Jill Kerby

PP writes from Cavan: Your article in last week’s Sunday Times re endowment mortgages has left me worried. We have cleared our mortgage but kept on the savings part which we pay monthly. My question is this, does our endowment mortgage, which matures in 2013 become liable for CGT?  Also is the surrender value if we availed of it also liable for CGT?

Your endowment policy will be subject to an exit tax of 26%, the standard income tax rate of 20% plus an additional 6% surcharge.  The same exit tax rate will apply if you surrender the policy early.  Capital gains tax does not apply in the case of life assurance based investment policies, however, from August 1st year your policy will be subject to an additional 1% premium levy. The earlier article to which you refer referred to the higher tax treatment of matured or encashed endowment policies that were purchased in the UK and kept by their owner even after returning to this tax jurisdiction, not those purchased here. 

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OS writes from Dublin: I have been reading your articles on pensions over the past while. I am 55 and returned to work about 12 years ago, so my pension is not as large as I would like it to be. Worse still it has lost €12,000 since August of 2008. I am also about to take voluntary redundancy in September, despite being out on ill health grounds at present. I find the whole area of pensions confusing. I have been paying into the company pension scheme for the past 12 years, including an AVC. What is the very maximum that I can withdraw from my pension fund on a tax free basis, as I need to pay off part of my mortgage. What happens to the rest of the pension fund, my contributions, the AVC and the company contribution? Considering my age, what is the best option? 

Redundancy over the age of 50 allows a person access to their occupational pension fund before the usual retirement age of 65 (or 60 for some pension schemes).  You are also entitled to take the equivalent of one and half times your final salary as a tax-free lump sum from your portion of the pension fund/AVC and the remaining value of the pension must then be used to buy a pension annuity, from which you will receive an income for life. (Emergency measures introduced a few months ago by the government allows you to delay buying the annuity until the middle of 2010.) However, you also have other options.  There isn’t enough space here to describe them all so I suggest you engage a good, fee-based advisor to take you through them before your September deadline.  If, as it sounds, you are a member of a defined contribution (DC) scheme, one option you should ask the advisor about is whether it is in your interest to transfer out of the company occupational scheme and AVC and into a personal retirement savings account (PRSA) and PRSA/AVC. According to actuary Michael Leahy of Global Pension Options, a Dublin pension consultancy, a PRSA combined with a PRSA/AVC allows you to take 25% of the fund tax free, but no obligation to buy an annuity with the remainder.  This is an important distinction because pension income derived from the annuity can result in the loss, on a euro for euro basis, of the means-tested Jobseeker’s Allowance (JA) and other social welfare benefits, like rent or mortgage supplement if you qualify for such assistance, once your initial 12 months of Jobseeker’s Benefit runs out.  If your pension and AVC has been transferred to a PRSA instead, you don’t have to take income from the remainder of the PRSA once you take the tax free lump sum. By age 75 an annuity must be purchased with the remaining value of the PRSA, but not before then.  The decision is yours whether and when to draw down any income from the PRSA.  Also, if you die prematurely, the residue from your PRSA fund goes to your estate for disbursement whereas an annuity reverts to the provider, not to your heirs.  An independent pension consultant is the ideal person to speak to, but you can also contact the Pensions Board, www.pensionsboard.ie , tel 01-613 1900 for more information about your options.

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CD writes from Cork:  I recently heard you on a radio programme speaking about the possibility of Inflation becoming a factor in Ireland over the next few years. I have built up sizeable savings over the last few years [thanks to the advice of my parents when I was very young] and would like to look into possibly diversifying the savings into some possible inflationary proof areas. You spoke on the same programme about investing in gold, specifically in Perth, Australia? Can you please let me know the details of this and how I might be able to make contact?

There are a number of ways to buy gold – as coins or bullion from Irish or UK bullion dealers; as Perth Mint Certificates from the Western Australia Mint in Perth, as exchange traded funds (ETFs) that track the daily price of gold or a collection of as gold mining companies or by buying individual mining shares or gold share managed funds (see www.rabodirect.ie). Each carries its own cost and charges and investment risks. Physical gold carries a substantial premium these days, a delivery and insurance charge (depending on the provider) and annual storage charges that can amount to 0.75% of the value of the gold. Gold ETFs including one on the ISEQ (see www.ise. ie)are relatively low cost and involve the stockbroker transaction commission and a low annual fund fee, usually 0.5% or less and are are easily traded like a single share. The Perth Mint certificates, which are also sold by the Irish bullion dealers Goldcore.ie mean that you buy gold (allocated or non-allocated) from the Australia mint where the gold is kept at no additional annual cost or fee.  The purchase price is based on the daily price quoted by the Perth Mint plus a 2%-4% commission, depending on the amount you buy. There is an encashment fee, typically 1% for minimum purchase amounts of $10,000.