Jill Kerby

The eurozone car crash encourages us to go for gold

A car crash in slow motion is as good a description as any for how the European debt crisis is unfolding. The number of casualties there will be in the end is still unknown, but it’s not looking too good.

 From a personal financial position the best thing to do is not to linger at the scene for too long. You don’t want to find yourself on the wrong side of a sovereign debt default, whether in Greece, here, Portugal or any of the other peripheral countries that are being systematically shut out of the borrowing markets. 

In the same way that the credit bureau assesses an already indebted individual’s capacity to take on more loans, so do international credit agencies decide whether a country has hit its borrowing limit and is unlikely to be able to repay any more loans.

Realistically, we Irish – and that goes for the government as well - should be considering what happens if the EU, ECB and IMF are unable to work out a new monetary, fiscal and political union for the eurozoneto replace the chaotic efforts that have so far clearly failed.

It looks now that events are overtaking the politicians and central bankers and it might be better to ignore what they are doing – or rather, not doing – and come up with a plan of your own.

If you have a sizeable amount of cash that you do not need for day-to-day living purposes, you may want to move it now to protect it from the worst case scenario of sovereign default or a euro-wide banking crisis. You can do this by opening a deposit account in a solvent bank in a non-eurozone country. Northern Bank, in Northern Ireland which is part of the non-eurozone Danske Bank and sister bank to National Irish Bank, is probably the most convenient destination.

A euro currency account in an ‘offshore’ non-eurozone bank means you avoid currency exchange risks and costs if we stay in the eurozone and you want to transfer money back here. By also opening a non euro currency accounts – the Swiss franc and Norwegian krone are often cited as two of the world’s safest currencies – means that you hedge the growing risk of Ireland no longer remaining in the euro or even the collapse of the eurozone.

The soaring price of gold, priced in euro, dollars and sterling, is a sign that more people and even countries like China and India in particular are losing faith in paper currencies backed by nothing but the promises of the indebted countries behind them.

Precious metals cannot be devalued or printed at the whim of politicians and central bankers and if any eurozone country defaults or is forced to leave the euro, you will be happy to have a portion of your savings or pension fund in gold.

Meanwhile Eddie Hobbs, the financial advisor recommends that pension fund holders urgently discuss the security of their pension savings – and especially the cash and bond holdings within their fund - with their pension fund advisor, administrator or trustee.

The cash holdings in the fund should not be held exclusively in Irish banks, he says, or entirely in euro, or the spending value of your retirement income could also be at risk.

Finally, ignore the people or politicians who suggest that the above is an overreaction and that our leaders in Brussels and Frankfurt will come up with a solution – in time - that will satisfy everyone.

That may very well happen. But this is not their hard earned money or life savings at stake. It is yours.

Unhealthy Interest

Pensions are on the mind of one reader, a fan of RTE’s The Week in Politics programme.

 He noted that some Dail deputies are now claiming that the private pensions levy is a ‘crock of gold’ that can be tapped to offset government cutbacks, such as the closure of hospital services.

The Limerick Fianna Fail deputy Niall Collins, appeared recently on the programme suggesting to an incredulous Sean O'Rourke that "there is no need to close hospitals, now that the Minister for Finance has a new stream of revenue, the pension levy".

The €1.8 billion confiscation of pension savings over the next four years has been earmarked for the Job initiative scheme’ not to finance struggling hospitals, but our reader thinks “It can only be a matter of time before the spokesmen for every pressure group is calculating on the airwaves about how their interest could be served if, say the pension levy was increased to 2% for ten years. We could raise whatever you're having yourself…"

Hardly a cheerful thought for anyone wondering about whether there’s any point in continuing to pay into a pension plan.

Protection racket

I wonder if anyone was surprised to read that the largest proportion of the nearly €21 billion social welfare budget is paid to older people, followed then by payments to job seekers.

In her department’s annual report that was published last week, the Minister for Social Protection noted that more than one in every five euro in her budget or 22.1% is made up of payments to older people, in the form of state pensions and other benefits, some of which, like electricity and fuel allowances are to be clawed back in the next budget.

The next 19.6% of the budget goes to the unemployed, but just 12.7% of payments are child related, the bulk of which is paid in the form of monthly child benefit payments to 1,124,003 children from 591,432 families that are neither taxed nor means tested.

By flagging cuts in the household package of benefits to pensioners last week, the Minister is confirming that while actual welfare rates may be left untouched in December’s  Budget, the bells and whistles that adorned the various payments are likely to disappear.