Jill Kerby

Think twice before you give up funds tax relief

SK writes from Dublin: I am a public servant with 26 years service. I am due to retire this summer and am wondering about converting my AVC’s Pension Fund into an ARF. My reservation is that over the past 26 years my pension fund hasn’t delivered any real returns. Fearing the same with the ARF (with annual management charges around 1.5% and the annual government tax on a notional 5% of the fund) I wonder can I purchase a basket of ETF’s, with much lower managements charges, as an ARF? If not, after the raid by the government on the pension fund, I am considering cashing the AVC’s in, paying the taxes (which means a loss on my 30 years of pension saving) and investing the net cash myself.

Data provided by Rubicon Investment Consulting shows that Irish group ‘managed’ pension funds have produced an average 7.2% return over 20 years,  returns that certainly exceed consumer price inflation over the same period.  AVCs – Additional Voluntary Contributions – would have typically been invested in very similar managed assets, usually a combination of equities, bonds, cash and property. 

You would have been very unlucky for your AVC to make no return over a similarly long period, though high costs and commissions, especially charged by the firm of brokers favoured by public sector unions, would certainly have contributed to the low returns.

There are strict funding conditions attached to investing your AVC in an Approved Retirement Fund or ARF. You must now have a guaranteed pension income of at least €18,000 a year or set aside €127,000 or the remaining fund if it is less that must then be used to buy you an annuity or in an AMRF, an Approved Management Retirement Fund.

If you do decide to buy an ARF or AMRF, there is nothing to stop you from buying into low cost exchange traded funds (ETFs), but given that you haven’t been very successful with your AVC choice, make sure you get proper, fee-based advice about suitable assets or funds with good income or growth prospects. Make sure you also fully understand the tax, inflation and capital risk implications of encashing your AVC. Giving up the tax relief you have received seems unwise because with the right advice, you have almost as much investment freedom in an ARF as you would by investing yourself.

Going global

PW writes from Wexford: As a precaution against an Irish debt default I have thought about either putting €100,000 in an Australian dollar account at 5% with PTSB or with Nationwide International sterling account in the Isle of Man at 3.4%.  Would either of these steps seem reasonable?

To earn a decent return, you must be willing to commit large amounts to foreign currency deposits. Permanent TSB does not offer annual interest rates of 5% on any of their deposit accounts; the highest actual earned rate of return or AER is 4.22% gross for sums of €10,000 or more from their two year, ‘Interest First’ fixed account.  This account pays the interest upfront period. However, a bank spokesperson told me that it will pay you this interest whether you save in euros or a foreign currency like Australian dollars, sterling, US dollars, Canadian dollars, Australian dollar and Swiss franc.

As I have written before, no one in the banks seems to know – or is able to categorically say, what will happen to your savings in the even that there is an Irish sovereign debt default or we go off the euro. Putting your money on deposit in the Isle of Man means it is not held in this jurisdiction or in the eurozone.  There is a currency exchange risk if you hold any non-euro currency and there are costs associated with transferring non-euro currency back into euro.

Golden opportunity

TT writes from Dublin: I read your column with great interest every Sunday and especially now that I am retired and must take even greater care of the 'few bob' that I have. I have been taking careful note of any advice you have given about investing, especially about not having all one's money in one currency i.e. euro.

 I was recently left a small bequest and I was thinking of putting some money into sterling or dollars. I was also thinking of buying some gold or silver. The price of both is quite high at present so I do wonder about the wisdom of investing in them. I know that you have given the name and address of some reputable sellers of gold and silver but I have misplaced them and I was wondering if you could let me know, whenever you get time, either in your column or by email, the names once again.

Gold and silver has doubled in price over the last five years. One cause of this is that the expansion of Americas money supply has shot u in recent years as the American government attempts to repay its massive debts and interest repayments by printing money out of thin air. This lack of confidence in the US dollar, as well as sterling and the euro and the soaring debts in the US in particular means that gold and silver are a safe haven asset that cannot be debased at whim, like paper currencies can be, even if the market price goes up and down. 

Precious metals are not as cheap as they were, and the price can be very volatile. For example, on 25 May gold was selling for an all-time high in euro of €1,083.47 an ounce, but at time of writing had fallen back €40 an ounce to €1,043.56 and it will undoubtedly be up or down today. Nevertheless, gold and silver act as a safeguard – a form of insurance - against both outright devaluation of currencies and inflation. You can purchase gold in both physical and certificate from the Dublin gold bullion dealers, Goldcore.com or other international bullion dealers. You can track the live price of gold and silver at www.goldprice.org.

Meanwhile, if you decide to also transfer euro into other currencies, be aware that you will take a currency exchange risk and that the US dollar in particular is extremely volatile, but that like sterling is being intentionally devalued by their respective central banks to keep pace with their huge national debt repayments – the US debt expands at the rate of $40,000 per second - and are considered to be amongst the weaker fiat currencies.