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Sunday times - A Question of Money - April 10

Posted by Jill Kerby on April 10 2011 @ 09:00

High Irish interest makes the UK a land of low return


PL writes from Cork: I am retired with Stg£80,000 on deposit in Nationwide UK.  Is it better to convert to euros and invest in Ireland or look for a better return in Britain or elsewhere?

Interest rates offered by some Nationwide UK Ireland demand accounts are much higher than equivalent deposit rates you could earn from a UK account. Here, for example, the easy access demand account offers 3% gross on a minimum balance of €2,000; in the UK is it just 0.45% or 0.55% (the latter if you are over 60) on minimum sums of £. However, the three year, on-line fixed rate in the UK range from 3.85% to 4.10% gross interest (depending on the size of the deposit which starts at £1) compared to the three year return you will get here from Nationwide UK of 3.3% gross on a minimum balance of €3000.  You don’t say what sort of account you have with Nationwide UK, but you would want to compare UK savings rates with your existing return and what foreign exchange costs and commissions are involved before you transfer any money here to a solvent, deposit taker here in Ireland, which of course includes Nationwide UK Ireland.    The www.lovemoney.com site is very good for comparing up to date UK savings rates.  If this £80,000 is all your money, you should also read up on the devastating effects that inflation and tax (if you are eligible for DIRT) can have on the spending power of your savings.  Inflation is c4.5% in the UK and is creeping up here too, so you might want to consider diverting even a small amount of your money into a non-cash asset or investment fund that would counter the loss of spending power.  A good fee-based advisor could certainly help identify such assets.

In a fix

DC writes from Limerick: We recently bought a house, have just finished refurbishing it and have an option from AIB to fix it over two, three or four years. Our mortgage term is for 27 years. I am currently a mature, full-time student, working part-time while my wife works full-time in the educational sector. She is down about €400 a month after levies and USC.  For how long should we fix our mortgage, considering the current climate and proposed ECB rate hikes over the coming months?  I will possibly be staying in college to pursue a Masters or PhD after I finish my undergraduate studies. We have one child and one on the way, so money will be tight for the next while.

I think you’ve answered your own questions.  If money is already tight, your short to medium term earning prospects are diminished because of your studies and another baby is on the way, fixing your mortgage repayment makes a lot of sense, assuming of course that you can afford the higher repayments.  If ECB interest rates are raised two or three times this year - as many commentators expect they will be – and again next year, then your decision to fix your rate now will certainly pay off AND provide peace of mind.

 

As interest rates rise, the banks may increase the fixed rate or even withdraw their existing offers, so you may want to make up your mind sooner than later, However, before you sign any fixed rate contract find out what penalties will apply if you have to break the contract before it matures.

Border dispute 

SG writes from Dublin: I wonder if you could help me with a pension query. I work for the UK subsidiary of a French multinational and am based in Ireland and am paid in euro. My employment began in January 2004 but because of the delay in having a suitable pension arrangement in place for Irish employees it was not possible for me to organise my current PRSA plan until January 2007. I had to instigate this process myself. The UK pension plan did not seem to me to be a suitable option for Irish employees resident and paying tax in the Republic of Ireland but if it had been I would have been entitled to the relevant employer pension contributions from April 2004, which was approximately 4% of my salary.

 

 

Given that no arrangements were in place at the time is it possible, or is my employer obliged, to pay the pension contributions from April 2004 to December 2006 retrospectively into my current PRSA? I have asked and they have said no. This seems rather unfair as my understanding is that company pension contributions form part of my overall remuneration.

 

 

Unless your contract of employment states that you are eligible to join the company pension scheme and they are obliged to make contributions at an agreed rate, there is no obligation for your company to make retrospective contributions for the period in which you were not in a pension scheme.  If there was no occupational pension scheme in place at the Irish division of the company in 2004, the company should have arranged, under Irish pension regulations, to put a group PRSA in place for the employers to join.  You would not have been obliged to join it – you could have purchased an individual PRSA or even a private pension known as a retirement annuity contract (RAC). Employers are not legally obliged to make contributions to PRSAs, but if the company operated occupational schemes in the UK or France it would not have been unreasonable for you to ask them to make a contribution to your PRSA.

 

You might want to consult the Pensions Board if you are not sure about the company’s contractual obligations to its Irish employees or whether you have any grounds to seek retrospective contributions to your PRSA.

 

 

The rules of most pension schemes are quite transparent, but your firm operates across three borders and there may be something in your employment contract or the company’s operating rules that requires them to fund their Irish employees pensions.  You can reach the Pensions Board at LoCall 1890 656565 or www.pensionsboard.ie

 

 

 

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