never been busier; he spends long days ‘firefighting’ – trying to find ways to help trustees and employers to balance their known liabilities with their pension fund’s value. But he admits that with nine out of 10 defined benefit pensions experiencing shortfalls, stock market returns still plunging, and corporate profits also tanking, “it is an impossible task.”


Perhaps it’s just as well that the typical worker only has a vague awareness of all to this and that his fund, if it’s an Irish managed fund, is down 35% over the past year. 


However shocking that figure is, it looks even worse the closer you get to retirement. Ideally, pension fund holders should be shifting their assets out of equities into safer funds like cash and bonds starting at least 10 years before retirement, but pensions were already reporting near-negative returns over the previous decade even before the slaughter began last September.  


You might need longer than that to recover a 35% loss if you happen to be 55. Meanwhile, so many self-employed people I’ve met can’t even remember where they put their pension documents let alone who sold it to them, yet they could be facing a wipe-out if they don’t take some corrective action. 


For those brave souls who have reviewed their retirement nest egg, it’s not a pretty sight. Judging from the letters I get from readers, most say they don’t know what to do:  they thought, like I did, that a well diversified, ‘buy and hold’ pension fund strategy was a prudent course, but that theory has been turned on it’s head.


Our portfolios were filled with ‘blue chips” like banks, big retail giants and strong companies or sectors with good cashflow, profits and markets to sustain long term growth and steady dividends. 


But investing models are as defunct as the financial services and markets they facilitated. 


Forbes.com wrote last week about how Warren Buffet’s ‘buy and hold forever’ strategy has been misinterpreted by an entire generation of investors and fund managers: “Buying and holding stocks can be extremely risky if you wind up holding the wrong stocks. Investors should remember that Buffett has a lot of expensive and very talented help in making investment decisions, so he buys very good stocks at low prices and doesn't often get stuck holding onto big losers.”


Someone else suggested we ask ourselves: “Whatever about continuing to hold onto these ravaged shares or funds, if I had ten grand to spare would I actually buy any more at these prices?”


Some say a rally is due any week after February’s sharp sell off.  Others say the markets will halve again before they hit bottom but the only certainty is that shares will definitely go up…or down. 


Perhaps the safest assumption you should make about your retirement at this stage, is that it might not be for as long as you once anticipated. 

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The Credit Union League moved quickly to reassure members of the Mitchelstown Credit Union that their savings were perfectly safe, despite the fact that all business loans have been suspended and strict limits put on all lending.


Seeing as the Mitchelstown CU is probably not unique, this reassurance will only go so far with credit union savers who may have already spent some time queuing nervously in bank lobbies, moving their money to whichever institution they thought was the ‘safest’ at the height of the crisis last October. 


It was the Regulator for the Credit Unions, Brendan Logue, who shut down commercial lending at Mitchelstown, after it was revealed that four of their five biggest such loans have gone pear-shaped.  Last September the Mitchelstown board had to publicly deny that it was in any financial difficulty after rumours prompted many members to close their accounts.  


Back then – before unemployment really took off and markets crashed, it had €200 million in assets, €35 million in outstanding loans and another €65 million under investment.   


Six months later this balance sheet has undoubtedly been weakened, though the League went to great pains to assure its members that Mitchelstown is solvent and that savings up to €100,000 are covered by the Government guarantee and the League’s own protection fund.  


The credit union regulator Mr Logue – one of few in the Financial Regulator’s office – hasn’t pulled any punches in his reports about the amount of work needed in raising the operating standards of individual credit unions, but that his resources have been limited.  


There’s another trouble over the banks without the credit unions adding to it:  and they may not even know it yet, but we’re all going to be relying more on community lenders like the credit union and the post office banks before the great depression of the 21st century is over.  

Whatever Brendan Logue needs, he should get. 

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 ‘The rich are different than you and me,” F Scott Fitzgerald is incorrectly quoted saying to Ernest Hemingway. He replied, “Yes, they have more money.”


Well, as it turns out, our blanket assessment of bank directors as fat cats wallowing in huge sums of money that they spend buying up needle thin apartment blocks in Dubai is a shade off-side: according to the report on the disclosure of the 186 bank director’s loans that came out last week, they also needed to borrow for all the same mundane reasons the rest of us do.


No doubt Mary O’Dea, the acting Regulator, and consumer director, will helpfully remind the 32 with outstanding credit card debt that it really pays to set up a monthly direct debit to clears the balance every month. 

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The Sunday Times - Money Comment 01/03/09

Posted by Jill Kerby on March 01 2009 @ 22:18

In a litany of proposals, Mr. Obama called for stricter regulatory reforms of the nation’s financial institutions. He also mentioned creating tax-free universal savings accounts for all Americans, a nod to the Republican desire to create some kind of investment vehicles as they consider overhauling Social Security.


I once wrote in this column about the National Bank of Mum and Dad, in the context of how my husband and I were trying to teach our then 13 year old about the merits of good saving and spending habits and his modest allowance and money gifts. 


Now I’ve discovered that parents of much older children – who have babies of their own – are 


The US – The Great Unravelling – US no more borrowing- old cars, rent vs buy, aspirations lower – people understand this – 3.8% savings vs 9.4% during Reagan years.

14tr in debt; 8tr housing wealth loss; 10tr capital markets loss;  double digit unemployment coming; savings ups; even trading down at grocery store; 




Two Dublin insurance brokers, quickly responded to a query from a reader last week about whether there was any sort of insurance that he, as a landlord, could buy that would compensate him if his tenants just upped and left without paying their rent, or refused to vacate the premises.  


Designed to protect the landlord against up to 12 months of rental loss when a tenants refuses to leave a property, the product is known as ‘Rentassured’ and also provides up to €25,000 “for expert legal advice and representation to deal with any tenancy dispute”, explained John Clear from Stillorgan who is the main distributor for Rentassured, and Tony Collins of JC Collins in Blackrock.

There was a time when landlords may have been satisfied to factor in a month or two of void payments, but as the unemployment numbers continue to soar, this insurance might be in considerable demand going forward.  I will pass on their helpful message to the unlucky landlord. 

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The Sunday Times - Money Comment 22/02/09

Posted by Jill Kerby on February 22 2009 @ 22:19


The two main banks have wasted no time in producing a new mortgage lending package for first time buyers, (FTBs) but then a pre-condition of AIB and Bank of Ireland getting the €7 billion taxpayer bailout, was that they would provide 30% more lending to small businesses and individuals. 


At just 2.45% (3.5% APR) from Bank of Ireland and 2.49% from AIB, the one year fixed rates announced last week look as tempting as those offered at the peak of the property bubble.  Ulster Bank is joining in too, further sweetening their pot with a 4.2% five year fixed rate and a promise to refund up to 15% of the purchase price of inventory listed by eight of their property developer clients if the market price falls by 15% (or more) after five years – which, unfortunately, is entirely possible. 


Whatever about the banks, the property industry desperately want everyone to believe that first-time buyers are just aching to get back into the housing market, if only they could find a sympathetic lender.  


AIB’s jargon-laden statement that “dynamics are beginning to change in the Irish housing market and while problems still remain, over time, the reduced level of housing output and improved affordability conditions will help stabilise the market” would be laughable, if it wasn’t so serious. 


The bankers and their new bosses in the Department of Finance need to look out the window at the reality of the housing market: property prices are still falling, and now rents are too, a clear sign that we are caught in a deflationary price spiral. First time buyers, like everyone else, are worried sick about the possibility of losing their jobs and livelihoods. 


Unless someone has a recession-proof job, plenty of savings and every intention to remain in their new house indefinitely, with it’s risk of negative equity, they are far better off saving their money and renting for the foreseeable future. Renting also gives them the flexibility to follow the jobs market, wherever it takes them. 


The banks hardly have to be reminded that it was artificially low interest rates that got so many recent buyers into deep financial trouble.  Their track record, and that of the mortgage brokers who they paid so handsomely to sell their mortgages, is not good when it comes to giving informed, objective advice, especially about the risk of higher interest rates or long repayment terms.  


At the very least the advertisements or these loans should carry great big warnings about the risk of negative equity, potentially higher interest rates and the possibility of the introduction of property taxes and rates (on top of existing mandatory mortgage protection and buildings insurance.)  


But the most worrying thing of all is that any memory of how lending should be done – prudently, responsibly – with a clear eye on the profit that can be made and the risk that the borrower will be unable to pay – has been discarded in favour of a political mandate that makes no fiscal sense at all. 


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‘Banks that have been saved from bankruptcy by the intervention of the State and by the generosity of the taxpayer should not be rewarded for failure,” wrote an editorial writer in one of the national newspapers last week. 


He, or perhaps it was she, was referring to the controversy about paying staff bonuses, but let’s not kid ourselves:  the €7 billion bail-out of the Irish banks from taxpayers money held in the National Pension Reserve Fund is nothing but a reward for their failure. 


It’s happening everywhere that governments and central banks are propping up bankrupt companies and industries:  the additional €22 billion that General Motors and Chrysler are now demanding, on top of the $37 billion they (and Ford) have already received just shows how deep their insolvency runs. 


So here’s a thought.  Before every one of us becomes insolvent, why don’t we demand that the government hand back the remaining ten (or fewer) billions left in the National Pension Reserve Fund.  We should also be allowed access to the money we’ve built up in our private pensions so that they can pay off pressing debts like mortgages and car loans, save our family businesses, build up cash reserves in the event that we suffer a loss of earnings or redundancy, or to pay for the cost of emigration, if it comes to that. 


The alternative is to watch it be squandered by a government that simply doesn’t seem to know any better. 


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This sad tale, which I am assured is true, should make you feel much better – as it does me - about owning an old banger of a car. 


A well known businessman who had leased a $265,000, 2008 CL 65 AMG Mercedes Coupe  - a very flash car – last year was distressed to discover only a few months later that it was now only worth a derisory $160,000.  Under some financial pressure, he had thought about handing it back, but scoffed, “Forget it, it’s got to be worth more than that.” 


Recently, the coupe is involved in a relatively ‘minor’ accident.  Now he really wants to get rid of it.  The main dealer presents him with a repair bill for €25,000 and offers him a trade-in price on the lease…of just €80,000. 

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The Sunday Times - Money Comment 15/02/09

Posted by Jill Kerby on February 15 2009 @ 22:23

Will the mandatory moratorium on foreclosure actions that is being imposed on the banks by the government be enough to family homes from being repossessed over the long term? 


Probably not; this depression is showing every sign of lasting longer than a year. But then, the €7 billion bailout of AIB and Bank of Ireland, the latest $2.5 trillion that the US Treasury is going to use to further capitalise troubled US banks and other industries, and the $840 billion President Obama intends to spend “to save or create four million jobs” isn’t going to be enough either. 


This is because this money has to be borrowed or created out of thin air.  It’s money that will only add to the crucifying amount of debt already in the system, debt that has caused banks all over the world (and a few countries) to implode, property bubbles to explode, and tens of millions of people to lose their jobs, businesses and homes. 


The mainstream media are also finally beginning to realise that all these plans to save Ireland and the world have been cobbled together on the back of envelopes by panic stricken politicians and regulators, who clearly have no idea that the depression will only end, and a recovery happen, when the existing debt is paid off or written off, not postponed.


You must now do what you have to do to protect your family and wider community from the ‘catastrophe’, as President Obama has described what will happen, not if, but when, the first depression of the 21st century really takes hold. 


If you’ve lost your job, claim every benefit to which you are still entitled. (Check out the ‘social welfare’ and ‘employment’ links on the www.citizensinformation.ie website. 


Once the new mortgage foreclosure agreement is signed and sealed, tell your mortgage lender, if you have one, that you can only pay a token monthly payment. You can’t be evicted until 12 months of arrears have passed. You will need every penny of your unemployment benefit to feed your family, to pay your hear and light bills and to find new work. 


As for those who are still employed (and the vast majority of us still are, thank goodness) but who don’t already have a hefty cash emergency fund in place and are struggling with a large mortgage, crèche fees, car and credit card loans, you should also speak to your lender. 


Tell them you want to extend the term of your loan to 35 or 40 years, and/or switch it to an interest-only payment schedule.  (So many loan contracts already make provision for this kind of flexibility.) The monthly savings should then go into an emergency savings fund that you can access if your income is reduced or lost. 



This isn’t a suggestion the banks or government will welcome.  But the law of unintended consequences means this moratorium will probably be abused by the reckless and the feckless who will find a way to use it to avoid paying their mortgage.   


You want to secure some flexibility for your family budget before the code is tightened or more likely, abolished because it has become unworkable. 


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A big downside of apartment or gated-estate ownership in this country has been the poor service delivered by many of the management companies that were set up by the original developers to do ongoing repairs, cut the grass, change the light bulbs and service the boilers. For many unsuspecting owners, the charges have been disproportionate to the service, which was sometimes non-existent. 


The National Consumer Agency took up the ‘multi-unit’ owners’ cause by setting up a consumer property section on their website and developing a code of practice for the Irish Home Builders Association and the property owners (see http://www.consumerproperty.ie/downloads/downloads.htmlfor copies of the various codes.)   


This has been an enormous help to both existing and new condo owners, but some are discovering a new problem:  what do you do when fellow owners lose their jobs, move away, or hand back the keys to their flats or townhouses to the banks because they see no point in continuing to pay off a loan that is worth less than the property? 


As the NCA website notes, “Once you sign up to a management company agreement, remember that it is legally binding. It sets out your rights in terms of what the company will do for you, but it also places an obligation on you to pay for the services it provides.”  And one of those obligations may very well be a contractual obligation – that you never bothered to read – that requires the remaining owners to share the costs (sometimes with the management company) that are no longer being met by a fellow owner. 



Defaulting owners may have to be pursued through the courts, but in the meantime, a friend who owns an apartment in a very smart building in the Dublin suburb of Rathminestold me that she has already received a notice from her management company to say that their annual fee will have to rise in the next quarter for this very reason, or services will be reduced.  


“’Take it or leave it’, we were told,” she said. “I don’t fancy cutting the grass or putting out the rubbish every week, so I guess I’ll have to pay up.”


You might want to take a closer look at the small print in your contract, especially if you see the owner of apartment 2C down the hall moving out…before a For Sale sign even goes up. 


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Last year, my old rocker of a spouse agonised over whether it was worth paying€135 to see Tom Waits in a leaky circus tent in the Phoenix Park.  He eventually succumbed on the basis that Tom is ‘a legend’ who might never play in Ireland again.


Now he’s doing the same again about spending between €96.25 (to stand) and up to €131.25 to see Ry Cooder – another elderly ‘legend’ in the Olympia next June – and that’s before Ticketmaster gouges him for its €3.35 service charge. 


This time, he’s decided enough is enough. “Have concert promoters not grasped that the economy is on the ropes, people are keeping their money in their pockets and the prospect of paying a minimum €100 for a two hour gig is just  not on?”


Fifty-something music fans may not have huge mortgages and creche fees to pay, but they’ve watched their pension funds tank this year.  


Concert promoters and their artists, just like the rest of us, need to ‘get real’. 

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The Sunday Times - Money Comment 08/02/09

Posted by Jill Kerby on February 08 2009 @ 22:31

The public and civil servants who have flooded the airwaves this week objecting to the pension levy seem to have missed the point that the money that will be deducted from their incomes from next month isn’t gone forever. It, ostensibly, is to be used to ensure that the pension they signed up for when the joined their department or school or hospital will actually be there to collect in 15 or 20 or 30 years time. 


The pay-as-you-go funding system - for pensions and to meet the cost of even a country’s treasury bonds when they fall due – is the biggest pyramid scheme around.  The only way the pension pyramid keeps from collapsing is because governments, unlike conventional pyramid scheme organisers don’t just have to rely on the members; they can force even people who don’t get any of the money to pay up, and their children and grandchildren too in the case of those much needed, but not so easy to pay back bonds. 


The problem is that when hard times hit, like now, and a lot of the tax money dries up and the foreigners are not so keen to lend anymore, governments have to come up with other ways to keep the pay-as-you-go system in place.   


The c7.5% average pension levy that 350,000 public and civil servants will be paying isn’t really to pay for their pensions – it’s to meet the cost, this coming year, of a portion of everyone’s salary, to keep the lights burning all night in Dail Eireann, to ensure that some roads are cleared and gritted…you get the picture. Only the National Pension Reserve Fund was specifically set up to actually meet some of the cost of pensions from 2025, and now it too is being raided to keep the paying-as-we-go. 


It could have been worse last Tuesday.  If the government had listened to some of the social partners P60s would have seen more than just that universal 1% income levy deducted in 2009 and about 20,000 public and civil servants would be collecting their P45s as well. 


And as for those nurses, teachers and filing clerks who say it’s so unfair and that they had nothing to do with the economic collapse, take comfort in the fact that you are not alone: none of the 36,500 souls who joined the dole queues last month (except maybe the Anglo Irish executives who lost their jobs) areto blame either.  


The people who should be forfeiting their big, fat pensions right now are the ones sitting in Government buildings who never saw the pyramid scheme for the fraud it was and still have their hands in your pockets, rifling around for your wallet and any loose change. 


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On the day that my neighbourhood hairdresser told me she was no longer taking credit card payments, I got my annual TV license renewal form from An Post.  They’re not taking credit card direct debit payments.  The merchant charge is just too high, they both say - a sign of the times. 


Credit card transactions are falling as consumers reign in their spending, and some retailers find they have no choice but to abandon their swipe machines as their profits fall, but the merchant’s charge, which can be as high as 5% of the transaction, doesn’t. 


It’s no great loss.  The easy, expensive credit offered by the card companies and banks during the boom is now just another millstone that thousands of people are dragging behind them now, especially if they’ve lost their jobs. 


The criteria for qualifying for a credit card has tightened, say the banks, but clearly not enough: the 18 year old college-going daughter of a friend of mine, who is lucky enough to have kept her part-time summer job at Dunnes Stores,was offered one last week.  


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“It isn’t going to be the ‘working poor’, or even long term social welfare recipients who will take the worst beating by this depression. That honour is going to go to the middle and higher earners, whether they work in the public or private sector,” said a small business owner I know, who had to let eight employees go in the past six months.  


First, itwas the income levy and the second home property tax.  Now it’s a pension levy for the public sector and a smattering of other small, disjointed cuts to benefits like the incongruous Early Childhood Supplement and the Africa aid programme. 


The next time – perhaps when An Bord Snip finally reports – the expectation is that the cutback game will be stepped up with bigger ticket items targeted, like a property tax on first homes, the taxing of universal benefits like child benefit, the re-introduction of third level fees, and worst of all, a rise in income tax rates, the most efficient way, in my view, to deepen and strengthen the downturn.   


I don’t know about you, but if there is bad financial news out there, at this stage I’d prefer to hear it all at once, rather than have it drip-fed. 


However misconceived, I want to know sooner, rather than later, how much money the government plans to leave in my pocket. The worst disservice this government is doing to the ordinary person and their family is not to share with them the nittygritty of where and how billions must be cut, saved or borrowed if we are to avoid national bankruptcy.  

On a personal level it will certainly make it easier to cope with the minor and major plans that everyone has: to keep saving for a kitchen extension …or have another baby?  To re-train for that dream job, or just hold onto the security of this one? To take the family to the cousin’s wedding in America next summer or just rent a caravan in Brittas Bay? 


It’s times like this we should envy the Swiss.  There, nothing of major importance happens unless the people are consulted directly. They electorate are not kept in the dark by their representatives. Their opinions count, and mostly, the people do the right thing in own and their neighbours’ interests. 

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The Sunday Times - Money Comment 01/02/09

Posted by Jill Kerby on February 01 2009 @ 22:32

With businesses closing by the week due to a shortage of capital is it any wonder that their owners are prepared to resort to desperate measures to stay afloat, from pay cuts and unpaid holidays to mortgaging their private homes (if they can) or even dipping into their own pension funds. 


Except of course, that in this country, this latter solution is not available to them. 


This week a reader from Athlone, who owns a giftware and jewellery shop has found himself in exactly this position – with a personal pension fund worth €150,000 but no access to the money under existing pension regulation, unless he retires.  Without the money, it looks like he might be retiring whether he likes it or not. 


Restricting access to pension funds was introduced in the Pensions Act 1990 and was a major reform at the time because up to them it was commonplace for people to cash in their pension savings when they left an employer.  Too often the money was spent, rather than re-invested in a new occupational or private scheme.  By locking in pension contributions and fund growth until retirement, the idea was that by default, the person would have some sort of financial security in their old age. 


That’s all very well when your job is secure, credit is available and the world isn’t sliding into the deepest recession since the 1930s. 


Aside from preventing an Athlone shopkeeper access to his own capital to save his business, the no-access pension rule has never been very helpful (even in good times) in the campaign to encourage younger people to set aside money now for an income they will only enjoy in 40 years time.  


Ironically, the state is now about to raid its own statutorily ring-fenced pension fund – the €16 billion National Pension Reserve Fund which is needed, says the government, to keep the ship of state afloat.  It wasn’t to be touched until 2025, said Charlie McCreevy when he set it up to help pay part of the pay-as-you-go civil service pensions bill. He knew then that the huge fund would always be a tempting source of capital to his Dail colleagues, hence the fence. 


It’s time to revisit the access restrictions that apply to the retirement savings of the rest of us. In the United States and Canada, where there is limited access to private 401k pension funds, it is perfectly reasonable for any money withdrawn from Irish pensions to be subject to the same level of tax it enjoyed on the way in. 


But other than that part of the money, the rest of it is the individual’s own, and not the state’s.


Pension legislation is beginning to resemble a Medusa’s head of hissing, tangled snakes as one problem after another arises in the current system.  Just ask anyone whose defined benefit pension has been wound up due to insolvency how fair it is that existing pensioners take priority over everyone else in the payment of retirement benefits.


Time is running out for the Athlone shopkeeper, and all the other employers and business people who are being strangled by pension policy and regulation that is no longer appropriate.  


They need pension reform now, not later this year or next year.  




The only positive thing to say about the introduction of a property tax in this country at this time is that it will help accelerate the fall of property prices, and anything that does that is a good thing.  


I say this, not because I like the idea of my own house being worth less, but because the return of consumer confidence here – and in the other anglo-american countries that experienced huge price bubbles since 2001 – is so tied to the value of the bricks and mortar we own. 


Prices are still sliding, but the price bottom is a long way off because the volume of trading is so low. We need normal (and I don’t mean ‘bubble’ normal) levels of property transactions to resume before every homeowner can come to terms with the true size of their personal wealth and then get on with the personal decision of whether they can afford to return to the wider marketplace.  

That said, even if our house prices finally levelled off, the wider banking crisis would still hinder our recovery, but at least those people who have stable incomes and jobs, and are not overburdened with debt might feel confident enough to replace their car, or buy some new curtains or dine out again.  


My main gripe about the modest property levy on second homes that the government seems to be considering, is that it is so typical of the short term, piecemeal and utterly inadequate way in which tax policy is operated by this government.


There was never any clear thinking about the tax treatment and incentivisation of property here and we are now living with the consequences of not just our own mess, but the global banking disaster caused by the over-encouragement of the property industry in other Anglo-American countries. 


Aside from that one unintentional benefit (if you can call it that) the introducing of a property tax at a time when so many property owners can’t even meet their mortgage payments doesn’t sound like joined up thinking to me.    But that’s probably a lot to ask of our politicians these days. 


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Can anyone explain to me how taxis are so expensive when there are so many new licences still being issued and an alleged over-supply of cars?


Theoretically, when there are an abundance of goods and services, the price goes down. But not, alas, when the government decides the price of the service and also influences, in this case, the number of traders.  


A taxi-driver told me the other day that he was on a big demonstration recently demanding that no more taxi licenses be issued and a cap put on the numbers of drivers. 


The mistake, he said with a straight face, “was deregulating the industry and letting anyone to buy a plate.” But what about fares, I asked. They were never de-regulated. 


“Of course not, you couldn’t have that,” he said.  


I can’t wait to see how it works in the banks.

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The Sunday Times - Money Comment 25/01/09

Posted by Jill Kerby on January 25 2009 @ 22:37

I wonder how many parents have worked out how much more their child’s private secondary school would have to charge them if the government was to withdraw the €99 million annual subsidy it pays every year just for the teachers wages in the state’s 56 private secondary schools?


According to the most recent audit of private fee-paying schools by the Department of Education, the average fees are in the region of €5,000, and the Department pays for the salaries of just under 1,500 teachers, or approximately €66,000 each.  Some of the larger schools, like Blackrock College received nearly €4 million in subsidies; others like the smaller Loreto College on Stephen’s Green, €1 million.  


You don’t need Leaving Cert maths to do the arithmetic however. If someday, the government decided that subsiding private education was a luxury that taxpayers could no longer afford and abolished it altogether, the school with 800 students who have enjoyed a €3 million euro subsidy will either have to increase their fees by €3,750 just to maintain the existing teacher student ratio, or reduce the number of students it takes in.  The final option to increase the number of students per class is a non-starter since most parents send their children to private tuition for the smaller class sizes. 


Private secondary education is coming under the spotlight for a very good reason:  either the government continues to subsidise the fee-paying schools or the university sector.  It can’t afford to do both anymore, no matter how popular the subsidy is to middle class voters many of whom,, despite having very good schools in their comfortable, leafy neighbourhoods have turned private school education for their children into a ‘must-have’ lifestyle choice. 


The private school sector, no more than any other business, is unlikely to survive this recession unscathed as parent’s jobs and businesses struggle with the downturn. There are anecdotal reports already that ‘this boy’ or ‘that girl’ may not be coming back in the next year and that principals in state schools are getting more calls from parents wondering even now if there will be a place available for their child next September. 


This should set off a few warning bells and have parents with more limited budgets to pull  outa calculator now and work out the huge financial commitment they may end up facing if secondary fees rise sharply and third level fees are re-introduced.  Ten years of private education could easily amount to €60,000 or €70,000 or even more, per child.


Unless you make provision early for a bill like this, the local convent or CBS may not be such a bad alternative after all. 


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It isn’t just the banks that are feeling the cold wind of the credit squeeze and the collapse of asset values; international insurers have also seen their own investment portfolios and reserves come under pressure as their customers lose their jobs or find their incomes squeezed.  The days of cheap insurance may be coming to an end. 


Insurance companies make money by taking in more premiums than they pay out for catastrophic events and for the more mundane ones like motor and workplace accidents, fire and theft, lost luggage and of course, an untimely death. But they also expect to earn profits from investing premium income, some of which of course is diverted to meet their substantial reserve fund requirement. 


While it would certainly appear that insurance companies are in far better fiscal shape than the banks, every report I read about the insurance sector says it too is under pressure and that we should be prepared to higher premiums. 


Forewarned is forearmed.  Use a good broker when shopping around for your insurance, but make sure to call a few of the direct insurers yourself as well. Know what you are buying – you may be taking on more cover than you need. 


In fact, the Financial Regulator has just produced it’s latest motor insurance cost comparison survey at www.itsyourmoney.ie  and while itdoesn’t look to me as if premiums have gone up significantly compared to the 2007 survey, there are still significant savings between the insurers:  the example of a 27 year old office female office administrator seeking comprehensive cover for her 2003 Ford Focus show how she would have paid a whopping €663  more for her insurance by buying it directly from one of the insurers mentioned, rather than going through a broker. 


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High maintenance yummy-mummies might want to keep an eye on the example the new Mummy-in-Chief, Michele Obama and the good spending example she’s setting as the recession deepens, at least so far as her own dress budget is concerned. 


While he certainly earns a good salary and perks as President – the Pennsylvania Avenue and Camp David digs come with the job – Barack Obama doesn’t earn as large a salary as our own Taoiseach, Mr Cowan and doesn’t have great family wealth to fall back upon, unlike his predecessor.  Book royalties have helped to boost the new First Family’s income, but unlike the Bush’s, the Obama’s are only just comfortably wealthy, rather like Tony and Cherie Blair were in their early years in 10 Downing Street. 


Michele Obama gave up her job over two years ago, but she’s always been surefooted about her spending, say her friends. While always fashionable, she isn’t a clothes horse they say, and she favours up and coming young American designers rather than the pricey old haute couturiers favoured by other First Ladies  and even relies on stylish catalogue companies like JCrew for her casualwear. 


From what her friends say, there will be no thousand dollar, let along five thousand dollar handbags surfacing to embarrass her or her husband as the economic crisis worsens. 


No one expects Mrs Obama to embrace austerity. The clothes she wears will give American fashion a big boost tat a tough time, but I expect what she buys and how much it all costs will be judged just as critically as the hundreds of billions her husband intends to spend. 

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The Sunday Times - Money Comment 18/01/09

Posted by Jill Kerby on January 18 2009 @ 22:40

At least one side of the regulator’s office seems to be earning their keep:  the financial Ombudsman has seen a 36% increase in the number of complaints, or nearly 6,000 over the past six months, arrive across his desk, compared to the same period in 2007.


The Ombudsman’s office deals with everything from people unhappy with the way they’ve been treated by their insurance company, to those who’ve been fraud victims, but by far the most serious case over the period - at least in terms of financial value – is the one in which a credit union was refunded €500,000 of the €1 million that was all lost after they hastily invested it in a ‘wrapped around’ insurance bond. 


But this case ended up in a rare oral hearing with both sides found to be equally at fault by the Ombudsman – the stockbroking firm for failing “to advise the credit union of the risk of the possibility of total loss of capital”; for its “inadequate’ presentation; its lack of thoroughness of research into the bond and its failure to point out to the credit union that the bond was outside the ordinary type of investments that were typically made by the credit union”.  He conceded that the broker believed it “acted in good faith” by regarding the bond as low risk but “the true nature of that risk should have been cogently pointed out to the credit union” -  that is, that there was absolutely no capital guarantee provided.  This was especially important given that two of the three investment committee members “were not in the remotest sense experienced in investment matters.”


Nevertheless, the Ombudsman also found that the investment committee “could not absolve itself from the disaster which occurred” as a result of the meeting and presentation that lasted “between 15 and 30 minutes at the most”. After the stockbroker left them, they agreed, “there and then” to invest in the bond and admitted under oath that they “in effect, ‘blindly signed’ the application form and did not even read the brochure, or indeed the conditions under which they were investing €1million of members’ monies. One of the conditions included a warning that the investment could be worthless.”


It is unfortunate, but not always inexplicable when ordinary people, with no training or understanding of complex financial investments, but who are seduced by the idea of higher than average returns, admit to not fully reading or understanding the lengthy contracts and small print that still accompanies most financial contracts. 


It shouldn’t happen to an investment committee entrusted with millions of other people’s savings. 


Has the Ombudsman, Joe Meade, delivered a fair judgment? The credit union doesn’t think so and is exercising their rights by appealing his finding to the High Court. Meanwhile he referred this particular case to the Financial Regulator for their further attention.  


Oh dear.  Perhaps it would have been even more helpful if he’d suggested that all credit union members also satisfy themselves that the people they’ve entrusted with their money actually know what they are doing before they hand over surplus millions to other investment intermediaries in the search for safe and profitable returns. 




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I’ll certainly be watching the swearing in of President-elect Obama on Tuesday – my tenth such viewing. I sincerely hope he can deliver the leadership that America and the rest of the world needs, but I have my doubts about his ability to fulfil his first promise – to do his best to create millions of jobs and reverse the financial devastation of the past year. 


I don’t expect any shoes to be thrown at the handsome, young president at his inauguration ceremony, but I won’t be too surprised if it happens before he leaves office. 


With no government surplus to tap into, this latest trillion dollar bill for the huge stimulus package of public works, alternative energy project and mortgage bail-outs will have to be paid for, not with more taxes, which have been ruled out, but with further borrowings and ‘quantitative easing’  which amounts to the printing of money. 


Perhaps this is where we, the beleaguered Irish, can make a small contribution, by example, to President Obama’s new, ‘New Deal’. 


Here, thankfully, we don’t have the luxury of a printing press anymore or we too would undoubtedly be churning out euros to cover our huge deficit.  Instead of stimulus programmes, however, we’re finally accepting that we need a cutback programme - of civil and public service wages and jobs, of executive positions within the government itself, and in the ‘free’ healthcare, education and other public services we can no longer afford.  


Maybe we can show the new US administration how a country can prioritise it’s money if it must: for example, if it came down to a choice, say, between spending a billion euro a year on our army – and we are a tiny country with no known enemies and a friendly, nuclear neighbour – or continuing to pay out a billion euro worth of child benefit payments to our own children and those we support in the developing world, I expect we’ll make the right choice. 


President-elect Obama hasn’t talked much about cutbacks, except perhaps in the context of their own military spending: these last eight years of war, without a war economy, and the expansion of the US social security, Medicare and Medicaid programmes for the poor and the elderly during the Bush years, is reckoned to have helped expand the real US deficit to well over $60 trillion. 


There is no possible way all that those promised entitlements and existing debt and credit commitments can be met by this or even future generations of US taxpayers.  Obama’s choices were always limited to acknowledging the existing massive financial hole and drawing up plans to tackle it… or by doing as he appears to be starting his presidency – by deepening the hole in the hope somehow that the extra shovels full of debt and credit can stop the walls of the economy from collapsing, at least on his watch. 


Enjoy the inauguration ceremony.  Reality sets in on Wednesday. 


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Here’s a couple of intriguing Irish ‘stimulus’ ideas that a reader sent in, who might very well be a taxi driver in the market for a new house. 


The first one gives the taxi industry a boost while also reducing the huge cost to the state in policing speeders and the carnage they leave behind: “Allow any taxi in the country to be fitted with speed cameras and share 50% of the revenue with them on speeding fines that they generate.  The real loss of life is late at night in rural areas; pretty soon all late night partygoers would know that they’d be caught.”   



Suggestion two is to “reduce the stamp duty payable on any dwelling by the percentage improvement in the energy audit certificate level, post-sale.  If I purchase a house with a D1 energy classification and within a year it’s improved to a C1 level, then a 26% rebate on stamp duty would reply.  This should give a boost to the building sector and clear unsold houses.”



So would eliminating stamp duty altogether, but probably not until the housing bottom is reached and as the auctioneers have finally acknowledged, that won’t be this year. 

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The Sunday Times - Money Comment 11/01/09

Posted by Jill Kerby on January 11 2009 @ 22:41


With a US private equity fund looking as if it will acquire at least some of the assets of the Waterford Wedgwood group, which is in receivership, the question on workers’ minds in Waterford (and no doubt those at the Derbyshire china factory) is not just whether they will still have their jobs, but also their pensions. 

Last October the precarious state of the vast majority of defined benefit pension funds was raised at the Irish Association of Pension Fund’s annual conference by Maurice Whyms, a director of the Dublin pension and actuarial consultants Attain. He said then (and I reported his comments here) that a combination of the credit crunch, collapsing stock market asset values, pensioner longevity and tough accounting and funding standards had created a perfect storm that could pack a devastating financial blow to members of defined benefit pension schemes like Waterford’s which has a funding deficit of €110 million and several thousand existing and future pensioners. 

In the UK, the increasingly burdened Pension Protection Fund (PPF) offers 100% pension income guarantees to existing pensioners and a limited guarantee of up to 90% or £27,770 whichever is the greater to remaining pensioners as they reach retirement, but here, there is no such scheme. Under our statutory rules, when a defined benefit pension scheme is involuntarily wound up, pensioners and AVC fund-holders gets first crack at what money is available; only then will existing worker members of the scheme and deferred members, who left the company early but still expected to collect a partial pension, receive any payment from what is left in the fund. 

The great injustice of this system, says Mr Whyms of this payment priority, is that someone who is 64 and three quarters, and had worked alongside others for decades but who retired a few months earlier, will have no more entitlement to his life’s savings – the pension fund - than a young worker who may have only been in the scheme for a few years. 


The Waterford insolvency and the involuntary winding up of its defined benefit scheme probably won’t be the last one this year. Last October it was reckoned that 75% of DB schemes were in deficit; that number is undoubtedly higher as stock market losses continued through the final quarter and the trading environment worsened for so many firms. 


Even in the UK, where the PPF has been in operation only since 2007, it has only £2.7 billion in assets and a deficit itself, and is struggling with a £517 million deficit. 


So what happens to the thousands of Irish Waterford group pensioners and employees if the new buyer buys the company assets, but not its pension liabilities?  With no compensation scheme of any kind in place here, should the Irish government step in and even part-guarantee those pensions? 


The members of the Waterford pension scheme and their representatives will no doubt demand such an intervention, given how Irish bank depositors and creditors have been bailed out. 


But then so will every other worker and retiree whose company and defined benefit pension fund ends up in liquidation or receivership.  



the total value of the fund, which is funded by employers and not the taxpayer it’s total value is just £2.7 billion and it is quickly being drained by large, high profile insolvencies like 


Three months later, as predicted, the 8,000 existing and future pensioners of Waterford Wedgwood – 800 of whom still work in the Kilbarry factory - are about to find out exactly how vulnerable they are. 


The Waterford DB scheme is reported to have a funding deficit of c€111 million. Under current legislation, existing pensioners If the Irish government isn’t willing to act quickly to address the apparent unfairness in the priority payment rules – and it would require a change of legislation to do so – a similar case currently in the UK courts could become very significant, says Maurice Whyms. 


In that case, a man called Robins, who believed he was unfairly treated when his company DB scheme was wound up went to the European Court.  He claimed that his government hadn’t done enough to enact an existing EU directive that directs member states to protect all worker’s pension benefits in the event of a scheme wind-up. He won that case but it is back in the UK courts.


Let’s hope it doesn’t take similar action to bring more fairness to the Irish pension system. 


I’m looking forward to reading the new Fine Gael universal health insurance strategy when it is published later this month, and I’m sure the three existing health insurers are keen to see it also, if only to see what role FG see for the wholly owned government insurer, the VHI.


Universal health insurance, in which insurers and hospitals compete for clients under community rated regulation that eliminates the gross inequality of our existing two tier system, will undoubtedly attract many more insurers into the Irish health insurance market which only has two genuine private sector companies competing against the dominant government-owned VHI. 


If universal health insurance were to work as well here as it does in Holland, which is the model that Fine Gael are advocating, the VHI cannot remain in the ownership of the Department of Health, which should be reducing its role in the day to day operation of the public health service anyway.  


Under a universal health insurance system the government’s role should be confined to setting the standards of care and service that the hospitals and all health providers must meet and of course, ensure that those who cannot afford even the most basic insurance package are still fully covered.  It will certainly have to result in changes to the volume and method of, effectively, double taxation – that currently applies to those 2.2 million people who both contribute to the public and private systems. 


If we eventually get a universal insurance system conquerable to that of Holland, the queue jumping that exists for the insured will hopefully end, but so will the terrible waiting lists.  


The Minister for Health says this will happen anyway under the new hospital consultant’s reforms, but the difference is that the army of HSE and Department bureaucrats will still be in control, rather than consumers, their insurers and the people who actually work in and run the hospitals.


In the same way that we would never want the government running the way food is distributed and sold in this country, we should commend Fine Gael for finally realising that under their watch, at least, they wouldn’t be entirely running the delivery of health services either. 


My Canadian family and friends were stunned to hear how the Irish economy had suddenly collapsed.  “I couldn’t believe it when I read how people are immigrating again,” my brother remarked over Christmas dinner with the extended family in his cottage in the snowy Laurentian hills, north of Montreal. “Every year that I visited you in Dublin, things seemed to be getting better and better.”


He was right about those years during the 1990s and early 2000s, but that was before we abandoned genuine commerce and trade to blow up a property bubble. 


“Oh, we started doing that too in the last couple of years,” the brother replied, “but a lot of people remembered the crash of ’91, and the Canadian banks are heavily regulated so subprime and 100% mortgages never really took off to any huge degree.”


Lucky Canada.  But some property bubbles have burst – in the Mont Tremblant ski area where a flurry of for sale signs litter the ski hills and, says a nephew who now teaches at Memorial University in St John’s Newfoundland, at the exclusive Humber Valley holiday development which was aggressively flogged to UK and Irish investors about five years ago.


Back in 2003 the Humber Valley development on the remote west coast of Newfoundland was literally, a million dollar, all year sporting paradise. Last November, it lost its single direct air link to the UK.  The credit crisis didn’t help and property values plummeted and an appeal by the management company, which arranged sales and rentals, for help from the Newfoundland ministry for tourism was turned down flat. 


Newfoundland is a beautiful place, but it’s freezing cold in the winter, bleak, damp and foggy for much of the rest of the year and is regularly cut off from the Canadian mainland. Canadians shook their heads in awe at the million dollar price tags on the Humber Valley properties…and mainly left it to Americans, Brits and any Irish foolhardy enough to do so, to pay those ridiculously inflated prices. The Algarve, it is not. 


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