The Sunday Times - Money Questions 19/04/09

Posted by Jill Kerby on April 19 2009 @ 21:57

NW writes from Dublin:  I have money invested in schemes like Standard Life Bonds, AIB Eurobond, Bank of Ireland Asset Management and Hibernian Investment funds etc. Obviously all of these products have lost value. Are they likely to recover in the medium time - I am in my 70's - or should I just liquidate all of them?

Most investment advisors are generally reluctant to advise older clients to have a high exposure to stocks and shares and other volatile assets.  The main problem with such exposure is that as a retired person you are unlikely to have the future earning capacity that a younger person would to make up for investment losses. I spoke to Dublin based independent advisor, Vincent Digby about your situation (his website is www.Impartial.ie) who said that not only is capital preservation “as important an issue for your reader as capital growth” but that you should be clear about your personal needs and objectives for your before you make any decision to cash out any or all of these funds. “This is always the criteria that should drive asset allocation” says Digby.  Before he could advise anyone about cashing out, he says he’d need to know more about your particular circumstances and whether these funds have been producing an income or not. “It’s possible that your reader has sufficient other assets – pensions, cash savings and property that is generating income and he isn’t touching the capital in these funds.”  You should have your portfolio reviewed as soon as possible (this stock market rally may not last) and check first to find out what penalties, if any, may apply in you do decide to encash them.  Once this is done you should be in a much better informed position to consider other options, such as secure cash deposits, a combination of cash, bond and cash funds and inflation-linked bonds.  



SH writes from Dublin: My daughter is a post-doctoral researcher currently being paid from a European Union Marie Curie scholarship. Her sponsoring college in Ireland is the University of Limerick, through which her Marie Curie monies are paid. She has completed two years research in MIT in Boston and is currently back in UL for her third year of the scholarship, which ends in October 2009. She opted out of the university pension scheme at the start of her scholarship. The University of Limerick is currently deducting the pension levy from her scholarship salary even though she is not in any pension scheme. Is this a valid action on the part of UL? How can one be obliged to pay a pension levy when one is not a beneficiary of a pension?




The fact that your daughter is on the university (ie, the state) payroll means that she would automatically have been liable for the pension levy, but your point that she should be exempt since she is only in temporary post and not a member of the pension scheme hasn’t been missed by others like her:  your daughter should contact the Trinity Research Staff Association which is protesting at their inclusion in the levy as well.  On their website - http://www.tcdlife.ie/trsa/?Pension_Levy - they discuss this anomaly and encourage research staff to send letters to their local TDs to lobby to lobby the minister for finance for an exemption and to organize a petitions. According to the website, “There is a clause in the [legislation] where a case can be made to the minister for finance to exempt a group or class of employees based upon specific conditions of their employment that distinguish 

them from other classes or groups of public servants.”  The Association has also made available a draft letter to send to public representatives and a list of all the e-mail addresses of Dail TDs.





DD writes from Cork:  I took a redundancy package from my job in July 2004 and the company allowed me to take an income stream spread over seven years which I receive fortnightly. Since the income levy was introduced it has been deducted from my fortnightly income. But as this was a redundancy package, does it come under the rules which exempt redundancy payments from this levy?  I would appreciate your view on this matter.


According to the Revenue (statutory redundancy payments are exempt from the income levy as are ex-gratia redundancy payments in excess of the statutory redundancy amounts, subject to certain limits. These limits are “up to €10,160 plus €765 per complete year of service in excess of the statutory redundancy.” This basic exemption “can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme.”   If your statutory redundancy falls within these limits then the levy should not have been deducted.  I suggest you go back to your company and speak to the HR manager or finance officer to confirm whether or not you are liable under the Revenue exemption rules which you can access here: http://www.revenue.ie/en/practitioner/law/income-levy.pdf)


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The Sunday Times - Money Questions 12/04/09

Posted by Jill Kerby on April 12 2009 @ 22:01

RL writes from Dublin:  Our family has a Multi-Trip travel policy with VHI that cost €95 and doesn’t expire until the end of the year.  I was recently made redundant and have lost my VHI cover from work so my husband and I decided to switch all of us to a cheaper provider (Hibernian).  However, when the Hibernian person asked if we wanted travel insurance, I told them we already had it was VHI and they told me that policy was now cancelled. I was never told this when we bought the insurance.  It seems that you can only keep the travel policy if you remain with VHI and there is no refund – in our case for at least seven months worth of payments.  Is this correct?



I’m afraid so.  I checked out the terms and conditions for the multi-trip policy on the VHI website and under ‘Principal Exclusions and Conditions’ it states “All members on a Multi Trip policy must hold relevant Vhi Healthcare Hospital Insurance” and that “Cancellation of your Vhi Healthcare Hospital Plan will result in non-refundable cancellation of your travel policy. There is no refund on any cancelled policies after the 14 day cooling off period” even if you have months to run on the policy. .  According to Dermot Goode, a financial advisor in Dublin who specializes in health and income protection insurance, “None of the insurers will refund your money after the 14 day cooling off notice is over and but VHI is the only health insurer that does not allow the policy to run out if the person switches their cover to Quinn or Hibernian Aviva. Even if your VHI policy expires in 2009 before the travel policy does, and you don’t renew with them, the travel policy will be null and void.”   This unfair condition needs to be amended and you should consider not only formally complaining to VHI, but to the Financial Regulator and your public representatives as well. 







PB writes from Co. Mayo: I have a tracker mortgage with AIB with a balance of €67,000 due to expire in April 2015. My monthly repayments are €578.54 per month based on the tracker rate of 2.1% (margin of .6% over ECB rate). I wanted to reduce the term of my mortgage by exactly five years without reducing my monthly repayments. When I rang the bank less than 12 months ago when the interest rate on my mortgage was at a higher rate than now I was told the it would cost me €21,000. I rang them again last week and was told it would now cost €25,000, but not believing this was an accurate figure, I rang them back the same day and was told it would cost €27,000! I subsequently received a letter confirming the later amount.  In 2006 courtesy of an SSIA, I reduced the term of this mortgage by eight years and it cost me € 32,000!  


I'm afraid these figures don't add up for me. Let’s assume your current tracker rate never changes and you continue to pay the same mortgage repayment for the next six years and four months to April 2015: at €578.54 per month (by 78 months) this is a total repayment of €45,126 – well short of the €67,000 capital balance you say is still outstanding.  I suggest you ask your lender to supply you with a hard copy schedule of payments that shows you how much it will cost you each month to reduce the term of your loan from six years and four months to just one year and four months – that is, over five fewer years – or the size of the lump sum you would need to pay. (Not all tracker loans allow for lump sum payments off the capital, so check that too.)  Reducing the term of a mortgage is commendable, though at these current low interest rates you would be better off reducing more expensive debt like credit cards, overdrafts and personal loans, should you have any. 




JK writes from Dublin: I am interested making an investment in gold.  I have decided not to do business with the agent for Perth Mint, and would prefer to buy into an ETF which tracks the price of gold.  I have contacted my broker (Sharewatch), and they tell me that there are several ETF's that relate to gold prices, and that they can execute trades for those listed on European Stock Exchanges.  I would prefer to avoid the UK stock exchange.  I have found it very difficult to find information about Gold ETF's that might be available on European Stock Exchanges: can you suggest a starting point for me, or better still an ETF that you would consider worthwhile investing in?



ETFs are indeed a cheap way to buy and trade gold and other precious metals with mainly just stockbroking commission and a low annual management fee of usually under 0.5%. But the ETF involves a counterparty risk that you may not wish to take; physical gold that you buy (but must store securely) carries no such risk, nor does buying in certificate form from the likes of The Perth Mint of Western Australia where your gold is kept, assuming of course that it doesn’t shut down or otherwise disappear.  Before you buy a gold ETF or any other kind of gold (the Irish Stock Exchange now sells a gold miner ETF that represents shares in 10 leading gold mining companies) you should do some more research yourself.  There a few recent articles on this site http://goldprice.org/buying-gold/ that will give you a lot of background on the different ways to buy gold ETFs, bars and coins, even buying and selling scrap gold. 


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The Sunday Times - Money Questions 05/04/09

Posted by Jill Kerby on April 05 2009 @ 22:03

AK writes from Dublin: Is there any possibility of changing the rules governing the access to AVC money before reaching the age of 65?  My AVC Balance has decreased by €14,000 during the last year, I am in need of this money now before it has been completely diminished.

Unfortunately, if the rules of your occupational pension scheme require members to reach age 65 (except in the case of ill health or early retirement), then you will not be able to access your AVC early. Depending on how close you are to retirement, and your financial circumstances you could see if there is any provision for early retirement. Speak to your company’s HR manager, financial manager or a pension trustee.  If early retirement can’t be accommodated, you should at least consider shifting your AVC into a safer asset fund. (See my reply to HF below.)






BM from Cappoquin: I believe I am entitled to US citizenship as my father was a US citizen (A returned Yank). I would be taking this out to help my children to either get citizenship or a work visa to the USA. Even though I would have no income from the USA would I be liable to pay tax to the US revenue as a non-resident citizen?

The short answer is yes: if you are a US citizen your world-wide income is subject to US tax. However, if you do not reside in the United States you can apply for foreign income exclusion status which requires that you reside outside the US “for an uninterrupted period that includes an entire tax year, or… for at least 330 full days during any period of 12 consecutive months.”  The US Internal Revenue Service publishes the following explanatory guide. http://www.irs.gov/publications/p54/index.html   Meanwhile, you should know that the laws governing how US citizenship is acquired through a parent have changed at least five times since the 1930s.  You may want to check this out too.  A good guide to US emigration rules is U.S. Immigration Made Easy, by Ilona Bray.




BP writes from Dublin: My parents are retired and living in County Galway. They are automatically exempt from paying the TV licence as they are both OAP's. My father built a small house in his hometown in County Cork in the hope that family would stay there. My sister lived there for a year and the following year the house was rented out for six months and my father paid for the TV licence for the tenant.  The house is no let but there is a satellite dish still attached to the side of the house although there is no TV inside. My father was recently threatened with court if he did not pay for a licence. I am Would they be entitled to an exemption if the utilities were in my mother's name? My parents go to the house about five weekends per annum to cut the grass and do a general tidy. If my mother was deemed to be living there would she be entitled to a free TV licence in her name?

I asked the Department of Social Welfare whether or not the €160 TV licence exemption applies for multiple properties owned by old age pensioners and was told that it applies only to your principal private residence. I’m afraid it wouldn’t make any difference therefore if the second property was put into your mother’s name or not. 




HF writes from Dublin: I read with great interest your recent article on PRSA pensions. I am aged 63 and hope to retire next year.  I lodged a lump sum of €19,000 into a balanced PRSA Eagle Star, now Zurich Pension Fund three years ago. Should I now cut my losses and put same into a secure fund or leave it? Also three years ago I commenced paying €1,000 per month into a PRSA Pension Balanced Fund (Eagle Star) which has also lost heavily but not as much as the above. Should I transfer what is left of same into a secure fund?

Pension advisors usually recommend that within 10 years of retirement you review your investment strategy and your risk profile.  The closer you get the retirement, the further away you will be from making up any market losses.  At age 63 you shouldn’t have much – or any – exposure to riskier stocks and shares, something, unfortunately you have already learned the hard way. I suggest you speak to your own pensions broker or a Zurich advisor and ask them about their secure funds which aim to guarantee the remaining capital value of your fund by replacing the stocks and shares with cash and bond assets.  You are entitled to at least one free switch, so there will be no charge.  You can access your PRSA right now, if you so wish, taking 25% of it tax-free and paying higher rate tax on the balance. It doesn’t sound like there is much left in your PRSA anyway. Since there have been rumours about a tax of some sort (perhaps worth 17.5%) on the tax-free lump sum, if you do encash your PRSA you might want to get the paperwork done before do it before next Wednesday.  


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The Sunday Times - Money Questions 29/03/09

Posted by Jill Kerby on March 29 2009 @ 22:07

LD writes from Dublin: Late last year my mother-in-law discovered that a life assurance policy her husband had taken out in the mid 1980's with Phoenix Life Limited (a UK company) was still valid.   We wrote to the insurance company to see if this policy was still valid – he died in March 2005 - and they confirmed it was and was worth €7,200. However, when they found out he died in 2005 the amount was reduced to €4,800 as the benefit is calculated on the date of death. She finally received the €4,800 which included an ex-gratia payment of €737 due to the delay in settling the claim but they deducted income tax of €184. Is it correct that a death benefit is calculated on the date of death even if the policy was still earning earning interest from March 2005?  Should tax have been deducted, even though my mother-in-law is not a UK resident? Will she have to pay any Irish tax on the payment she has received? 


I learned that it was only after receiving correspondence from Phoenix Insurance in England that you discovered this lump sum policy existed and that it had been put into a ‘fully paid up” status not long after it was purchased. According to John Geraghty, of discount broker, www.labrokers.ie, Phoenix Insurance mainly sold with-profits whole of life policies and this policyprobably had a very low death benefit sum assured.  The payments you were quoted are probably the investment values at those two dates, he says, that may also include a small death benefit. The amounts quoted are “puzzling” as is the tax deduction and should be investigated further, says Geraghty. You have no record of who sold your father-in-law this policy, but he believes it was probably sold through the Scottish Provident here, whose address is Styne House, Upper Hatch St, D2. (Tel 01 6382900).  You should contact them for an explanation about the maturity value. “If your reader does not get a satisfactory explanation, she can progress her complaint to the Office of the Financial Ombudsman.”  Finally, as a spouse, your mother-in-law is exempt from any Irish tax liability. 



NG writes from Co Galway:  When I reached the age of 66 in 2003 I invested that portion of my private pension fund not subject to the 25% tax free lump sum – less than €200,000 - into an Approved Retirement Fund (ARF).  I was very attracted to the ARF as I was in receipt of the state pension and was still doing some consultancy work worth about €44,000 a year. I had been told I was in complete control of my ARF. In September 2007 I was advised that my ARF would now be subject to tax and was given some options. I chose to withdraw 1% of its value in the first year, 2% in the second year and 3% this year and future years, all amounts subject to tax. My combined pension and income means I pay higher rate income tax, but I had always intended to start withdrawing from my ARF after I was fully retired and paying a lower tax rate. I now find my ARF being eroded on two fronts – its value is dropping due to the economic climate and from the tax levy. I believe this disadvantage should be highlighted – it certainly is not the product that I invested in. 


All withdrawals from an ARF are liable to income tax at your highest rate. But it was the Finance Act 2006 that introduced a tax on ‘imputed distributions’ of 2% on the value of the ARF in 2008 and 3% in 2009 and every year thereafter. That said, if you do make a withdrawal, that amount canbe deducted from 3% imputed tax.  This tax was introduced as a way to encourage the withdrawal of some pension income, which the government claims was always the purpose of the ARF; it was not intended as a way to defer tax in retirement. Your concern about your eroding fund is understandable, but I suggest you review the underlying assets in your ARF and try to find a more secure assetsfor some or all of your money.  Unfortunately, converting your ARF into an annuity and pension income – which you can still do - isn’t much of an alternative, given the poor state of bond yields. 




FB writes from Limerick: I have recently been told that my mortgage with EBS has been transferred to a new company - EBS Mortgage Finance. The cover letter states that 'in the ordinary course of business' the society will set the interest rate and administer the loan. Given that my debt is now effectively owned by someone else, can this new subsidiary set a different rate of interest at some point in the future? I know the letter states ordinary course of business, but what if there is an extra-ordinary event? And can EBS just do this without my permission?

My understanding is that the terms of your contract with the EBS has not been changed as a result of this transfer of business to EBS Mortgage Finance company. Unless you have a fixed rate loan or a tracker mortgage contract, the building society can set a new interest rate at any time.  Lenders usually don’t do this (unless the ECB rate changes) but it is within their right to do so, say, if there was a huge loss of lending or deposit business – the extraordinary event to which you refer. If you are unhappy with this new arrangement, you can always try to take your business to a different lender.

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The Sunday Times - Money Questions 22/03/09

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

AOS writes from Dublin:  What advantages are there to selling/buying property between family without using an auctioneer? I know the auctioneer’s fee is one – what else?

Since family members are already aware of the selling points – and perhaps the fault of the property – the saved fee and VAT are the only advantages I can think of. Now this has nothing to do with the use of an auctioneer’s services, but an advantage of transferring property between family is that you can presumably share the services of a single solicitor to keep the costs down and as well, if a site (worth less than €500,000 and no larger than one acre) is transferred between a parent and child and it is to be used to build a principal private residence for the child, no stamp duty is payable, which represents a savings of many thousands. Stamp duty is also only chargeable at half the usual rate on property transfers between other blood relatives. 



KO’C writes from Limerick: I purchased an apartment in Bulgaria in 2008. However, I was wondering if I could now "cash in" some of my pension fund and pay off the apartment mortgage and then subsequently add the apartment to the pension fund?


That’s an interesting idea, but I’m afraid it’s not possible to cash in any of your pension unless you have reached the designated retirement age of 60 or 65 (depending on the type of pension contract you hold) or earlier, if you are forced to retire on medical grounds.  Personal retirement savings account (PRSA) holders can access their pension fund from age 50, but after taking the first 25% as a tax free lump sum, you would have to pay higher rate tax on the balance.  What you should have done from the start was set up a pension mortgage:  the purchase of the apartment would have been part-funded by your pension fund (complete with tax relief on the contributions), but the apartment would have had to be sold upon retirement – you would not have been entitled to own or use the apartment for your own use at any time. 




JS writes from Dublin: Having read your recent article on Irish Nationwide, I am concerned about deposits there. I have €200,000 on deposit. Do you think Ireland Inc. is sufficiently robust to reimburse all depositors under the guarantee scheme if a bank or building society fails or would it be more prudent to withdraw funds, incur penalties and find an A rated bank?


I think you are quite right to be security conscious – even with the 100% government guarantee of your deposit.  Ireland Inc is not out of the woods yet regarding the nation’s overall financial position, let alone that of the banks who without the government’s intervention may very well have been deemed insolvent. As other Irish Nationwide depositors have accepted by now, the society is not going to be bought out or privatised – some say it is more likely to be nationalised.  If you are looking for absolute safety for your money you might want to even split it up - into two different institutions, perhaps?  Don’t forget when you are choosing a new deposit institution that RaboDirect is the only triple A-rated bank based in Ireland. Their deposits are covered under the Dutch bank insurance scheme guarantee of €100,000. Meanwhile, if you don’t actually need this money to live on (I’m assuming that your income, pensions, savings, low debt – whatever – mean your finances are in good shape) you might consider buying some precious metals – gold or silver, as the ultimate store of value and a hedge against inflation and economic or geopolitical uncertainty, all possibilities going forward.  Check out the merits of holding a little physical gold in your portfolio at www.gold.ie, the Irish-based gold bullion dealers who have a good information section on their web-site.  






JO’B writes from Clonmel:  I had a managed pension policy and it matured in July 2007. I assumed my pension fund was safe after it matured but when the pension company did not contact me, I contacted them two months later to find out what was happening with my policy. They told me it has lost money the previous months.  I thought in the run up to maturing that the pension company safeguarded all pensions.  What is the law regarding this situation? 


Private pension funds come in various forms, but if this is a typical retirement annuity contract for a self-employed person or for someone whose company had no occupational scheme dating back at least 10 years ago, then it may have been entirely your responsibility to monitor the asset mix and performance of the fund as you approached retirement.  “About 80% of pension providers contact a near-retiree about six to eight weeks before retirement informing them that their maturity retirement date is coming up and asking them for instructions.  But not all of them do,” says Gerard Geraghty of Geraghty & Co financial advisors in Westport.  “There is no obligation the part of the pension company to ‘safeguard’ the fund either, but in the last decade or so all the pension providers offer pensions with a default investment strategy that you can tick, that will, every five years automatically shift some of your fund into safer assets like cash or bonds.  It doesn’t sound as if you reader had such a policy.”  One of the reasons I keep recommending that readers get good, fee-based financial advice before they buy expensive money products is so that this kind of feature will be pointed out, and the pension advisor you engage will keep you abreast of issues like proper asset allocation as you get closer to retirement. 

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The Sunday Times - Money Questions 15/03/09

Posted by Jill Kerby on March 15 2009 @ 22:11

TO writes from Dublin:  My husband is well over 80 and qualifies for the medical card on income grounds. As I am now over 70 he was told that I also qualify.  The form I must fill in requires not only details of our savings, but evidence and there is no way my husband will write down the numbers of our An Post savings certificates or our post office book. Surely asking for details and evidence of our savings is breaching the bounds of decency? 

Last October’s budget changed the rules by which the medical card is now issued, but the fact that your husband is still receiving the card, and was not required to produce any further statement of income, suggests that the HSE is satisfied that he continued to qualify for the free medical card after the October changes. (In fact the majority of over 70s continued to receive the card.)  The request for income details from you, not that you are over 70, sounds to me like a formality, unless, of course you have separate income to your husband that would push you both over the qualifying income limit of €1,400 per week for a married couple. The HSE has said it will take a sympathetic view of pensioners with existing cards and question marks over their continuing qualification.  Why don’t you contact your local Citizen’s Information Centre and discuss your concerns with them?  They should be able to allay your fears about having to fill out this form. 




RW writes from Youghal: Having worked for almost 50 years in the UK I have received a pension plus our old age pension of about Stg£46,000 per annum. This I receive gross as I am now tax resident in Ireland.  My query is, at what currency conversion rate does the UK Inland Revenue use to convert my pension to euros? I requested that it be paid in euros, but my pension is vastly reduced as a result of the current conversion rate. 


You should contact the UK Pension Service International Pension Centre, Tyneview Park, Benton, Newcastle upon Tyne, England, NE98 1BA to request the conversion exchange rate the UK currently uses when it converts sterling state pensions into euro.  I would have thought the rate is determined by the exchange rate on the particular day of the month that your pension is transferred to your Irish account. The International Pension Centre also provides a telephone service at : 0044 191 218 7777 or you can e-mail them at tvp-ipc-customer-care@thepensionservice.gsi.gov.uk.  Be sure to include your pension file number and other pertinent details in any written correspondance with the centre. is 





AK writes from Dublin: Is there any possibility of changing the rules governing the access to AVC money before reaching the age of 65?  My AVC balance has decreased by approximately €14,000 during the last year, I am now 63 and in need of this money now before it has been completely diminished.


The rules of your pension scheme determine when you can access your AVC, and yours clearly do not permit access before age 65, even though you are retired.  You should contact the fund trustees/administrator to see if you can switch your existing AVC assets to an asset fund that will ensure that your remaining capital is secure until age 65.  You should not you’re your money in what appears to have been a high equity-exposed AVC fund – something else you can raise with your trustees, who should have been more pro-active in helping AVC holders at your company to protect their retirement savings at they got closer to retirement. 




PL writes from Dublin:  I am thinking about buying some gold, probably through the Perth Mint certificates that you have written about. However, I want to know what would happen to the value of my gold cert holdings if hyperinflation takes off and the US dollar goes up in value but then collapses, as David McWilliams recently predicted.  If I wanted to cash in my certs would I get the dollars or the gold?  Is there a way to nominate payment in euros or another currency instead?

According to Mark O’Byrne of Gold and Silver Investments, the Dublin bullion dealers, the Perth Mint certificate programme “is very liquid and you can sell your certificate at any time and the client will have their funds wired to them in whichever currency they wish to be paid in.  We deal, quote and have bank accounts in all the major currencies including the Swiss franc. So you can get whichever fiat currency you want to be paid in. Secondly, and most importantly you can also take delivery of your gold or silver at any time by simply converting to allocated gold, paying the fabrication fee for the coins or bars and instructing to ship to an address of your choosing – for safekeeping in one’s home (with home insurance obviously) or to be kept in safety deposit boxes or depositories in Europe.”  O’Byrne adds that if there is hyperinflation in the US “and that does seem quite possible”, it is likely that there would be hyperinflation in the UK and in all debtor nations with exposures to Wall Street and the City of London. “Hopefully the euro would not be as effected due to the German hawks who are aware of the risk of hyperinflation due to their experience at the end of the Weimar Republic in the 1920’s” but all paper currencies are “still likely to fall vis a vis gold”.

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The Sunday Times - Money Questions 08/03/09

Posted by Jill Kerby on March 08 2009 @ 22:16

PN writes from Dublin: Unwisely my husband and I took out mortgages on our home in the last few years amounting to a total of €900,000 to make some investments for our retirement. We run a small business, and are unsure if, despite our best efforts, it will survive. We have reduced our salaries by half.  Our home has been for sale for the last eight months and the plan is that when it is sold we will pay off the loans and rent. Meanwhile we are checking out any ways we can save money. I am sure your answers to the following questions will be very helpful for others in the same situation. 1) We cannot afford the mortgage protection policies on the loans. What could the bank do if we stopped paying them? The bank is unlikely to have any more luck than we have had at selling our home.  2) Now that interest rates have come down, are these insurance policies overly expensive?


Your longer letter explains that the mortgage protection policies alone are costing you €620 a month; unfortunately, the cost of the premiums are calculated based on the size of the capital value of the loan, its duration, your respective ages and genders and the fact that you are both non-smokers and otherwise in good health.  The cost of servicing the mortgage is irrelevant. As for not paying the premiums this would be a breach of contract; it is also mandatory in this state to have mortgage protection insurance if you hold a mortgage property.  However, lenders have been known to accept a ‘life waiver’ for clients aged over 50, sometimes because the person can provide an existing life assurance policy or other collateral that could be realised and pay off the loan in the event of their death. I suggest you speak to a broker or your lender before you stop paying the premiums. 




JN writes from Dublin: My employer pays €1,000 per year for my and my wife’s Plan B VHI insurance. Additionally we 'flex up' by paying an extra €1,000 ourselves to get up to Plan C Options. This extra €1,000 is taken over the 12 months by payroll deduction and facilitated through the company’s benefit scheme. I have been declaring the employers €1,000 as BIK and claiming relief on my €1,000 contribution. However with BIK being taken at source is this the correct calculation?


Tax advisor Sandra Gannon of TAB Taxation Services in Dublin says that you have been doing the right thing, except that you have been forgetting to also claim tax relief on the employer’s contribution, to which you are entitled because of the BIK you pay.  She says that you can seek up to four years of back tax on your tax claim. 




BI writes from Dublin:  I am getting an extension and thinking of applying for a mortgage. I have €250k in savings in various accounts. Should I take out a mortgage or use my savings to pay for it. I am 50 years old and do not have a pension. What are my best options?


Mortgage interest rates are very cheap again – the best three years fixed rate is currently just 3.4% - and the most attractive lending deals are available to existing owners with plenty of equity already in their homes and good, secure jobs.  It also makes sense to borrow the extension money if you are able to lock in a higher interest rate for the €250,000; it’s when savings are a loss leader that it makes sense to use it to pay off debt or buy outright rather than borrow. That said, if you are the sort of person who looks at the longer term, you might believe, as I do, that interest rates will not remain this low forever.  There is a growing risk of price inflation – the consequence of the inflating of the world’s money supply – and when it spills over into the real economy, prices will go up and interest rates will have to rise to counter it.  The best way for any of us to get through these tough times will be if we have little or no debt, plenty of secure savings and investments and a regular income.  You shouldn’t count on your house to be your pension unless you are willing to sell it and live on the proceeds. That is all the more reason to be careful about mortgaging the property. 





JK writes from Co.Wexford:  In 2007 my wife invested her SSIA in a single premium PRSA with Irish Life for which she received top up tax credit. It has since lost 45% of its value.  As she had no pension she also contributed on a monthly basis to a PRSA standard plan in 2007 which was also invested in a consensus fund and this has lost approximately 30%.  Does she leave them as they are and hope that the value increases or change them to cash and accept the loss or cash in both plans and put the money on deposit in a credit union and use the proceeds as her pension? Her employer does not contribute to the pension plan. 


Unless your wife is 50 your wife cannot cash out of her PRSAs.  She can certainly switch to cash or bond funds to protect her capital or transfer them to a different provider with funds she prefers at no cost.  She will be crystalising her losses by switching to a capital protected fund, but many commentators are now predicting the stock markets have a good way still to fall.  (See Comment.)  PRSAs at least offer some flexibility:  she can stop and start her contributions without penalty, but if she opts to put her savings in the bank, she will lose the tax relief on the contributions and will have to pay annual DIRT tax on any interest. 


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The Sunday Times - Money Questions 22/02/09

Posted by Jill Kerby on February 22 2009 @ 22:21

JGL writes from Co Cork: I shall reach age 60 in August at which time I will be eligible to take a (defined benefit) sterling pension of approx £14,500 per year or a lump sum of up to £66,000 with commensurate reduction in pension down to approx £9,500 per year.  If I wait until age 65 my pension will be just over £1,000 per year more (some elements are paid at 60 without reduction).  The pension is payable by an Anglo-Dutch multinational. Given the current economic climate and the questions surrounding many pension funds, would your advice be to take the money at 60 or wait?   I can survive without the additional income, but we need to make our house more energy efficient and a lump sum to invest in alternative energy sources would be helpful. Also, there is the low sterling exchange to consider. 


This might be one of those ‘a bird in the hand’ moments, says Alan Morton, a director of the Dublin financial advisors, MoneyWise. You should first establish whether your employer’s defined benefit pension fund is currently underfunded or not (he suspects that it very well may be).  A limited pension compensation scheme operates in the UK, but it may not be sufficient to cover your pension entitlement if, in a worst case scenario, this fund was involuntarily wound-up. “No one can be sure what is coming down the line financially anymore,” says Morton. “If your reader was my client, and from the information she has provided you, I would suggest that she take the lump sum and the pension at 60 rather than delay it until age 65. As for the currency exchange risk, the sterling/euro rate may not be in her favour right now, but this may change.”  Timing a currency rate is not always possible, he added and there may be years when her sterling-based pension will be worth more than it is now against the euro.






PG writes from Dublin: Do you know of any brokers that sell Insurance that covers tenants who refuse to pay rent or will not vacate. I was offered this indirectly by a management company.


I passed on your query to Sean O’Connell of The Insurance Shop in Fairview, Dublin who told me that he is aware that insurance, from UK underwriters, is available via property management companies to landlords who wish to cover rent arrears if a tenant disappears.  You might want to weigh the cost against the risk before you buy such a contract, he said. He suggests you contact the Irish Property Owner’s Association (www.ipoa.ie) for their views about the availability of this insurance.  Evicting a tenant is a “slow and costly business” in this country, say O’Connell, and to his knowledge there is no insurance policy to pay those legal costs, but the IPOA does offer assistance to members who are involved in disputes and eviction proceedings that come before the Private Registration Tenancies Board.





MP writes from Dublin: Our VHI renewal notice (Plan D) states "The total cost of your cover for the period from 01/01/2009 to 31/12/2009 is €3,600.”  This is a 30.132% increase on 2008 premium of €2,766.42 euro. My husband and I are aged 79 and 67 respectively. I spoke with VHI to ascertain if the additional tax relief announced by the Minister for Health had been deducted.  It had and the explanation of the modus was that our gross premium is €5,950 less the combined tax relief for the two of us of €1,450, less 20% tax relief of €900. I maintain we are entitled to 20% tax relief on the entire premium which would bring our net premium down to €3,310.  I would be grateful for your opinion on this matter. 


The new tax reliefs for health insurance haven't come into force yet, says Dermot Goode, a Dublin-based financial advisor who specialises in the health insurance sector, but under the new levy regulation “The new tax credits must come off the premium first and then the 20% relief is deducted. In fact, the new gross cost of VHI Plan D for 2 adults (with the group discount) is €4,500 for renewals after January 1, 2009. The net cost is €3,600 when you deduct the 20% tax relief. If this member's calculations were correct, she'd be paying approximately €300 less than the market for 2 adults which can't be the case. I believe many people are confusing a normal price increase to cover the cost of medical inflation with the new tax credits.” He suggests that you consider switching to similar plans with either Quinn-Healthcare or Hibernian Aviva Health, both of which are cheaper than VHI Plan D. “Switching is straightforward with all insurers and assuming you've satisfied all your normal waiting periods, you should be on cover immediately.” 


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The Sunday Times - Money Questions 15/02/09

Posted by Jill Kerby on February 15 2009 @ 22:24

MM writes from Galway:  A few months ago I read your comment about fixed mortgage rates and the cost of getting out of a fixed rate. We have a loan of €400,000 from the Bank of Ireland that was drawn down in May 2008 at a fixed rate of 5.25% for three years until June 26th, 2011. Now we would like to change to a variable rate and I was quoted €23,697 as a fine. Is this correct?


Bank of Ireland told me that they do not charge a penalty to break fixed contracts.  That sum you were quoted is the "funding sum", based on the outstanding balance of the mortgage, the interest accrued and any cost directly incurred by the bank as a result of breaking out of the contract.   I can understand why you want to break this contract now that the Bank’s variable rate is just 3.6% APR and it has just launched a new five year fixed rate APR of just 4.1% and just 3.5% for two years. However, the €23,697 penalty you have been quoted is the equivalent of a about a year’s worth of interest on your loan, which would certainly take some time to absorb, even on a lower rate payment.  The repayment difference between a 3.6% rate and 5.25% one on a €400,000 loan over 30 years is at least €400 a month, but even at that lower interest rate it would take several years to absorb that interest penalty, especially if you intend to fund it by consolidating it onto the existing mortgage or further extending the term of the loan.  There are no guarantees that the variable rate won’t go higher either. 





PJ writes from Dublin: Six years ago when my mother-in-law sold her house she set up a trust fund of €30,000 each for our two boys in her own and my wife’s name. All taxes were paid. The fund was Bank of Ireland Life Smart Portfolio and Balanced Managed fund S9. Its value is now €53,000 in total and dropping. We were advised to leave it as it would be a bad time to get out.  If the Bank of Ireland was nationalised what would happen to the investment?  If the money was taken out and just put into their Credit Union accounts what questions would be asked by the credit union and are we liable for more tax?  What would you advise to do with the money as we don’t want the boys to have direct access to the money until some kind of maturity has set in.  It is very difficult to get independent advice so any help would be appreciated as we have one elderly woman very worried.

If this investment fund is closed now, the losses will be crystallised.  You don’t say how old the children are or for what use the fund was created – college education perhaps?  The question your mother-in-law and wife need to ask themselves is whether the investment will recover sufficiently by the time the money becomes available.  I’m also not sure from your letter what kind of a trust has been set up, but shifting the money from Bank of Ireland to another institution shouldn’t make too much difference if it is a legal issue that prevents access to the matured fund at say, age 21 or 25 or whenever.  Consult your solicitor about the legal contract.  It sounds to me that everyone’s main concern is that there are no more losses. Bank of Ireland Investment Managers should allow you a free switch into a more secure deposit or asset fund in which the capital is guaranteed. Or you can do as you mention, and shift the remaining money into the boys’ credit union accounts or another deposit institution. Since you have lost money, there will be no exit tax of 26% to pay if you close the fund, but your mother-in-law and wife will have to produce the proper identification to comply with money-laundering regulations if they open a new account.




LD from Dublin: I am 50 years old and joined the public service in 2003. I currently pay around 6.5% of my gross salary into the public service pension scheme. I also have a PRSA which I started around the same time to supplement the public service pension and into which I contribute the maximum amount allowable for tax relief. With the new pension levy, I estimate that I will have to pay an extra 8.8% of my salary into the public service salary, making a total of 15.3% of my gross salary going to my public service pension. To make sure that all contributions are tax efficient, I am considering reducing my PRSA contributions to 14.7% of my salary to maintain the total pension contribution allowance of 30% of my salary. Does this make sense?


If what I have been told by a senior official in the Revenue is correct when the pensions levy legislation is published it is expected to allow public and civil servants to continue to claim the maximum tax relief available on any Additional Voluntary Contributions (AVCs) or PRSA contributions they are currently making up to and including the allowable amounts which are income and age related. IN your case, because you are now 50, you will continue to be able to claim tax relief on the 6.5% mandatory pension contribution, and the 23.5% into your PRSA which brought you up to your 30% contribution limit, PLUS tax relief on the new 8.8% contribution you must now make into your public service pension.  Whether or not you still want to or can afford to divert a total of 38.8% of your gross income into pension funding is another matter, though the actual cost to you will be reduced by your higher rate of tax. But keep in mind that this new 8.8% levyis not actually buying you any extra pension income; it is really nothing more than a gross pay cut, albeit one that attracts tax relief.  It is the PRSA that is buying you a genuine pension top-up.

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The Sunday Times - Money Questions 08/02/09

Posted by Jill Kerby on February 08 2009 @ 22:25

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 that 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.iefor information about gold in its different forms.   




AN writes from Dublin: I sold on an investment I had in Dubai approximately 16 months ago for and approximately $70,000. I put the proceeds into an Ulster Bank dollar account. I am concerned about the current state of the dollar and the possibility that it may collapse. I did ask the bank for advice on this some weeks back and it was suggested to leave it as is and that as the dollar would be safe. Could you suggest a safe policy?

The dollar has recovered a little of its strength against both sterling and the euro from this time last year, mainly because nervous investors are turning to US treasury bonds in particular as a safe haven from the turmoil in the markets.  Yet, these bonds are paying miniscule returns and there is growing concern that foreigners – especially the Chinese – will not keep lending the Americans the huge sums they need to even keep paying the interest on the huge debts. Many predict that the level of monetary and debt expansion that is underway will lead to inflation – and ultimately in the devaluation of the US dollar. How soon will this happen?  No one knows for sure, so your dollars are indeed safe at the moment, though the US currency has certainly fallen against an asset like gold. It now takes about $900to buy an ounce of gold; 16 months ago, you would have needed only about $700.  Perhaps you should consider spreading your risk a bit wider, by diversifying your money into other, safer, assets that might include government and blue chip corporate bonds and deposit accounts other than just the US currency. 




MS writes from Dublin: Having looked with interest at the Sunday Times property price survey last weekend, I can see that my current offer is within range of the overall fall in prices for the area in Dublin I'm looking in - about 29% off the peak asking price compared to 25% in the survey. The imponderable question is, am I mad to go ahead with a purchase given the continued uncertainty? Could we see a freefall in property prices (a la the banks)? Meanwhile I'll be committed for the next 20 years.  Is it possible to strip out the effects of the worst speculative phase and estimate what a two-bed apartment of 100 sq metres should really be going for? On the "go for it" side, I need somewhere to live, the area is a agood location for me and this apartment meets all my criteria and already has close to a 30% fall in price locked in.  


You tick all the right boxes for a shrewd property buyer:  the apartment is suitable for your needs, the location is good, theprice is already down 30% and at least seems more competitive.  What you don’t know, and neither doI, is how much longer the property market is going to contract. My guess is that it still has some way to go, and that’s because not only was the bubble much bigger than just 30%, and lending is still very tight, but other factors are probably going to push down prices further going forward such as the possibility of the reform of tax relief on mortgage interest, stamp duty and the gradual introduction of property tax and rates.  Most asset prices eventually return to their ‘mean’ and that’s what’s happening now. The best formula I’ve come across for judging whether a property is worth its price is to multiply the rental yield – the equivalent of a share’s earnings on the stock market by a factor of between 12 and14. If your prospective apartment commanded a top monthly rent of say, €1,500, or €18,000 a year, when multiplied by the average factor of 13, it’s market value is closer to about €234,000.  Too many amateur – and professional – property buyer/speculators ignored the yield and only paid attention to what they believed would be perpetual capital gain.  If you can afford to service the mortgage at today’s market price and have no intention (or need) to sell this apartment for the next decade, then buy it now. Personally, I’d offer to rent it for a few years.

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