Sunday Times -MoneyComment - September 25, 2011

Posted by Jill Kerby on September 25 2011 @ 09:00

Still no relief to restore confidence in our pensions


I am worried about my retirement.


Stock markets are behaving like roller-coasters these days as they react negatively to the global slowdown in demand for goods and service and to the slow motion train wreck that is the eurozone.


The ride is especially wild in the pension fund markets of so-called ‘developed’ economies, where too much debt has finally caught up with the falling spending capacity of consumers.  With no consumer demand, there is no corporate growth; with no growth, there are no profits and no earnings for pension fund holders.


Here in Ireland, 0.6% of the value of private pension savings will be confiscated for the next four years by the government, but there is still a big question mark about whether the tax incentives that encouraged workers to defer a portion of their income for up to 40 years, will be clawed back starting next year.


Last week, at a pensions policy conference held by Irish Life, the minister responsible for pensions, Joan Burton, was unable to confirm if the top rate relief was to go or not, which is very unfortunate given how the tax relief was the only thing to offset a decade’s worth of investment losses for the average Irish managed fund holder.


The loss of tax relief, should it happen, is sure to impact on jobs in the pension industry itself where hundreds of Aviva jobs are now at risk.


According to data collected for Irish Life by consultants Amarach, the vast majority (85%) of private pension fund holders are people who earn less than €70,000 a year and who are unlikely to have full, 40 year service contributions because they either started saving too late or changed jobs too often. Without a private pension, someone earning €60,000 a year, they said, would face a drop of between 60% and 80% were they to depend only on the state pension at retirement.


The potential loss of top rate tax relief, the pensions levy and the uncertainty in investment markets is doing nothing to encourage them to keep saving for their retirement, the conference was told.


The Minister at least had the decency to admit that the 0.6% pension levy has ‘caused damage’ to pension savers, and how ‘frustrated’ people are about the uncertainty over tax relief.  But the onus is also on the pensions industry, she said, which needed to cut its own charges, something she will help them do by publishing a comparative study of charges in other jurisdictions that is being prepared.


It’s good to know that her officials have time to do such important research, but it would be more helpful if all the pension reforms and proposed changes announced by the previous government and noted in the Programme for Government could be advanced.  I expect this isn’t happening because there is no money to introduce a major reform like the universal mandatory pension and not enough political will to cap taxpayers' subsidies or to restrict pension incomes, especially in the public sector.


I’m not losing any sleep yet over my pension because I still have at least a decade of work ahead of me and I’ve been maximizing my pension contributions for many years.  But I know plenty of people whose pension funds have lost thousands of euro just this summer, and they are tossing and turning, wondering how they will ever be able to afford to retire.


Nothing anyone said at this latest pension conference will provide them with any relief.


Bargain property


A very brave friend of mine has bought a very old house. 


It also need a great deal of work, but she was able to not only convince her lender to give her a mortgage at a very desirable five year fixed rate, but once the building surveyor made his report, she also convinced the seller to drop the price by another €12,000.


There is a lot to be said about executor sales, said my friend. 


The elderly bachelor who owned the house died, leaving it to his relatives.  At first, they tried to maximize the price – it is a choice south Dublin location – but once it finally dawned on all the them that the market was still falling, and once their agent was confronted by the surveyor’s report, they sensibly decided not to risk losing the sale over a mere €12,000.


Executor sales often produce bargain basement prices – there isn’t much sentiment involved when free money is at stake – but patience is also it’s own reward in a buyer’s market.


This house fell in value by about 30% from when it was first put up for sale, far more than other properties in the area. The renovation costs are a fraction of what they were three or four years ago, “and the bank wasn’t reluctant to lend, even though the house needs a lot of work.  They could see it’s a very fine house and someday it will be worth a lot of money again.”


More of a case of ‘buyer aware’, than ‘buyer beware’.


Smart move 


I’m not a huge user of smartphone apps, but I do like National Irish Bank’s new current account one.


Not only does it let you access all your accounts and transactions, it lets you transfer money between any account and pay your bills, but will soon allow privide access to NIBs dealing desk.


The NIB share dealing facility is one of the biggest attractions of their current account and is a very cheap alternative to conventional stockbrokers and on-line dealing facilities. It’s also extremely easy to operate and provides instant access to your trading record.  The app dealing desk, say NIB should be available early in the new year.


You don’t need to be an NIB customer to download the App, though its features will be restricted to a branch and ATM locator and the currency converter. 

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