Jill Kerby

RO’S writes from Dublin: I have a windfall of €10,000 and as I do not presently need cash I would like your advice on how best to get a return.  I am 57 years of age and could leave this cash for 12-18 months if necessary.  What are the best options for a return on a notice account or are there other "safe" places. I have been told that government bonds might give a good return.

Government and/or corporate bonds are not usually considered to be short-term investments:  usually, the longer the maturity date of the bond, the better the annual yield. That said, there is a huge demand for bonds as investors seek security and short yields are quite low. (Corporate bonds are paying much higher yields but are considered riskier.) A stockbroker can assist you to buy into a government or corporate bond issue. If you are willing to leave your funds on deposit for 12-18 months our Best Buys page currently shows that the nationalised Anglo Irish Bank is offering 5.25% AER fixed for 12 months and 3.5% AER for two years on minimum deposits of €1,000 though it’s hard to understand why such a high rate is still on offer now that it is owned by the state. First Active’s 4.6% 12 month rate is unlikely to last now that it is being subsumed into Ulster Bank which leaves you with the Permanent TSB 12 month rate of PSTB 4.4% fixed rate.  With ECB rates likely to fall further, you might want to move quickly to lock in your money at these rates.

ends

PC writes from Athlone: I have €150,000 on deposit with Anglo, in a self-administered pension fund, the trustees are myself and ITC. It was funded by my company putting in €120,000 and €30,000 of my own savings. Unfortunately like so many others, I need cash to run the business and cover personal loans. The €150,000 is my only source to funds, however I am told by ITC that I cannot get access to it until I am 65, or if I retire from the business. I cannot retire as I am the business and by the time I get to 65, well, it will be all too late then. What a pity to leave funds sitting in an account getting 2.3% when, if I could get access to it I could keep the business going. I am a retailer in Athlone selling gifts and silver jewellery.

The information you were given is correct says John Mulholland, a director of the pension advisors, Custom House Capital in Dublin. If you were age 50 or over and ready to retire, you could have transferred your existing fund into a PRSA (this also assumes that the fund was set up no earlier than 15 years ago) from which you could immediately access 25% of it tax-free and then either encash the balance (with an income tax liability) or transfer it to an approved retirement fund (ARF) from which you could draw down a taxable income, but keep the capital invested. This is also an option for pension fund holders over age 50 who are made redundant. In your case, Mulholland says you must wait until you are ready to retire – and hope your business stays afloat in the meantime. (See MoneyComment.)

Ends

PT writes from Dublin: All the different literature I have read about how to qualify for a medical card if you are over 70 doesn’t seem to provide an answer for the following: is gross income, i.e company pension, state pension, investment income such as dividends and deposit interest based on based the current or previous year.  If it is based on the current year, you may not have all the information to hand regarding your income. Can you clear this up?

My understanding is that the new means tested terms for the qualification of a medical card applies on gross “pensions, earnings, interest from capital and all other sources of income” up €700 per week for an individual or €1,400 for a married couple that is earned from March 1, 2009. Income from the first €36,000 capital (for an individual) and €72,000 for a married couple is not taken into account. There is also some discretion that can be exercised regarding applicants who may have high medical expenses but whose qualifying incomes exceed these limits.  You don’t say whether you are over 70 and have had the card already, only people whose known incomes are higher than €700 per week have been contacted by the HSE. If you are worried that last year’s income disqualifies you from keeping your card, but that you believe your income is likely to drop in 2009 (perhaps as a result of loss of share dividends) and that you would then qualify for a card, I suggest you ask for a meeting with an official in your local health office or call the HSE information line at Callsave 1850 24 1850 to explain your situation.  

ends

CM writes from Cork: Our son is likely to be studying at university in the UK from this September onwards and my wife and I will be responsible for paying his fees and expenses. The sterling rate is quite favourable at the present time and we wondered if we were to change money at the present time is there any way in which we could open a Sterling bank account, either here or in the UK, to make advance provision for his expenses.

You can speak to your bank about opening a sterling account here into which you can make sterling deposits at rates that you believe are favourable against euro.  Make sure to ask about the cost of running the account, and any deposit or currency exchange charges that may apply, especially if you are transferring euro into it, and an exchange charge applies.  Once your son is in the UK, he can open his own account and you can transfer the accumulated sterling into it, or feed it every month, but again, be sure to ask about the fees and charges which will vary from bank to bank.

Ends

GD writes from Navan: Could you please advise on how to go about buying gold, who to approach what banks, what quantities etc. I would really appreciate your assistance.

Gold pays no dividends or annual yield, but nor does it disappear. It’s job – for the last 5000 years has been to simply endure as a store of value during times of inflation, war and general economic uncertainty.  It is why the price of an ounce has risen from c$250 an ounce in 1999 to nearly $900 an ounce today.  (It was $801.50 two weeks ago on January 15th.) Some commentators, including the Irish gold bullions dealers, Gold and Silver Investments in Dublin predict the price will rise to over $1,200 an ounce this year as the risk of inflation returns due to the huge supply of debt and credit by central banks since last autumn. You can buy it in a number of different forms – gold coins and bullion which carry a c10% premium on top of the spot price due to the high demand for physical gold and as gold certificates from the Perth Mint of Australia, (which I own) which represent the value of a quantity of physical gold that you have purchased and which is kept in the Perth Mint vaults. You can also buy gold in the form of an ETF – an exchange traded fund, that trades like a share on a stock exchange or you can opt to buy gold mining stocks which have underperformed the spot price for the past year. If you buy physical gold there are delivery and insurance charges and you will need somewhere safe to store it (at an annual charge). ETFs are a relatively inexpensive way to buy the shares, but there is counterparty risk to consider (ie the trading firm) and you will have to pay a broker sales commission and a (low) annual fee of probably less than 0.5%.  Gold certificates carry a sales commission of between 2%-4%, but there is no annual charge or storage charge and they involve no counterparty risk.  See www.gold.ie for information about gold in its different forms.  

AMcC writes from Dublin: I am considering cashing in a small occupational pension that I earned while I worked in America and I have been told that I am obliged to pay US taxes of 20% on the lump sum.  As I am now tax resident in Ireland, would I also be liable for additional Irish taxes if I then repatriate this cash to Ireland. 

As an Irish tax resident you are obliged to pay tax on all your worldwide income – in this case, capital gains tax of 22%.  The double taxation agreement with the United States means that you do not pay tax twice on this encashment and you can claim a tax credit for the 20% US payment. 

Ends

EC writes from Co Kildare: I hope that you might be able to guide me because I don't know whether to encash my policy or hold on and hope for a good return on maturity date.  I took out an Irish Life, indexed linked Treasury Plan starting with the equivalent of €110 (£86.66) a month back in January 1995 and it matures in 2015. I now pay €48.25 per week.  Last September 25th my fund was valued at €22,873.79. The lady I spoke with suggested that unless I needed the cash, she would encourage me to hang on in there.

You still have six years before this policy officially matures but chances are that its value has continued to fall since last September.  Your contributions have probably exceeded the fund value at this stage so you need to decide for yourself whether the growth prospects going forward will be positive enough to make up for your current losses and produce a decent profit (after the 26% exit tax on profits is also taken into consideration.) This was almost certainly an investment plan that carried substantial fees and charges and one thing you certainly should consider doing at this stage is stopping the index linking of your contributions. Most of the indexing every year is probably being paid to the salesman, and not into the fund.  If you do cut your losses, you could use the €2,500 you are paying in every year to pay off your mortgage or other debt, as a tax deductible contribution to a low risk, low cost pension fund, or to save it or invest it in assets that will hopefully survive the recession intact and/or come out the other side having paid you steady dividends or interest – physical gold and silver, consumer durable shares, oil stocks, good farmland, etc.  Before you make any decisions make sure you have all the facts, and that includes urgently finding out exactly what the fund is worth today and your contributions to date. 

Ends

EB writes from Dublin: Since the US is in so much debt and the federal reserve is printing vast amounts of money do you think there will be a collapse in the dollar? I have some cash available for investing for the long-term and I would like to take advantage of some low stock prices. I would like to buy shares on the NYSE but I believe a collapse in the dollar is inevitable. Would I be right in saying that if I use euros to buy shares quoted in dollars and the dollar subsequently collapses, will my investment be devalued? I understand that if I buy shares in, for example, a Brazilian company quoted on the NYSE, and the dollar loses half of its value against the Brazilian currency, then the price of the stock will double on the NYSE to reflect the true price in Brazil. If I buy this stock with euros, will my investment still be devalued by a collapse in the dollar? 

Predicting currency movement is a mugs game and not even the professionalsalways get it right.  That said, the contrarian view of the dollar – which has recovered some of its strength since the credit crisis began – is that the creation of trillions of dollars of new loans, credit and cash (printed out of thin air by the Federal Reserve) will inevitably result in the devaluation of every dollar already in circulation, and ultimately in the long-term viability of the dollar. (You can read more about the Austrian School theory of economics here:  www.mises.org).  If you buy shares on the US stock exchange, first converting euro into dollars, and the dollar collapses, it means your share will be worth that much less.  If you buy Brazilian stocks and the dollar collapses and the Brazilian currency strengthens against the dollar, but the dollar remains weak against the euro, your loss may be less when you sell the Brazilian shares.  The thought of these permutations is giving me a headache however, so I’ll just repeat what I’ve written many times in this column: The only reason to buy any shares, anywhere these days, is because they represent sound, long term value relative to their assets, management, cashflow and dividend payments. You have to accept that the moment you invest outside the eurozone, you take a currency exchange risk and incur extra costs. 

MS from Dublin: I will retire in two years (age 65) after 20 years in my present employment. At that time I will have €250,000 in a directors pension plan. I believe I can take 1.5 times salary in a lump sum, tax free, and agree a pension with remainder. How is salary calculated at this time? I have my direct pay, bonus and a company car, all taxable. Are all three elements included in salary? I also have an old personal pension plan of €30,000. What are my choices of benefits on this? If I do not reach retirement date, can my family claim the entire amounts in cash?

Your final salary will be deemed to be the average of the best three consecutive years over the last 10 years of employment, and this includes basic pay, bonuses, overtime “and any other payments that are subject to schedule E tax liability including the value of any benefits in kind,” says financial advisor, Gerard Geraghty of Geraghty & Co in Westport. You have a number of option for the remainder of your pension funds: you could buy a pension annuity, but “unfortunately rates to include a similar aged spouse are poor and are likely to be around 5%. An index-linked joint annuity would be significantly lower again. If your reader is a 5% Director he wouldn’t have to buy an annuity but could take 25% of the fund as tax fee cash and use the balance to buy an AMRF/ARF for the future use of all his family.” Similar options exist for your €30,000 pension fund but Geraghty warns that “if he has taken 1.5 times final salary from the main scheme he is not entitled to any more cash.” As for the question about you dying before retirement, your dependents would be entitled to up to four times your final salary as a tax-free cash payment with the balance of the pension fund used to buy them a pension annuity. Pension scheme members with 15 years or less of pensionable service can avoid this by transferring their fund now to a PRSA, the proceeds of which are paid out tax-free to their family upon the death of the account holder. 

Ends

MB writes from Co Laois:  On November 16 last you wrote about American shares like Palmolive, Coca Cola etc and also about junior gold and silver mining companies that might be worth investing in. I have €5,000 euro at my disposal and would love to dabble in shares like these. I do not have any experience of buying shares and wonder if you could give me some advice about how I might go about doing so. I would be very grateful if you could help me out with this matter.

Consumer durable shares are those whose companies create goods and services that people feel compelled to buy, no matter what their financial position:  goods like soap and other personal hygiene items, food items, petrol and heating oil for their homes, fast food (like McDonald’s, whose share price is rising).  The most successful companies in these sectors have huge turnover, little or no debt, world class management and lots of money in the bank.  Their share prices have fallen (though not as much as most) but they continue to pay strong dividends and are seen as steady, longer term (ten years or more) buys.  The gold and silver companies are a much riskier punt but commentators believe the mining shares are underpriced compared to the physical metal prices; the shortage of gold and increasing demand is what makes these shares attractive, at least over the short term. Do your homework.  A good place to start is by reading the financial pages, (many of which are free on-line), to keep up to date; The Economist for a global view, and free web-based on-line newsletters like www.fool.co.uk  and www.dailyreckoning.com  and www.mises.orgwhich provide mainly contrarian views to the Keynesian commentators who support governments borrowing and spending their way out of recession.  (The Austrians believe you cut spending and taxes and let the recession correct itself.)   Learn about ETFs – exchange traded funds – which are low cost alternative to expensive mutual funds of shares; ETFs also spread your risk amongst many shares or commodities in a sector.  The Irish Stock Exchange (www.ise.ie) now sells ETFs and you can purchase these and other shares via a stock broker or by setting up your own lower cost share dealing account with the likes of Sharewatch.com (Ireland) or even via the share service that National Irish Bank offers its on-line current account customers. 

FF from Dublin writes: I have a personal pension fund in addition to my employer's. When I claim tax relief on my contributions to this fund can I include my PRSI contributions as well? 

You may be entitled to claim relief from the total PRSI and health levies of 6% of your net relevant earnings on your contributions which would result in total contribution relief of 47% if you pay tax at the higher, marginal rate and 26% if you pay tax at the standard rate. Pension contribution/PRSI tax relief is restricted however, and is based both on an age-related percentage of net relevant earnings/remuneration and on a total earnings/remuneration figure of €275,236 in 2008 and €150,000 in 2009.  This generous tax and PRSI relief may not last forever, so you should ensure that you’ve claimed it all up to this current tax year.

Ends

TL writes from Dublin: I recently lost my job in the media. I have been thinking about writing a book for some time and this might be just the opportunity (I’m trying to stay positive). Just wondering how I could apply for the artist’s tax exemption status and when it applies - only from when you get a book published, or sooner? If sooner, can I get the exemption status while I am researching and writing my novel?

Under Section 195, Taxes Consolidation Act, 1997, income earned by writers, composers, visual artists and sculptors from the sale of their works is exempt from income tax in Ireland, but only under certain circumstances, according to the Revenue Commissioners. (Certain literary non-fiction works are also considered exempt.) The key features that you need to fulfill to the Revenue is that your work “is original and creative and whether it has, or is generally recognised as having, cultural or artistic merit” and that you, the artist, “must be resident, or ordinarily resident and domiciled in the State and not resident elsewhere.”   You are also exempt from paying any income tax from any bursaries or grants you might receive from the Art Council, or even an advance payment from a publisher, for example, to help support you as an artist, but only in the year in which you make the claim and only after you achieve your tax exemption status from the Revenue.  Any income earned from your work before you are given your artist exemption status will be liable to income tax.  The Revenue have full details of this scheme on their web-site, www.revenue.ie . Finally, while this may not affect you immediately, since January 2007, artistic income is regarded as a "specified relief" and may be affected by something called High Income Individual Restriction which takes into account various tax reliefs that higher income earners use to reduce their income tax liability. The restriction will only apply to those individuals whose "adjusted income" is over €250,000 per annum. 

Ends

MB from Dublin writes: I received my annual Christmas bonus this year which was in the region of €60,000. I plan to spend €10,000 on home improvements would like to put the rest away for about six months. Could you tell me where I would receive the best return over a six to 12 month period? I don't mind if it is locked away and inaccessible for that period. 

Interest rates are coming down as the ECB lowers its base rate and savers will find their annual yields will come under even more pressure in 2009 due to the extra 2% Dirt (now 22% instead of 20%). While you naturally want to maximise your return, a quick glance at the ‘best buy’ interest rate charts in this newspaper and on the interest rate website, www.irishdeposits.ie shows that Anglo Irish Bank, Irish Nationwide, and the EBS are offering some of the highest six and 12 month fixed rates.  At time of writing their long term futures were still being determined by the government.  I suggest that before you go for the highest return on your money, that you are equally satisfied not just about the return of your money at the end of the fixed term but that the institution you leave it with is still around then too. 

Ends

PB writes from Limerick: I have €19,000 on deposit with National Irish Bank and I'm wondering what to do after January 1, when the rate of interest drops to just 1% from the 5% I’ve been receiving since reinvesting my original SSIA fund in the NIB tracker deposit account. Can you advise me of how I might earn a better return? I might consider risking a portion of it, in the hope that any losses I might incur would be covered by the return earned by the portion I leave on deposit. I like the idea of forestry, but it seems to me that you have to wait ages to make a return. I'm very sceptical about stocks and shares though I’ve read that the best time to invest is when values are low. I invested in a tracker bond in the past but made very little money - and that was when times were good. I'm also wondering which is the best deposit account at the moment. Your Best Buys tables lists Anglo Irish Bank as one of the best but, after the scandals that have emerged recently, would my money be safe?

You’ve already given quite a lot of thought to this process and have come to some sensible conclusions: the security of the bank you choose for the funds you want to leave on deposit is just as important as the return you are offered on your money and also that when a global market collapse happens, bargains will be available among those strong, well capitalised companies with little or no debt, that pay dividends despite falling share prices.  There are also sectors and funds that should produce good returns over the longer term – like energy and other natural resources (including timber and water), consumer durables, food and infrastructure companies that will be able to take advantage of the massive building projects governments intend to pursue as part of their national stimulus plans. You should start doing your own research and compare the cost of different funds (check out the RaboDirect.ie and Quinn-Life.ie investment funds) and low cost ETFs (exchange traded funds) that represent these sectors. The Irish Stock Exchange has just dropped its charges on its new selection of ETFs (see www.ise.ie) and is also a good place to start.