Jill Kerby

THE MORTGAGE ARREARS CRISIS ISN’T OVER…BUT THE CHAOS IS COMING TO AN END

A decade ago I attended a conference about personal insolvency hosted by the management and accountancy consultants Grant Thornton, who also happened to be one of the biggest personal insolvency practitioners on these islands.

The conference pre-dated the new insolvency and bankruptcy laws that were being planned by the government but it was clear that the main causes of the surge in personal insolvency and bankruptcy cases was the collapse of property prices and a surge in unemployment. The best solution then came from a Norwegian speaker, recalling their own property crash in the early 1990s: deal with the arrears quickly, he said. (They set new mortgage values for such cases at 100% plus 10% of the new market value. Insolvency regulations allowed people with overwhelming debts a quick, fresh start.)

Fast forward to 2018 and the disastrous Celtic Tiger property bubble that took a decade to inflate (from 1997) is still floundering pathetically, in full view, a decade later. 

Instead of coming up with a humane, realistic solution for distressed home owners in tandem with the bank rescue (controversial as it was), mortgage arrears were allowed to build up, empty or abandoned homes were left idle (and still are) and a proper,comprehensive strategy to deal both with strategic mortgage defaulters and those who were always going to struggle with their excessive debt, was never undertaken. 

Instead, too many ‘solutions’ were adopted in a piecemeal fashion: to this day the terrible post-Tiger debt creature keeps getting little pumps of oxygen demanded by politicians, housing and homeless charities, the media. Judges side with homeowners who show any initiative to try repay their property debt.

Last week’s stay of execution on the sale and disposal of another 20,000 of the so-called ‘non-performing’ mortgage loans owned by PTSB and Ulster Bank is the latest iteration of this decade-long debacle.

Will the vulture funds that want to buy the billions of euro worth of cut-rate mortgages have to become regulated bodies like the middle-men credit service agents they employ? At time of writing the Finance Minister has asked the Central Bank to ‘review’ the current mortgage arrears regulations to see if this is entirely necessary, as the opposition parties and debt charities insist.

What does appear to be happening is that anyone shown to have declined to engage with Ulster Bank or PTSB and have paid nothing against their mortgages (in some cases for up to seven years) may find they have run out of road,  With no deal on the record, and no appearances before a judge to plead their case for more time, such people will finally hand back the keys.

According to the banks, some of the owners have simply been unreachable, having moved out, emigrated or simply disappeared. Others, who are still living in the property will, if they qualify, have to seek to be re-housed by their local authority.

But other homeowners, who have forbearance arrangements in place – like reduced payments or interest only loans or even split mortgages – are also included with the defaulters because technically, their loans are also ‘non-performing’ compared to their original loan agreement.

The risk, say those opposing the sale of these loans to the unregulated vulture investors, is that replacement forbearance deals (if the one made with PTSB or Ulster Bank runs out, say after a 5 year term) may not be forthcoming and the newowner may set new repayment terms that can’t be met.

Forcing these vultures to come under the regulation of the CB, warn the banks, may scare them off or produce a worse sale price which may weaken the banks’ balance sheet.

Either way, this is one of those ‘rock and an even harder place’ for customers with so called, non-performing loans they are now diligently paying. Unless they have a cast iron contract that states that their forbearance measure is permanent and can never be altered, they may have to live with a certain amount of uncertainty, regulation or no regulation, and regardless of who owns their loan.

For those PTSB and Ulster Bank customers who haven’t engaged with the lender, and who simply don’t have the money to make any reasonable payment, they need to contact the Insolvency Service of Ireland. (www.isi.ie). There is no cost now for their services or for engaging a Personal Insolvency Practitioner (PIP).

Mortgage holders with any bank or lender (even a vulture investor) who finds themselves unable to pay their mortgage and/or other debts, should contact their nearest MABS office which runs Abhaile, the highly successful mortgage arrears service which provides a range of free support services and has kept many people and families in their homes.

The mortgage crisis isn’t over, far from it. But the chaotic phase appears to be.  And for that, I suppose we should be grateful.

The TAB Guide to Money Pensions & Tax 2017 is available in good bookshops. See www.tab.ie for ebook edition.

RABO DIRECT PULLS OUT LEAVING 90,000 SAVERS IN THE LURCH

Something is very, very wrong in the banking system when you deposit €10,000 with a lending institution (a bank, building society, credit union) for 18 months and they repay you – at the most – a 0.65% return. (Five years ago you could get a 3% gross annual return, 10 years ago, as much as 4.5%.)

Once the government takes its pound of flesh, aka DIRT tax of 37%, you are left with net interest of c€41 from that €65. Meanwhile, the bank could be charging someone who borrows your €10,000 up to 10% compound interest.

Well, that ‘Something’ just got worse.

On May 16, RaboDirect, the Dutch A+ rated bank and still considered to be one of the safest banks in Europe, will shut its doors - and vaults – for good to its remaining 90,000 retail customers who collectively have €3 billion under deposit.

The Dutch have been winding down their activities here for the last few years – I used to have a current account with them -  and now Rabo’s depositors are being turned away.  But where will they go?

With such a limited field of deposit takers, anyone with a large sum of cash that they especially need for boosting their income, should be checking all their options, or resign themselves to guaranteed losses once DIRT and inflation is factored in. (Over 65s whose gross income is less than €18,000 a year or €36,000 for a couple are exempt from DIRT.)

If you are happy to make your own arrangements, then the least you should do is consult a good on-line comparison site like www.bonkers.ie which provides up-to-date tables of deposit accounts and breaks down those choices according to the type of account you want – easy access (ie, a demand account), a notice account (in which you must give say, 30 days or 60 days notice for withdrawals) or a term deposit account of, say, one to five years.

You can further narrow the result according to whether you have a lump sum to deposit or are a regular saver. Bonkers even gives you the banks’ credit rating, if that is important to you – and it should be. The only A, let alone A+ rated bank in Ireland has, up to now, been RaboDirect;  all the others are B-rated, ranging from BBB for Ulster Bank, BBB- for KBC Bank and Bank of Ireland, BB+ for AIB and BB- , the lowest rating, for PTSB. 

Credit ratings agencies like Standard & Poor’s, Moody’s and Fitch were all discredited for their role in the 2008 financial meltdown, so even these ratings need to be taken with a pinch of salt. However, in the next banking crisis, depositors will be expected, like bank shareholders, taxpayers and bondholders to contribute to any “bail-in” to save the banks. They remain “too big to fail”, no matter the cost.

The €100,000 bank deposit guarantee still applies, and no one should leave more than that amount on deposit in any institution, but as the Cypriots, and later, Greek depositors discovered, when a catastrophic banking failure occurs, all the conventional practices – like ‘easy access’ to your savings and capital bank guarantees - are only worth what the central bankers say they are worth.

Having the deposit rate facts before you – via up-to-date tables – is important and will help you squeeze every available cent of interest out of your savings. But until the interest rate cycle turns in the eurozone even this effort will be very limited.

Interest rates are finally turning upward in the United States, Canada, Australia and the UK because the cost of living and wage inflation is beginning to tip over the 2% mark – that so-called perfect, Goldilocks figure to which central bankers (easily the most discredited economic forecasters after credit rating agency analysts) are so devoted. Raising interest rates, they claim, will stop these economies from overheating, stalling and falling back into recession.

Really?  Many commentators think rising interest rates are more like to cause another downturn (as debtors find themselves unable to meet higher repayments.)

Instead of trusting these Masters of the Universe (again) to protect your financial interests you need to act in your own interests.

To depend on a single asset – like cash – for long-term financial security is as much of a mistake as putting your faith in the stock market or becoming an amateur property investor or landlord.

If you are worried about your shrinking deposit options, engage an independent financial adviser to help you improve your savings yield, reduce any deposit or bank security risk, explore safe investments with risk levels you can live with.

A good adviser even ensure that you are not paying unnecessary DIRT (or income tax) and that you have claimed all your tax deductions and refunds. And don’t be surprised it they recommend the tax-free Rent-a-Room Scheme as the single, least risky income booster of all.

The TAB Guide to Money Pensions & Tax 2017 is available in good bookshops. See www.tab.ie for ebook edition.

CAN MERGING THE USC WITH PRSI SAVE THE STATE PENSION?

A government working body is considering merging the much-detested USC with the pay related social insurance that workers and employers pay.  Do you know how much USC and PRSI you pay?  You should.

At the heart of this consideration is the urgent need to reform the multi-pillared pension system in this country, each part of which – state pensions, private pensions and public sector pensions, is unsatisfactory and economically unsustainable.

With private pension membership falling every year – it stands at only c40% of adult workers, while it remains at nearly 100% in the civil and public sector – the government claims to be committed to the idea of introducing an auto-enrolment private pension scheme by 2021.

If it is modelled on similar schemes like Nest in the UK, it will involve signing everyone up in companies that don’t already have an occupational pension scheme in place. Opting out will be permitted, but only about 10% of workers ever do so. In the UK workers and employers also continue to pay social insurance contributions and collect the state old age pension.  

Contributions to auto-enrolment schemes – in the UK and other countries where similar ones operate, like Australian (‘the Super’) and New Zealand (‘KiwiSaver’)  - start off very low with a tiny percentage of salary paid in by the workers, employers and state. Savings rates have increased over the years and so far have provided their citizens a decent retirement pot.

Here, plans are still at embryonic stages and no one knows what kind of soft-mandatory pension scheme will emerge or how much it will cost.  Recently however, the Minister for Finance, responding to a suggestion that the new pension might incorporate the existing contributory state pension (now worth  €243.30 a week or €12,636 per annum) said he was committed to keeping the old age pension a separate entity.

We’ll see.

The government does know it has to boost the value of the Social Insurance Fund (SIF), worth just over €9.2 billion a year, out of which more than half is drawn down to pay for the state old age pension. It is on course to have a massive annual funding shortfall of c€21.2 billion by 2066, just as today’s youngest workers will retire.

The latest idea is that the USC, the much detested universal social charge that was introduced on January 1, 2011 (and replaced an emergency income tax levy from January 2009) will be merged with PRSI, increasing the SIF by c€4 billion.

The fund currently pays – just about – for the weekly pensions that retirees collect, as well as unemployment benefits, child benefit, family income support payments, parental leave benefits, disability payments, etc .

USC is not a single rate, but five different rates, 0.5%, 2%, 4.75%, 8% and 11%, paid on escalating bands of income. The 11% rate only applies to income over €100,000 earned only by the self-employed.

No one who earns less than €13,000 a year pays USC. Pensioners over the age of 70 whose aggregate earnings are under €60,000 pay at reduced rates of 2% ad 4% as does any full medical card holder, aged under 70 with income of less than €60,000. (Pensioners do not pay PRSI.)

A worker on a €50,000 income pays about 3.3% USC or €1,662 a year.  Unlike the c4% of €2,000 worth of PRSI contributions that they also pay, USC is only paid by workers and not by employers: they pay PRSI of c10.85% of their employee’s earnings into the Social Insurance Fund.

USC was supposed to be abolished when the economy ‘recovered’, but that was always unlikely. Inevitably, the government has found a new purpose for the tax – to underpin the shaky Social Insurance Fund and especially the surge cost of old age pension claims.

Many pension experts believe that an ideal pension income of 2/3rds of a person’s final salary – whether from one or multiple sources - needs to be an annual salary contribution of at least 20% (or €10,000 a year if you earn €50k.) Can the combination of PRSI, USC and any soft-mandatory private pension contributions meet that benchmark?

This debate is finally – I hope – getting underway. It won’t go away, no matter how badly politicians, employers and workers (who always have other spending priorities) want it to.

Adding another €4 billion of funding will certainly more than meet the state pension cost at today’s values for many years into the future, but not out to 2066, especially not at the rate our population is ageing and living longer.

This PRSI/USC merger is essential, but it won’t be enough to ensure a sustainable state pension.

Anyone interested in exploring just how precarious the state pension and Social Insurance Fund is – especially if you haven’t started a private pension yet - can download an excellent review done by KPMG for the Department of Social Protection that was published last September. http://www.welfare.ie/en/downloads/actrev311215.pdf 

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

PART TWO: MORE CAPITAL, MORE INCOME NEEDED TO GET ON THAT LADDER.

In this column last week I highlighted a number of the factors that are working against first time home ownership - from the mortgage debt legacy and tighter bank lending for both developers and buyers, to the negative impact of politically motivated tax and planning policies, and general incompetence at all levels of government

We seem to be particularly bad in Ireland at devising sensible, workable policy and administrative solutions to social problems like the shortage of affordable housing. But first time buyers in other places are also finding it hard to afford their own home, not just because of the lingering impact on the great financial crisis on the availability of mortgage loans, but because of the wider impact of globalisation on their working experience and their future incomes.

Very simply, the job security, affordable housing, pensionable employment and huge stock market returns that today’s 65-70 year olds have benefitted from is not the reality for today’s younger workers. This generation is also now competing on a global front for jobs at rates of pay that are slowly but surely converging with what the equivalent worker is earning in developing economies.

Unfortunately, we have a big jump on these countries when if comes to debt accumulation. We’re all hopelessly addicted to cheap credit in the West, the growth of which outruns productivity or surplus savings. Ten years after the great financial crisis, the steady flow of credit and debt is all that keeps the entire system from unravelling.

If you don’t think so, consider last week’s global stock market ‘correction’. The US Fed’s decision to finally raising its base interest rate resulted in both the price of stocks and treasury bonds to drop dramatically (and bond yields to soar). What it means is that debt becomes more expensive to service (including mortgages) and credit (which has been flowing into the stock markets for several years) tightens up.

Is it any wonder that the post-2000 generation, with their historic levels of student debt (especially in the US and UK), insecure employment contracts and snail-like wage increases are floundering financially?

The real solution of course is the end to the vast wages and earnings gulf between the asset holders -  especially the giant multinationals and financial institutions at the top of the earnings chain – and the vast majority below.

So what can be done for our struggling millennials? More overtime? A second job? A couple of years working in tax-free Abu Dhabi or Dubai?  Should we be encouraging even more immigration to richer countries with more amenable wages, living conditions and state subsidies (Anyone for Canada? Norway?)

Family dig-outs – the Taoiseach’s other solution - still happen in middle Ireland, but financial advisers warn about the risk of using pension lump sums or retirement incomes to help out their children.

“Someone in their 60s or 70s needs to think very carefully about messing with their lump sums, or with their ARFs [approved retirement, post-pension investment funds from which income growth and capital can be taken.] “ARF draw-downs are taxable and you may need this money far more than your kids some day.”

Selling other assets – shares, investment funds, land or a second property - will release cash, but may also trigger unwelcome capital gains tax or gift/inheritance liabilities. Parents or grandparents who can afford to gift or even lend cash earning nil to low deposit interest “would be far better to do this than to draw down higher yielding and taxable investments or ARFs,” said the adviser.

“There are other ways a parent can raise money to help their child or children get on the property ladder. If their children are gone – the parent could rent out spare rooms and earn up to €14,000 tax free a year which they could then gift to their offspring. It might be a better solution than having the adult child move back in so they can save on rent.”

Finally, the question has to be asked: is the nuclear family model outmoded in this post- modern world? Should we be revisiting a collective family arrangement that allows uncertain, casual and contracted incomes stretch further, even beyond one or two generations?

The last financial crisis fuelled the idea of building financial ‘arks’ by the older generation of asset owners of pension funds, paid off properties, stock portfolios and bank cash.

A variation on the ‘family office’ trusts that wealthy families operate, the Ark can be a more modest operations in which grandparents, parents, siblings and even godparents can combine surplus income or cash which can then be lent to the next generation of to help finance education fees, house down-payments and even business through a seed capital for businesses.

And in a financial crisis, the Ark might even keep more than just the struggling house hunter afloat.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

PART ONE:  GETTING ON THAT LADDER HAS NEVER SEEMED SO HARD

The Taoiseach has been accused of revealing his middle class bias over his recent remarks about how getting a financial dig-out from one’s parents has always been a factor for many first-time buyers in the securing of a mortgage. 

He didn’t need one himself, he later said, but the fact that he secured an extravagant 100%, 40 year mortgage at the peak of the property boom reinforces just how stratified lending is, and continues to be here.

Back then pretty much anyone with a beating pulse could borrow substantial sums for over-valued property. But 40 year, no-downpayment loans on desperately over-priced apartments and houses were largely reserved for the professional rentier class, those with an apparently safe claim on steady, taxpayer-backed incomes and careers in areas like medicine, the law, accountancy (the State is a most welcome and steady customer for consultancy contracts) and in the higher civil and public service.  A well-paid high tech professional working for a foreign multi-national might also have been unfortunate to have snagged such a mortgage.

As a few of us pointed out at the time, these were dynamite-laden contracts, sure to blow up some day, even if they were variable rate trackers, like Leo’s. 

The ECB base rate, we noted ad nauseum back then, wasn’t going to remain at 3% for the next 40 years. It didn’t. It went up briefly to 3.25% in October 2008 and then dropped all the way to 0% by October 2016, where it remains today. 

Ten years down, 30 to go. But who would dare bet that the ECB rate (and Leo’s variable tracker repayment) won’t go up and down a few times over the next three decades? The US and Canadian base rates have both recently gone up by 0.25% to 1.5% and 1.25% respectively. Commentators say it is due to improved economic indicators like employment and wage growth, something the ECB says is finally happening in Europe.

Where US interest rates go, so do ECB ones…eventually. 

Forty year, 100% tracker loans no longer exist, yet the banks have some wriggle room beyond the strict 10% down, 3.5 times salary limits the Central Bank has set, but only for those borrowers with high paid, secured jobs, who probably also have access to parental cash gifts.

I have no idea when the borrowing environment is going to ease up for everyone else who is looking to get onto the affordable property ladder, or if the stream of new builds that the government is promising over the next few years will help ease price inflation for prospective owners and tenant-savers.

The reality is that so many factors are causing the housing shortage and price inflation. These are only a few: 

-       The mortgage debt legacy from 2008 and restricted lending;

-       The resilience of the land banks;

-       Government building costs and planning regulations;

-       Local authority bureaucracy and incompetency;

-       Massive imbalance of demand in Dublin and other cities;

-       Insufficient job security and income growth among this generation of prospective buyers.  

Endless politically motivated government intervention isn’t helping either, like the latest scheme to provide a limited number of 30 year fixed rate, 2.25% interest loans to 1,000 lower earners who have already been turned down by at least two lenders. As one market commentator put it, “this is just another way for people who should be renting, to get themselves into serious long-term debt by buying over-priced property.”

Is housing overpriced? Are prices in a bubble that’s just waiting for its pin? 

Probably not outside Dublin and other major cities. But rural Ireland is not where the jobs are or where younger people want to live.  And houses and apartments continue to be snapped up in the capital, even at what appear to be exorbitant prices.

The reality – unfortunately – is that there are no quick solutions here and in other high demand places – nearly all capital cities and other high growth urban locations around Europe, the US and Canada, Australia and New Zealand, where young people are being priced out of home ownership. Here the situation appears so much worse because of total collapse of the building market for over five years after the crash.

The Taoiseach, rather insensitively suggested temporary, tax free employment in the tax-free Gulf States as a way for an ambitious young couple to raise the €30-€40,000 needed to buy a city starter home. Or that they move back in with their parents for three or four years and save the rent they’ve avoided paying.

Good luck with that, murmur mums and dads around the country.

Next week: We look at other capital raising options and solutions. And we revisit an idea that should be every family’s priority:  How to build a Financial Ark.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

READERS STILL LOOKING FOR INVESTMENT, PENSION ADVICE…

Your questions are always welcome. Here’s a selection from my postbag:

Mr and Mrs F:  We are a professional couple looking for financial advice and hope you can tell us how to find such a person?

This is one of the most common questions I receive, for good reason:  independent, impartial and fee-based advice is not easy to find in Ireland as most brokers and advisers accept sales commission for the products that they sell, whether for protection purposes (like life or health insurance) or investments, including pensions.  Since the new year, a broker or adviser cannot call themselves independent if they accept sales commission. I suggest you check out the interactive members map of the Society of Financial Planners of Ireland (www.sfpi.ie) for a fee-based, ‘independent’ planner with their own practice (many SFPI members work for banks, life assurance companies, stock-brokers and do not give impartial advice).  Ask about their professional background and training, how much they charge for an initial financial review and any set up and on-going fees.

Mrs CF writes: My daughter is 29, a chemical engineer who works for a US company and the major earner, though her partner is also working. has started working with a company.  She is the only EU employee and has to arrange her own pension. Any suggestions? 

Well done to your daughter for tackling this, though she should check to see if her US-based company is aware that they are obliged to provide access to a company Standard PRSA (Personal Retirement Savings Account) option for their employees if they don’t provide an occupational scheme. She should certainly get some independent advice about the kind of assets she should invest in, how much of her salary she contributes (15% at the moment, 20% from age 30-39) and the value of the tax relief.  A good adviser will also discuss with her income protection, life and health insurance if her company does not offer these benefits.

Mr PR writes: I have a pension pot of about €40,000 with Irish Life. When I turn 60 in February I’d like to take it and invest it myself. I don’t need the pension as I have a property rental portfolio and stock market investments. I know I can take 25% of the fund tax-free but I want to get my hands on the whole amount.  Leaving it there will cost me annual fees and low returns, whereas I know I can make an annual return of 20%.

Unfortunately there is no cost-free ‘take the pension money and run with it’ option when you hit 60. Your options are to take the 25% tax-free lump sum of €10,000 (or not); to encash the balance but pay top rate tax, USC and PRSI; to invest the balance in an approved minimum retirement fund (AMRF) unless you have a separate minimum pension income of €12,700. In that case you can invest the balance in an Approved Retirement Fund from which you can encash both capital and growth. You could also leave your pension fund where it is to continue growing until age 75 when you could then convert it into an ARF. 

“Your reader says he doesn’t need a pension,” commented the independent financial planner Marc Westlake of Global Wealth Management, “so why not leave it to grow tax free for another 15 years rather than pay over 50% tax and PRSI on it if he encashes it now? Yes, there are fees and charges, but it could also act as a whole of life insurance policy: if he dies before age 75 the fund value could go entirely tax-free to a spouse. If he dies after age 75 when it’s been ARF’d, it goes to his estate, where again it can be inherited tax-free by a spouse.”

Mr FB writes: My brother who lives in the USA and is very comfortable financially is going to give my wife and I some financial help over the next few years. Can you tell me what the tax implications are for this or is there a limit to what we can receive? We are both in the high tax bracket. 

Under our current Capital Acquisition Tax regulations you can receive tax free gifts or an inheritance up to €32,500 over your lifetime from your brother; your wife, because she is not a relative, can only receive €16,250. Each of your children (if you have any), as nieces or nephews, can also receive €32,500 from their uncle over their lifetime.  Once those limits are breached any further money, even if left in his will, is subject to 33% CAT tax. That is the only tax liability you face so your income tax rate is irrelevant. A way around these limits is for your brother to also give each of you a €3,000 annual gift. CAT rules allow anyone to give individual tax-free gifts up to €3,000 to anyone they wish, regardless of the relationship.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

WE’RE ON OUR OWN WHEN IT COMES TO INVESTING IN A STATE OF GOOD PERSONAL HEALTH

“Good health!” seems to be the default New Year greeting this year – and for good reason.  The health service continues to fail to provide what anyone with a beating pulse would describe as a consistently efficient and commendable service for the approximately €15.3 billion the state expends.

If good health is what you aspire to, you better be working hard to make it happen yourself.

It’s easy to blame the system.  The HSE is administration-heavy and light on essentials like sufficient hospital beds and front line staff to cope with rising demand from a rising and ageing population. It’s also deficient in well-funded and resourced preventative, community-based services.

A hospital-based service, mainly in cities (where most people now live) is always going to throw up seasonal and geographic anomalies; the inevitable result is that outlying patients will have poor access to even the most basic services, like GPs and non-critical A&E treatment. Seasonal demand (winter flu outbreaks) turns up the pressure to boiling point.

But that’s not the whole story.

As individuals, we’re sleepwalking ourselves into a toxic nightmare of future ill health that is only going to accelerate the rising costs and inefficiency of our already dysfunctional health service. And here’s how:

-       Our level of alcohol consumption remains higher than EU averages with c25% of drinkers, binge-drinking;

-       Despite 76% of the adult population claiming to exercise regularly, only 45% meet physical activity guidelines;

-       18% of the adult population are already obese, which is higher than the EU average. By 2027 this figure is expected to rise to 37%;

-       27% of all disease is related to behavioural risk factors (too much food, alcohol, tobacco use (just 19% today) and too little exercise);

-       Chronic illnesses now account for 80% of all GP visits 40% of hospital admissions and 75% of hospital bed days.

Compiled by the private health insurance company, Irish Life Health and part of its recent annual review presentation to financial journalists, the bad news didn’t end there. 

Looking ahead at the health and fitness prospects of the younger generation (15-24 year olds) it found that 30% of this age group are already overweight (19% of that number are 15 year olds) and 57% will likely be by the time they are age 35.

Irish girls in particular are less physically active than boys of the same age and that 90% of all secondary schools provide on two hours or less of PE a week, versus the recommended seven hours. (The good news is that compulsory PE could be added to the secondary school programme.)

Given the poor government response to all these long-recognised issues, it’s no wonder that all the private health insurance companies are spending millions on preventative health and wellness programmes for their customers:  Laya Health, the state-owned VHI and Irish Life Health have all been promoting fitness programmes in schools and community sports clubs; health screenings and incentives like wellness programmes, initially for their corporate clients but now rolled out for individuals (Laya’s HealthCoach and Irish Life Health’s BeneFit plan with its cashback benefit) and fitness and health social media blogs and member messages.

There is a clear financial correlation between customers – or taxpayers – remaining as healthy as possible or seeking early intervention when a health problem arises and long term profitability, admitted Laya’s Managing Director Donal Clancy. He thinks the private health providers should be working with the state to extend their positive health programmes within the HSE.

As this column has noted many times, in a country where 685,000 people sit on HSE treatment waiting lists (up from 459,000 in 2015); where even children are now lying on trolleys in A&E departments of the of the hildren’s hospitals and medical outcomes fall below the EU average (despite Ireland being the 4th highest spender on health) we need to take more personal responsibility for our health and that of our children.

It’s still January, resolution month. Many of us need to eat less, drink less, smoke less and get more exercise. Losing weight (don’t I know it!) could be the most rewarding thing you do for the next decade health-wise, let alone in 2018.

Consider getting a full medical check-up. Nearly 2.2 million of us have private health insurance. All three providers offer health checks, (Laya’s new 30 minute HealthCoach fitness check is free), in private clinics and hospitals and now, even on-line.  Depending on your plan and the type of check-up you receive you may be able to claim all or part of the cost.

And finally, if you don’t have private health insurance, reconsider that decision.

Contact a good health insurance broker to do the hard work of finding the best and most affordable policy. If your existing plan costs more than €1,800 and you haven’t reviewed it for the last couple of years, says Dermot Goode of totalhealthcover.ie, then you are overpaying.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

PENSION AUTO-ENROLMENT SHOULD NOT BE LONG-FINGERED

If there was a single piece of money advice you’d like to pass onto your children, grandchildren or just a young friend, what would it be?  To avoid debt? To earn your money before you spend it? To spend wisely by buying assets, not liabilities?

These are all terrific, timeless recommendations. But in this month of January, in this New Year of 2018, in this Ireland where the reality of our rapidly ageing population can no longer be dismissed (“we still have one of the youngest populations…”) there actually is a singular message that needs driving home: 

Start a pension today or end up working forever.

Every January, Irish Life, the country’s largest life assurance and pension provider gathers its chief department heads together holds a wide ranging media briefing for business journalists. I’ve been attending for more years than I care to admit.

The event is a PR opportunity – especially in ‘good’ years, as 2017 was for investment fund performance and growth – but it’s also an opportunity to raise some more warning flags about the state of the nation’s financial wealth and health, especially about pension coverage and contributions:

-       Private pension coverage has fallen to 47% in 2017 from 51% in 2009;

-       In the last five years the number of over 65’s has grown by 100,000 compared to just 44,000 people aged 15-65. In 20 years they will increase in number by 70% to make up over 20% of the population. This rate of increase is twice that of the EU average.

-       Four out of 5 working adults say they are not saving enough for retirement. Only 1 in 4 have a specific target income (and only one in three of them are over 45.)

-       The state pension is the number one source of income for 39% of women surveyed and 31% of men, but it only represents about a third of the average industrial wage.

-       84% of adults would welcome the introduction of an auto-enrollment private pension scheme with only 1 in 10 leaving it up to the government to choose the pension fund manager.

-       75% would like to have some emergency access to their money, especially, said 62% if some of the fund could be used to help with a deposit on a house.

-       Meanwhile, about 50% of those with a private pension are ‘confident’ they are ‘on track’ for a retirement income while, perversely, 1 out of 6 who have no pension ‘are confident’ they too ‘are on track’.

There are delusional people everywhere. Thinking you’ll have a comfortable retirement if you have no private pension confirms this, though some people do already (or will) own other assets that may provide income and capital at retirement or may even be certain of a substantial inheritance that may see them through their non-working years.

For most of us, retirement will have to be funded by deferred income in the form of voluntary tax-efficient pension contributions into an occupational or personal pension; market growth on those contributions (which hopefully include those of their employer); their obligatory PRSI contributions into the state pension system and hopefully, some other personal savings and assets accumulated over their working life.

Which is why Irish Life, which reported last week that their average customer’s contributory pension fund value is worth just c€120,000, fully supports the idea of the auto-enrolment system that would involve both workers and employers. 

Interesting, the survey found that the new pension may have to be called something else –the word ‘pension’ doesn’t inspire interest or enthusiasm, but they point to the successful introduction of unconventional auto-enrolment models in Australia (‘The Super’), New Zealand (‘Kiwi Saver’) and the UK (‘Nest’) as the models we too should be adopting here.

There’s never a good time to start a pension – there’s always a more pressing financial priority, like paying off student debt, putting together a down-payment for rented accommodation, let alone a first home. But every year that a young worker avoids paying into a pension scheme is another year of lost investment opportunity.

Pension funds work best when compound interest – the effect of time on money - is allowed to do its magic. Consistently contributing a percentage of your annual income into a well diversified, well-managed and lowest cost pension scheme, growing even at a relatively modest rate, but ideally from the moment you start working, means never having to worry about being able to retire.

Auto-enrolment can’t happen soon enough, though, being Ireland its roll-out will take longer than it should. The people surveyed by Irish Life in 2017 are overwhelmingly – 84% - in favour of it. The company claims that employer organisations they’ve met, are too.

 All that’s missing is the political will.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

WINTER WONDERLAND? IF ONLY…

It’s double whammy month:  the height of the storm and flu season. And if you haven’t battened down both these hatches, it could prove to be a very expensive one too.

So let’s start with the first significant storm of the new year - Storm Eleanor.

Here in Dublin we got off light:  the huge winds caused plenty of branches to sheer off the big sycamore trees outside my office on the South Circular Road, slates were loosened and outdoor Christmas lights were left hanging rather precariously.

The devastation in Galway, Mayo and Limerick was a very different matter, with people and businesses who have never been flooded before, facing weeks of expensive cleaning-up and repairs.

According to a specialist home insurance brokers, www.insuremyhouse.ie, their company was inundated before Storm Ophelia back in October with calls for last minute insurance cover; there would have been little or no warning for what arrived last week.

“The level of calls [then] corroborated something we already knew,” said Deirdre McCarthy of the company. “That there are very likely thousands of homeowners throughout the country who let their home insurance cover lapse at renewal date.

“While some people might go a long period of time without cover, anecdotal evidence suggests most “lapsers” go without coverage for an average of 3 – 4 weeks. While this might not seem like a long time, the crux of the matter is that if their property were to be damaged or burgled during this period, they would simply not be covered, and would have to foot the entirety of the repair or replacement bill themselves.”

Storm Eleanor – and the huge weather bomb that also hit the east and north east of America and Canada – that severe, record-breaking winter storms are no longer just a 50 year event.

“For some people it’s really just an “oops I didn’t realise” situation and for others it’s an “I don’t have the funds” issue,” says Ms McCarthy. “If it’s the latter we would advise that people should consider using a direct debit option for payment. We’ve also found that if people go without cover inadvertently and subsequently realise their error, they are sometimes likely to just continue as is without cover – and put the renewal on the long finger.”

Having proper insurance is all very well, but knowing what to do if you have to make a claim is also important.

Always call an experienced insurance assessor to act on your behalf with the insurance company’s agent, the claims adjustor. For a modest cut of the final settlement, the assessor will prepare a damage report, get you an independent repair quote and negotiate a fair, speedy and inevitably higher settlement than your insurer’s first offer. (Check out www.proinsuranceclaims.ie, with offices nationwide or ask your broker to recommend one.)

The other people who might be regretting not having made proper insurance provision – this time for their health – are those who have been waiting days on trolleys to be seen by exhausted accident and emergency personnel.

The A & E departments in private hospitals and the private minor illness and injury clinics are certainly busier at this time of year and have limited hours of operation – usually c9am-6pm and do not take ambulance cases. 

But if you suspect you’ve broken your wrist (my husband this past summer), or have appendicitis, not food poisoning (my son) or are worried that a worsening fever and cough might be turning into pneumonia (an elderly neighbour), then the last place you want your GP to send you this week is the local emergency department in a busy public hospital.

Some hospitals are under far more bed and trolley pressure than others but having the option of getting yourself or a loved one who is not critically ill to a private A & E requires having health insurance.

About a million private health insurance renewals happen in the first three months of the New Year, according to the specialist broker, Dermot Goode of www.totalhealthcover.ie.  The over-50s make the greatest number of claims and have highest health insurance cover, but are also more likely to be overpaying for cover.

Goode’s recommendation is that anyone who has remained on the oldest once popular VHI, Laya and Irish Life Health plans should prioritise a review “as they have been hit by multiple price hikes over the years.”  Switching to a similar but cheaper plan, even with their own provider that includes a small excess payment, says Goode can result in savings “of between €500 - €1,250 per adult. Remember, the older the plan held, the higher the likely savings.”

Winter will end sooner or later. The trick, as always is to get through with the least damage and expense by taking preventative measures. Call a good broker. Start 2018 as you intend to finish – saving money.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.

Instead of a New Year’s resolution – Make small changes every month permanent

Are New Year resolutions for the hopelessly optimistic?  Diet clubs and gyms certainly hope so with new membership numbers soaring in January and February only to trail away a few weeks later.

That said, a grey Sunday afternoon in January at the kitchen table with a big pot of tea is the perfect time to face up to those red hot credit card bills that have just arrived in the post and to do something about improving your 2018 money habits. in 2018.

The secret to improving your personal finances – like dieting - is to make small changes, permanent. You do something positive. Then you do it again and again until it becomes a habit, just part of your usual routine.

For example, instead of using the credit card, you put it in a drawer to be used in emergencies only. Instead, you use the debit card or cash, both of which reduces the risk of overspending and doesn’t carry a 20% plus annual interest charge.  The tempting but expensive Visa or Mastercard is now out-of-sight, out-of-mind. Ideally, you cut up the card and avoid the €30 annual stamp fee duty as well.

Last year was, and 2018 will probably continue to be a tough year for anyone grappling with the on-going housing crisis. There isn’t much sign of wage growth to keep up with soaring rents and house prices, though it does look like there will be more supply of property and that the terrible tracker scandal could be coming to an end. 

Each of these financial ‘wellness’ suggestions for 2018 are realistic and practical so tick off as many as you can. They’re also time consuming, so don’t try to do them all at once. But put them all in place and a lifetime of good money and spending habits will be properly bedded down by next January. 

January:  Get the bad news out of the way. Pay off the Christmas debts right away so they don’t act as a drag on the rest of your year’s new spending. If you don’t have sufficient income or savings to clear the credit card bills, make an appointment at the Credit Union or bank (the latter probably on-line) and take out a small personal loan to clear the balance. Then cut up the credit card. It’s a plastic millstone round your neck. (Ditto for even more expensive store cards.)

Now sit down at the kitchen table (with your partner if you have one) and all your financial statements, contracts, weekly grocery and utility bills and work out exactly how much you earn and spend. Cut down on store bought coffee, buns, cigarettes, that extra pint or bottle of wine, takeaways. By cutting your discretionary spending you can now tackle your essential spending.

February:  This is the month you (and your partner) assign another afternoon to shopping around for better prices or tariffs for your other financial commitment you have: electricity, gas, broadband, mobile providers; motor, home, health, travel and pet insurance. Make a note of any contract maturity dates.  On-line comparison web-sites (like Bonkers.ie) or specialist insurance brokers can do much of the work for you. 

March:  You’ve sorted out the bigger ticket utility and insurance commitments and should see some substantial savings which, from this month can be put to good use in setting up a contingency fund or other regular savings accounts to pay for holidays, school costs or college fees, a new car, home renovations, etc. 

This is the month to start looking for an experienced independent, impartial financial adviser or planner. From January 1, under the Mifid 2 Directive, only fee-based financial advisers can call themselves “independent”, that is, give advice unrelated to any commission remuneration from product manufacturers. Once you find this person they will hopefully become a lifetime adviser just like your paid family doctor, lawyer, accountant, mechanic, handyman.  

April:  The meeting with your independent adviser should be the culmination of your months of effort to bring your finances under control and set up good money habits.  Bring your new budget and schedule of contracts, wage and bank statements along. The review should be comprehensive and the adviser will hopefully prepare a realistic financial plan for immediate and long term wealth creation and retirement provision, based on what you want and can achieve, and not on any financial product that would pay them a hefty sales commission. Expect plenty more meetings over the years as your life circumstances evolve. 

May: It’s nearly the summer. Your good money habits are now in place, but don’t forget to make a realistic holiday budget. Take the time to shop around for everything from the cost of getting to the airport to the flights, accommodation, car rental, food, drink, entertainment, travel insurance and souvenirs.

Then enjoy your guilt-free, well-deserved holiday. Your finances are on track…finally.