Money Times - January 30, 2018
Posted by Jill Kerby on January 30 2018 @ 09:00
READERS STILL LOOKING FOR INVESTMENT, PENSION ADVICE…
Your questions are always welcome. Here’s a selection from my postbag:
Mr and Mrs F: We are a professional couple looking for financial advice and hope you can tell us how to find such a person?
This is one of the most common questions I receive, for good reason: independent, impartial and fee-based advice is not easy to find in Ireland as most brokers and advisers accept sales commission for the products that they sell, whether for protection purposes (like life or health insurance) or investments, including pensions. Since the new year, a broker or adviser cannot call themselves independent if they accept sales commission. I suggest you check out the interactive members map of the Society of Financial Planners of Ireland (www.sfpi.ie) for a fee-based, ‘independent’ planner with their own practice (many SFPI members work for banks, life assurance companies, stock-brokers and do not give impartial advice). Ask about their professional background and training, how much they charge for an initial financial review and any set up and on-going fees.
Mrs CF writes: My daughter is 29, a chemical engineer who works for a US company and the major earner, though her partner is also working. has started working with a company. She is the only EU employee and has to arrange her own pension. Any suggestions?
Well done to your daughter for tackling this, though she should check to see if her US-based company is aware that they are obliged to provide access to a company Standard PRSA (Personal Retirement Savings Account) option for their employees if they don’t provide an occupational scheme. She should certainly get some independent advice about the kind of assets she should invest in, how much of her salary she contributes (15% at the moment, 20% from age 30-39) and the value of the tax relief. A good adviser will also discuss with her income protection, life and health insurance if her company does not offer these benefits.
Mr PR writes: I have a pension pot of about €40,000 with Irish Life. When I turn 60 in February I’d like to take it and invest it myself. I don’t need the pension as I have a property rental portfolio and stock market investments. I know I can take 25% of the fund tax-free but I want to get my hands on the whole amount. Leaving it there will cost me annual fees and low returns, whereas I know I can make an annual return of 20%.
Unfortunately there is no cost-free ‘take the pension money and run with it’ option when you hit 60. Your options are to take the 25% tax-free lump sum of €10,000 (or not); to encash the balance but pay top rate tax, USC and PRSI; to invest the balance in an approved minimum retirement fund (AMRF) unless you have a separate minimum pension income of €12,700. In that case you can invest the balance in an Approved Retirement Fund from which you can encash both capital and growth. You could also leave your pension fund where it is to continue growing until age 75 when you could then convert it into an ARF.
“Your reader says he doesn’t need a pension,” commented the independent financial planner Marc Westlake of Global Wealth Management, “so why not leave it to grow tax free for another 15 years rather than pay over 50% tax and PRSI on it if he encashes it now? Yes, there are fees and charges, but it could also act as a whole of life insurance policy: if he dies before age 75 the fund value could go entirely tax-free to a spouse. If he dies after age 75 when it’s been ARF’d, it goes to his estate, where again it can be inherited tax-free by a spouse.”
Mr FB writes: My brother who lives in the USA and is very comfortable financially is going to give my wife and I some financial help over the next few years. Can you tell me what the tax implications are for this or is there a limit to what we can receive? We are both in the high tax bracket.
Under our current Capital Acquisition Tax regulations you can receive tax free gifts or an inheritance up to €32,500 over your lifetime from your brother; your wife, because she is not a relative, can only receive €16,250. Each of your children (if you have any), as nieces or nephews, can also receive €32,500 from their uncle over their lifetime. Once those limits are breached any further money, even if left in his will, is subject to 33% CAT tax. That is the only tax liability you face so your income tax rate is irrelevant. A way around these limits is for your brother to also give each of you a €3,000 annual gift. CAT rules allow anyone to give individual tax-free gifts up to €3,000 to anyone they wish, regardless of the relationship.
The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.