Money Times - October 4, 2016

Posted by Jill Kerby on October 04 2016 @ 09:00




Tax policy in this country just gets more bizarre by the day.

With the Budget approaching, every private and public agency, charity, opposition party and, it would seem junior minister, has been busy preparing and submitting their budget claims to whatever surplus amount – about €1 billion is the latest reckoning – that the Minister for Finance has to dish out for 2016-17.

So long as their group of constituents, beneficiaries or clients come away with something these interest groups will declare victory. The long picture…is Michael Noonan’s problem.

That said, the most bizarre tax ‘reform’ proposal, from the Minister’s own colleagues, Richard Bruton (back in October 2015) and Mary Mitchell O’Connor (last week) is for a separate 30% flat income tax rate that will also include PRSI and USC, aimed at highly skilled Irish workers earning more than €75,000, who have been away for at least five years.  It would last five years.

The 2015 proposal, with a salary floor of €60,000 was described prior to the 2016 Budget, “as likely to infuriate Irish workers”. It never saw the light of day.

But junior minister Mitchell O’Connor clearly saw some merit in it, and while it looks pretty dead in the water this week, was lauded by employers in the high tech sector in particular who claim they are involved in an ‘international war of talent’ which has been hindered by Ireland’s highly progressive and punitive personal tax rate that claims 51% of tax, PRSI and USC on every euro earned over €33,800.  (52& on earning over €70,045.)

If native Irish talent is reluctant to come back to Ireland after five years of emigration, the income tax situation is certainly one reason. But let’s not overlook all the other less overt taxes that contribute to their trepidation, as well as the acute shortage of affordable housing (especially in the capital) and huge child-care costs.

In addition to a 41% top rate income tax, 4% PRSI (on all income), c6% USC (and an additional 3% on all income over €100,000) Ireland has amongst the highest VAT (23%) in the world, high rates of excise and VRT on cars, alcohol, tobacco; a compulsory annual €399 levy (€135 for children) on health insurance plans; annual 5% levies on general insurance policy premiums and 1% on all life insurance, investment and pension policies. We also pay separate property tax, car tax, bin charges and a suspended water charge. CGT rates are comparatively high at 33% given how low the individual annual CGT free allowance of just €1,270. (It is over £11,000 in the UK.)

Would a two tier flat tax rate of 30% foster a tax revolt by the PAYE workers paying that higher rate of 51%? It could, if the home-based worker earning that €75,000 discovers that the returnee next door – doing exactly the same job as he/she - now pays several thousand euro less tax than they do.

The Irish Taxation Institute reckons that a single, Irish PAYE earner on €75,000 will pay €26,482 in tax here, compared to €18,482 in the United States and €21,920 in the UK. The disparity between countries exists, but in those places, everyone on the same tax level pays the same tax. One group of workers on the same pay is not favoured over another.

High taxes encourage the creation of loopholes and tax avoidance opportunities to those who can afford professional advice.So perhaps a better way, tax-wise, to attract home wary émigrés, is to improve the tax situation for everyone, starting  by setting a higher income entry point (from the existing €33,800) on the tax bands.  Even in France, one of the highest taxed economies in Europe, you only pay their marginal rate of 55% when you earn €152,000. In Portugal it is €80,000.

Shifting tax from labour to capital assets (like property) would also take some pressure off the high income tax burden in this country. But this is highly unlikely as it also requires the phasing out of tax reliefs, special capital allowances and other tax avoidance measures.

Not all tax reliefs are a bad thing in the absence of a fairer tax system.

One that bears watching, pre-Budget, is the proposal that first time buyers receive tax relief worth €10,000 to assist in the purchase of new homes. The only way this can be considered ‘fair’ is if hard-pressed renters in private accommodation see the re-introduction of rent tax relief.

A long standing personal tax break, with the over 55 married couple tenant tax credit worth as much as €1,600 a year (€800 aged under 55) and as much as €400 for a single person aged under 55 it has been phased out since 2011 for and will disappear entirely by 2017. It can only be claimed by those renting privately since December 7, 2010.

This year – and you have until the October 31 Pay & File deadline to claim up to four years of the backdated relief - tax credit is only worth €80 this year for a single person under age 55; €80 for over single over 55s; €160 for a married person under age 55 (or a widow/er) and €320 for partners (widow/ers) aged over 55.

Solve the housing crisis (and child-care) in Budget 2017 and the income tax burden might just get a great deal lighter by itself.



2 comment(s)

Money Times - September 27, 2016

Posted by Jill Kerby on September 27 2016 @ 09:00


You’ve probably heard or seen the radio and television ads for the newest health insurer in the market – Irish Life Health, which has been created from the merger of Aviva Health and GloHealth.

Together they now insure 425,000 individual and corporate customers; the VHI remains the biggest, with c1.1million members and Laya Healthcare with 550,000.

The new company’s managing director, Jim Dowdall, the former CEO of both the merged companies (at different times), insists the merger will enhance, not restrict competition, despite reducing the number of players in the market to just three. It certainly convinced the Competition and Consumer Protection Commission that this would be the case though it’s hard to imagine the CCPC or the EU ever tolerating just three motor or home insurers. 

Nevertheless, the arrival of Vivas back in 2004 certainly forced VHI and BUPA (which preceded QuinnHealth and Laya) to raise their games as they scrambled to match the new types of plans, benefits and innovation that Vivas introduced – especially for the lucrative and demanding corporate market. Dowdall stepped up that pressure when Aviva Insurance took over Vivas a few years later, and he remained as the MD of the new Aviva Health operation.

In 2012, having left Aviva, Dowdall set up the fourth and smallest of the health insurance providers, GloHealth. It moved even further in offering innovative, focused plans that suited both individual healthcare needs and budgets.

Active sports players who joined GloHealth for example, could opt for more sports injury coverage than was offered by more standard policies. Families could load up on out-patient cover and benefits more suitable to their needs while older people could pick and choose higher value treatment cover or accommodation packages. Both GloHealth and Aviva were also at the forefront of ways to access diagnostic consultations with nurses and GPs by phone or on-line.

“This is a market where scale is particularly important,” Jim Dowdall explains. He diplomatically describes it as “unusual”, “highly politicised”, and with state operating rules that “keep changing”, referring to the health insurance levy that can account for 65% of the price of lower value entry plans, and the hospital bed charge of over €800 a night for insured patients, “even if they end up on a trolley or recliner”.

He concedes that this is probably why there haven’t been more Irish or foreign operators here since BUPA first arrived to challenge the VHI’s monopoly in 1996.

But he also warns that health-care costs are likely to keep going up for as long as there are “non-negotiable charges” imposed by the state.

“The population is ageing. We may think the cost of health care is high today. But wait and see how expensive it becomes in the future, with better medical outcomes and diagnosis. More cancer and heart cases will be treated and will put higher demands on the public system. But that’s why it’s even more important to tackle the artificial drivers of our health insurance cost increases.”

The government, he said, needs to recognise that people with insurance are “alleviating the pressure on the public system and should be rewarded for this, not discriminated against.” Last year alone he says the HSE collected €150m from the public hospital bed charge.  With the levy, this is driving up the cost of insurance and preventing people from buying levels of cover that will keep them from accessing private hospital service.

He also believes that innovations like the GP video consultations that Irish Life Health customers now enjoy is a way to take pressure off the public system, and deliver value to customers.

 “For example, a parent who opts for it doesn’t have to take time off work to physically bring a sick child to the doctor. A prescription can be issued to your local pharmacist. And you don’t have to pay the €50 or €60 charge. We pay the GP directly.”  He promises more of these kind of the community based, primary care services.

I asked the specialist health insurance broker Dermot Goode of TotalHealthCare.ie what he thought of the merger:

“I think more competition, more players would be better. But Irish Life Health is going to shake up the corporate market, no question. They will leverage the Irish Life brand and its existing corporate life and pensions business.

“And that isn’t a bad thing for the individual consumer because under our Community Rating system, everyone has access to every plan on the market, including the corporate ones. I expect there will be some very good new plans coming out at very competitive prices.”

Finally, a welcome concession to bewildered health insurance customers everywhere: Dowdall also promises that Irishlifehealth.ie will streamline their product selection to make it simpler to comparison shop. “There really has been too much product out there”.

VHI and Laya, please take note.




2 comment(s)

Money Times - September 20, 2016

Posted by Jill Kerby on September 20 2016 @ 09:00



Good luck to the Competition and Consumer Protection Commission in trying to establish whether the motor insurers and brokers have set up a cartel to rig insurance premiums.

This is a small place. And the number of motor insurers is smaller than it used to be. And it hasn’t been unusual in the past for financial players to announce a rise, say, in their interest rates - in the case of banks – or their premiums, in the case of health insurers, around the same time.

But when it’s happened in the past it was mostly a case of them opportunistically and very publicly following the leader, sheep-like, rather than a secretly conspiring to do so. In the case of the banks, the sheep leader is often the ECB after they’ve upped their rate.  Motor, home and health insurers take every opportunity to react to the latest statistical reports on weather events, accident rates or further expensive policy measures (in the case of health insurance) taken by the government for all their premiums to rise.

And while motor premiums are up c38% on average over the past year, not every driver has seen the same percentage increase and it is that kind of evidence that the CCPC will probably need to find to prove their case.

Even if they do, price-fixing, while a criminal offense, is more likely to result in fines than jail-time, so don’t expect to see any insurance bosses or brokers doing ‘the perp walk’ anytime soon.

The insurers are correct, however, in stating that the higher premiums we’ve seen are due to the higher cost of claims. But they are disingenuous in suggesting that it’s mainly been due to the high settlements the courts award in injury cases or the big fees that the legal profession continue to rake in from these cases.

In a major survey conducted by The AA in early 2015, both of these factors feature, but are only two pieces in a much bigger picture that includes

-       a relatively high number of uninsured drivers;

-       a high level of fraud that the industry is not dealing with effectively enough, particularly in the use of software technology used in other jurisdictions.

-       not enough Even more significant, claimed the AA is that premiums were set at far too low a level and for too long after the economic collapse occurred in order for the insurers to maintain their market share and compete for new or transfer business.

And a factor that is completely underestimated is that the insurance industry is not achieving the kind of investment returns that it once enjoyed, and on which it not only meets it’s claims and reserves but also its own overheads and the dividends it pays its shareholders.

In this, they share the dilemma also facing the pensions industry – where safe bond yields and fixed interest returns are at historic lows and therefore cannot meet defined benefit pension scheme promises to workers, and anyone who has come to rely upon a bank deposit yield. The culprits in this case are central banks and their nearly decade long, retrograde low-to-zero rate interest policies that have clearly failed to “stimulate” moribund, debt-bound economies.

Unfortunately, blaming central bank policy on top of everything else doesn’t offer much consolation if your motor insurance has become affordable. For that you need to take some action of your own to try and bring that bill down.

Here are few suggestions:

-       Always challenge a higher premium. Speak to your broker and instruct them to seek a better deal. Or call your (direct) insurer and ask how you can find some savings. Remind them, if this is the case, that you have no penalty points/ that the car has an alarm/is parked inside a garage/includes your spouse as a second driver, etc.  Tell them you will move your business if they don’t reduce the premium.

-       Use a broker. Or switch to a new one. They should be able to find you a better premium if you have a clean insurance record and often will offer a minimum 10% “savings” on your renewal quote by sharing their commission with you in year one.

-       Agree to a higher “excess” payment to bring down the premium.

-       If you have an old car that is not particularly valuable, consider only carrying third party, fire/theft coverage.

-       Drive an older car – they cost less to insurer (but can cost more to tax, maintain.)

-       Drive a vintage car. Insurance can be very low on cars that are 30 years plus.

The road haulage industry wants to be able to tap into the wider EU insurance market for much cheaper cover. So should the rest of us.

It wouldn’t solve the high awards problem or the number of uninsured drivers here, but it couldn’t hurt.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.


0 comment(s)

Money Times - September 13, 2016

Posted by Jill Kerby on September 13 2016 @ 09:00



The dire financial legacy of the Celtic Tiger years for ordinary folk was greater than just lost jobs, negative equity mortgages and high levels of personal debt.

And while most Irish people are steadily reducing their debt mountains, the 2008 crash with surge in unemployment also had a devastating effect on the amount of deferred income being allocated to personal pension funds, according to the pension provider, Aviva. 

Our pensions gap – the difference between actual pension savings and retirement income expectations – has increased 38% since 2010. The same gap in the rest of Europe is just 6%.

According to Aviva’s latest Mind the Pensions Gap survey, the generation of Irish people who will retire between 2017 and 2057 are going to need to collectively save an additional €27.8 billion a year if they’re to enjoy a satisfactory retirement income to meet their perceived needs.

This means, on average, an additional €12,200 gross savings per annum or €1,017 gross per month. These figures take into account the payment of the State pension, but excludes tax relief on pension contributions.  About 47% of respondents believed they would need between half and 100% of their final salary for a comfortable retirement.


“This is the second largest savings gap per head of population in the eight EU countries included in the report,” stated Aviva. “The UK’s gap is the highest at €13,200 and Germany’s, at €11,600, ranks in third place.”


Given the existing level of personal debt, higher taxes, lower asset values and for younger workers, the high cost of rent and child-care costs, saving an extra €1,000 a month could be an insurmountable for many.

So do we need to lower our retirement expectations, or just be more creative about how we can match those expectations with financial reality?

First, this news about the financial pension gap widening isn’t as bad as the ‘average’ assumes.

As the Aviva survey shows, if you’re a 30 year old worker, your annual saving shortfall in 2016 is €5,100 gross (or €425 per month gross). It was just €2,500 gross in 2010 (€208.33 per month). (At 20 it is ‘just’ €4,400.)

At 40 the funding gap is currently €6,700 a year; at 50, €9,700 and at 60, the average Irish worker would need to put away €28,000 a year for five years to achieve 70% of their final salary level in retirement (including the current c€12k state pension.)

A younger worker, especially one with the decent employer to match their contributions could realistically fill the gap after tax relief is taken into account and even with only a steady 3% growth rate in their fund, could expect a satisfactory private/state pension income in 35-45 years time. But it would require them accepting that they still have to forego spending today in order to have the money to spend tomorrow – a very long tomorrow.

Essentially it means living within one’s means, and not on credit. Lifestyle adjustments, especially if the person aspires to home ownership, will be pretty drastic if they hope to have both a mortgaged home and a well-funded pension fund.  Even the latter might be interrupted if the worker also had to factor in years of costly child-care and education costs.

But will the government step in to bridge the gap between lifestyles that cannot include pension funding (due in part to their own policies) and a realistic retirement income for every retiree?

There is still no sign of it yet. Housing costs remain unaffordable for a large majority of young workers who have to pay higher spiralling rents or older workers who remain in negative equity or arrears.

There is still no universal pension scheme here – supported by Aviva – which would automatically enrol all workers and employers (public and private sector) who do not currently participate or operate an occupational pension.  Private sector workers continue to subsidise higher value, defined benefit pensions for public sector workers and politicians.

Nor is there any sign about how the government, as the third pension pillar, would help fund a universal pension scheme. There hasn’t been any government support for designating a portion of the hated Universal Social Charge to workers’ individual scheme funds.

Finally, there is no sign that the artificial manipulation of interest rates by Central Banks will end anytime soon, to allow fund managers a fighting chance to achieve real, balanced risk investment returns for pension fund members in the form of solid long term bond yields.

The reality today is that only a minority of well informed, prudent private sector workers who contribute sizeable amounts of deferred income into an extremely well run investment fund are going to enjoy a well endowed retirement in the future.

This is a crisis just as serious and just as great as the Irish health service or homelessness.  And it’s on its way sooner than you think.

(You can download a copy of Mind the Gap at www.mindthepensionsgap.ie )


Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.







1 comment(s)

Money Times - September 6, 2016

Posted by Jill Kerby on September 06 2016 @ 09:00



Should inheritance tax-free thresholds be loosened in the next budget? Should childless people be free to leave larger sums to their nieces and nephews or even a ‘stranger’ who is dear to them?

These are some of the suggestions being made by Fianna Fail in the lead-up to the October budget, and one that’s sure to generate plenty of controversy.

Inheritance tax is one of those issues in Ireland – like property tax and water charges - that gets people’s blood boiling.

Most people I have spoken to over the years believe that having paid copious amounts of tax already on the cash or assets paid with cash that they wish to leave to their loved ones – income tax, VAT, stamp duty and property tax (where a family home or holiday home is being passed on) and innumerable sneaky levies, the government should only help themselves to a modest amount of the capital value of your estate upon your death.

Others, and they are a minority, believe inherited money is unearned, favours people who are already well off and therefore should be subject to confiscation by the state “for the common good”.

Here in Ireland, capital acquisition tax, it’s formal designation, has undergone quite a few changes in recent decades, with both the amount that can be inherited tax free as well as the band rates of taxation moving up and down in tandem with the strength and weakness of the national economy.

There is a growing expectation that the Minister for Finance will raise the parent to child inheritance tax-free benefit from €280,000 (raised from €225,000 in Budget 2016) to about half a million euro (still below the tax-free rate of €542,544 in 2009, after the financial crash).

This will reflect the rise in property prices over the past six or seven years, especially in Dublin. Property remains the single largest transferrable asset within families.

But one opposition party, Fianna Fail, is calling for the other inheritance tax thresholds to also be increased at least in line with the increase in the parent-child one. These include the threshold between siblings, aunts/uncles and nieces/nephews and between strangers, that is, people with no blood ties.

The tax-free CAT limits for these two final categories are currently €30,150 and €15,075 respectively. In 2009 they were €54,254 and €27,127.


But the reform argument should go further than that. Over the years I’ve received many letter from readers who are single or childless. Some are only children so have no siblings or nieces and nephews to whom the law would allow them to leave their estates partly-tax free.

These owners of a home or other assets for which they paid with (mainly) post-tax income say that while they may not have close family members, they do have “loved ones” – godchildren or close friends – that they would like to endow with larger sums of money upon their deaths. 

One reader, after last year’s same sex marriage referendum even made the point that “inheritance laws no longer discriminate against same sex couples. I welcome that. 

“But my husband and I were never able to have children. I am an only child and neither of us feel any obligation to pass on our estates to our siblings. Their children will be generously endowed by their own parents.

“But as a woman unable to have children, but with a godchild who I love like a daughter as her mother died when she was only 11, I feel it is most unfair that I cannot leave her a substantial legacy when I die.”

Rather than tinker with the tax-free thresholds, the entire capital acquisition tax system needs an overhaul.  In order to make the system more equitable the government could consider adopting a CAT system that taxes the estate, not the beneficiary, as applies in the USA, UK or Canada.

For example, no inheritance tax applies on estates worth up to $5.45 million in the United States, while the estate tax-free limit in the UK is only £325,000. However, in both the US and UK a liberal system of trusts and lifetime tax-free gifts will lowers the impact of the 40% tax rates in both countries, to beneficiaries.

In Canada no inheritance or estate tax applies but the value of the deceased person’s estate is subject to their income or capital gains tax rates on the imputed ‘sale’ value of their assets. Beneficiaries then receive their share tax-free.

Setting a €1 million tax free threshold to an entire Irish estate over which 33% CAT would still apply would certainly satisfy the desire of many people to leave generous bequests to non-lineal beneficiaries, and still “reward” the government.

As families and relationships change and evolve, so should our antiquated and arbitrary tax laws.  

Michael McGrath and Michael Noonan should both take note. 



6 comment(s)

Money Times - August 30, 2016

Posted by Jill Kerby on August 30 2016 @ 09:00



Have you ever delayed cancelling a service contract because you’d have to make a penalty payment that would just cost too much?

Me too. I’ve delayed changing both broadband mobile and electricity/gas suppliers in the past because I was tied into those contracts – and would absorb too much of the savings I’d make leaving early. 

These are two of the most common contracts that Irish consumer want to change, but they certainly are not the most expensive to leave. 

Getting out of a fixed rate mortgage or investment policy can amount not to tens or hundreds of euro if you leave early, but thousands of euro.

In a recent survey, the price comparison and switching services company Switcher.ie found that about a third of us have no idea if an exit penalty would apply and 41% are unsure about the amount.

According to Switcher.ie, who investigated the actual cost of switching (see tables), energy companies, to give them their due make the switching costs “clear for consumers, with most suppliers charging a flat fee of €50 per fuel if a customer cancels within the minimum term, which is typically 12 months.”

It gets more complicated (as I discovered) when you try to switch out of a broadband and mobile phone contract and investigation “found that the majority of broadband and mobile phone providers will require customers to pay the monthly charge for the remainder of the term.”

Whereas a €50 or €100 (for dual fuel contracts) penalty might seem worth the effort if you can save up to €360 over the 12 months of a new, cheaper electricity/gas provider, the exit cost of moving your broadband and mobile packages – see below- can amount to up to nearly €300, which wipes out the advantage of the switch (not to mention the a sharp spike in blood pressure and hair loss, say legions of frustrated switchers.)

The combination of “costs involved, lack of transparency and understanding about exit frees” means that consumers will be at a serious financial disadvantage unless they make themselves more aware of what they are signing up to from the outset, say Switcher.ie. 

That should always be the case when buying big ticket financial purchases like mortgages and investment policies.

Anyone considering taking out a fixed rate mortgage needs to pay as much attention to the exit clauses as they do to the interest rate they will be charged:  breaking such a contract before the term is over can result in up to six months worth of penalty fees. (This might be waived if you switch to a higher variable rate. The only reason you would do this is if you were certain rates would go down over the remaining period of the old fixed contract.)

Unitised investment policies typically include exit penalties for the first five years of the contract and encashing early will often result in a capital loss of at least 5% in year one, falling to 1% by year five.  But many life and pensions companies also impose MVA’s or market value adjustment clauses which flatly decline to release your funds if there have been ‘detrimental’ investment conditions, say after a stock market crash.

Whether it’s a simple switch to a new electricity provider or an expensive mortgage. 

Read the contract. Then read it again.




Table showing early termination fee per broadband provider



Plan Name

Monthly cost

Early exit fee


Digiweb Fibre Broadband Unlimited




Superfast Broadband & Off Peak Mobile




Fatpipe Fibre 24


No contract

Pure Telecom

Unlimited Fibre Bundle




Sky Fibre & Talk Freetime



Virgin Media

240Mb and Anytime World




Vodafone Home Essentials




Source: Switcher.ie - Data correct as at 22nd August, 2016. See table above – Early termination charge table based on broadband providers non-discounted basic entry level home broadband and home phone bundle. Comparison is based on a customer leaving the broadband provider with six months left on their contract. Magnet broadband bundle listed is a “no contract” package.


Table showing early termination fee per mobile phone provider



Early exit fee

eir Mobile

The remainder of the contract value


No termination fee applied to plan / airtime however a 30 day notice period applies. Devices agreements are subject to balance being cleared / paid.


No termination charges as Lyca Mobile operates on a PAYG basis


The remainder of the contract value

Tesco Mobile

The remainder of the contract value


The remainder of the contract value

Virgin Mobile

All outstanding Instalments on your Device/s in full, and all unpaid call and other usage and administration charges in accordance with your Pay Monthly Airtime Contract.


The remainder of the contract value


Source: Switcher.ie - Data correct as at 22nd August, 2016.


Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.



1 comment(s)

Money Times - August 23, 2016

Posted by Jill Kerby on August 23 2016 @ 09:00



Is Leo Varadkar our Justin Trudeau?  At least when if comes to sorting out the pensions mess

Trudeau is the 44 year old Canadian prime minister who after winning the Canadian election last October, appointed a former head of one of Canada’s largest private pensions and employment benefits companies to be his new Finance Minister.

The appointment of Bill Morneau to the FinMin job is regarded as one of the most radical – and progressive – appointments ever in a rapidly ageing and indebted western country.

Inadequate pension provision, as we know from our own experience is a deeply unpopular subject and something most politicians try to avoid tackling head on since just about every resolution to the problems besetting the three pension pillars – the state old age pension, private/occupational pensions and public sector workers’ pensions – involves some degree of financial pain.

Since government monetary policies (and too much regulation and red tape) are also part of the bigger problem of poor ‘safe’ investment returns, there just isn’t enough appetite for the kind of radical, structural reforms that are needed if today’s younger generation of workers will see any return from their compulsory social insurance contributions.

Trudeau, being one of the youngest PMs ever, knew that without further reform to the pension system generally, but to CPP in particular (which began in earnest in 1997) there wasn’t going to be sufficient retirement income for his generation to collect in 25 years time.  Minister Morneau opened talks in early Spring with the provincial premiers.

Next month, Leo Varadkar, our Social Protection and Pensions Minister is expected to announce that this government will introduced some kind of mandatory auto-enrolment pension scheme for workers who are not already in an occupational or self-employed pension scheme like a PRSA. (Personal Retirement Savings Account.) 

Company-based, such a scheme will result in every new worker being signed up with contributions made by the worker, unless they go to the effort of opting out, by the employer and the state. This money (and if the UK’s Nest auto-enrolment scheme is anything to go by) will probably be no more than a few percentage points worth of the workers’ annual salary at first, and increase gradually over a period of years. It will be actively invested in a tax-free fund of various assets and contributions will carry tax-relief for workers and employers.

Endless pension reports (including from the OECD) has been calling for such a scheme in Ireland for decades where private pension coverage has fallen below 47% of the working population. It needs to be done. But we also need to urgently reform the Irish state pension and the civil/public service schemes to also make them sustainable and fair.  Varadkar should be starting with the pension sectors that come under his and the government’s direct remit.

In Canada, just seven months into office, Morneau fashioned an agreement with the required majority of provincial premiers to start raising CPP monthly contributions. From 2019 for a rolling period of five years, contributions will rise by c$7 a month. By 2025 the annual benefit will rise by a third, from c$12,650 to c$17,478 and a typical worker earning $55,000 (the maximum income on which contributions are paid) will be paying an additional c$34 a month in contributions.

The Canadian Pension Plan is loosely modelled on the UK one and is two pronged to also include the Old Age Security pension. The latter’s benefits (about half the total maximum CPP payment of $12,650 are means-tested and anyone earning over $71,592 from private retirement income is subject to a clawback of OAS benefits.  Like here, many Canadians have private occupational pension membership or have an RRSPs, a personal pension plan.

Unlike here, however, Canadians can draw down their CPP from age 60, though at a lower rate of value than if they waited to age 65 (it will rise to 67 by 20123) or they can postpone drawing down their CPP until after age 65/67 and claim a higher benefit. 

These are the kinds of reforms we need for the Irish state pension, which isn’t adequately funded as it is, and will see a doubling of beneficiaries by 2050.  

But our system needs even more than just an increase in contributions, a clawback of benefits from retirees with substantial private income and a higher retirement payment incentive to encourage people to delay claiming their old age pension.

Faced with a bankrupt scheme by the mid-21st century, in 1997 the Canadians set up the CPP Investment Board to begin investing their workers’ state pension contributions to meet long term pension payments. Though still a hybrid part invested/part pay-as-you-go system, the CPP fund is worth $287 million and is projected to be worth $580 billion by 2030. It is the 10th largest sovereign wealth fund in the world.

We were there once too. It was called Pension Reserve Fund.












0 comment(s)

Money Times - August 18, 2016

Posted by Jill Kerby on August 18 2016 @ 09:00




Credit unions have been roundly criticised for not lending enough over the last several years. Beset by a blizzard of bad debts after 2008, like the banks, many of them were forced to reduce or stop lending altogether by the Central Bank, their regulator.

At least 100 have been merge to achieve some kind of viable  economy of scale, while a small number of completely unviable others have been forced to close (thankfully, without any financially loss to members.) 

A few weeks ago, the best thing to hit the Irish credit unions in recent times -the Personal Micro Credit (PMC) pilot – was rolled out from the 30 CU’s taking part, to the 330 credit unions across the nation.

What began last November in association with the Social Finance Foundation, Citizens Information Board and MABS quickly caught the interest of the targetted members: people in receipt of social welfare payments who might otherwise be borrowing from expensive moneylenders who can charge them of 290% annual interest.  

The ‘It Makes Sense’ loan has been well publicised since it was launched last month, but is worth returning to now, if only because so many parents are trying to find the hundreds of euro per child needed to equip and uniform their school-going children for the new school year.

Instead of borrowing, say, €500 over 6 months from the moneylender and paying back as much as €500 the ‘It Makes Sense’ borrower will pay a maximum of 12% (12.68% APR) interest from their credit union and a total repayment of €515.72. The weekly repayment will be less than €20.

What  makes this scheme so attractive to the credit unions is that the repayments are guaranteed as they are deducted from the borrower’s social welfare payment at source. There is no question of a default, so it is, effectively a risk-free loan.

The pilot’s €700,000 budget was well spent and the new permanent scheme will generate multiple amounts if the estimated 360,000 people who use official moneylenders – a large number of whom would be in receipt of social welfare benefits – take out the new loan instead. The organisers have claimed that moneylending activity in their areas has fallen considerably since the advent of the scheme.

To qualify for an ‘It Makes Sense’ loan you must be over 18 and a member of a credit union though the new loan is available immediately to people who only just join their local CU. (Normally there is a loan waiting period so that you can establish a savings record.)

You can borrow between €100 and €2,000.  Loan terms are between one month and two years but you must be either in receipt of the Household Budget Scheme from which the loan payment will be deducted, or if your social welfare payment is paid into a bank or credit union account, via a standing order or direct debit. Loan approval is within 24 hours of application.  The maximum deduction from your weekly benefits cannot exceed 25% of its value.

You have to wonder why a scheme like this, to break the dependency of so many people on expensive moneylender loans didn’t happen sooner.

But innovation isn’t something that happens very readily after a big financial shock like 2008; instead, as we have seen with the banking sector in general, the hatches are battened down instead and lending tightens as balance sheets are rebuilt.

The success of this micro-lending scheme begs the question, ‘can the Credit Unions find a way to attract mainstream bank customers who are also having trouble raising loans or will have to pay higher interest rates?’

Cracking that nut will depend on how much initial risk the CU is willing to take since working people, outside of the public service, have no income guarantee and therefore no repayment guarantee to offer. 

However, it isn’t beyond the realm of possibility to factor in a post-employment social welfare payment into a micro-loans for this cohort of borrowers. That is, in the event that the member borrower of an ‘It Makes Sense’ loan loses their job or falls ill and ends up in receipt of a social protection payment, that their repayment (however adjusted to their new circumstance) is then paid directly to the credit union.

Meanwhile, the credit union remains that most financially attractive – and ethical – source of smaller personal loans and is streets ahead in the commitment to local communities.

 Where the CU’s lose competitive edge to the banks in not lending mortgages and in not offering the same range of banking services (debit/credit cards, on-line banking) but these are inevitable if the movement is to survive…and prosper. 

A list of all the participating credit unions (more are being recruited every week) is on the League of Credit Union’s webpage www.creditunion.ie and the ‘It Makes Sense’ Facebook page @itmakesenseloan

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.



28 comment(s)

Money Times - August 9, 2016

Posted by Jill Kerby on August 09 2016 @ 09:00




The whole point of the banking system is for people not just to have a “safe” place to leave their money, but to have an affordable, reliable place from which to borrow money.

Once upon a time, about a million years ago, the money ordinary people and companies left on deposit was the source of much of the banks’ lending. Their profit was derived from earning more on the loan interest than they paid out to depositors.

But modern banking has evolved from a simple, profitable business to a very complex, complicated one in which not just the deposits , but the loans too, are leveraged many times over creating a huge waterfall of digital credit and money magicked up on computer keyboards with no basis in the old reality of hard work, productivity, earnings, profits, saving and investment.

All western economies rely entirely on this massive leveraging of artificially derived credit and debt. Phony money distorts prices; it leads businesses to borrow too much for the wrong reasons. It feeds asset bubbles as it artificially pushes up prices and the value of shares, bonds and property. It is also at the heart of the collapse of the western banking sector back in 2008 and why our banks are still amongst the most fragile in Europe.

Our banks, just like Italian, German, French and British banks, are still stuffed with bad loans and collateralized assets that are still worth less than when they were first purchased with magicked up money. 

The recent ECB stress tests showed that our banks will probably need another bailout if there is another serious financial crisis happens.  It won’t take much to tip western economies back into recession: growth remains sluggish pretty much everywhere; unemployment is still to high, people and corporations carry too much debt, their taxes are too high and incomes are too stagnant for people to demand the levels of credit needed to keep the ‘growth’ show on the road.

Fractional-reserve lending has been the scourge of modern banking for most of the past century but it began to spin out of control, along with Western government deficit spending (living beyond their means and accumulating large national debts) 45 years ago this month, when the last vestiges of the gold standard were abandoned by US President Richard Nixon. 

Deficit spending – economic methadone – is what keeps states, companies and individuals functioning. Could you survive without a cheap line of credit?

The latest stress test should come as a reminder to everyone, especially those readers who starting thinking (about two years ago) that the banks were “fixed” and that investing in them again might be a good idea, that they are not fixed. They remain damaged goods.

Brexit simply amplified what was apparent for many months:  the Irish and European banking sector remains weak due to legacy debt that was never cleared after the 2008 crash and that their earnings prospects are not good in moribund economic times.  Irish bank’s shares are worth half what they were this time last year, but even the great Deutsche Bank price is down 50%. The Italian banking sector is effectively bankrupt.

Under new EU banking rules however, bond holders, shareholders AND depositors (who already earn nothing) will all have to pay towards the cost of the next bailout. Honest bankruptcy was never countenanced in 2008 and probably won’t be the next time. There are no votes in the kind of (necessary) disruption that would create .

We can argue all day about the likelihood of another bank crash and its possible causes.  No one can know exactly when it will happen. But not even the great credit creators in the ECB can keep printing money from thin air forever, deny depositors any kind of a returns, or even inflict negative returns and get away with it forever…as the price of shares and bonds held by the super rich continue to soar.

Something will have to give. Or someone.

Until then, heed the time-worn warnings from 2008:  NEVER leave more than €100,000 in cash in ANY Irish credit institution or EU one.  Should there be a bail-in and you have more than that on deposit, you could end losing it.

The Irish Deposit Guarantee Scheme is in place, such as it is. But the fund from which compensation would be paid is, however, worth less than €400 million, a tiny fraction of the value of national deposits.

Meanwhile there is no pan-European deposit scheme to come to the rescue of any single country’s depositors should their DGS fund be unable to honour all its claims.

Remember Cyprus.



84 comment(s)

Money Times - August 2, 2016

Posted by Jill Kerby on August 02 2016 @ 09:00



A guy goes to a solicitor with two casts on his legs: “I was hit by a bus as I crossed the street on a green light. I need your help. How much will it cost?  “Not a thing,” the lawyer replies. “My advice is free. The bus company will pay me for representing you.”

Another guy goes to his doctor with aches and pains. “I need your help, doc. How much will the treatment cost?”  “Not a penny. These drug companies will pay me every time I prescribe you a drug or treatment.”

Finally, a young person finds a college that waives all fees. “Wow, that’s great,” says the student. “Yes it is,” the admissions officer explains:  “The tobacco industry pays us generously every time we recruit a new student.”

Who in their right mind would ever engage the services of any of the above?  How could anyone expect worthwhile, impartial, independent advice, treatment or instruction in such circumstances?

Yet nearly every person who has bought protection insurance or an investment fund (maybe even a mortgage) in Ireland over the past three decades has probably dealt with a salesman or broker whose livelihood is provided not by you, their client, but by the product provider.

And if the size of that payment is not absolutely transparent, then you have no way to compare its cost to other similar products, or more importantly, to determine what impact the commission will have on the short, medium and long term value of their insurance cover or investment fund.

Let me be absolutely clear. Commission is paid out of the premium contributions you make to the insurer or pension/investment company. The size of the commission will vary by product and by product provider. (The relatively modest commission a motor insurance broker receives is not as eventful as the huge, on-going one some pension holders pay.) Some product providers pay more than others, but there is no central register of commissions so that you can easily compare them.

There is no such thing as “free advice”. The salesman or broker who takes commission may provide you with appropriate, cost effective advice but their payment is coming out of the insurance premiums you pay every month or year, or from the accumulated value in your investment fund.  And when other policy and fund management charges are added to high commissions, there will be a devastating, cumulative effect on the value of investment funds in particular.

Commission payments are not the only reason why financial services products, have a reputation for being complex, opaque, expensive and poor value, especially over the short and medium term.  But over the decades that I have been writing about personal finance, they have contributed to the poor financial outcomes so many people have experienced with investments and the lack of trust so many people have in the private pensions industry in particular.

The Central Bank of Ireland, which regulates the insurance and investment industry has finally decided to address this hugely important and serious problem, decades after calls to do so by yours truly, other financial journalists and one well-known consumer advocate, Eddie Hobbs who in the early 1990s exposed the scam that was the so-called endowment mortgage industry. (This spilled over to the shortcomings of ‘whole-of-life’ insurance, which so many MoneyTimes readers have experienced and continue to, to this day as they discover their increasingly expensive life policies have practically no value.

The Central Bank, in a ‘Discussion Paper’ published last week said it is seeking the “views on the risks and benefits to the consumer of the practice of insurance companies, banks and other financial firms paying commissions to intermediaries who distribute their financial products.
It is important that the remuneration structure for staff of both financial services providers and financial intermediaries is designed to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest.”

Commission remuneration is already banned or is being banned in other countries, including the UK. The conflict of interest distorts the client/adviser relationship and the crucial need to provide impartial, independent advice especially in the case of investment products. Even where there are disclosure regulations, too often they are paid lip service by the intermediary and not sufficiently policed by the regulators.

I will be making a submission to the Central Bank against commission payments. The deadline is 18 October 2016.

If you were missold, or had a poor financial outcome or experience in the purchase of an endowment mortgage, insurance policy, a ‘whole of life’/investment policy, a mortgage, an investment fund or pension, from which commission was deducted, you should make a submission too. (See consumerprotectionpolicy@centralbank.ie )

Or you can also contact me at my email address below and I will add your story to the huge archive of complaints that I’ve received – and kept -over the past 25 years.


7 comment(s)


Subscribe to Blog