Money Times - October 16, 2018

Posted by Jill Kerby on October 16 2018 @ 09:00


 “Big deal. An extra fiver. And we have to wait six months for it,” the pensioner replied when asked by the radio reporter what he thought of Budget 2019 and his weekly pension going up to €248.30 next March.

It’s the same response from many after last year’s budget and 2017 and in 2016 when the seven year pension pay freeze finally ended and pensioners were awarded just a puny €3 extra a week.

Last week’s €5 hike is certainly a far cry from the pre-crash increases:  in 2007 pensioner’s pay rose by €16, in 2008 by €14 a week. The €7 increase in 2009 was met with derision, but it was paid just before the IMF and their other Troika partners arrived. The wonder is that they didn’t succeed in actually having the €230.30 weekly payment cut.  (Greek pension income continues to be plundered.)

Some other PRSI related pensioner benefits were partly clawed back in the post crash years, including the weekly winter fuel allowance, the telephone allowance for pensioners living alone and the bereavement allowance, which was worth €850 (it was only abolished after 2013.) The Christmas bonus was dropped in 2009 and only partly restored in 2015.  Meanwhile, pensioners on medical cards had to pay towards their prescriptions, even if the contribution was capped at €20 a month.

The seven year income freeze certainly took its toll for many as the cost of living rose sharply and austerity bit. Alcohol, tobacco were hit hard and the cost of healthcare, transport and energy rose. Meanwhile, deposit interest rates, on which may pensioner/savers have historically depended upon to boost low fixed their incomes virtually collapsed. 

For all the hardship imposed on the least well off pensioners, a number of valuable benefits remained, such as the free bus/train travel pass for all pensioners and designated companions (over 900,000 people, including those with disabilities enjoy this pass) and the Household Benefits Package for the over 70s and for many age 66-70 who live alone was mostly preserved.  

The package still included the free TV licence (now worth €160 a year) the monthly gas or electricity allowances worth €420 a year and the €2.50 a week phone allowance (€130) which was restored this summer for those pensioners living alone.

It has been estimated that the tax-free Household Package, free travel pass and Christmas Bonus (which will be fully restored in 2019) increase the value of the state pension (which will amount to €12,911.60 in the full year from March 2019) by as much as an additional 15% or nearly another €2,000.

Meanwhile, all over-70s – single or couples – are entitled in 2018 to a free GP card and can qualify for a full medical card with incomes of up to between €26,000 and €36,400 for a single person and between  €46,800 and €72,800 for a couple. No other assets are subject to means testing.

Ten GP visits a year alone can typically account for a €500 outlay; add five private consultant visits and the annual bill can easily amount to €1,000.

So in light of all these existing benefits, how did pensioners really fare in Budget 2019?

First, the extra €5 a week is worth an additional €260 over 12 months. The 2019 increase for a qualified dependent adult is €4.50 a week or €234 extra for the year.  

The full restoration of the Christmas Bonus this early December means that a qualifying single pensioner with a contributory pension will collect €486.60 or  €973.20 for a couple who each have the state pension. A pensioner with a qualified adult over 66 - a spouse or partner who does not have their own pension - will receive a double bonus payment this December of €922.60.

Assuming it is fully paid out again next year the full bonus week payment in December 2019 will be €492.90 (€985.80 for a couple).

For pensioners age 66-70, who are not automatically entitled to a GP card, dropping the income requirement by €25 a week or €1,300 annually could save them (if they qualify under the new income assessment) €500 a year, for example if they visit their GP ten times a year.

Prescription charges have been reduced by 50 cent per item. The maximum €20 a month charge still applies but this cut means that a pensioner with three prescriptions a week (or 12 a month) will see an annual savings of €84. The €10 reduction in the monthly Drugs Payment Scheme contribution (from a maximum of €134 to €124) means that pensioner households will save €120 a year.

All of these Budget changes add up.  State pension incomes may not have kept up with the rising cost of living and tax and levy increases since 2008, but small incremental improvements have been made each year since 2016.

Long may they last.


Letters to jill@jillkerby.ie  The TAB Guide to Money Pensions & Tax 2018 is available in all good bookstores. See www.tab.ie for ebook edition.) 



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Money Times - October 9, 2018

Posted by Jill Kerby on October 09 2018 @ 09:00


It would appear that the ‘squeezed middle’ may be a little better off in 2019, due to the Finance Minister’s modest adjustment to USC, income tax and DIRT reduction or the small changes to welfare payments. On balance, Budget 2019 is going to see most workers better, not worse off.

What you want to avoid is the temptation to say, ‘ah sure, it’s such a puny amount that it hardly makes any difference’ and just let your small windfall get swallowed up in everyday spending.  If that’s your first inclination you might be the idea candidate for a professional personal finance review – more on that later.

If you’re already someone who is keen to utilise any extra cashflow in the most positive way, then why not think of your Budget windfall (or tax refund for all the extra cash taken from at least five of the post 2008 budgets) as another opportunity to build on those positive personal finance habits. Here are some practical priorities to consider:

-       If you have any expensive debt – like a 20% credit card balance and you are not already paying it off every month but are only paying the minimum required payment (usually 5%), here’s a chance to whittle away faster at that debt. The Competition and Consumer Protection Commission (ccpc.ie) has a useful debt calculator that will show you just how much interest you can save by paying off your credit card sooner than later.

-       Ditto for accelerating a mortgage payment.  We pay at least twice the rate of mortgage interest than other EU borrowers. Putting another few hundred euro a year against the outstanding capital – ideally on a weekly, let alone monthly basis if your lender will permit more frequent payments – will also save a significant amount of future interest and reduce the term of your loan. Again, check how much you will save by keying in your repayment details into the mortgage calculators on the ccpc.ie website.

-       Even if you already have one, open a new savings account into which you automatically direct your monthly Budget windfall for a specific purpose.  Young families may want to open a ‘back to school’ account that can help pay for books and uniforms or the not-so-voluntary’ contribution.  Sports club fees/uniforms might be paid a bit more painlessly if that’s what you need to save for. For many, any money you put aside for a holiday or Christmas may help reduce the shock of your January credit card bill.

-       If you can afford to, and you don’t have as many pressing debts to pay down perhaps this 10th year after the great economic downturn began is the year you can ‘pay yourself first’ again by building up a household contingency fund again - every household should aim to have at least three months of net spending set aside to meet emergencies. 

-       Or maybe this is the year that you can afford to use the Budget refund to rejoin a sports club, gym, class or hobby interest that had to be abandoned when times were particularly tough. It might be enough – over the year - to buy a pushbike and helmet that will help improve your fitness and cut back on transport costs or in the case of older people, to go towards a taxi account.  The point is that this money is now properly budgeted and allocated.

Which brings me back to people who scoff at the modest Budget windfalls of recent years.  2019 – again - is is an opportunity to take the financial bull by the horns and get it under control by hiring an independent financial planner (one who is not commission-remunerated) to give you a proper financial review.

Regular readers will know that one of the most common queries this column receives is from people who are looking for an independent, impartial financial adviser who will hopefully earn their trust and ideally becoming a life-long family adviser, just like their GP, family solicitor or insurance agent. 

I recently addressed the annual conference of the Society of Financial Planners of Ireland about my decades-long view that nearly every financial scandal in this country – from the misselling of expensive endowment mortgages and whole of life insurance policies, one-size-fits-all pensions, payment protection cover and the property crash – finds its way back to commission rewards and a lack of independent advice.

There are now over 620 qualified (to third level international training standards) Irish certified financial planners. Not all of them work in independent practices – those employed by banks, life companies, stockbrokers cannot give truly impartial advice. Not all are exclusively fee-based – you’ll need to ask - and won’t be until commission sales are finally outlawed.

Even so, check out the interactive map of members at www.sfpi.ie.  And put your Budget refund towards where it will make a real difference:  a proper, fee paid, professional financial review.


Letters to jill@jillkerby.ie  The TAB Guide to Money Pensions & Tax 2018 is available in all good bookstores. See www.tab.ie for ebook edition.) 




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Money Times - October 2, 2018

Posted by Jill Kerby on October 02 2018 @ 09:00


The day after the Budget, which is next week, on November 9, tens of thousands of people who long ago stopped buying the print version of a national newspaper will pick one up at their corner shop.  They will do this because of the tax case studies that appear in all the papers that work out how better or worse off they will be as ‘the single worker’, ‘the lone parent’, ‘the married couples with/without children’ and ‘the pensioners’.

This month also marks the beginning of the great financial crisis, and during the immediate post-crash years the Budget supplements should have incuded a banner headline over those pages warning readers, ‘Give up hope all ye who enter here’ such was the depressing outcomes.

From 2009 to about 2013 income thresholds fell, landing many more earers into paying more income tax on lower incomes. The emergency tax, then the universal social charge (USC) was introduced that slashed average gross incomes by another c7%  and all sorts of discretionary taxes and sneaky levies were added.

Some levies weren’t very sneaky at all, like the higher pension contributions that public service workers had to make and the private pension fund levy which permanently confiscated  €2.6 billion worth of retirement savings from nearly 800,000 private pension fund holders. (Is it any wonder pension membership has been falling steadily since then?)

Next Tuesday’s Budget isn’t expected to be a slash and grab one, but with a budget deficit to clear and with Brexit on its way, there probably isn’t as much leeway for tax cuts and welfare giveaways as the Finance minister (or his backbenchers) would have liked. 

With local elections coming soon and maybe even a general election on the near horizon, buying votes via a tax cut and lobbing a few more euro onto old age pensions and child benefits is an essential re-election tool.

I’m certainly looking forward to seeing how the Minister for Finance fulfils that unofficial mandate. He has already made clear that he has more pressing bills to pay – like health service overruns, and pay equalisation for civil and public servants.  He and the Taoiseach also keep repeating that they don’t plan to make the same stupid spending and fiscal policy mistakes that has scuppered growth periods in the past.

So what should we expect next Tuesday?

I don’t have a crystal ball, and there haven’t been as many leaks as in previousyears (though the hospitality industry is probably going to lose their 9% VAT rate) who why not just remind ourselves how much tax we do pay and who pays the most.

‘Widening the tax take’ is an expression that is gaining traction. Even the government’s advisors on the Fiscal Council and ESRI keep reminding them that while the Irish tax system is very distributive, with higher rates ot income tax payable at one of the lowest earning thresholds in the EU of just €34,500, the numbers of earners outside the tax net is much larger than in other countries. USC also rises substantially for higher earners moving up to 8% and 11% on incomes over €70,044 and €100,000 (only for the self-employed) respectively.

An excellent pre-Budget submission by the Irish Tax Institute last month and is well worth downloading if you really want to put the Minister’s speech next week into context. (See www.taxinstitute.ie  Budget 2019 Submission, Chapter 5).

The report shows just how much of their incomes Irish workers are still handing over to the State a decade later. Despite what has been celebrated internationally as the most successful economic recovery of all time…

-       Every single category of income earner has lower take-home pay in 2018 than in 2008 when the crash happened or in 2012.

-       Tax increases have lowered take home pay between 2008 and 2018 between -3% for people earning just €18,000 to -10% for someone earning €150,000.

-       Someone earning €55,000 is still €1,550 worse off in 2018 than they were in 2008.

-       The top 26% of earners, with incomes over €50,000 will pay 85% of all the total income tax and USC collected in 2018.

-       The top 7%, with incomes over €100,000 will pay 53%; while the top 1% with incomes over €200,000 will pay 28% of all the income tax and USC.

-       The Tax Institute estimate that in 2019, 941,600 people, or over a third of income earners (35%) will pay no income tax and 28% of them will be exempt from USC;

-       Only 1,781,500 people will pay income tax in 2019:  595,900 will pay tax at the marginal rate of 40% and 1,186,000 at the standard rate of 20%.


Letters to jill@jillkerby.ie  The TAB Guide to Money Pensions & Tax 2018 is available in all good bookstores. See www.tab.ie for ebook edition.) 


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