Jill Kerby

Devil is in the detail of any bank insurance offer

SC writes from Dublin: I have two private cars and one private residence and three rental properties and it is costing me a lot of money to insure all of them.  I would like to have a package and know exactly where I stand weekly or monthly or yearly in this regard. Do you know of someone who would give me a good deal for my business?

I’m afraid there are no regular ‘three for two’ special offers in the insurance business as there in the grocery trade, or your favourite bookstore, though the likes of both Aviva and Quinn have been known to offer special rates if you buy your home, car and health insurance with them. Sean O’Connell of The Insurance Shop in Fairview told me that on-line brokers like 123.ie may be able to get better discount rates for your cars and properties – he admitted it wouldn’t pay for him to take on such business at those premiums – but you need to examine the contracts very carefully for small print and exemptions and excesses that might apply. He also warned that house insurance terms and conditions are being very strictly enforced, especially regarding water and flood damage and especially for rental properties.

Unfair state charge

KP writes from Navan:  Referring to your comment last week about the anomalies in the way the USC is applied, I have discovered an anomaly within an anomaly!  The Irish state contributory pension for a single person is €11,976.  I retired here in 2002 and have a full contributory UK pension (as well as a modest UK occupational pension).  My UK pension for 2010 totalled €7,012 which is exempt from the USC as 'a similar type payment'.  However, this means that a pensioner in receipt of the Irish state pension but with the same total pension income to me will pay a lower USC since less of their remaining income becomes liable after the €11,976 exemption (compared to my €7,000 exemption. I cannot follow either the fairness or the logic which requires someone whose pension income is not Irish sourced is liable to pay a higher USC than someone whose income is Irish sourced. Exemptions seem to be a minefield!

Tax advisors are not impressed by the construction of the new universal social charge. Two tax advisors I spoke to about your case both told me they were not “in the least surprised” to hear about the USC anomaly that you have raised, though it was the first time it was brought to their attention.  “Here’s another pensioner USC anomaly,” said one. “There are two pensioners, both 71, and both considered well off with annual incomes of €50,000 that includes their state pension of €11,976. One earns the balance of their income, €38,024 from a private pension. He pays income tax at the marginal rate on the €50,000 plus 4% USC on the €38,024 - the state pension being USC exempt. The other person earns their income balance of €38,024 entirely from interest returns from Savings Certificates which are tax and DIRT free as well as being exempt from USC. This pensioner pays absolutely no tax or USC on the entire €50,000.”

You’re right. It isn’t fair that only self-employed people who earn over €100,000 are being targeted for a 10% USC when all other earners with that income pay 7%, it isn’t fair that between two pensioners, each earning the same income, one ends up completely USC exempt.

Redundancy deal

PK writes from Dublin: My company announced just before Christmas that it was going to see voluntary redundancies early this year. This wasn’t unexpected and if they offer a redundancy package that is anything like one offered in 2008 I could expect to get about a year’s salary or around €65,000.  Just wondering what sort of tax I could expect to pay on that and would I still have to pay all that tax if I used the money to start my own business?

Ex gratia payments over and above statutory redundancy payment of two weeks pay for each year of continuous employment, plus a bonus week, subject to a ceiling of €600 per week, is taxable.  However, there are three different exemptions options available which reduce the liability plus the possibility of ‘top slicing relief’ which can also reduces the rate of tax you will pay.

The basic exemption is €10,160 plus €765 for every complete year of service. If you have five years service, for example, the amount exempted from tax from your estimated €65,000 payoff will be €13,985.  This basic exemption can be increased by another €10,000 to a maximum of €20,160 plus the €765 for every year of service if a) you haven’t made a claim for the increased exemption at any time in the previous 10 years and b) the increased exemption of €10,000 is reduced by any tax-free lump sum you may be immediately entitled to as part of an occupational pension or the present day value of such a tax-free lump sum which you may receive some day from the pension scheme.

The third exemption option is the Standard Capital Superannuation Benefit (SCSB) which involves calculating your annual yearly remuneration for the last 36 months multiplied by your years of service that can also take into account tax-free lump sums, though according to tax expert Sandra Gannon of TAB Taxation Services in Dublin, “The SCSB is more appropriate for people with longer service and higher earnings.”

If you don’t have a pension tax-free lump sum coming that would have to be deducted from the increased exemption of €10,000, based on exemption option two, your total redundancy tax free payment (assuming you have five years service) would be €24,985. (€10,160 plus €3,825 (€765 x 5) plus €10,000.)  This leaves a balance of €41,015 which is subject to marginal income tax of 41% or €16,406 and the universal social charge of €2,120, leaving you with a total, net redundancy payment of €47,474.

According to Gannon, top slicing relief, which is available to claim at the end of the tax year in which you receive your redundancy might be available as it takes into account your average rate of tax for the previous three years and might result in a refund if this is less than the amount of tax you paid on your lump sum.

Finally, seed capital tax relief is available if you were willing to invest your entire lump sum, plus, in the form of a refund, tax you paid in the previous five years into a group of qualifying new manufacturing and service enterprises.  The Revenue has produced a leaflet: The Seed Capital Scheme: Tax Refunds for New Enterprises - IT 15 that you can download at www.revenue.ie

Tax-relief gives pension the edge over repayment 

JH from Cork writes: I am 31 and employed full-time and avail of a company pension scheme. I recently had a pension meeting with the company and it seems that I will need to increase my contributions to get a decent return. I was thinking of doing this while the top rate tax relief exists. Currently I contribute 4.5% and the company contributes 2.5% but that only gives me projected earnings of 12% of my current wage once I retire. An extra 3% contribution would cost me €75 a month, an adjustment I could handle. My question is, what level of my own wage should I be investing as a general rule, and is it realistic to expect a decent return from these pensions in the long run. Would I be better off repaying my mortgage at a faster rate and then saving more once that is paid off?  Currently the mortgage will be paid off when I am 53. If there are other options that are better at this stage please let me know.

You are very lucky that your pension review has taken place at the age of 31 and not 51 - you’ve plenty of time to adjust and increase your contributions and work out an effective investment strategy.   

Go to the Pensions Board website, www.pensionsboard.ie and click on their pension calculators. By its reckoning, based on today’s money terms, a 31 year old male, earning, say, €50,000 a year, with an existing fund of, say, €20,000, should be contributing 17%, not 7% of salary into a pension every year in order to secure a retirement income, worth two thirds of final salary or €33,330 at age 65.  This income includes the state pension worth €11,976 but does not make provision for a spouse’s pension.  Even if you were satisfied with only 50% of your final salary or €25,000 a year at retirement, of which nearly half was accounted for by the state pension, you would still need to contribute at least 10% of salary. By filling out your actual details, you should get some idea of the level of funding you need to make for a comfortable retirement. 

It appears that you are on schedule to pay off your mortgage long before retirement, but with mortgage interest rates likely to rise, you might want to consider fixing your mortgage rate if you have a variable rate loan.  Over the next 22 years inflation will also play its part in reducing the real cost of your mortgage and if you can afford a fixed rate you will be in an ideal position to benefit from such an impact, all the while secure in knowing exactly the size of your repayment for the fixed term.

No prizes here

DMcD writes from Dundalk: I am a regular purchaser of prize bonds.
I am now thinking of investing a significant part of my life savings in them.
How safe would my money be? In recent times I have been confused as to where to find safety.

Prize Bonds are guaranteed by the Irish state, just like deposits in An Post and up to €100,000 deposited in Irish banks. You can check the Financial Regulator’s consumer website for details of the bank guarantee schemes: http://www.itsyourmoney.ie/index.jsp?n=757&p=125  

Your Prize Bonds participate in tax free weekly and monthly draws but they pay no ongoing interest and are vulnerable to inflation, which will eat away at the purchasing power of every bond.  Just 2.8% of the entire value of all prize bonds is repaid, though not necessarily to every prize bond holder. Someone who purchased 2000 pounds worth of prize bonds 30 years ago – a down payment on a small house back then – may have received some winnings over the year – or not – but if they encashed their original stake today, that original £2000 might provide a down payment on a modest, family sized car. 

By all means hold some Prize Bonds, but leaving your entire life savings in any single asset – cash, property, stocks and shares, precious metals or Prize Bonds is not advisable.  Finally, the state of Ireland’s finances is so precarious that voluntarily handing over all your savings to the government, strikes me as foolhardy.

Golden Future

FO’S writes from Dublin: I will inherit approximately €80,000 shortly and not sure where we should put this money. I read your recent reply regarding the purchase of gold, but it does seem expensive at the moment. I am also worried about the stability of the Irish banks and the euro, and am considering depositing some of the money in banks in Newry and the likes of RaboDirect or Nationwide UK here in the south, but would prefer if I could open a sterling account in Dublin rather than travel to Newry. Is gold still a good investment?

As with any windfall, you need to take advantage of your good fortune by reviewing your immediate financial position as well as considering what to do with this money in the medium or longer term.  If you have expensive debt – like a credit card, hire purchase contract or even a high cost personal loan – you should consider clearing it and thus avoid future interest payments. Next, if you don’t already have one, you might want to set aside some of the money into a contingency savings fund – a good bank account into which you ideally have three to six months worth of discretionary income that is only earmarked for emergencies, such as car troubles or a furnace repair, illness or even temporary unemployment. 

Once you’ve reduced your debts and have an emergency fund in place, you can concentrate on investing and/or spending your inheritance.  You don’t say how old you are, but this money may be an important source of retirement funding.  Tax incentives for Revenue approved pension funds will be reduced from next year for higher earners, so this may be the last year for you to top up an existing private or occupational pension.  If your pension is already in place, funded and on target, you’re in the enviable position of being an investor who can take your time to pick and choose assets that will hopefully perform well and increase your wealth.  Take that time to investigate all the different options that should include precious metals, if only because they are a ‘real money’ substitute for the increasingly devalued and debased paper and ink currencies that are issued by indebted governments and are backed by nothing but empty promises.

I suggest you seek a good, independent, fee-based advisor who can help guide you through the various low cost investment funds, ETFs, shares, bonds, commodities, etc that might suit your needs, expectations and budget. 

Don’t take the easy route and just leave all your money in cash, or purchase the first investment fund that is recommended.  Finally, most of the retail banks will allow you to open a non-euro account  (RaboDirect and Nationwide UK do not offer this facility) but be sure to ask what interest rate, if any, is paid and whether there are any other fees or charges.

Past performance is no guarantee of good funds

SG writes from Dublin: I was on RaboDirect’s website and I came across its 2011 investment top picks. I’m thinking about investing €10,000 I have in another savings account between the various top picks listed. Have you any advice for me regarding same? Looking at the last couple of years they have performed fairly well.

The attraction of an on-line investment website is that the fund information is very transparent and the fees and charges are usually lower than if you buy one through a life assurance company or via a broker.  Once you have an account in place, the purchase – and selling - process is also quite easy. Past performance is just one part of the story you need to check out when making an investment, however. Keep in mind that nearly all stock markets and the vast majority of investment funds have recovered since the financial collapse of 2008 but that markets are volatile, and quite irrational given the scale of the debt in western countries.

More important is knowing what you are buying and that you both understand, and are comfortable with, the risk you take in buying the assets under investment in your fund(s) of choice. You should also be careful about the fees and charges and keep in mind that there are even lower cost ETFs – exchange traded funds – available to buy, many of which mirror the shares and assets that can be found both on-line sites like Rabo or in the list of funds that life assurance companies sell.  You can buy ETFs from a stockbroker or your own lower cost share trading account. Check out the online brokers, www.tdwaterhouse.ie where direct, execution-only trades cost just €15.

Ends

Bank overseas 

NR writes from Co Tipperary: Do you have any advice on how to open a non-resident account in either France or Germany? Germany seems to need an address in that country. Do you have to go to either country to open the account or can you do it by post? I only need a savings account. I am a pensioner and am afraid of keeping my savings here.

I’m afraid that different rules or conditions apply in different countries and even with different banks. I’ve written here a few times before that the European Union/Commission itself sets no restrictions on the opening of accounts by EU citizens or residents in member countries.  However, individual banks have leeway when it comes to setting the conditions for opening non-resident bank accounts.  They all require that you fulfil strict anti money-laundering terms and conditions but some require that you attend in person to open your account or that you fulfil their residence requirements.  You will simply have to contact the bank to determine their rules. 

The easiest solution to this question of moving some of your savings out of this country (and even out of the euro) – though not to France or Germany - is to open a euro or sterling bank account (but not a building society account as they do not accommodate non-residents) in Northern Ireland.  You can follow a good askaboutmoney.com post on this subject here: http://www.askaboutmoney.com/showthread.php?t=147596

 Inherited house

HR writes from Limerick: I inherited my late father's house two years ago in March 2009) and it has depreciated in value since. It has been rented and income declared and all taxes paid on said rent and NPRP tax paid. At the time when I inherited it the value was at €230,000 and now I have it on the market at €160,000 euro. Do I have to pay capital gains tax as it has depreciated in value? Also do I have to use a solicitor when said property is sold and if not how do I go about transferring ownership?

When you inherited your father’s house, the transaction was tax-free because its value was below the tax-free threshold between a parent and child.  The property is not your principal private residence however, so any gain in value from its market value when you inherited it and when it is sold would be liable to 25% capital gains tax.  If, as you say, the house has lost value these past two years you will not have any tax to pay.  As for not using a solicitor to complete the transaction, I’m told it is possible to do the conveyance yourself if you understand what contracts and deeds need to be compiled and exchanged. However, the buyer – and their lender – may not be willing to proceed with the transaction unless they are satisfied that the legalities have been done properly. Self-conveyancing is relatively common in the UK. Check it out here for some background: http://www.diyconveyance.co.uk/ but a straight forward conveyance in Ireland shouldn’t cost a great deal of money and solicitors are more than willing these days to negotiate their fees.

 Emergency exit

GB writes to Navan: Surely if we were to pull out or are pushed out of the euro, it would not happen overnight, can you please advise if that is so, or is it possible it could happen without warning, it would I'm sure put a lot of people at ease including me.

Unfortunately, I don’t have a crystal ball, nor do the politicians or central bankers, and so no can accurately predict if and/or when Ireland will leave the euro, or if and when the eurozone will break up. Nevertheless, the euro’s future is high on the agenda of not just eurozone top finance officials, but also the Americans, Chinese and Japanese whose central banks are now all supporting the currency by purchasing Portuguese and Spanish bonds in an effort to keep the borrowing costs of these countries affordable.   If you are worried about the safety of your life savings, don’t leave it all in euro or the eurozone.  If the currency does collapse, you will have done your best to mitigate some of the worst effects.

Bank on Australian gold but pay the tax

MP writes from Kildare: I heard you on radio last year regarding personal savings. Part of your advice said that you had put a portion of your savings in gold. From memory you said you used an Australian company.  Would you please provide the contact details of this firm? Are there any issues relating to taxation if capital gains are made? How can payment be made? * Euro Bank credit transfer, credit card, cheque?

The Perth Mint, the gold depository for the Bank of Western Australia (www.perthmint.com.au/investment_certificate.aspx) sells allocated and unallocated gold and silver certificates to investors. Their European agent is the Dublin/London gold bullion dealers Goldcore and payments are made, if I recall, when my husband and I bought our certificates in 2006, by electronic bank transfer.  Under the Perth Mint certificate programme, the precious metals, mined in Australia, are kept at the Mint in your name (as allocated metal) or in a pooled fund to which you belong if unallocated. Certificates are a cost effective way of owning and storing gold and silver, rather than buying physical gold which includes a premium per ounce, delivery and insurance costs.

The sale of any asset attracts a capital gain tax of 25% in this country, and you are obliged to file a tax return and pay your tax on any gain by 15 December each year if the disposal takes place between 1 January 1 and 30 November and by January 15 if the disposal occurs in December.  

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Flat solution

AR writes from Dublin:  I have a two bed apartment in Dublin which I bought for €275,000 in 2004 with a €30,000 downpayment.  It has been valued at no more than €200,000, but my sister, who has been living with me says she is willing to take over my mortgage balance, which is now about €235,000.  She will have a tenant to help make her repayments.  The problem is that my lender has just informed us that they will not (cannot?) lend for an apartment, even though they said they would in November. I/we have never missed a mortgage payment, my sister has a good job, some savings which she could use as a downpayment on her own mortgage and she has a good tenant lined up who also has a good job.  Can you recommend a bank that will lend to her?  I have a new job in the UK lined up and am getting a little desperate.

Banks are increasingly reluctant to lend for apartment purchases because of the huge overhang of unsold properties around the country and the fact that so many are in negative equity – yours included.  With prices still falling – about 15% lower on average in 2010 according to the latest Daft.ie house price report and no guarantee that they will bottom out anytime soon, their reluctance to lend is understandable.

You don’t give much information about your mortgage but from the outstanding balance you quote I suspect you are on a very long repayment term and may not have a tracker rate.  Mortgage advisor Karl Deeter of Irish Mortgage Brokers says it could be difficult for your sister to get a better finance deal. Since you will be taking a loss to whomever you sell this property, he suggests that if your sister is happy to take over the apartment, you might consider circumventing the banks altogether: instead of legally transferring the deed, set up a tenancy in common agreement with her your sister to take over the repayments on the existing mortgage, ideally with her paying you some of her savings as a ‘downpayment’. 

Defacto ownership of the property can be transferred slowly from you to her with an annual, tax-free capital gift worth the equivalent of €3,000 per annum, says Deeter, represented by slivers of the apartment – with the balance of ownership left to her in your will.  If she wants to sells the apartment some day, you can come to an agreement with her over your share of the sale, based on how much capital you both now own. Speak to a solicitor about how this private arrangement should be set up and be clear about the tax implications should she unexpectedly inherit the property.

The risk to you in this arrangement, says Deeter, is that your credit record could be affected if your sister doesn’t keep up repayments, but without a lender or a separate cash buyer for the property on the horizon, this might be the cheapest and most suitable arrangement if you really want to be shot of the property.

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Insurance options

MMcC writes from Dublin: After last week’s news about the VHI price hikes and how the other companies will also probably be raising their rates this year I went onto the HIA website (I couldn’t contact VHI directly) to try and find out what the corporate equivalent of Plan B Options is and the benefits.  Frankly, if was very confusing. 

Last week the VHI’s website and Health Insurance Authority comparison website (www.hia.ie) were very busy, as were all the customer help-lines, including those at Quinn and Aviva. With over 200 different insurance plans available and lots of subtle differences – especially about pre-existing medical conditions and the cost of child membership - it isn’t easy to shop around which is where a good, fee based advisor comes in. In my opinion, the three, best informed health insurance advisors in the country are consultants Aongus Loughlin at Towers Watson and Kevin Kinsella at Mercer who deal with corporate clients and Dermott Goode of healthinsurancesavings.ie who deals with both corporate and individual clients.

According to Goode, the corporate equivalent of VHI’s popular Plan B and Plan B Options, which are going up by as much as 45% in February is Company Plan Plus Level One which will cost €805 for an individual instead of the February renewal price €1,430.  The corporate plan equivalent for Quinn’s popular Essential Plus Plan is Company Care which costs €785 instead of €995 while the corporate equivalent of Aviva’s Level 2 Hospital Plan is Business Plan Extra which costs €799 instead of €825.

<!--StartFragment-->Inherited house has the potential to split the family

AG writes from Co Galway:  We are in the middle of a family dispute over a will. Three of us have inherited a property from an elderly uncle who died in October.  My husband and I believe it should be sold at whatever the market value is in order to get whatever money it produces. My two brothers want to hold onto it for when “the market recovers”.  It is a 1950s bungalow on just over a quarter of an acre but the location is not great – on a relatively busy road on the way out of the town – and it is not in great condition. Between it having to be repainted and redecorated at the very least, and the inevitable repairs and then property taxes being introduced, I think we should just sell it. I’d appreciate your view about where the property market is going and also, will the lower inheritance tax-free amount that was announced in the budget apply to us, or the 2010 thresholds? 

Given how far property prices have already fallen – perhaps as much as 50% - from their peak in 2007, I think it will be some time before you and your brothers see anything like those levels again.  If and when the bottom is reached, prices will probably bump along that bottom for a few years and then only start to rise in line with inflation.  That is the usual pattern after a property bubble bursts. You are right to be concerned about upkeep and taxes but if you are unwilling to wait for the market to recover and don’t want to keep shelling out money on this unoccupied property, you and your brothers should at least consider renting it out to meet the ongoing costs.  If that doesn’t happen, you could always insist that they buy out your one-third share at the current market price. If they don’t cooperate, you may have to seek the assistance of your solicitor in persuading them, with all the negative family consequences such action might generate.  
 
Meanwhile, the Revenue will be looking for their share of your inheritance, whether it is sold or kept until the market turns. Any inheritance or gift received (on the date of death) in the previous 12 months to the end of August must be included in a pay and file Capital Acquisition Tax return by 31 October. You and your brothers have until 31 October 2011 to fill out your Form IT38 to the Revenue and pay the appropriate tax.  The 2010 CAT tax-free threshold for Group B (which includes uncles, nieces and nephews) of €41,481 will apply in your case.  Any amount over that sum is subject to tax of 25%.  If, for example, the property has a market value of say, €200,000, the taxable balance of €75,557, divided by three means that you will each have to pay 25% tax on €25,185 or €6,296.  Check with your solicitor or tax advisor about what expenses and costs can be deducted from this CAT bill.

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Devaluation derby 

CMcC writes from Cork: I read with interest your column in the Sunday Times in the past two weeks regarding the handling of debts / mortgages in the event of a return by Ireland to the punt or devalued euro and my question addresses the other side of the story i.e. savings. If I had €1,000 in a savings account with an Irish bank or post office and Ireland was to return to the punt valued at say 0.90 pence would my savings then be worth: a) 1,000 euro, b) 900 euro or c) 1,000 punts? Alternatively if my €1,000 euro were with a bank in Germany / France or Holland what would be the outcome? Or finally if my €1,000 were with a "foreign" bank here in Ireland e.g. Investec / RaboDirect / Ing what would happen? I realise that it is always difficult to say with certainty what will happen in these kind of hypothetical situations but I would be very interested to hear your opinion on the above points.

This question of what happens to our euro if Ireland leaves the eurozone has become a national obsession – and quite right too since there is great uncertainty about what will happen to the highly indebted countries of the eurozone.  In the case of savings, there is a view that if we were to revert to the punt, the punt would be worth less than the euro.  No one knows what level of devaluation would apply, but if, as you suggest your €1,000 was converted to punts at par, with the punt then devalued by 10%, your new punt savings would then be worth £900. The real question is not so much what the devaluation of the new currency would be against the euro, but what the break value from the euro would be.  When we joined the euro back in 2002, every punt was valued as 1.27 euro.  If we were to break from the euro, would the reverse be the case – that is, would every €1 euro revert to being a new Irish punt that would have a value to the euro of 0.79 cent?
 
Finally, no one, even in the foreign banks that operate here, has been able to come up with the definitive answer about what would happen to euro held in non-Irish banks (that are also outside the remit of the Central Bank of Ireland), or even the ones, like NIB and Nationwide UK, whose parents are based in non-eurozone countries. Would your euro remain euro, or would they be automatically converted to the new Irish currency, which may or may not be devalued?  The only way you can mitigate against any such scenarios is not to leave all your savings in euro, or in Irish-owned banks, or entirely in Ireland or entirely in the eurozone. If you are worried, speak to a good, fee-based advisor about all your options. 

Readers who would like Jill to organise a personal finance seminar for their group or organisation this year, can contact her at jill@jillkerby.ie for more information about topics, venues and cost.  Sandra Gannon, the TAB Guide co-author and tax expert is also available during the seminars to answer individual tax questions. 

WILL OUR HEALTH INSURANCE PLAN STILL OPERATE IN CANADA?

PR writes from Wicklow:  We are moving to Canada at the end of January. My husband was offered a transfer to a partner company of the one he works for here.  We were told it could be up to six or eight weeks before we can be registered for the Canadian medicare system.  Before then, will our Quinn Health Insurance plan still be in force. Someone told me that if they know you are emigrating they cancel your contract immediately. I was hoping you could tell me before I contact them.  Also, we each have life insurance policies (with Irish Life).  Are these still OK if we keep making the payment every month. I am 32 and my husband is 35. We have three children.

According to the Canadian Immigration Service, there is a three month waiting period in the provinces of British Columbia, Ontario, Quebec and New Brunswick before new immigrants with permanent residence status can become eligible for Canada Medicare. The healthcare system in Canada is operated by individual provinces, which operate different rules, but wherever you live you will need to immediately apply for insurance cards for everyone and register with a family medical practitioner. Temporary health insurance can be purchased from Canadian insurance providers and the Immigration Service will even pay for the cover for those immigrants who cannot afford to pay the private premiums. 

Temporary insurance is important since your Quinn health insurance policy is only valid if you are a resident of the Republic of Ireland, says health insurance advisor Dermott Goode (www.healthinsurancesavings.ie).  The international travel cover in your policy is also restricted to medical emergencies only during short stays abroad and membership of a scheme will end immediately if the member stops living in Ireland for more than six months per calendar year” said a company spokesperson.

 “Strictly speaking your readers should cancel their policy when they leave Ireland and claim any pro-rata refund if they have paid up to their renewal date.” Goode said that temporary international health insurance can be purchased here from the likes of BUPA International, VHI, AXA or Allianz, but you should compare the price of these policies with the Canadian ones.

As for your life insurance policies, you can keep your Irish policies but all benefits would be paid tax-free in euro, says Irish Life but there could unfavourable tax implications in Canada so you need to check with a Canadian tax advisor.

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New Currency Debt 

HO’D writes from Dublin:  You mentioned in your column last week that if Ireland had a different currency to the euro, mortgages would be valued at the euro equivalent of the new currency at the time of the split. I wondered about this as inflation over time normally reduces the real value of debt, the pound paid back is worth less than the pound borrowed. Also what if the euro was retained for the "lesser" countries and valued much less than the ‘super euro’ of the richer countries. Would the mortgage now be valued at the super euro value at the time of the split?

Inflation always eats away at the value of debt (and savings), but it works regardless of the currency.    This question of what existing euro debt would be worth if Ireland left the euro and switched to a new, devalued currency against the euro, is a different matter. If we owed another euro country €100 million, but left the euro and reverted to a punt currency, whose value was set at say, 20% less than the euro, it would cost us the equivalent of 120 million new punts to repay the €100 million owed.  The only way we could pay them less is if they forgave us a portion of our original debt. 

If the eurozone broke into two new zones of richer and poorer countries, we could presumably continue to pay the other countries in our zone with whatever value euro we assumed, but if it was worth less than the other, richer zone’s euro, the final bill to them would be higher.   Since most Irish mortgage lenders had to borrow from the rich eurozone members in order to sell their homeloans, it could be presumed that such personal debt would cost more if it was being repaid in the devalued second tier euro currency. 

Many people question whether our huge state and personal debts can ever be repaid, and suggest instead that, aside from a new currency, what this country and many individuals also need is a large serving of debt forgiveness.

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COVER FOR CHILDREN 

CD writes from Waterford: Myself and my husband are looking for some advice regarding savings that we started in the credit union for our children, a 16 yr old and an 11 yr old. They have savings of  €4,500 and €3,500 respectively. We are considering taking most of their money out of the credit union and putting it somewhere "safer".  We are worried that Ireland will default and we will leave the euro, thus devaluing their savings. We were thinking of moving it to Rabo Direct or the Post Office, we just don’t know what to do for the best.

The security of your savings is important, but unless you are worried about the solvency of your credit union, you should keep in mind that your €8,000 falls under the €100,000 bank deposit guarantee, which also applies to credit unions. Post Office savings bonds and certificates are entirely State guaranteed and DIRT free.

The Dutch bank, RaboDirect is certainly one of the safest banks in Ireland, but it is not clear whether all deposits will remain in euro or convert to a new Irish currency in the event that Ireland did leave the eurozone.  A spokesperson for Rabo said, “        .

 If you need access to this money anytime soon, the cost of converting the children’s savings into a non-euro currency in a bank, which would protect them if we left the euro, may not be worth doing. Foreign currency accounts often have minimum deposit amounts for one thing, and can carry exchange costs and other charges. All paper currencies are at risk of devaluation. As a longer term hedge against both that and inflation, you could consider switching some of the children’s savings into gold or silver – real money – or another tangible asset - some people opt for oil shares, others a piece of art or an antique - as a hedge against both the risk of devaluation and inflation.

IF WE LEAVE THE EURO WHAT HAPPENS TO THE MORTGAGE?

GR writes from Dublin:  In response to the letter from KP from Kildare (Sunday Times Money Supplement, 4th Dec 2010) you don't seem to have answered his last query, namely "What would happen to mortgage debt if Ireland leaves the euro?"  

If we were to be forced out of the euro, or left it voluntarily, the debt you hold in euro, like a mortgage, would, most probably, be expected to be paid back in the new, Punt Mark II equivalent. Even if a second tier eurozone was created for heavily indebted member states like ourselves, the Greeks, Portuguese and Spanish, the original euro debt would have to be repaid.  Expecting it to be repaid and actually getting the money, is not the same thing, however. If the Irish state were to default, there would probably be a certain amount of debt forgiveness, and the same would, presumably, have to apply to the vast amount of personal debt Irish people carry. New repayment rates and terms would also be worked out with creditors – who might be new owners of your bank. 

Would it be enough to avoid repossessions?  Perhaps, but no matter what level of restructuring  – and this applies even now as we labour under our new ECB/IMF overdraft facility – there is a pressing need for a formal personal insolvency process in this country.  People with massive, unsustainable debt need a chance to have the all or most of their debt to be wiped clean and a chance to discharge their bankruptcy in a short few years.

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I can't repay loan

AB writes from Co Longford:  I have a personal loan with PTSB which is distressed, I have been paying as much as I can over the past four months. I approached PTSB before it became distressed but they were not open to discussion.  The loan balance is 16,000; repayment was €420 per month, and for the past four months I have paid a total of €950 in payments (€50 per week) but they are assessing penalty interest of up to 11% per month and as a result interest has taken €700 of the €950 and the principle just never seems to reduce, is there anything I can do?

 There is still no formal arrears protocol from the Central Bank regulator for personal debt, despite one coming into force from next January for mortgage arrears to which your bank is a signatory.  What you need to do is to write a formal letter to your lender clearly setting out why you cannot meet your full loan repayments, that €50 a week is all you can afford and request a meeting to discuss a formal debt restructuring. In order to back this up, you should also arrange a visit to your local MABS (Money Advice and Budgeting Service) who can help and advise you in putting together a proper budget statement that you can then submit to the Permanent TSB loan officer.

 “The reality is that too often banks won’t accept the word of their customers when they say they can only repay part of their loans, but they will accept it if it is backed up by a MABS intervention,” says Brendan Burgess, the founder of the financial website, www.askaboutmoney.com .  “I think getting MABS to help your reader work out his outgoings and expenditure and coming up with a repayment that he can meet is a good strategy.”

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Pensions poser 

RL writes from Dublin:  I am 48 and a sole trader and have a small internet/mail order business that I started about 10 years ago from home.  I had been making small pension contributions every year until about three years ago when I turned I turned 45, and had a chance to bump them up. Last October I made a payment of €14,000, which represents about 25% of my gross earnings. However, I’ve been reading a number of reports that I may have to make another payment before the end of this month because of some backdated income rule. I can’t make head nor tail of the explanation.  Can you explain how it works and whether I will have an extra payment to make? I don’t actually have any spare money at the moment.

The Budget has indeed revised the terms under which self employed, sole traders like yourself can make annual pension contributions, but you can relax says Suzanne Fogarty, a partner at the Dublin accountancy practice, DLS Partners:  “The income restriction or backdating option does not apply to your reader as her earnings of €56,000 fall well below the new income limit - €115,000 instead of €150,000 which has applied up to now – and on which pension contribution tax relief can be claimed.”

Had your earnings been in excess of €115,000 in 2010, the backdating of the lower income limit to 2010 would have meant that you would have to bring forward your 2010 pension and tax payment to before the end of this year, rather than wait until the end of October 2011 to make those payments, or face a higher tax bill.  Unfortunately, not that many people have the money (having just paid their 2009 pension contribution and taxes this past October) or can borrow the value of their 2010 pension contribution.

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€50,000 Question

JK writes from Carlow:  I have €50,000 to invest for the next three to five years. Where in your opinion would be a secure place to invest and gain some interest at the end. I have savings bonds and savings certificates already.

Three to five years is a very short period of time to be investing, especially since so many life assurance based investment funds has upfront charges and monthly administrative and annual management fees.  I am going to assume you don’t have outstanding expensive debt to pay off, but If it is security of your capital that you want above all, then stock market based investing is not for you.  To beat deposit rates, however, you need to take some well-informed risks with your money.

Since you already have cash in Post Office fixed term accounts, you could consider putting some of your €50,000 into ‘real money’, like gold and silver as a hedge against the continuing devaluation of paper currencies and the risk of future inflation (see the Dublin bullion dealers www.goldcore.com for different ways in which to buy gold and silver.)    You could also investigate short term government or corporate bonds; contact a good financial advisor or consult a stockbroker. 

MT writes from Dublin: Have bank depositors ever lost their money due to a bank collapse in the developed world? Or have the government always seen to it that deposit holders got their money back? (eg. Northern Rock, the first bank run in 150 years in the UK and deposit holders still got their money back). I understand all Irish deposit holders have up to €100,000 guaranteed but is there any chance the Irish government could run out of all money supplies and be unable to pay everyone’s deposit back?

Nearly 150 banks have already failed in the United States this year, up from 140 last year; their bank deposit guarantee only covers the first $250,000.  Any sum over that amount would has been lost by depositors foolish enough to leave the extra sums in those failed banks.  If an Irish bank, or any other bank in the eurozone failed, only the amount covered by the relevant bank deposit protection scheme would be repaid. It is unlikely that a failed Irish bank would have sufficient supplies of cash on hand to repay the €100,000 to every eligible saver under the deposit protection scheme.  However, if you have faith in this guarantee, you presumably, will also believe that your €100,000 will be ultimately refunded as quickly as possible with the assistance of the EU, ECB and IMF, all of whom have just extended an €85 billion loan facility to capitalise the banks and the state.

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BW writes from Cork:  I do feel that the Irish banks will fail and that the euro may not survive. Last Sunday you suggested Norway as a safe bet for savings, but what about changing my savings to a sterling cheque and putting that into a British Government controlled bank/society e.g. Nationwide U.K.?

There are any number of non-euro currencies into which some of your euro savings can be transferred.  Ask your bank about its terms and conditions for setting up a foreign currency account - they may not pay any interest, for example. Under UK building society regulations, you cannot open a Nationwide UK building society account unless you are a resident of the UK, but you can open an account with their international operation in the Channel Islands.  Nationwide UK Ireland does not open sterling accounts here. One way to shift some of your money out of euro and into a wider basket of currencies is to buy into a currency investment fund. Check out the Insight Alder Capital fund see www.brokerfirst.friendsfirst.ie/ole/investments/documents/Weekly%20Fund%20Performance.pdf) which is available from Friends First. In the year to December 3, 2010 this fund has recorded a 13.07% return; over five years it has produced an annual return of 7.69%.

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LM writes from Cork:  In reply to SG from Dublin you mentioned that readers could "subscribe to financial newsletters". Could you suggest which newsletters might be worth subscribing to? Also, one of your correspondents raised an issue in a letter that I noticed you did not answer, ie what would happen to mortgage debt if Ireland leaves the euro?  I think euro mortgages taken out since joining the single European currency would increase proportionately if we adopt a new devalued currency, but my husband thinks that mortgages would be re-calibrated on a one-to-one basis into the new currency.  As savings would devalue automatically if we leave the euro and default on our debts, this is an important point to clarify; there is little point in saving at all if we should be trying frantically to pay off as much of our mortgages as possible.  Can you shed any light on this issue? In the same letter, the correspondent asked what would happen to one's mortgage contract if AIB is acquired by an outside agency.  Can you answer this as well, please?
 
I personally subscribe to a number of specialist newsletters from the international Agora Financial stable – Capital & Crisis, Special Situations, International Living (whose office is based in Waterford) and the excellent free, DailyReckoning.com as well as their weekly financial magazine MoneyWeek. I subscribe to the 12% Letter and S&A Digest from Stansberry and Associates, US newsletter publishers.  I also subscribe to one of the oldest UK financial newsletters, the Fleet Street Letter which is now owned by MoneyWeek. All of these publications can be ccessed on-line and they send daily and weekly e-mail prompts and updates.

As for what would happen to Irish mortgage debt if we left the euro and assumed a new, devalued Irish punt, the consensus view is that you would have to repay your euro denominated mortgage with the devalued new currency.  If, say, you had a €200,000 mortgage debt and the new punt was worth 50% of the old euro, then you would now have an equivalent new debt of 300,000 new punts. Only outright debt forgiveness for personal debt holders – or very high inflation – will reduce the value of your debts. Finally, any purchaser of AIB Bank would expect you to keep paying your mortgage, as per its original terms, in euro, punts or any other currency that became the new ‘coin of the realm’.

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SG writes from Kerry:  I’m considering opening a GoldSaver account with Goldcore.com and invest on a monthly basis but I’m a little sceptical about buying certificates as opposed to physical gold as I have heard lots of bad stories from people online about not being able to obtain their gold when they requested it. Do you have any advice regarding same?

Goldcore director Mark O’Byrne told me, “There is no truth in this. 
During the financial crisis in 2008 there were delays of some two weeks for clients who decided to convert to allocated gold or who wanted to take delivery of their gold. There has never been a delay in liquidating Perth Mint certificates for cash or in receiving payment as it encashes certificates and transfer cash immediately.”  If you are anxious about buying gold in certificate form, or in the form of an Exchange Traded Fund, another ‘paper’ backed version, I suggest that you buy coins or bullion and store them securely.

OVERPAYMENT CAN KNOCK MONTHS OFF A MORTGAGE

MC from Wicklow:  We have about 15 years and €190,000 outstanding on our 2% tracker mortgage. We have approximately €10,000 saved and were thinking of paying off some of our mortgage. One of your co writers recently commented that we would be better off investing the money in a high interest account (no time period suggested). I would appreciate your opinion.

The first thing to check is whether you can pay off a lump sum from your tracker mortgage without penalty – under no circumstances do you want to endanger the continuation of the tracker and end up being switched over to a variable rate contract. 

High yielding deposit accounts are short on the ground these days, but the conventional view is that if you can achieve a superior, low risk, net return from a deposit account or investment fund, compared to the rate you must pay on your mortgage, it makes sense to opt for the higher return. A good advisor can help you identify deposit accounts and investment options that may fit that parameter.

However, this also only makes sense if you don’t have any other, higher cost outstanding debts, such as credit card balances, hire purchase payments or personal loans.  Credit card balances that typically attract 18% plus compound annual interest rates should be prioritised, especially if you’re in the habit of only paying off the minimum monthly repayment. 

Finally, before you make any decision, make sure your lender or your advisor shows you just how much interest you will save if you do pay off €10,000 capital from the €190,000 mortgage balance. You may find the lump sum  capital payment is a very good, guaranteed, no risk, no cost (hopefully) way of saving a lot of money. 

A once-off overpayment of €10,000 on a mortgage of €190,000 at 2% interest, for example, should save you €3,360 in interest and shave 10 months off the 15 years left on your mortgage. Ask your lender what would happen if you need to get back the €10,000 in future, perhaps to cover a financial emergency. MOst banks treat it as a mortgage top-up, which is increasingly difficult to get as house prices fall, reducing the equity in your home. 

Some lenders, including KBC Homeloans, give you the right to take mortgage overpayments whenever you wish. This flexibility makes the overpayment a lot more attractive. 

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Fixed risk

KP writes from Kildare:  I have been offered a two, three or four year fixed rate mortgage from AIB for a €450,000 mortgage and I’d like to know, first, if you think a fixed rate is a good idea and for how long and then, what will happen to mortgage agreements if AIB is sold.  Finally, what happens to mortgage debt if Ireland goes off the euro?

I asked Karl Deeter of Irish Mortgage Brokers for his view and he thinks the  three year 3.89% fixed rate you’ve been offered by AIB “is a very good deal” and at just 0.2% higher than the two year rate is a premium worth paying.  According to Deeter, ECB interest rates can only go upwards and since they are determined by the state of the German economy and not ours, chances are they will be going up sooner than later as the German economy strengthens and price inflation becomes more of a concern.  Even tracker mortgage holders will have nowhere to hide if that happens. He also suggests that all the Irish banks will be raising their lending rates as a consequence of the latest capitalisation measures and fixing a loan is a way to at least achieve some peace of mind for a few years. 

You do need to consider the consequences of having to revert to a higher variable or tracker rate at the end of the fixed period.  Your lender can project your mortgage cost on a lower capital balance, but at a higher rate, in three years time. You cannot overpay a fixed mortgage if you find yourself with some spare cash. You may also be hit with steep redemption penalties if you need to break out of the fixed deal because the rate is uncompetitive or you decide to move.

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Foreign affairs 

UB writes from Dublin: Further to a query in last week’s Sunday Times regarding transferring savings to another country - what steps are involved in this process?  Is residency a condition of repatriation of funds?  Who would be able to advise as to how to go about this?

There is nothing to stop you from transferring funds from your Irish bank account to a bank account in any other EU country, so long as you have all the access codes for the foreign bank account and you do not violate any money laundering protocols.  Opening that foreign account in your own name is another matter.  Again, there are no EU regulations preventing you from opening the account, (see http://ec.europa.eu/youreurope/citizens/shopping/banking/faq/index_en.htms), but individual European banks can set their own deposit terms, including residency requirements.  You need to check with the specific bank. 

Perhaps the easiest way to open a non-Irish, and non-euro bank account is to cross the border to Northern Ireland and open an account there.  Bank of Ireland, AIB, Ulster Bank in the north, will all open sterling savings accounts for Irish residents who fulfil the correct ID and money laundering conditions.  The main Irish retail banks, including National Irish Bank, can also open non-euro accounts for customers.

Nationwide UK (Ireland), which last week opened its first high street branch in Ireland at Merrion Row in Dublin (it has a drop-in customer centre at the IFSC) says that British building society legislation prevents its branches in Northern Ireland from opening accounts for non-residents.  Like most deposit takers though, it has a branch in the Isle of Man that will open offshore accounts for non-residents. Interest on such accounts is liable to tax at your marginal rate. 

MMcH writes from North Dublin: I know you have written extensively about the importance of maintaining life insurance even in difficult financial times and I fully agree with this advice. I would however, like to ask your opinion on the following: my husband and myself (both now 50) pay approx €350 per calendar month on a 20 year mortgage of €500K. My husband was "weighted" as he had pre-existing illnesses. We now find this payment punitive and while we both have life assurance cover associated with our jobs, it was pointed out that this was only in place as long as we both were in these particular positions. Is there any way we can reduce the premium without going though the stress of hawking ourselves around to new brokers? Can we reduce our cover as the outstanding amount on the mortgage has been reduced?

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I asked financial advisor John Geraghty of www.labrokers.ie for his opinion about your case. Without knowing more about the type of loan you have and the medical reason for the loading of the premiums, he was unable to determine whether your policy is ‘good’ value or not. Nevertheless there are ways to try and reduce the cost he says though it depends on the cooperation of both the lender and insurer. First, you could, as you suggest yourself, ask to switch to a policy that reduces the cover in line with the depreciating balance of capital you owe. Not all insurers are in a position to do this as it depends on the terms of the underwriting of the policy, he says. Another option is to seek cheaper cover from another provider, “but given that your readers are probably a couple of years older now and the health condition they refer to may still exist, they may not be able to secure a lower quote.” If your husband’s health is better, however, the loading penalty might be lifted and this savings may cancel out any higher age-related premium, he says. Next, since you are now both 50, you can ask your mortgage lender if they would be willing to waive the requirement for the life cover. But, says Geraghty, only expect them to do this if they are satisfied that the surviving partner’s income is sufficient to comfortably meet the loan repayments and/or the sale value of the property would cover the outstanding balance owed to the lender. Finally, you don’t say if you have any other life insurance policies of similar duration to the remaining term of your mortgage, other than your death in service benefits (which cannot be assigned against a mortgaged debt). If you do, the lender might allow these to be assigned to the loan, therefore allowing you to reduce the balancing cover (and cost) of the existing policy. Again, this depends on the existing policy being amended and not having to be re-issued. If that happens, says Geraghty, your ages and health circumstances would probably result in a higher premium that might cancel out the benefits of having access to the other policy. Given how there are so many permutations to consider, you really should engage a good broker to help you cut your costs. 

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BA writes from Dublin: Post Office savings certificates and bonds are advertised as tax-free savings and I receive an annual certificate of interest on every cert and bond. Does that mean that in my annual tax return, where it states under the heading ‘Irish Deposit Interest, Gross Interest Received’ (from which DIRT was deducted), that one must state how much they have earned each year from the Post Office? If that is the case then these are not tax-free as one will have to pay income tax at the higher rate if their pension/ salary plus extras plus interest on certificates and bonds bring your income over the lower tax rate as these earnings are all added together and you are now taxed on this total.

You are worrying for no reason. The deposit interest you receive from your Post Office savings, which is limited to a sum of €120,000 for an individual and €240,000 for a married couple - is entirely tax-free. You do not have to include the existence of your certificates or bonds or any interest earned from them in your annual tax return to the Revenue Commissioners. 

SW writes from Dublin: I hold a small self-administered pension scheme which is administered by a pensioner trustee. Along with your comment on the Sunday Times (17th January) I am opposed to paying the sky-rocket brokerage fees charged for my infrequent buying and selling of shares under the pension scheme. Would you know if it would be possible to set up an on-line, execution-only stock broking account for a small self- administered pension scheme?

According to pension expert Judy O’Rourke of Global Pension Options in Dublin, there should be nothing to stop you and your trustee from setting up a lower-cost execution-only brokerage account in order to reduce your share transaction costs. “But your reader needs to know that under self-administered pension scheme regulations he cannot act separately from his trustee in purchasing shares or any other assets.” This is something you will need to discuss with your trustee.