Jill Kerby

IF WE LEAVE THE EURO WHAT HAPPENS TO THE MORTGAGE?

GR writes from Dublin:  In response to the letter from KP from Kildare (Sunday Times Money Supplement, 4th Dec 2010) you don't seem to have answered his last query, namely "What would happen to mortgage debt if Ireland leaves the euro?"  

If we were to be forced out of the euro, or left it voluntarily, the debt you hold in euro, like a mortgage, would, most probably, be expected to be paid back in the new, Punt Mark II equivalent. Even if a second tier eurozone was created for heavily indebted member states like ourselves, the Greeks, Portuguese and Spanish, the original euro debt would have to be repaid.  Expecting it to be repaid and actually getting the money, is not the same thing, however. If the Irish state were to default, there would probably be a certain amount of debt forgiveness, and the same would, presumably, have to apply to the vast amount of personal debt Irish people carry. New repayment rates and terms would also be worked out with creditors – who might be new owners of your bank. 

Would it be enough to avoid repossessions?  Perhaps, but no matter what level of restructuring  – and this applies even now as we labour under our new ECB/IMF overdraft facility – there is a pressing need for a formal personal insolvency process in this country.  People with massive, unsustainable debt need a chance to have the all or most of their debt to be wiped clean and a chance to discharge their bankruptcy in a short few years.

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I can't repay loan

AB writes from Co Longford:  I have a personal loan with PTSB which is distressed, I have been paying as much as I can over the past four months. I approached PTSB before it became distressed but they were not open to discussion.  The loan balance is 16,000; repayment was €420 per month, and for the past four months I have paid a total of €950 in payments (€50 per week) but they are assessing penalty interest of up to 11% per month and as a result interest has taken €700 of the €950 and the principle just never seems to reduce, is there anything I can do?

 There is still no formal arrears protocol from the Central Bank regulator for personal debt, despite one coming into force from next January for mortgage arrears to which your bank is a signatory.  What you need to do is to write a formal letter to your lender clearly setting out why you cannot meet your full loan repayments, that €50 a week is all you can afford and request a meeting to discuss a formal debt restructuring. In order to back this up, you should also arrange a visit to your local MABS (Money Advice and Budgeting Service) who can help and advise you in putting together a proper budget statement that you can then submit to the Permanent TSB loan officer.

 “The reality is that too often banks won’t accept the word of their customers when they say they can only repay part of their loans, but they will accept it if it is backed up by a MABS intervention,” says Brendan Burgess, the founder of the financial website, www.askaboutmoney.com .  “I think getting MABS to help your reader work out his outgoings and expenditure and coming up with a repayment that he can meet is a good strategy.”

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Pensions poser 

RL writes from Dublin:  I am 48 and a sole trader and have a small internet/mail order business that I started about 10 years ago from home.  I had been making small pension contributions every year until about three years ago when I turned I turned 45, and had a chance to bump them up. Last October I made a payment of €14,000, which represents about 25% of my gross earnings. However, I’ve been reading a number of reports that I may have to make another payment before the end of this month because of some backdated income rule. I can’t make head nor tail of the explanation.  Can you explain how it works and whether I will have an extra payment to make? I don’t actually have any spare money at the moment.

The Budget has indeed revised the terms under which self employed, sole traders like yourself can make annual pension contributions, but you can relax says Suzanne Fogarty, a partner at the Dublin accountancy practice, DLS Partners:  “The income restriction or backdating option does not apply to your reader as her earnings of €56,000 fall well below the new income limit - €115,000 instead of €150,000 which has applied up to now – and on which pension contribution tax relief can be claimed.”

Had your earnings been in excess of €115,000 in 2010, the backdating of the lower income limit to 2010 would have meant that you would have to bring forward your 2010 pension and tax payment to before the end of this year, rather than wait until the end of October 2011 to make those payments, or face a higher tax bill.  Unfortunately, not that many people have the money (having just paid their 2009 pension contribution and taxes this past October) or can borrow the value of their 2010 pension contribution.

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€50,000 Question

JK writes from Carlow:  I have €50,000 to invest for the next three to five years. Where in your opinion would be a secure place to invest and gain some interest at the end. I have savings bonds and savings certificates already.

Three to five years is a very short period of time to be investing, especially since so many life assurance based investment funds has upfront charges and monthly administrative and annual management fees.  I am going to assume you don’t have outstanding expensive debt to pay off, but If it is security of your capital that you want above all, then stock market based investing is not for you.  To beat deposit rates, however, you need to take some well-informed risks with your money.

Since you already have cash in Post Office fixed term accounts, you could consider putting some of your €50,000 into ‘real money’, like gold and silver as a hedge against the continuing devaluation of paper currencies and the risk of future inflation (see the Dublin bullion dealers www.goldcore.com for different ways in which to buy gold and silver.)    You could also investigate short term government or corporate bonds; contact a good financial advisor or consult a stockbroker. 

MT writes from Dublin: Have bank depositors ever lost their money due to a bank collapse in the developed world? Or have the government always seen to it that deposit holders got their money back? (eg. Northern Rock, the first bank run in 150 years in the UK and deposit holders still got their money back). I understand all Irish deposit holders have up to €100,000 guaranteed but is there any chance the Irish government could run out of all money supplies and be unable to pay everyone’s deposit back?

Nearly 150 banks have already failed in the United States this year, up from 140 last year; their bank deposit guarantee only covers the first $250,000.  Any sum over that amount would has been lost by depositors foolish enough to leave the extra sums in those failed banks.  If an Irish bank, or any other bank in the eurozone failed, only the amount covered by the relevant bank deposit protection scheme would be repaid. It is unlikely that a failed Irish bank would have sufficient supplies of cash on hand to repay the €100,000 to every eligible saver under the deposit protection scheme.  However, if you have faith in this guarantee, you presumably, will also believe that your €100,000 will be ultimately refunded as quickly as possible with the assistance of the EU, ECB and IMF, all of whom have just extended an €85 billion loan facility to capitalise the banks and the state.

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BW writes from Cork:  I do feel that the Irish banks will fail and that the euro may not survive. Last Sunday you suggested Norway as a safe bet for savings, but what about changing my savings to a sterling cheque and putting that into a British Government controlled bank/society e.g. Nationwide U.K.?

There are any number of non-euro currencies into which some of your euro savings can be transferred.  Ask your bank about its terms and conditions for setting up a foreign currency account - they may not pay any interest, for example. Under UK building society regulations, you cannot open a Nationwide UK building society account unless you are a resident of the UK, but you can open an account with their international operation in the Channel Islands.  Nationwide UK Ireland does not open sterling accounts here. One way to shift some of your money out of euro and into a wider basket of currencies is to buy into a currency investment fund. Check out the Insight Alder Capital fund see www.brokerfirst.friendsfirst.ie/ole/investments/documents/Weekly%20Fund%20Performance.pdf) which is available from Friends First. In the year to December 3, 2010 this fund has recorded a 13.07% return; over five years it has produced an annual return of 7.69%.

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LM writes from Cork:  In reply to SG from Dublin you mentioned that readers could "subscribe to financial newsletters". Could you suggest which newsletters might be worth subscribing to? Also, one of your correspondents raised an issue in a letter that I noticed you did not answer, ie what would happen to mortgage debt if Ireland leaves the euro?  I think euro mortgages taken out since joining the single European currency would increase proportionately if we adopt a new devalued currency, but my husband thinks that mortgages would be re-calibrated on a one-to-one basis into the new currency.  As savings would devalue automatically if we leave the euro and default on our debts, this is an important point to clarify; there is little point in saving at all if we should be trying frantically to pay off as much of our mortgages as possible.  Can you shed any light on this issue? In the same letter, the correspondent asked what would happen to one's mortgage contract if AIB is acquired by an outside agency.  Can you answer this as well, please?
 
I personally subscribe to a number of specialist newsletters from the international Agora Financial stable – Capital & Crisis, Special Situations, International Living (whose office is based in Waterford) and the excellent free, DailyReckoning.com as well as their weekly financial magazine MoneyWeek. I subscribe to the 12% Letter and S&A Digest from Stansberry and Associates, US newsletter publishers.  I also subscribe to one of the oldest UK financial newsletters, the Fleet Street Letter which is now owned by MoneyWeek. All of these publications can be ccessed on-line and they send daily and weekly e-mail prompts and updates.

As for what would happen to Irish mortgage debt if we left the euro and assumed a new, devalued Irish punt, the consensus view is that you would have to repay your euro denominated mortgage with the devalued new currency.  If, say, you had a €200,000 mortgage debt and the new punt was worth 50% of the old euro, then you would now have an equivalent new debt of 300,000 new punts. Only outright debt forgiveness for personal debt holders – or very high inflation – will reduce the value of your debts. Finally, any purchaser of AIB Bank would expect you to keep paying your mortgage, as per its original terms, in euro, punts or any other currency that became the new ‘coin of the realm’.

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SG writes from Kerry:  I’m considering opening a GoldSaver account with Goldcore.com and invest on a monthly basis but I’m a little sceptical about buying certificates as opposed to physical gold as I have heard lots of bad stories from people online about not being able to obtain their gold when they requested it. Do you have any advice regarding same?

Goldcore director Mark O’Byrne told me, “There is no truth in this. 
During the financial crisis in 2008 there were delays of some two weeks for clients who decided to convert to allocated gold or who wanted to take delivery of their gold. There has never been a delay in liquidating Perth Mint certificates for cash or in receiving payment as it encashes certificates and transfer cash immediately.”  If you are anxious about buying gold in certificate form, or in the form of an Exchange Traded Fund, another ‘paper’ backed version, I suggest that you buy coins or bullion and store them securely.

OVERPAYMENT CAN KNOCK MONTHS OFF A MORTGAGE

MC from Wicklow:  We have about 15 years and €190,000 outstanding on our 2% tracker mortgage. We have approximately €10,000 saved and were thinking of paying off some of our mortgage. One of your co writers recently commented that we would be better off investing the money in a high interest account (no time period suggested). I would appreciate your opinion.

The first thing to check is whether you can pay off a lump sum from your tracker mortgage without penalty – under no circumstances do you want to endanger the continuation of the tracker and end up being switched over to a variable rate contract. 

High yielding deposit accounts are short on the ground these days, but the conventional view is that if you can achieve a superior, low risk, net return from a deposit account or investment fund, compared to the rate you must pay on your mortgage, it makes sense to opt for the higher return. A good advisor can help you identify deposit accounts and investment options that may fit that parameter.

However, this also only makes sense if you don’t have any other, higher cost outstanding debts, such as credit card balances, hire purchase payments or personal loans.  Credit card balances that typically attract 18% plus compound annual interest rates should be prioritised, especially if you’re in the habit of only paying off the minimum monthly repayment. 

Finally, before you make any decision, make sure your lender or your advisor shows you just how much interest you will save if you do pay off €10,000 capital from the €190,000 mortgage balance. You may find the lump sum  capital payment is a very good, guaranteed, no risk, no cost (hopefully) way of saving a lot of money. 

A once-off overpayment of €10,000 on a mortgage of €190,000 at 2% interest, for example, should save you €3,360 in interest and shave 10 months off the 15 years left on your mortgage. Ask your lender what would happen if you need to get back the €10,000 in future, perhaps to cover a financial emergency. MOst banks treat it as a mortgage top-up, which is increasingly difficult to get as house prices fall, reducing the equity in your home. 

Some lenders, including KBC Homeloans, give you the right to take mortgage overpayments whenever you wish. This flexibility makes the overpayment a lot more attractive. 

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Fixed risk

KP writes from Kildare:  I have been offered a two, three or four year fixed rate mortgage from AIB for a €450,000 mortgage and I’d like to know, first, if you think a fixed rate is a good idea and for how long and then, what will happen to mortgage agreements if AIB is sold.  Finally, what happens to mortgage debt if Ireland goes off the euro?

I asked Karl Deeter of Irish Mortgage Brokers for his view and he thinks the  three year 3.89% fixed rate you’ve been offered by AIB “is a very good deal” and at just 0.2% higher than the two year rate is a premium worth paying.  According to Deeter, ECB interest rates can only go upwards and since they are determined by the state of the German economy and not ours, chances are they will be going up sooner than later as the German economy strengthens and price inflation becomes more of a concern.  Even tracker mortgage holders will have nowhere to hide if that happens. He also suggests that all the Irish banks will be raising their lending rates as a consequence of the latest capitalisation measures and fixing a loan is a way to at least achieve some peace of mind for a few years. 

You do need to consider the consequences of having to revert to a higher variable or tracker rate at the end of the fixed period.  Your lender can project your mortgage cost on a lower capital balance, but at a higher rate, in three years time. You cannot overpay a fixed mortgage if you find yourself with some spare cash. You may also be hit with steep redemption penalties if you need to break out of the fixed deal because the rate is uncompetitive or you decide to move.

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Foreign affairs 

UB writes from Dublin: Further to a query in last week’s Sunday Times regarding transferring savings to another country - what steps are involved in this process?  Is residency a condition of repatriation of funds?  Who would be able to advise as to how to go about this?

There is nothing to stop you from transferring funds from your Irish bank account to a bank account in any other EU country, so long as you have all the access codes for the foreign bank account and you do not violate any money laundering protocols.  Opening that foreign account in your own name is another matter.  Again, there are no EU regulations preventing you from opening the account, (see http://ec.europa.eu/youreurope/citizens/shopping/banking/faq/index_en.htms), but individual European banks can set their own deposit terms, including residency requirements.  You need to check with the specific bank. 

Perhaps the easiest way to open a non-Irish, and non-euro bank account is to cross the border to Northern Ireland and open an account there.  Bank of Ireland, AIB, Ulster Bank in the north, will all open sterling savings accounts for Irish residents who fulfil the correct ID and money laundering conditions.  The main Irish retail banks, including National Irish Bank, can also open non-euro accounts for customers.

Nationwide UK (Ireland), which last week opened its first high street branch in Ireland at Merrion Row in Dublin (it has a drop-in customer centre at the IFSC) says that British building society legislation prevents its branches in Northern Ireland from opening accounts for non-residents.  Like most deposit takers though, it has a branch in the Isle of Man that will open offshore accounts for non-residents. Interest on such accounts is liable to tax at your marginal rate. 

MMcH writes from North Dublin: I know you have written extensively about the importance of maintaining life insurance even in difficult financial times and I fully agree with this advice. I would however, like to ask your opinion on the following: my husband and myself (both now 50) pay approx €350 per calendar month on a 20 year mortgage of €500K. My husband was "weighted" as he had pre-existing illnesses. We now find this payment punitive and while we both have life assurance cover associated with our jobs, it was pointed out that this was only in place as long as we both were in these particular positions. Is there any way we can reduce the premium without going though the stress of hawking ourselves around to new brokers? Can we reduce our cover as the outstanding amount on the mortgage has been reduced?

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I asked financial advisor John Geraghty of www.labrokers.ie for his opinion about your case. Without knowing more about the type of loan you have and the medical reason for the loading of the premiums, he was unable to determine whether your policy is ‘good’ value or not. Nevertheless there are ways to try and reduce the cost he says though it depends on the cooperation of both the lender and insurer. First, you could, as you suggest yourself, ask to switch to a policy that reduces the cover in line with the depreciating balance of capital you owe. Not all insurers are in a position to do this as it depends on the terms of the underwriting of the policy, he says. Another option is to seek cheaper cover from another provider, “but given that your readers are probably a couple of years older now and the health condition they refer to may still exist, they may not be able to secure a lower quote.” If your husband’s health is better, however, the loading penalty might be lifted and this savings may cancel out any higher age-related premium, he says. Next, since you are now both 50, you can ask your mortgage lender if they would be willing to waive the requirement for the life cover. But, says Geraghty, only expect them to do this if they are satisfied that the surviving partner’s income is sufficient to comfortably meet the loan repayments and/or the sale value of the property would cover the outstanding balance owed to the lender. Finally, you don’t say if you have any other life insurance policies of similar duration to the remaining term of your mortgage, other than your death in service benefits (which cannot be assigned against a mortgaged debt). If you do, the lender might allow these to be assigned to the loan, therefore allowing you to reduce the balancing cover (and cost) of the existing policy. Again, this depends on the existing policy being amended and not having to be re-issued. If that happens, says Geraghty, your ages and health circumstances would probably result in a higher premium that might cancel out the benefits of having access to the other policy. Given how there are so many permutations to consider, you really should engage a good broker to help you cut your costs. 

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BA writes from Dublin: Post Office savings certificates and bonds are advertised as tax-free savings and I receive an annual certificate of interest on every cert and bond. Does that mean that in my annual tax return, where it states under the heading ‘Irish Deposit Interest, Gross Interest Received’ (from which DIRT was deducted), that one must state how much they have earned each year from the Post Office? If that is the case then these are not tax-free as one will have to pay income tax at the higher rate if their pension/ salary plus extras plus interest on certificates and bonds bring your income over the lower tax rate as these earnings are all added together and you are now taxed on this total.

You are worrying for no reason. The deposit interest you receive from your Post Office savings, which is limited to a sum of €120,000 for an individual and €240,000 for a married couple - is entirely tax-free. You do not have to include the existence of your certificates or bonds or any interest earned from them in your annual tax return to the Revenue Commissioners. 

SW writes from Dublin: I hold a small self-administered pension scheme which is administered by a pensioner trustee. Along with your comment on the Sunday Times (17th January) I am opposed to paying the sky-rocket brokerage fees charged for my infrequent buying and selling of shares under the pension scheme. Would you know if it would be possible to set up an on-line, execution-only stock broking account for a small self- administered pension scheme?

According to pension expert Judy O’Rourke of Global Pension Options in Dublin, there should be nothing to stop you and your trustee from setting up a lower-cost execution-only brokerage account in order to reduce your share transaction costs. “But your reader needs to know that under self-administered pension scheme regulations he cannot act separately from his trustee in purchasing shares or any other assets.” This is something you will need to discuss with your trustee.

The Sunday Times MoneyQs – Nov 29 By Jill Kerby

JN writes from Galway:

Over the years I’ve received share options from my employer which I now intend to exercise, I know they are treated as income and liable to tax, my question however concerns in which jurisdiction. I must exercise the options in the US and transfer any proceeds back to Ireland. However, if I do not supply the US institution with a WBEN-8 they will withhold 28% proceeds, far better than the 41% I will have pay in Ireland. Does the dual tax arrangement allow me to pay US tax and then no further Irish tax?

I’m afraid not. According to Sandra Gannon, tax advisor at TAB Taxation Services in Dublin, the correct way for you to realise the gain from your share options is to complete the form to which you refer, the W8 form, which will allow you to be paid your options gross, then to file your return here and pay the income tax. Unfortunately, the return is subject to the income levy but there is no PRSI liability. There should be someone in your company who can help you process the exercise of your share options, or else consult a tax advisor.

JM writes from Co Mayo:

I have lived permanently in Ireland since retiring in 2003 and do not pay Irish tax but instead pay UK tax under the double taxation agreement between Britain and Ireland. Recently the Irish tax authority, whilst agreeing with this, have said nevertheless I am liable to pay a health levy of 2% on my gross annual income for 2007 and 2008 (rising to 4% from 2009 onwards) and, in addition, with effect from 01/01/2009 an income levy of 1.67%, again on my gross income (which is only my pension from my last employer). Liability for payment of the health levy ceases when I reach the age of 70 years. Is this advice correct and, if so, can I obtain a pro rata reduction in the UK tax I pay so I am not paying double for similar services in Ireland and the UK?

The advice you have received is correct, and unfortunately you are not entitled to any reduction in your UK tax as a result of the imposition of the income and health levies. At the moment, you are obliged to pay tax to both the UK and Irish authorities with a tax credit/refund on the "double" tax you pay. Once again this week, tax advisor Sandra Gannon recommends that you should simplify this by applying to the UK tax authorities for the gross payment of your UK pension. You then file your annual Irish tax return, pay the appropriate tax and levies on your income, thus avoiding the complicated business of claiming Irish tax credits and UK refunds on the two sets of tax you are otherwise obliged to pay. Finally, many UK UK pensioners who settled in Ireland in recent years have benefitted from higher value social welfare benefits and services (and even lower tax), but that could now be coming to an end, given the serious financial problems here. We’ll know on December 9th if any of those higher benefits are reduced, or it the levies are increased or new ones introduced.

KM writes from Cork:

I took out a life assurance, sick benefit and pension policy back in the early 1980s when I was working for the public sector part time. When I secured a full time position, I continued to pay into my private pension even though I joined the superannuation scheme. No one ever told me I couldn’t do so. Nor did I realise I could claim tax relief on the contributions. I will be retiring in a few years time and last summer, after a growing concern about how much it was worth, I decided to review my pension plan only to find out that not only had it fallen in value by quite a lot, but that I was not entitled to keep the policy since I was a full-time employee contributing to the superannuation scheme. The life assurance company has offered me only a refund of my contributions with interest, but it falls very short of the contributions I have made which went up steadily every year. I’m not sure if the first few years contributions, which I was allowed to make are included in their sum. There is a lot at stake and I’m wondering if there is some way I can redeem more of my money or even claim tax relief on the first three years of contributions?

I am so very sorry about the situation you have found yourself in, though it is not the first case I, or financial advisors I know have come across. The advice you received when you took out your original policy was not good, in that it was a very expensive all-in-one protection and pension plan with high charges and commissions that would have absorbed at least the first two years of your contributions. The premiums were indexed upwards at 5% each year (as were the benefits on the two protection policies) and this has resulted in a huge monthly contribution of over €800 today. It’s bad enough that the broker did not give you clear instructions on how to claim the tax relief but that when you ended up with a full-time job, that he did not inform you that you could no longer keep the policy if you were part of a superannuation scheme. The pension could have been encashed and cancelled, or at least the pension part of it put into a fully-paid up status for collection at retirement. or put into a fully-paid up status. The reason why your refund and interest is below the amount of contributions is because an increasing portion of your (rising) contributions were diverted every year away from the pension investment into the cost of the whole of life cover and income protection benefits: very simply, the older a person gets, the more it costs to provide cover. Good financial advisors never recommend that you bundle together a pension and whole of life cover (which relies in investment returns) together, or a mortgage and whole of life cover in the form of an endowment mortgage for this very reason. Your case pre-dates the setting up of the Financial Regulator and Financial Ombudsman to whom complaints about private pension plans are directed, and the Pensions Ombudsman who deals with complaints about occupational pension schemes and PRSAs. However the Pensions Ombudsman has kindly offered to review your case. You are not the only public servant who has been funding parallel pensions at a huge expense…and loss.

BK writes from Co Kerry:

I am 51 and have worked in the HSE for the past 15 years and pay into the HSE pension fund. Prior to this I worked for eight years in the private sector where my pension contributions were invested and left in the Irish Life’s Consensus Fund. As well as my HSE contributions, for the past five years I have also been investing in an AVC with Irish Life. Is it possible to transfer both these Irish Life pension funds into my HSE pension now and use them to buy back years of service? I am aware that buying back service is very expensive. Irish Life said it was not possible, but I read somewhere that since the Pension Act it was possible.

According to the Pensions Board it is possible to secure transfer values of your occupational pension fund from your previous, private sector employer and your existing AVC and to then use this value towards the purchase of years of service in your HSE pension. But you must check first with the HSE pension administrator about the rules that pertain to purchasing years of service. This can be a very complicated area, but one that pension consultants, in my experience, is worth considering when compared to the cost of funding AVCs. If the transfer value you are quoted appears much lower than you were expecting, it could be because the one you are working off is not very current, or it could be due to the way the value has been calculated by the scheme actuary. You might also want to consult an independent pension advisor if you have any doubts. If you haven’t already done so, I suggest you open a file, and keep all correspondence and documents in good order so that all parties are fully up-to-date with exactly what terms and conditions apply to both your pension funds and the purchase of the extra service years.

FG writes from Dublin:

I was very surprised to read your recent reply in regarding a medical card for a UK pensioner. My understanding is that receipt of a UK state pension automatically entitles a pensioner living in the Irish state to an Irish medical card regardless of his/her total income as long as it includes no Irish pension and the pensioner is not working in the Irish state. This is due to EU regulations that prevent an individual person in one EU state being worse off when moving to another EU state.  Please research the issue fully and confirm the above.

I have confirmed with the HSE that all medical cards issued by them are means-tested, regardless of the origin of the applicant. However, if you are declined a card, said the spokesman, you may still be granted a card at the discretion of the HSE, depending on your particular circumstances. Since the beginning of this year there has been a big change in the system of allocating medical cards but another reader who also contacted me thinking that means testing did not apply in his case supplied me with a very out-of-date document he received from his Citizen’s Information Centre dated September 2000. If you have any further doubts about your own case, contact the HSE at Callsave 1850 24 1850
or directly at your local health office.

YM writes from Dublin:

I am unemployed living on savings, would I have a tax free allowance that I could claim against DIRT payments as that is my only income?

The only people who are not subject to deposit income retention tax are those who are permanently incapacitated and the over 65s whose income falls below the tax exempt income threshold, which is currently €20,000 for a single person and €40,000. Despite your low income you will still be subject to DIRT and while this is no consolation, even children – who are too young to work – will find that any growth in their savings is subject to the 25% tax.

MNM writes from Dublin:

I'd be most grateful if you could answer the following question, based on the following information: two people own three properties in joint names. Property one is the principal residence of person A. Property two is the principal residence of person B. Property three is used as a holiday home by both people, and NPPR tax has been paid on that holiday property. Is there a liability for NPPR tax on property one or two, with regard to the person not using it as a principal residence?

The Non Principal Private Residence charge of €200 applies to property that you own that is not your “sole or main” residence. You and your friend, person B, each partly own three properties – but the two that are each considered your ‘sole’ residences are exempt and you are only obliged to pay the €200 on the holiday property that you jointly own. It’s a good thing that you paid your tax on the holiday property; the Act provides that if a charge is not paid within a month after the last date for payment, a late payment fee will apply for every month or part of month that the €200 charge remains unpaid. For 2009, this means that the late payment fee will apply to all payments made after 31 October 2009.

DC writes from Dublin:

My wife and I are looking at getting a mortgage for a house we have finally found. We are first time buyers with the deposit accumulated. We both bank with AIB who have are offered a fixed and variable mortgage. The fixed rate is 2.8% for two years and the variable is now 2.4%. I know Europe is now out of recession and the ECB will be increasing rates over the next year. Would the rate of the variable increase rapidly over the next year or would it be a slow process? AIB would like us to take a fixed rate mortgage. We would like to know what your thoughts are on the benefits of both types of mortgage.

That two year fixed rate is very low indeed. And while economic recovery is going to be tenuous and not at all consistent, either in its strength or in the number of countries involved, there is plenty of consensus that the ECB rate isn't going to go any lower than 1%.You need to keep in mind too that the Irish lenders are not constrained by the ECB rate when it comes to setting their own mortgage lending rates. The only thing that is stopping the likes of AIB and Bank of Ireland, for example,from raising their mortgage rates is the Government's share of their businesses: in return for the billions in bailout money the two received, they gave a mortgage lending commitment, and for the moment, that seems to include no increase in the interest rate.  If you do accept this 2.8% fixed rate, you must also accept that the variable rate could be higher in two years time. Stress-test your ability to pay over the longer term by raising the 2.8% interest to at least 4.8%.  Could you still afford to pay your mortgage?  Even if you can, will you still be happy to pay a higher rate if the value of your property was to fall into negative equity? You don’t say how much your down payment will be, but if it is just 8% to 10% of the purchase price, negative equity is a real possibility.  I wish you good luck in your new home, but the most important thing is to accept that this is your home, not an “investment” or a future pension.  If you have serious doubts about your ability to comfortably repay this debt every month, keep renting.

WO’S writes from South Dublin:

I worked in an academic institution for 33 years.  During this period I also purchased seven years pension contributions before retiring in 2004. Prior to joining the institution I worked in industry for 13 years in the UK thus entitling me to a UK  social welfare pension. I’ve been granted a credit of one year by the D I T  due to the system which it applies because of  how I achieved my qualification prior to joining it . However , I’ve been notified that because of my UK  Social Welfare Pension I  will forfeit this extra year of entitlement. The information was not available to me prior to retiring. I would be most grateful on any clarification of  the validity of the reduction of one year of pension. 

This is an unusual case and not one that I have ever come across.  I have heard about circumstances in which the integration of an occupational and state pension has resulted in disputes over the size of the final pension, but in each case these have been Irish pensions in both instances (and not a UK or EU state pension benefit.)  I contacted the Pensions Board on your behalf and was told that based on the details you supplied me, it would appear that they are the agency to investigate your complaint. “If this doesn’t turn out to be so we will ensure that he is directed to thecorrect one,” - perhaps the Pensions Ombudsman. You should send a letter expaining as clearly as possible the time-line of events and include any documentation you may have to support your complaint.  I’ve passed onto you the name of the Pensions Board official who will receive your correspondance. 

HB writes from Dublin:

I’m writing with a question concerning the management fees on managed funds.  I have three modest funds and a very small personal pension plan.  The funds have taken a big hit this year and recently I calculated the actual amount of the management charges and was quite shocked.  I’m aware that there has to be some charge as I expect that professionals will do a better job than I could do myself.   I’m currently unemployed and living on unemployment benefit so to see an annual amount of €2,500 leaving my funds – regardless of performance - is very worrying.  If the funds were to remain at their current value, fees of 1.5% or 1.75% would eat up a large chunk of money over 10 – 20 years.  I’m happy enough with my financial advisor, as far as I can tell they are doing whatever they can in difficult times.  My portfolio was changed in 2006 therefore there would still be early encashment charges if I switched to a different scheme now. I’m wonder if you would have any suggestion how I might reduce these fees?

Most pension funds allow for a couple of free switches between funds every year and this might be a way to reduce annual costs:  cash and other fixed interest funds usually carry lower annual management fees, but you want to make sure that this is a suitable asset for your needs.  (It may not be possible to switch out of a property fund as easily.) Before you do anything, speak to your advisor – or better still, to a new, fee-based one if yours is not - to review your existing asset mix and your schedule of charges.  Hopefully this person can make some suggestions to improve both. It seems scandalous to me that fund managers and their sales agents don’t take some of the pain, in the form of lower annual management fees or commission rebates, when they consistently lose their client’s money through poor asset allocation and advice, as has happened with typical Irish managed pension funds for the past decade.  It’s certainly a subject to which the new Financial Regulator should give some attention when he takes office next January. 

YM writes from Dublin:

I am an unemployed lady in my fifties and am living on savings.  I have not been in PAYE employment for about seven years.  I believe I have paid enough contributions over the years for a 75% contributory pension, someone has told me I could sign on for more credits towards a pension. (If there is any money left in the country to pay anyone a pension!) Is this correct and how would I go about it?

You should contact the pension section of the Department of Social and Family Affairs at Social Welfare Services, College Road, Sligo, Tel: (071) 915 7100 or Locall: 1890 500 000 or by e-mail at http://www.welfare.ie/ to establish exactly how many PRSI contributions you have made and the size of your state pension at age 66. They can then advise whether you should make some voluntary contributions or not towards securing a maximum state benefit. Since you will reach your pension age after April 6 2012, you will need to 520 paid contributions (10 years paid contributions) and not more than 260 of the 520 contributions may be voluntary contributions. 

KK writes from Carlow:

I will be 65 and retiring in September 2010 and I have a pension with New Ireland worth approximately €8,000 invested in a safe fund. Would you please advise me if it would be worth my while investing the maximum amount in AVC's for 2009-2010 and if so what percentage of my pension and AVC's can I take as a lump sum on my retirement. I earn approximately €40,000 per annum.  

I’m not entirely clear if the €8,000 you quote is the investment value of your pension fund with New Ireland or the size of the actual pension you expect. Either way, your pension fund/income is quite small. Had you qualified for a full, 40 year service pension at retirement, with sufficient funding by both you and your employer and satisfactory investment returns if yours is a defined contribution scheme, you could have ended up with a pension €26,666 per annum or two thirds your final €40,000 salary. As it is, says Dublin investment advisor Liam Ferguson of Ferguson and Associates, you personally can still make AVC contributions in 2009 and 2010 worth 40% of your total net realisable income which would boost the value of your tax free lump sum, which can amount to no more than one and a half times the value of your final income, or your final pension income.  This percentage contribution must include any normal contributions you already make into your pension fund.  Your employer could, if he wanted, fully fund your pension, but this is an option usually only reserved for very senior employees or executives who have a funding shortfall.  If you are a married person and sole earner, you are unlikely to pay any tax on the higher income that is produced by topping up your AVC, says Ferguson, as your total income, “even including a state pension, is unlikely to exceed the tax free, €40,000 per annum income threshold for married couples. The Commission on Taxation has recommended that a higher than standard rate tax relief replace the current tax relief rates for pension contributions and if this is introduced in the Budget, it will give your final pension value another boost, says Ferguson. Just make sure your fund is protected against any investment risk between now and then.  

MP writes from Kildare:

My husband, who is 80, spent all of his working life in England and has a UK company and state pension, but not an Irish state pension.  He has lived in Ireland since 1987 and received an Irish medical card at age 65 and earlier this year was informed by the Department of Social Welfare that he was entitled to hold his medical card. Am I correct in believing that my husband's UK state pension gives him automatic entitlement to an Irish medical card under EU rules?  At age 60 I became eligible for a small UK state pension on the strength of my husband's contributions (I am now 68).  I am not in receipt of an Irish social welfare pension.  When I retired from teaching in January 2004 I was advised I was eligible for an Irish medical card under EU rules. I applied for and received a medical card in February 2004. I have had two review dates since then. My next review date will be in February 2010.  Again, am I correct in believing that my UK state pension gives me automatic entitlement to an Irish medical card?

First, it is the Department of Health and the HSE that determines who is eligible for a means tested medical card, not the Department of Family and Social Affairs. The fact that you have UK state pensions is not relevant. Irish medical cards are available to the holders of UK pensions, but they are means tested. Your husband clearly has passed his means test. If you are concerned about whether your qualification for a card is still valid, I suggest you contact your local health board or get onto the HSE in Co Kildare at the following number: 045 876001.

HFQ writes from Dublin:

We hold a "qualifying account" with I. Nationwide. Can any benefit accrue from a possible demutualisation in the future?

I doubt it.  My husband once had a similar qualifying account, which he opened a number of years ago in the hope of a carpet-bagger’s windfall, but the chances of Irish Nationwide ever being demutualised are, I suggest, slim to zero.  This bankrupt institution is either going to be subsumed into some other creation of the Department of Finance as a ‘third force’ in banking here, or it will remain on life-support from the taxpayer as a zombie bank or be simply wound up.  Your ‘qualifying’ account is now redundant, and you might want to fashion an exit plan for your cash from it, at some point. 

The Sunday Times 

MoneyQs

November 1/09

DL writes from Dublin:

I've read that it used to be possible to buy a property as a means to a future pension. Is this still an option? If yes, please can you explain who I should contact if I want to proceed with this? Should I approach any financial adviser or are there specialists in this area? Does the property have to be based in Ireland? My partner and I are both employed. Our combined salaries are approximately €110,000. One of us has a private pension the other does not. Our primary residence is mortgage free. We already have two investment properties with mortgages and these are paying for themselves. We are both in our late forties. Can you please clarify how much we could pay towards a property pension annually? Is it possible to purchase a property for €100,000 (approx) and obtain tax relief via pension contributions towards the purchase of this.

I think it would be a very good idea indeed for you to consult with a 

specialist pension consultant about your idea of buying yet another property. 

I passed your letter onto independent, fee-based financial advisor, Vincent Digby of Impartial.ie who said, “Before jumping directly to the ‘which property should I buy ’ conversation, I recommend your reader review his overall pension strategy and planning especially since he is already materially exposed to the property market for pension and non pension assets. Concentration of investment in one asset class is particularly risky and not something I would recommend.”  Digby says that if you buy another property for pension purposes, you need to be aware of how current and future risks like rental voids, falling rents and oversupply and the fact that there is no guarantee about capital appreciation could affect the value of your pension and retirement. “If he is determined to increase property exposure in his pension, he should consider not just a single property, funded either through a self-administered pension, if it applies in his case, or in a self-directed life assurance based pension into which you can include a residential or commercial property, but also a property fund based investment that can reduce the negative impact of rental voids via a larger diverse portfolio.”   This is a complicated issue:  your advisor can explain all the details, including the size of the contributions you each can make and the tax relief you each claim. 

BC writes from Co. Dublin:

I am writing about my daughter who has lived in London for two years. On July 10th she had her handbag robbed while sitting in a restaurant with her boyfriend. Along with her brand new expensive handbag, her phone, MP3 player and makeup was her Barclays Bank ATM. She telephoned the bank within 40 minutes to cancel the card but by then the thieves had used it several times and had taken 350 pounds.  She has a job that only pays minimum wage and can ill afford to lose this money. She has written to the bank but they have refused to refund the money as her Pin number was used. She had withdrawn some cash earlier from an ATM which was known to be subject to tampering and she assured me she did not have the pin number written down anywhere in her bag. I am positive my daughter was not to blame. Is there anything you can do to help?

Just like here in Ireland, when there is a dispute over card fraud, your daughter should write to her bank with an explanation about the theft (and ideally include a copy of a police report) and request a refund.  If this is unsuccessful she can make a formal complaint to the Financial Service Authority Ombudsman and ask them to investigate her complaint.  She can download a complaints application form at www.complaint.info@financial-ombudsman.org.uk which must them be posted back, or she can speak to someone directly on their consumer help-line: 0300 123 9123. 

RMcC writes from Dublin:

Is now a good time to start paying extra off my tracker mortgage. At 1.75% I pay €700 with 18 years left to run.  Is now a good time to sell the house, which is in Dublin and either invest in something else like equities, seeing as house renting is pretty cheap or move to the south east? How can I find out about price drops in various areas?

I always think it’s a good time to pay off mortgage debt – if only for the peace of mind – but now is an especially good time because the value of your property is falling while the debt is not.  You’re very lucky to have such a cheap tracker rate, but interest rates are more likely to go up than fall going forward.  As for selling up and renting, that entirely depends on how much you are willing to accept and how much rent you can afford.  The latest Daft.ie house price report for the third quarter of this year might help you make your decision: it show by how much both residential property prices and rents have fallen so far this year.  Most commentators seem to agree that there is some way to go on both counts, so if you are determined to sell up, you might want to do so, sooner than later. 

BC writes from Dublin: In your column "A Question of Money" under the heading Landlord's Levies you stated that in making a tax return, allowances include the interest paid on your borrowings. I was of the understanding that rented properties are excluded from these tax exemptions i.e. claiming interest on borrowings only applies to one's residential home. I'd very much appreciate if you could clarify this point for me as I have a rented property and have never claimed interest.

According to the Revenue, as a landlord you are entitled to claim “for interest paid on loans to purchase, improve or repair a residential premises” in order to offset the income tax you are obliged to pay on the rent you earn. As a result of the April mini-budget, however, only 75% of the interest relief on borrowings can be claimed from this year, and not the usual 100%. Also, you can only go back four years to collect your unclaimed relief on all your qualifying expenses.

Ends

OS writes from Dublin:  I have just received my redundancy money and have about €70,000 for deposit. This will be our nest egg for the future. Having read the about the Irish banks instability, which are now the safest banks to lodge this money and still get a reasonable return percentage wise, without having to leave it on deposit the bank for a long period. 

All six Irish owned Irish banks (and the Post Office and PostBank) carry a 100% guarantee on deposits until the end of next September.  Other retail banks (and credit unions) come under the €100,000 deposit guarantee scheme, as well as, in some overseas banks, their own government deposit guarantee schemes.  These non-Irish banks (and An Post and PostBank) do not offer the higher risk premiums that the Irish ones do for the simple reason that they are not insolvent or in receipt of government bail-outs. An Post and Postbank have no debt liabilities; the Dutch-based RaboDirect is the only triple A rated bank operating here; the Danish-based NIB and the UK-based Leeds and Nationwide UK (Ireland) building societies are profitable and have not been bailed out by their government. You should be seeking a safe, secure return not just ON your money, but OF your money. 

Ends

NG writes from Dublin:  I moved to Ireland in March 2007 and I commenced renting a property (with a tenancy agreement confirming payment of €1,400 - one month’s rent and deposit after which I paid €700 a month. in July, 2007 I moved to another property. The landlady gave me just a hand written note confirming payment of €2,100 for one month’s rent and deposit and for a year I paid €1,050 a month. When I moved into my current property in August 2009 I was informed that I could claim rent tax relief. The problem is that I paid my previous landlord/Landlady via bank standing order, I never asked for a receipt but I have bank statements to prove payment and I never had their PPS no’s because I wasn’t aware of the Irish tax laws. (I am a UK citizen).  Can I still claim back these rent tax relief?

You certainly can claim back four years worth of rental relief in the form of a tax credit from the Revenue.  I am told that your bank statements, deposit receipts, and rental contracts will be sufficient proof of your tenancy.  Your landlords should have been registered with the Irish Tenancy Board.  As a single person under age under 55 you are entitled to a tax credit of €400 for 2008 and 2009 or to €800 if you are a widowed person.  Married couples can claim €800.  The tax credits double if you are over 55.  In 2007 the tax credit amounted to €360 for a single person under 55, and in 2006, €330.  (The amount, again, is double for widow(er)s and couples under 55 and twice as much again for claimants over 55. You can download a claim form at http://www.revenue.ie/en/tax/it/credits/rent-credit.html  and make your claim on-line if you wish.

Ends

SS writes from Dublin: I am a recent Masters graduate and am currently unemployed. I have a €21,000 student loan built up over the past four years. The bank have agreed to restructure the loan but are still taking €86, (almost half) from my benefit payment every week.  The interest rate they are charging is 11.1%. Can you advise on how best to service this loan while maintaining my other commitments, child maintenance, rent, bills etc.

It’s clear from your letter that you are not happy with the deal you’ve cut with your lender.  Have you considered visiting your local MABS office to see if they could help you get even better repayment terms, or to see if it is possible to transfer your loan to your local credit union, which may offer better repayment terms?  Also, have you secured all your benefit entitlements?  I’m assuming that in addition to your jobseeker’s allowance (if that is your benefit payment) you should be receiving the monthly child benefit of €166 (or €38.30 per week) and the child dependent increase of €26 a week.  Are you also receiving supplementary rent allowance? A medical card? Your local social welfare office or citizens information centre can help you apply for all these welfare entitlements. Is your family in any position to help you out financially? I’m afraid the only way you are going to be able to pay off this huge debt over a reasonable amount of time – under the existing repayment deal your will be repaying this loan for the next 61 years - is by securing a full-time employment.  I’m sure you’re already doing the best you can on this front, so I wish you luck.  

ends

Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie