The Sunday Times - Money Questions 18/01/09

Posted by Jill Kerby on January 18 2009 @ 22:38

MS from Dublin: I will retire in two years (age 65) after 20 years in my present employment. At that time I will have €250,000 in a directors pension plan. I believe I can take 1.5 times salary in a lump sum, tax free, and agree a pension with remainder. How is salary calculated at this time? I have my direct pay, bonus and a company car, all taxable. Are all three elements included in salary? I also have an old personal pension plan of €30,000. What are my choices of benefits on this? If I do not reach retirement date, can my family claim the entire amounts in cash?


Your final salary will be deemed to be the average of the best three consecutive years over the last 10 years of employment, and this includes basic pay, bonuses, overtime “and any other payments that are subject to schedule E tax liability including the value of any benefits in kind,” says financial advisor, Gerard Geraghty of Geraghty & Co in Westport. You have a number of option for the remainder of your pension funds: you could buy a pension annuity, but “unfortunately rates to include a similar aged spouse are poor and are likely to be around 5%. An index-linked joint annuity would be significantly lower again. If your reader is a 5% Director he wouldn’t have to buy an annuity but could take 25% of the fund as tax fee cash and use the balance to buy an AMRF/ARF for the future use of all his family.” Similar options exist for your €30,000 pension fund but Geraghty warns that “if he has taken 1.5 times final salary from the main scheme he is not entitled to any more cash.” As for the question about you dying before retirement, your dependents would be entitled to up to four times your final salary as a tax-free cash payment with the balance of the pension fund used to buy them a pension annuity. Pension scheme members with 15 years or less of pensionable service can avoid this by transferring their fund now to a PRSA, the proceeds of which are paid out tax-free to their family upon the death of the account holder. 



MB writes from Co Laois:  On November 16 last you wrote about American shares like Palmolive, Coca Cola etc and also about junior gold and silver mining companies that might be worth investing in. I have €5,000 euro at my disposal and would love to dabble in shares like these. I do not have any experience of buying shares and wonder if you could give me some advice about how I might go about doing so. I would be very grateful if you could help me out with this matter.


Consumer durable shares are those whose companies create goods and services that people feel compelled to buy, no matter what their financial position:  goods like soap and other personal hygiene items, food items, petrol and heating oil for their homes, fast food (like McDonald’s, whose share price is rising).  The most successful companies in these sectors have huge turnover, little or no debt, world class management and lots of money in the bank.  Their share prices have fallen (though not as much as most) but they continue to pay strong dividends and are seen as steady, longer term (ten years or more) buys.  The gold and silver companies are a much riskier punt but commentators believe the mining shares are underpriced compared to the physical metal prices; the shortage of gold and increasing demand is what makes these shares attractive, at least over the short term. Do your homework.  A good place to start is by reading the financial pages, (many of which are free on-line), to keep up to date; The Economist for a global view, and free web-based on-line newsletters like www.fool.co.uk  and www.dailyreckoning.com  and www.mises.orgwhich provide mainly contrarian views to the Keynesian commentators who support governments borrowing and spending their way out of recession.  (The Austrians believe you cut spending and taxes and let the recession correct itself.)   Learn about ETFs – exchange traded funds – which are low cost alternative to expensive mutual funds of shares; ETFs also spread your risk amongst many shares or commodities in a sector.  The Irish Stock Exchange (www.ise.ie) now sells ETFs and you can purchase these and other shares via a stock broker or by setting up your own lower cost share dealing account with the likes of Sharewatch.com (Ireland) or even via the share service that National Irish Bank offers its on-line current account customers. 

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