Jill Kerby

Negative Equity Mortgage?  No thank you.

 

The property market is doing as Professor Morgan Kelly predicted it would: it is taking back between 75%-80% of the spectacular prices it achieved at the peak of the bubble.

Just on cue, the government and banking industry that did everything it could to inflate that bubble, is still trying to manipulate the correction, in an effort – they say - to ‘break the logjam’ of sales.  This time it will permit heavily indebted owners in negative equity to carry their debt with them to yet another property, which will also continue to fall in price until the correction is over.

The problem is well documented: tens of thousands of mostly younger buyers purchased overvalued houses with artificially low credit. Their affordability levels - their income – was grossly overestimated if property prices fell, interest rates went up or their incomes dropped.

All three happened. The economic collapse revealed how uncompetitive the country had become and how necessary it was to freeze or reduce income (but paradoxically increase taxation to protect ‘key’ spending levels by the state - its own paybill and politically sensitive social welfare payments.)

The mother and father of all negative equity conditions now exist in this country – and will get much, much worse if and when interest rates go up.  Yet the government think letting heavily indebted owners trade up (or ideally, down) while the conditions that created the negative equity and the rising arrears risk still exist – is some kind of solution.

It is not.

The tens of thousands of first time buyers (in particular) caught by the boom need an immediate and fulsome recovery of the economy and a surge in their incomes…or they need substantial debt forgiveness.

Instead, they’re being offered another debt cul-de-sac that will give the perception that the property market can be stimulated back to life.

It can’t.

The property market will recover – naturally - when normal lending is resumed; when interest rates are not being so grossly manipulated by central banks; when the overhang of empty properties is cleared (which is happening in Dublin but not the rest of the country) and unemployment starts reversing.

Those neg-equity mortgage holders who are facilitated to abandon their distant suburbs for the homes they had wanted to buy that were closer to their jobs and parents in the city, will now end up even more indebted as the new property they buy also falls in value.

Good luck to them.

Meanwhile, the suburbs they leave will be even less attractive to live in than they are right now.

God help the poor sods they leave behind and strike up another victory for witless politicians and their creatures in central banks who endlessly subscribe to the Law of Unintended Consequences.

 

Misery loves company: Financial companies to be ‘named and shamed’

The decision to introduce legislation that will allow the Office of the Financial Services Ombudsman to name and shame financial institutions that it finds against has taken 20 years longer than it should have.

Better late than never.

When the first ombudsman’s offices were set up back in the early 1990s by the banking and life assurance industries, there was never any question that their members would be named and shamed.

Everyone maintained that the ombudsmen would be wholly independent of their paymasters, but there were just too many categories of complaints that were excluded or beyond their remit. The penalties were not onerous or high enough.

That isn’t to say that a good job wasn’t done within those limitations. 

Many complainants, in the years before the statutory IFSRA (Irish Financial Services Regulatory Authority) ombudsmen were set up in the early 2000s told me they were very satisfied with the investigation and settlement of their complaints and the published judgments appeared to be measured and fair.

But everyone also knew (the way everyone ‘knew’ that Charlie Haughey was on the take) that there were certain institutions – usually banks and their life assurance subsidiaries – that were chronic abusers of their own industry’s voluntary codes of conduct. But self-regulation has a funny habit of stacking the deck in favour of those who are being regulated, no matter how honourable and hard-working the ombudsmen and their staff doing the investigating.

When you pay that piper, he plays your tune.

All the same mealy-mouthed excuses were used by the State authorities when the two financial ombudsmen’s offices were taken over by the new Financial Regulator (now the Central Bank) a decade ago: that the complainants would also have to be named (to what purpose?); the firms would resist cooperating with the inspectors if there was a chance they’d see their names in lights or, worse still, as a case-study in the Ombudsman’s quarterly report (all the more reason!).

It hasn’t been determined how far the new legislation will go in the naming and shaming process, but no one gives a toss about the sensibilities of financial services companies anymore.  

The previous regulatory regime was incompetent and clearly in awe of the industry and allowed them too much influence in setting the rules and limitations of the ombudsman’s offices, especially regarding the historic mis-selling of investment products, which still needs to be addressed.

Banks, life assurance companies, insurers AND their agents always knew that ordinary folk and especially the vulnerable (like the elderly who are sold long term stock market investments) needed more protection than they ever got.

The Central Bank has been slowly but surely working its way through the banking mire that was left behind by the previous bunch, but now it is coming under scrutiny for its handling – mishandling? – of Custom House Capital. The mostly pension investors, who have lost €90 million, continued to be at risk even after the regulator discovered evidence of malpractice in 2009.

They say that misery likes company. 

The banks and insurance industry better get used to owning up to their own malfeasance, accept that the old days when they could keep repeating the same infractions year after year is finally be coming to an end, and accept that what’s left of their reputations will be lost forever, if they keep screwing their customers.

Having their ‘good’ names dragged through the mud might be just what they need to clean up their collective acts.

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Has the Anti-Household Charge Revealed the Power of the People?

 

Yesterday, a small, but good natured group of local people – with a smartly turned out Jack Russell terrier at their head - marched down the part of Dublin’s South Circular Road where I live to join the protest rally at the National Stadium.

It was a glorious day for a demo (and for gardening) and the boxing stadium attracted over 3,000 similarly inclined people from all across the country who had decided to take a stand over the €100 household charge.

But the real test of this national protest will be next Saturday, March 31stdeadline.

Will the bulk of the households of Ireland capitulate as the Minister for the Environment expect them to, cowed by his threats of unleashing other agencies of the state on them, including the courts if they fail to pay, or will the ‘We are the 80%’ hold firm and defy the minister?

First let me say that Phil Hogan seems to be is a nasty sort. Just another jumped up power monger who was elected by a miniscule number of local supporters but is utterly disdainful of the wider citizenry who continue to pay his inflated salary, pension and expenses.

He reminds me of Dick Cheney.  Enough said.

But his recent, brutish, threatening behaviour and that of the Fine Gael minions who were shoved in front of microphones after he was yanked off the national airwaves, seems to have put a little more steel in the backbones of the protest groups and many other folk (who may have been about to pay up) who dislike such blatant intimidation.

So will the majority register and pay the household charge by next Saturday?

Maybe.

It has been my experience that most people in this country are far more afraid of the State and its agents, like tax collectors and the courts, than the State is afraid of them. (Hasn’t it always been thus, even in so-called democracies?)

But this little protest has at least provided a tiny glimpse of what happens when folk are emboldened, if only for a brief moment, to threaten to cut off the state’s source of power – taxes.The politicians, whose very own livelihoods and source of power are personally threatened by this act of resistance, end up panicking.  They say the most extraordinary things (“you WILL pay, or else”) in the most menacing of tones. 

The ‘servant of the people’ mask slips and they reveal their true nature.

Since this economic depression began, the Phil Hogan’s in all the ruling parties have of course, been lucky. The USC (Universal Social Charge), a far more blunt and non-progressive tax instrument than the household charge has had a devastating impact on personal spending power and the domestic economy.  The higher VAT is further destabilising the retail trade.

Yet the USC (and 23% VAT rate) was passed, implemented and is being collected with barely a whimper because every employer also felt compelled, under fear of retribution, to hand over this money.

Self-assessment tax collections, by contrast, only work when the taxpayer themselves decide it is in their self-interest to do so. We’ll see next Saturday how many people collectively decide it is no longer in their interest or that of their families to pay this charge and instead to defy the will of the state.

I’m guessing that a large number of people who paid directly from the government payroll or whose income is mainly derived from the exchequer and therefore ripe for a little ‘withholding’ action, will pay the household charge by March 31st.

They and many others, despite their deep unhappiness with austerity and the repayment of private bank debts will also pay because they also reckon €100 isn’t worth fighting over and they always pay their bills at the last minute anyway.

That will leave the diehards. 

 

The property tax

But the entire chambolic event doesn’t auger well for the introduction of the property/site water usage taxed from next year, when real money is at stake.

If the state can’t convince the bulk of the private property owning citizenry to cheerfully and promptly pay a small charge that is clearly needed in 2012, at a time of desperate economic need by local authorities, how can it possibly imagine that the same people will agree to pay a multiple of €100 next year? 

Many people are not convinced any new money raised will improve services in their community; some believe the income tax and all the other levies allocated for local authorities is already being wasted.  

Saturday’s protest was organised by parties who are not just against bailing out the banks, but who also oppose any tax that is not progressive enough to exempt their followers as well as the unwaged/poor (who are already exempt.)

The bulk of all taxes, say the anti-household charge leaders, should always be paid for by “the rich” though they are divided on whether a property tax is ever justified, except for “the rich”. (Property tax is a tax on wealth, not labour.)

If a site tax is introduced there is certainly a risk that many anti-household tax supporters, living in modest dwellings but on valuable sites, will be required to pay more than than someone who owns a fine house on a low value site. Cue demands for average industrial wage income exemptions if that happens.

Ironically, the dwellers of the high moral ground share also share the same attributes with the Phil Hogan’s.

If they were in power they too would use threats and force to make whoever they deemed rich enough to pay for the services and entitlements they believe should be free to their followers.

If Ireland is ever going to get out of this deepening economic quagmire, the part of the anti-household charge campaign that has revealed that the people do have the ability to curb the rampant power of the government - needs to grow.

But the other side of the picture, the redrawing of the function and power of the state and its servants, in accordance of the real desire of the people, how much funding it requires (as opposed to how much it wants) and whether those funds are collected voluntarily or by force, hasn’t even begun.

Until then, we’re just a bunch of debt serfs who will be led by trumped up little dictators from either the left or right.

 

Ends

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Sunday MoneyComment – March 18, 2012

 

Universal Health Insurance? Only if there’s a true – government-free - market

 

I was stopped by a man in my local supermarket yesterday who told me that he couldn’t afford private health insurance anymore for his family. It’s just got too expensive, he said, and he insisted he knew why.

“Let me tell you a story. I met a friend recently who told me how he’d had to go to Germany for specialist treatment for prostate cancer. The cost of the surgery and treatment was all picked up by VHI – though not the flight – and for the four nights and five days it cost €10,000.

“Two years ago,” he continued, “my young son had to have a relatively minor heart condition treated in Crumlin – it was done by keyhole surgery but he was also in hospital for four nights and five days and Aviva covered the bill, which cost nearly €30,000.

“That’s why I can’t afford private health insurance anymore for my family and why 60,000 people have dropped their cover.  My friend said his surgeon said that his bill in Ireland would have been two or three times more than was charged at the German hospital. Irish doctors and Irish hospitals are killing the golden goose.”  

He’s right at least about the health service now being caught in a nasty inflationary/deflationary spiral: the more people drop private health care, the more the insurers raise their premiums and the higher the cost to the state which increases its charges to the insurers… ad nauseum.

This man’s son and his friend, like the vast majority of the other two million people with private insurance here are mainly only treated by private consultants in public hospitals and their insurance plan covers the billing of both the operation/consultant and their semi-private or private room bed (or just an ordinary bed in the children’s ward) in the public hospitals. The cost has been going up sharply in recent years since it was decided that the true price of the use of the public hospital services hadn’t been passed on.

Meanwhile, only a minority pay for expensive plans that cover them entirely in the private hospitals.

It isn’t private health care that is to blame for the huge disparity between the cost of health treatments in Ireland and Germany. So what is doing so?

How about the fact that nearly 80% of the Irish health budget is spent on salaries and pensions, and these are set by the government and the public sector unions. The other 20% of the running costs – drugs, equipment, fittings, utilities, food,– are also the responsibility of government paid administrators, and with no personal ‘skin the game’ they’ve few qualms about spending taxpayer’s money either.

Is it any wonder then that the price, both public and private, to over two million health insurance members has been soaring for years?

James O’Reilly, the Health Minister seems to think that once universal health insurance is rolled out (starting with “free” GP care by 2016) we’ll have one, wonderful health care system that is fair, and accessible and world class.

There is only one way this will happen, regardless of how many golden eggs can be squeezed out of the poor, shrinking Irish goose:  the Department of Health and the Government must be reduced to a supervisory and regulatory role only and the health care market – patients, practitioners, hospitals, insurers – must be allowed to work out a genuine service that is affordable and deliverable, based on our available resources.

Let me put it another way:  if the Department of Agriculture had also been allowed to run the provision and delivery of food in this country, we’d have all starved long before anyone would have needed medical assistance.

 

This lack of empathy gets you nowhere

 

The Central Bank Governor Patrick Honohan must think it is helpful whenever he lobs another little hand grenade into the public debate about the dire state of our banking system.

He’s wrong. It just annoys ‘the little people’.   

You know, people not like him, not on a big fat Irish government salary of c€300,000, pension and perks, who didn’t get sucked into buying a huge mortgage on an overpriced property (for their own use or as an investment) during the biggest property boom in the western world that happened partly because the central bankers of the day were incompetent and asleep on the job.

Last week, Mr Honohan said it was high time the banks start putting the boot into owners of investment properties who cannot meet their repayments and are in arrears.

Why?

Because these defaulting loans are a threat to the survival of the banks – as are the c100,000 or so homeloans in arrears – but the investment ones are not subject to the same consumer protection codes and forbearance measures. He knows that if the entire problem is left to fester, it could bring down the Irish banks once and for all. By tackling the smaller c30,000 buy-to-let problem first, he must think it will give the banks a little breathing space before they’re forced to cope with the more lenient treatment that is expected to be afforded to distressed home owners when the new insolvency and bankruptcy law comes into force next year.

What the head of the Central Bank isn’t taking into account is that a lot of those 30,000 investment loans are backed by the equity in the borrower’s principal private residence. If one goes, they both go.

Or maybe the Governor does know this, but figures it’s going to be ugly whatever the outcome and the banks have to start somewhere.

It’s their survival, let us never forget, and not yours, that isn’t making this well-remunerated government servant lose any sleep.

 

 

 

 

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HIGHER STUDENT FEES COULD LEAD TO YET MORE FINANCIAL DISASTER …FOR STUDENTS

 

Last week’s revelation that there has been a surge in CSO applications for science and technology places in our universities is great news. The country needs more young people training for such sectors.  Consequently, and I speak from personal experience here as the mother of an 18 year old with his heart set on a science place at TCD, more young Leaving Cert heads are now engrossed in their schoolbooks this weekend as they scramble to achieve the higher points they’ll need from their June exams.

The less good news for these aspiring scholars is that there’s also been an increase in the number of students from Northern Ireland and the British mainland applying for college places here.  

They’re not doing so to fill our skills gap but because from next September their annual college fees go up to £4,000 and £9,000 respectively.  Unless they have rich parents, Irish registration fees of c€2,500 look a lot more affordable over four yeas than the prospect of years of slogging to pay off UK bank loans of £36,000  or more.

This isn’t just a simple tale of the consequences of changing government policy regarding the funding of third level education.  Fees are higher because all western governments are running huge deficits and they can’t get away with blatant universal freebies (like free university).

But unless they plan to reserve access to third level education only to the very wealthy – which is political suicide - they will have to find another way and state backed, student bank loans will be given a go until that money burns out.

The British have the Student Loans Company, which originally offered mortgage style finance to qualifying students and since 1999, future income-based loans – or graduate tax - for repayment purposes. The amounts the SLC award no longer cover the huge new fees and there are questions about how far the UK government can go to keep funding and guaranteeing these loans.

The Americans have similar schemes, but the money originates in private banks and is backed by the US government so that full cost of fees can always be covered and not just amounts set by the student loan company as happens in the UK.

The UK system is losing money, but the American one is an an unmitigated financial disaster. Could it also happen here?

Young buyer beware, especially in light of this anecdote.

A couple of weeks ago, the Federal Reserve Chairman, Ben Bernanke, made an extraordinary revelation to the House Finance Committee during his monthly report about the state of the US economy.

He said that his son, who is a medical student, now owes over $400,000 in (state-backed) student loan debt.

Tuition at an Ivy League medical school (where presumably Mr Bernanke’s son attends) costs at least $50,000 a year. Multiply that by seven or eight years (the young Bernanke also has living expenses) and that figure is credible. 

Or Incredible.

American doctors earn huge money but to be carrying $400,000 in debt before getting your first job or seeing your first patient seems a little excessive even by the US personal debt standards.

Bernanke junior’s story is an extreme example of what happens when government policy to support higher education with a state backed loan scheme goes out of control.

Government supported loan schemes really took off in the US in the 1970s, partly as a response to meet the education promises made to returning Vietnam War GI’s and to encourage higher third level education generally.

The size of the loans grew greater and greater in response to the inevitable raising of fees by the education sector which was acting in exactly the same way as all commercial recipients of cheap, easy-to-get finance react:  they raised their prices. 

(When an infinite amount of money meets a finite supply of goods, the goods ALWAYS get more expensive.)

The US student loan industry is now a racket. 

There is over $1 trillion in loans outstanding now and 27% of those loans are now in 30 days arrears.  Default is commonplace; so much so that bankruptcy laws were changed to exclude student loans. Unlike non-recourse mortgages, that debt now follows the ex-student indefinitely.

It isn’t just Ivy League and State universities that are the expected beneficiaries of taxpayer largesse. Every post secondary institution qualifies and there is now a new industry of for profit educational institutions in the US that was set up specifically to milk the government student loan schemes, aimed a sub-prime scholars.

No one with a beating pulse is turned away from so called third level education; if the student drops out or doesn’t get their qualification or degree, (and can’t repay their loan because they have no job), so what? The government picks up the tab, the fee part of which just keeps getting more expensive every year.

The US Economic Policy Institute recently produced a study that showed that the wages of young men aged 23-29 have fallen by 11%, adjusted for inflation over the past decade and by 7.6% for young women. 

The easy availability of higher education has not improved the employment or earnings prospects of all graduates in the United States and while the Ivy Leaguers with professional qualifications will undoubtedly early substantial incomes over their lifetimes, if their fees are not waived, even they will be burdened by inflated state-backed loans.

No one wants third level education restricted to only those who can pay the true and full cost. This is why colleges constantly seek (or should) donations, bequests and benefactors, and hire fund raisers and fund managers:  to offset the costs for gifted but poor scholars.

The politicians meanwhile have a political agenda, specifically to please middle class voters and to keep youth unemployment and dissent as low as possible.

For 15 years the cost of ‘free’ third level education was paid for through government borrowings and especially during the boom years, from abundant property taxes. (Where did you think that money was going when you paid €40k stamp duty on your new house?)

Now all this money is gone and university fees have to be reintroduced.

I don’t think we’re at risk – yet – of introducing calamitous state loan schemes on the American or even British models. That’s because we’re already bust.

But emigration isn’t going to keep the youth unemployment pressure cooker under control forever and it doesn’t buy very many votes from their parents either.

Give us enough time and financial assistance from the Troika or ECB and student loans will be part of the debt landscape here too with the same outcome: higher college fees and charges, even more ‘graduates’ than we already have with useless arts and social science degrees, a growing default rate as they can’t find adequate employment to repay their debt and, in the end, another great big bill for the Irish taxpayer.

 

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THOSE AIB WORKERS LOST THEIR JOBS FOUR YEARS AGO

Losing your job is always a difficult personal setback.

The 2,500 AIB workers who will lose theirs are no different from all the other hundreds of thousands of private sector employees who have been made unemployed in the last four years except, of course, that they’ve known for nearly all that time that their jobs were hanging by a thread.

The 2008 global financial crisis and the massive fall in Irish bank share prices the previous year signalled the perilous state of the Irish banks. Within months it was established that the Irish banks were bust and would have folded if the Irish state hadn’t unilaterally guaranteed all their debts and deposits.

Four years later and nationalisation, no profitable new business has been done in AIB.

The 13,000 workers have mostly spent their time servicing the on-going ordinary needs of customers like personal banking (which is not very profitable) or in coping with their arrears and debt problems - which is a huge loss-maker. 

There have been no severe or widespread cuts to their numbers, pay, perks or pensions.

No one knows exactly who will make up the 2,500 redundancies at AIB, but every single one of the 13,000 employees have had a three or four year stay of execution that no one else in the private sector has enjoyed. Non-Irish banking firms that experienced a 20%, 30%, 50% drop in business have long since slashed their labour costs and numbers, usually the single highest cost component of any service business.

AIB workers instead have shared the protected status of civil and public servants who have also been immune from the reality of the collapse of their business – the running of the Irish state.

Tens of thousands of state workers have also kept their jobs despite having less to do, or certainly less money with which to do it as the tax base of the state collapsed and a €25 billion a year shortfall appeared (now ‘just’ €18 billion).

Like the public and civil service, AIB (which only has more losses coming down the road) is now offering an incentive of three and a half weeks of pay per year of service to incentivise those 2,500 to take voluntary redundancy.  The state, of course, incentivised the early retirement of 9,000 of its staff to leave its employ but attracted mostly the wrong people by not identifying the 9,000 people whose jobs were actually redundant, and had little or not work, due to the Great Recession.

On a personal level I’m sorry that anyone employed by AIB with bills to pay and children to raise and hopes and dreams they wanted to fulfil, is losing their job.  I wish every one of the 2,500, which might include a beloved nephew, good luck in finding new work.

Yes, we’re all ‘victims’ of the dastardly bank bosses. But workers in the Irish owned banks have seen the writing grow larger on their walls since 2008 and they’ve enjoyed four years worth of wage/pension subsidies from the taxpayer to prepare them for the inevitable.

 

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Sunday MoneyComment, February 26, 2012

 

OFFICIAL INFLATION FIGURES MAKE NO SENSE IN MY HOUSEHOLD

The averaged annual consumer inflation rate of 2.2% (to the end of January) is about as accurate as the ‘average’ per capital consumer savings rate, reckoned to be about 11% of the ‘average’ income.

I doubt if the ‘average’ man or woman on the street recognises either as a reflection of their spending costs or saving capacity. Everyone knows that only older, mortgage-free people have any savings, while newspapers persist in constantly mixing up the annual rate in inflation with the monthly one and inevitably it gets reported that our inflation is quite benign, when it is anything but.

I would agree that in my household, home energy costs, according to the CSO’s latest figures, are up +9.8%; bus/transport fares by +2.8%, utilities and local charges by +8.9%. Health care inflation, for some reason, is not included, but I know that our family health insurance plan is up +15% over the past year. Meanwhile, school fees and books are up +8.9%, petrol (by my own estimation) is up about +30% and the cost of groceries, which still includes meat, eggs, dairy and bread is up a lot more than the official annual rate of just +0.3%.

Has no one in the CSO noticed how the price of meat and cereals has been shadowing the rising price of oil?

(I don’t have a mortgage anymore, but anyone with a variable rate one has been crucified in the past year by that official annual ‘inflation’ statistic of +7.8%.)

Meanwhile, the stuff we buy only occasionally, like clothing and footwear is down -1.1% over the year; furniture by -2.5%, and dining out by -0.8%.  The CSO determines the inflation rate by the weighting of each category, but that +2.2% does not reflect the rising cost of living in my household or those of my family and friends.

What the CSO never adds to its consumer price basket, of course, is the inflationary impact of government to our household costs.

How about the 2% extra VAT; the 7% USC, the 1.6% annual pension levy, the 2% Quinn general insurance bailout levy, the €100 household charge and the extra €100 charge I just paid to have the same refuse company keep collecting our rubbish?  That +2.2% overall inflation rate for the past 12 months is looking increasingly ludicrous.

Oh, and as for the CSO substituting fruit smoothies to their revised new inflation basket instead of champagne, who are they kidding?

Champagne was always a special indulgence for the ‘average’ household. And I cut out those precious, (at €2.40 each!) little bottles of pulped fruit long ago.

If anyone gets a smoothie around here it’s made in the blender from bananas and plain yoghurt with a few strawberries or whatever other fruit is going a little mushy in the fridge and orange juice. Occasionally I will buy a litre size carton when the ‘Innocent’ company periodically puts them on sale.

Yes, the bought ones are delicious and convenient.  So is eating out. But we don’t do as much of that anymore either.

  

Time running out for discount family health insurance

Next Thursday, March 1 is the deadline to cancel and renew or switch out of expensive VHI health insurance plans before the price goes up between 6% and 12%.

“In a few weeks we could see the cost of health insurance effectively double for many families, with VHI families seeing a rise of €1871; Quinn by €1,840 and Aviva by €1,624,” says specialist health insurance advisor, Dermot Goode of www.healthinsurancesavings.ie

By mid March, families that want to avail of the kids-go-free offers by all three insurers will find that they have been withdrawn.

Goode says the above amounts can be saved by a combination of acting before the premium increases, availing of some of the special adult rates still available and availing of the free cover offers for children across all three insurers.

For example, Aviva’s Level 2 Hospital will cost €3,128 for a family of 2 adults and 2 children (€1291.30 & €272.70 respectively).  By opting for the Level 2 Health Excess for the adults (€752.00) and the Family Value for children (free now but normally €217.00 per child), they can reduce the cost of their family cover to €1,504 (savings of €1,624). 

At Quinn, Essential Plus (with no excess) will cost €3,490 for a family of 2 adults and 2 children (€1390 & €355.23 respectively).  By opting for the Healthwise Plus No Excess plan for the adults (€825.00 each) and the Essential Select for children (free now but normally €230 per child), they can reduce the cost of their family cover to €1,650 (savings of €1,840).

Finally at VHI, Health Plus Extra (the old B Options) will cost €3,557 for a family of 2 adults and 2 children (€1461 & €317.67 respectively).  By opting for the One Plus Plan for all the family, they can reduce their cost to €842.90 each for the adults whilst the children will go free on this plan.  This reduces their costs to €1,686 or an overall saving of €1,871.  The normal price of this plan for children is €218.50.

Trying to compare costs and plans yourself, or using the HIA.ie is a nightmare. If you can (just about) still afford private health insurance the do yourself and your family a favour and pay a fee to a specialist broker who can ensure you buy an affordable, appropriate plan.

 

Pension prudence be damned?

As of this month, struggling pension fund trustees can opt to hand over the money they would have had to find to an annuity income for their workers to the Irish government which will then provide a sovereign annuity bond that will pay an enhanced income rather than the paltry one the trustees might have had to pay over instead.

Irish sovereign annuities for pension schemes purposes came into force at the beginning of this month, signed into law by the pensions minister Joan Burton.

And while the pensions industry had been keen a couple of years ago when Ireland’s sovereign bonds were triple A rates to shift some of the annuity provision to the government, not everyone is still quite so keen.

What would happen, they ask if…gulp, Ireland ever defaulted on their bonds?

Pension funds are supposed to invest in safe, sustainable investments so that members can be sure their money won’t be frittered away by bad investment decisions.

It’s the reason why so many global pension fund managers have had to sell their stakes in newly rated junk bond and near junk bond grade corporate and sovereign debt bonds in Europe. They’re just not safe enough anymore for retirement purposes.

Domestic investment by Irish pension funds, especially in expensive infrastructure projects, has been raised many times by government but were nearly always dismissed by fund trustees, whose primary duty of care is to the retirement needs of their members, especially not to the cash needs of a government already in receivership.

Some pension consultants and advisors, like Goldcore Wealth Management’s Marc Westlake don’t think it’s a very good idea at all last month remindedthe IBA and the Minister for Finance that “it was excessive investment in Irish property” in particular and in the banks that backed those investments that contributed to Ireland’s downturn and the poor performance of many Irish pensions funds.

 “The risk here is that the IBA is seeking to preserve tax relief on [the €80 billion value]pension funds by offering to “promise”, or worse, surrender some of our existing private pension provision (the key is in the word private) to be invested in Ireland by the state,” says Westlake. “For someone who believes in free market economics, the thought of handing over my life savings to the state to invest makes me more than a little anxious.”

The majority of the people with private pension funds, he says, are already fully invested in the Irish economy through their ‘human capital’ while at the same time their employment, home and business interests and tax liabilities are also located here.

“From a prudent investment perspective everyone should diversify their portfolios internationally and should be free to invest their financial capital globally. Secondly, those investors who wish to patriotically support Ireland and wear the green jersey should be free to invest in Ireland – but nobody should be compelled to do so.”

Westlake is right of course, but the prize – for the state - is significant. Even 10% of that €80 billion would be far greater than the money raised and kept from the sale of public assets.

The Minister has already raided hundreds of millions of euro of private pension savings through the annual 1.6% pension levy. He might just say “prudence be damned” this time.

If you don’t agree, you might want to let your pension trustee know before it’s too late.

  

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100% mortgage loans were bad enough. How could a 125% one now be a good idea?

 

Politicians can’t help themselves from further meddling and tinkering with problems of their own making, such as our disastrous residential property market, especially when they have the help of the bankers who are supposed to be running most of the banks on their (and our) behalf.  

But their latest property wheeze, allegedly to "kick-start" the moribund market this Spring and which involves Bank of Ireland and PTSB lending negative equity mortgages, is pretty dumb even by their standards.

For example, if a buyer fulfils the qualification for such a loan (that is, they cannot add more than 25% worth of existing negative equity to a new loan) they'll still have to jump through all sorts of other rigid income and loan-to-value hoops, plus risk having to give up a valuable tracker mortgage for a standard variable or maybe, fixed rate one.

A negative equity loan may solve a short term problem, like needing to take up a new job in a new city or needing more space for a growing family, but how can it possibly be okay to sanction the lending of a 125% mortgage (in this still falling market) when everyone now agrees that 100% loans during the boom were a disaster?

And what if Professor Morgan Kelly, the high priest of the property doom ’n gloomers was correct all along and Irish prices fall by as much as 80% of the bubble peak or 20-25% more than they’ve already receded? The homeowner could end up with 145% of negative equity (just like tens of thousands of others with far greater than a mere 25% worth right now). 

It’s no bed of roses being an amateur landlord these days, but renting out the family home and then becoming a tenant in a more suitable one is surely a better, more flexible option than adding to an already serious underwater loan problem.

 

Pension good sense from Deputy Mitchell O’Connor

I have never met Deputy Mary Mitchell O’Connor, but she’s had my sympathy after being mocked for inadvertently driving her car down the front steps of the Dail car-park last March.  I do things like that too.

However, her recent suggestion that workers with pension savings should have a chance to unlock some of their money before pension age is a sensible one, and would have broad support by many workers and especially the self-employed and small business owners.

With the banks not lending, and frankly those who might qualify for a loan reluctant to pay the kind of interest and collateral conditions on offer, having access to money in their pension fund is possibly the only affordable capital that so many hard working business people and workers feel they could draw down.

The existing pension regulations, which have never allowed any drawdown of personal pension pots, except in cases of early retirement due to illness or redundancy close to retirement age smack of yet more nanny-statism, especially in the case of the self-employed and company owners.

There’s no question that most or all of the tax relief that would have applied as the contributions were made would have to be clawed back, but this is common practice in many countries, like Canada and the US where pension fund holders do have access to a certain amount of their personal pensions funds.

Deputy Mitchell O’Connor suggested that perhaps only the equivalent tax-free lump sum be available to drawn down (with or without the tax-free part) or that workers with AVCs, additional voluntary contribution funds that help top-up service shortfalls could be targetted for the draw-down.

She believes allowing pension funds to be partially encashed would help give a boost to the domestic economic; I think it might save some small businesses from going under as some of it gets paid to creditors, like the Revenue or even the credit unions who are also now regretting making plenty of small business loans that have gone bad.

The problem with the state letting the prudent and responsible owners of these funds from having early access to the money of course is that it might catch on… and there will less for the government to tax, levy or confiscate.

While she’s at it, maybe she’ll consider the scary news out of the UK that the Chief Secretary of the Treasury Danny Alexander (a LibDem, oddly enough) wants top rate pension tax relief to be abolished.

What happens to pensions in Britain tends to happen here eventually.

This idea of getting rid of higher rate tax relief on contributions was first mooted by Fianna Fail, who claimed the state needed this money more than the poor working sods who didn’t want to end up relying on the state (or their families) in their old age and were willing to forgo income now.

The LibDems not only want to raise more tax, but they also want to punish anyone who can afford a pension because they pay top rate tax. If some workers only pay 20% income tax, and can only contribute that much income tax free to a pension, then everyone should be thus restricted, goes their argument.

Fortunately, the UK Chancellor George Osborne realises that if you remove top rate income tax and make pension savings too expensive (who would willingly pay 61% tax in total on a pension income?) all that happens ins that more people, who do already will end up relying on the universal (and unsustainable) state old age pension system.

Perhaps Ms Mitchell O’Connor, who must surely recognise a pyramid scheme when she sees one, might champion not just the people who are desperate to take some of their own money out of their pension funds, but those who desperately want to keep funding them?

 

George ‘Nespresso’ Clooney is a class act

 

Like millions of people, I shop online, mostly for books and mostly, alas, from Amazon.co.uk where the price is keen and their delivery service is fast or Kindle-instant. 

Since I’m trying to stay away from the temptation of the high street where I keep buying stuff I don’t need – books excepted - my favourite Dublin bookshop, Hodges Figgis, is now strictly reserved for occasional Sunday afternoon browsing.

What I cannot live without, however, is coffee.

The office coffeemaker is a Nespresso and like its patron, George Clooney, it is perfect, producing rich, dark espressos and lovely, silky smooth ‘lungos’.

Every single time.

The only bad thing about the Nespresso (and I don’t think 37 cent for a great coffee is excessive) is that the only place in Dublin where you can buy the pod thingies is Brown Thomas.

Aside from being on Grafton Street, a strada non grata, the third floor Nespresso shop also boasts the only queues in the entire store.

I know that Brown Thomas’ management insist that the store is making lots of money, but not on the days when I am standing in the Nespresso queue and every other department seems utterly devoid of any passing trade.

Out of coffee and unable to get to BTs last Thursday, a sympathetic friend asked me why I hadn’t ordered my Nespresso thingies on-line.

“You will never have to join the BT coffee queue again.”

I ordered 200 coffee pods at 9.30pm and at 8.30 on Monday morning, they arrived by courier.

How’s that for service?  (George Clooney is a class act.)

 

 

 

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The best thing NAMA could do for the property market…is nothing

 

The government just can’t resist meddling in the property market.

Last week, three meddlesome events occurred:  first, the Finance Bill confirmed that extra tax relief would be available to first time buyers (FTBs) who purchased their homes between 2004-2008, regardless of whether they are in negative equity and actually need the relief and the extension of mortgage interest relief for buyers in 2012 only, until 2017, after which it will be abolished for all.

The next event was an announcement that a pilot scheme was underway to prevent the eviction of certain indebted homeowners by allowing for the voluntary repossession of their property, which they could then rent under a mortgage for rent scheme that involved a number of parties including private housing associations, local authorities, the Housing and Sustainable Communities Agency, New Beginning, the mortgage arrears lobby group and lenders.

Finally, NAMA, the world’s most expensive and secretive real estate agency, that is now whinging about the €200,000 salary cap that this bankrupt state has limited them to paying their staff (many of whom, ex-private sector estate agents that they were, would be otherwise unemployed) announced that they were ready to flog the first batch of its residential properties to the Irish public, complete with a promise that they’ll pick up the tab if the market value should fall up to another 20% in the future.

I don’t really have a problem with the limited number of indebted homeowners who might be able to stay in their homes under the mortgage to rent pilot scheme, a recommendation of the 2011 Keane report on the mortgage indebtedness crisis.

The participants will have to be people who would have qualified for public housing anyway; had limited incomes and will have to be deemed to have no chance of ever repaying their inflated mortgages. In other words, they should never been considered suitable candidates for a mortgage, in the first place.  By allowing the predatory, irresponsible lending practices of the banks, the state has a duty to correct an injustice, even if it does mean another part-write office of loans and another bill for the rest of us to pick up.

However, by at least handing over the deeds of the property and administration of the new tenancy to an experienced, privately run housing association, the wastage and inefficiency so often associated with government-run schemes might be avoided, and the local authority’s housing waiting list won’t get any longer.

The NAMA negative equity sales plan, on the other hand, is just another stupidity that has characterised every intervention into the property market by the state, including perpetual mortgage interest relief and an over-reliance on property stamp duty rather than some form of property tax.  Throw in the calamitous and corrupt relationship between the politicians, property developers and bankers during the bubble years and the loss of our sovereign independence should come as no surprise.

The EU still has to approve this ludicrous scheme. Let’s hope that it dawns on someone in Brussels that guaranteeing to make good up to 20% of any future loss on NAMA owned properties, only wilfully undermines the effort of every private property owner in the same building or street to achieve a fair, market price.

It’s certainly the concern of one such private owner who sent me an e-mail this week: 

How can NAMA get away with this? I am one of those owners whose been trying to sell their home, which I bought six years ago, for the past year. Everyone who walks in the door – and there haven’t been very many – keeps telling me my asking price is too high “because the market is still falling and we expect it to be worth 15%-20% less within a year.”

I’m lucky that I am only about €20,000 in negative equity, which I can finance myself, but if I cut the asking price any further, my bank won’t allow the sale to proceed.  I haven’t got a hope in hell of selling if NAMA starts guaranteeing a further 20% price loss.”

Frank Daly of NAMA told RTE’s Morning Ireland that the housing market needed “a kick-start”.

Yes it does, but not from NAMA. 

The ‘kick-start’ that will get the moribund Irish property market moving again will happen naturally when we pay off our debts, unemployment starts to reverse, the banks start lending again and properties are affordable again, relative to ordinary worker’s wages.

Until then, the best thing the government could do…is nothing at all.

 

Better no Insolvency/Bankruptcy bill than the wrong bill

 

Anyone interested in making a submission on the proposed draft of the Insolvency and Bankruptcy Bill might want to make sure they get to the first hearing of the Joint Oireachtas Committee for Justice, Defence and Equality next Wednesday afternoon.

The consumer advocate Brendan Burgess, the mortgage arrears lobby group New Beginning, MABS and others will be there to represent the interests of the people who don’t seem to be have been consulted very much in the drafting of this proposal:  the tens of thousands of indebted citizens and their creditors who need a workable and fair method to deal with this huge debt crisis.

The current proposal is a start, but it needs to be simplified and streamlined. The position of debtors needs to strengthened, ideally with amendments to compel the banks to engage and for the appointment of an Ombudsman.

Hopefully submissions will highlight how intrusive and punitive are some of the insolvency provisions and will question why the government is proposing to make the Irish laws so complicated – with four insolvency and bankruptcy options – when the British have two perfectly workable options in place with far more reasonable discharge periods than the one, three, five six and possibly eight years included in this draft.

I wish I was more hopeful about this terribly important new legislation.

But this draft needs so much work – and time is running out for so many people who need to close this horrible chapter in their lives – that if insufficient pressure is applied from the public, the ‘solution’ the Oireachtas ends up voting for could end up making things worse, not better.

Read the draft. Write, e-mail or call your TD or Senator and voice your opinion. Support your friends or family members who could end up in six or even eight more years of financial trusteeship if the draft is not rewritten.

 

The play’s the thing…until its backers run out of patience and money

 

This modern Greek tragedy has been unravelling for so long now that it isn’t just the money markets that have become a little bored and disinterested.

The Germans, the French, the Dutch … even we Irish, have seen the brinkmanship scenes played out so many times now that we’ve practically convinced ourselves that if the Greeks do leave the eurostage, it won’t really be the end of the world.

It just means we can all call it an early night, go home, let the director and writers tweak about with the script and expect to see the show go on.

Not everyone believes the Greek denouement will be so tidy.

Nor do they believe our tin-eared chorus of politicians when they keep repeating what the troika keeps saying about Ireland’s little performance so far: the political players may have learned the lines they’ve been given, but it doesn’t mean any of it is true.

We’re not really that far behind Greece – or its immediate understudy, Portugal.

We remain the most indebted country in Europe with a successful foreign owned export economy that doesn’t leave much of its profits behind and a failing domestic economy and people who still account for nearly 70% of GDP.

Until growth is restored at a faster percentage rate than the cost of servicing our debt we’re only digging ourselves into a deeper and deeper fiscal hole, even if it’s happening at a slower rate than in Greece and Portugal.

Fee-based authorised advisors I speak to regularly say that some of the same wealthy clients who were so keen to put their euro savings offshore last November and early December, when it appeared that Greece was on the verge of a default that might threaten our banks and the safety of their deposits, are now wondering if they were a little hasty. 

They see how the markets have surged in January on the news that Greece would get another bailout and how the ECB printed €500 billion to lend at 1% to German, French and other euro-banks that were most heavily exposed to Greek (and other) sovereign debt.

Their confidence in a soft landing may be premature, say the advisors, especially if the Greek people decline to accept the ruinous terms that their politicians have capitulated to on their behalf.

This fundamentally flawed play is running out of time and credibility. No one in their right mind would lend it a penny of their own money.

 

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