Jill Kerby

Safe but sorry returns from German State bonds 

MM writes from Dublin: Could I ask you about German government bonds? Specifically the minimum purchase amount, investment periods, are they fixed rate, what are the Irish/German tax considerations, where in Ireland can I buy these bond, and finally your views on them as a safe investment?

German government bonds, just like those of other countries and the corporate variety, are sold as a form of IOU to institutional and private lenders.  In return, they receive an annual ‘coupon’ or rate of interest and the return of their capital investment at an end of an agreed term. Also known as gilts, or fixed income securities, government bonds are sold by stock-brokers who place your order on the bond market, based on the term of the bond and the amount you wish to spend. 

You can deal directly with a stockbrokers or use the services of a fee-based authorised advisor, who can also explain the somewhat complicated pricing method used for bonds, the yields they pay, and any tax liability you may have on both the yield and the sale or trade of the bonds, says independent financial advisor Vincent Digby of Impartial.ie  “Minimum purchases from a stockbroker can sometimes be as high as €10,000 - €25,000,” says Digby.

Since Germany is regarded as the strongest economy in the EU, and is far more creditworthy and likely to repay their ‘sovereign’ bondholders than say, Greece, Portugal, or even us, German bond prices are comparatively high at the moment, he says, and the yield is very low. This could change in the future, which is why some people trade in and out of different bonds to try and improve the income that they generate.

Your money may be safer in a German government bond than a Greek one, but all medium to long term bonds can be susceptible to the effects of inflation that can eat away at the spending power of both the fixed annual rate of return and the long term value of your capital.

The excellent motleyfool.co.uk financial website has an archive of educational articles about bonds. This one is a good place to start: http://www.fool.co.uk/news/investing/2010/09/27/a-brief-history-of-bonds.aspx?source=isesitlnk0000001&mrr=0.25

SS writes from Dublin:  We are British citizens living in Ireland since July 2010 after taking early retirement ages 59 and 55. Our only income is our occupational British pensions.  We now pay Irish income tax, PRSI, etc., because our occupational pensions are classed as income and we are not classed as pensioners until we reach the age of 66. We have no income generated in Ireland and do not claim any benefits.

We will both qualify for full British state pensions at ages 65 and 66 as we both had a full working life but they are worth about half the Irish state pension!

We recently read that under EU rules we might be able to receive an Irish state pension based on our Irish contributions since moving here and British national insurance contributions combined - is this correct? 

As we now live permanently in Ireland and have paid all the contributions required we feel that we should at least be paid the pension rate for the country we reside in.

Under bi-lateral social security agreements (European Regulation EC No 883/2004) your Irish and UK social security contributions can be combined and possibly result in you and your spouse each qualifying for an Irish contributory old age pension from age 66.

The application forms you will be asked to fill out for the Irish state pension includes a section that asks if you have ever been employed in an EU country other than Ireland and ask you to provide the relevant details. If you have paid sufficient social insurance contributions here, the Department of Social Protection with then calculate if and how much of an Irish or combined Irish and UK pension you will receive. 

The formula they use, and a case study can be found here on the excellent Citizen’s Information website: http://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/claiming_a_social_welfare_payment/social_insurance_contributions_from_abroad.html#l7320b or you can visit your local Citizen’s Information Centre.

NM writes from Dublin: My son, who lives in England owns 14,000 shares. He wants to sell these shares in order to purchase a family home in England. Four years ago, I organised the sale of some of his shares through AIB with absolutely no difficulty, since last year new regulations have been brought in and it is proving much more difficult. I have been told that he will have to set up a bank account here that will take time and effort. Is there any quick way of getting over this problem?

I spoke to NCB Stockbrokers who told me that share dealing regulations have tightened up in recent years and that they cannot sell your son’s shares on your instruction. He would need to have an account with them, and to do this he would be required to satisfy identification and anti-money laundering terms and conditions.

Because your son lives outside the state, NCB would also require that he furnish them with a letter of introduction from their own bank in the UK.

If your son wished to sell the shares himself, he could open his own on-line, execution only brokerage account. He should check out sites like TDWaterhouse.com.  He just needs to make sure he has all the necessary documentation, such as the share certificate, to prove that he is the actually owner of these shares.