Jill Kerby

DEFINED BENEFIT PENSIONERS COULD LOSE INCOME FROM NEW LEGISLATION

Are you a pensioner whose defined benefit pension scheme is in deficit and might be wound up? Are you a DB pensioner whose company is in serious financial difficulty?

You could be in for an unpleasant Christmas present from the government, one you would have preferred not to receive:  new legislation that could cut your pension income in order that there is a more fair sharing of the remaining money in the scheme if such a winding-up or company collapse should happen. l

About half of all private pension fund members are in defined benefit or final salary pension schemes; 85,000 pensioners receive their monthly income from such schemes.

About 60% of all DB schemes – which promise workers a pension income proportionate to their final salary and years of service – are in deficit. Only a year of so ago, 80% were in deficit, meaning their assets could not meet the cost of all the benefits that have been promised to the members. (Rising stock market returns have reduced those losses.)

Unfortunately, these pension schemes are unaffordable and unsustainable. We are living much longer. Stock market returns are not consistently high enough. Bond prices are too high and yields too low.  Strict accounting rules mean most companies can no longer afford the generous retirement promises that typically amounted to 50%-66% of final salary if the worker served their full 40 years service. (Or 25%-33% if they only worked 20 years.)

Nearly all DB schemes are closed to new workers who are switched into ‘defined contribution’ ones where the pensioner’s income reflects the amount put into their pension fund and its accumulated investment value.

Typically, DC schemes pay a pension that is a fraction of the value of DB ones. For example, someone retiring on €35,000 salary after 40years will be very lucky to accumulate a DC fund worth €150,000. This might buy them an annual income of €6,500 a year, and their widow, 50% of that. DB pensioners with full service could expect a pension of €17,000-€23,100 and the 50% widow’s benefit.

Some unsustainable DB schemes have been restructured, requiring more savings and lower benefits. Those that close altogether result in existing pensioners getting the largest cut of the value of the fund and workers and deferred members sharing what is remaining, often in the form of a ‘buyout bond’ that they collect at retirement.

Where both the DB scheme and host company have failed only the existing pensioners’ pensions have had to be honoured because the government failed to implement the EU directive to compensate such pensioners (and workers/deferred members).

Waterford Glass workers who found themselves in just this position took their case to the European Court of Justice and won – hence the new legislation. The new rules are complicated, but you can find details on www.pensionsboard.ie

But what impact will the new distribution and compensation regulations have on existing pensioners who might be affected?

In essence, if only your company pension scheme is in deficit and is either restructured voluntarily or must be wound up, your existing pension will be honoured up to €12,000.  If there is insufficient money left to meet the cost of your entire pension after taking into account the rights of worker members and deferred members to a share of the fund, then any other cuts that effect you will be no more than 10% of your pension up to maximum pension value of €60,000.)

Where both your pension scheme and the company are insolvent and shut down, the new law allow trustees to cut the existing pension in half, but only for amounts over €12,000. If you have been receiving €20,000, you will now only receive €16,000.

If the scheme is so insolvent that even this amount cannot be paid, state compensation will kick in, but private pension holders will have to contribute 0.15% of the annual value of their pension fund savings even if their fund is losing money.)

If you are worried that you are a pensioner member, or even a worker or deferred member of a defined benefit pension scheme that is in deficit, is currently trying to restructure the scheme because it is in deficit or might be wound up, speak to the company pension administrator, trustee or your trade union representative.

If you are near retirement and there is a risk that your company was going to go bust, this legislation is good news for you. But a maximum €12,000 annual income may be much, much less than you were counting on if you had stacked up nearly 40 years of service.

You need to get this information about your scheme and then speak to a good, fee-based financial adviser who specialises in pensions.

You may have some serious lifestyle adjustments to make.

LOOK FOR LOW CHARGES, CONVENIENCE, CREDIT WHEN SHOPPING FOR A NEW BANK

First it was the banks. Now it’s the credit unions.

The largest credit union in the state has been saved at a cost of €54 million. Up to 120 other credit unions are in some form of difficulty, 20 unable to meet their capital solvency requirements, claims the government, (that is they have insufficient reserves to meet their liabilities) while another 100 are currently being ‘examined’ by officials of the Central Bank (whatever that means, we were not told.)

Meanwhile, for ACC Bank and Danske Bank customers, the search is now on for a new bank and new savings and credit facilities. Danske Bank say it is business as usual and customers will be informed shortly about how their accounts and bank facilities will be withdrawn over the next six months.

Mortgage and personal loans will continue to be paid even after Danske Bank retail business is shut down, but current and savings account facilities like direct debit and standing order instructions, credit and debt card facilities, overdrafts, internet banking, etc will be phased out and customers will need to transfer these to other institutions.

Danske Bank customers with overdraft and credit card balances will be particularly interested to find out if and how these balances will be treated should a new bank decline to extend them the same credit facility.  It has been suggested that in such cases, existing overdraft and credit card debt will be converted to term loans and repaid to Danske Bank.

The other high street banks - AIB, Bank of Ireland, PTSB, Ulster Bank and KBC Bank – all offer the full range of savings, loans and transaction services including on-line banking and are issuing transfer packs to prospective Danske Bank customers.

Free banking is available PTSB customers who keep €1,500 in their current account at all times; KBC Bank require €2,000 in the account (plus a fixed fee of €24 per annum). Bank of Ireland and Ulster Bank require €3,000, AIB, €2,500.  

Their charges and monthly or quarterly charges do differ however and these can be compared, as well as the interest they pay or charge on savings and loans accounts at comparison sites on the National Consumer Agency website, www.nca.ie, at www.bonkers.ie and in the Best Buy money tables in newspapers like The Sunday Times where my other columns appear.

Make sure to check out An Post’s free banking services. It offers a free bill payment service that can be accessed at any time on-line via their excellent internet site www.mybills.ie or at post offices and even payzones in participating local shops.

Danske Bank (for now) and AIB customers have lodgement/withdrawal facilities at the post office, but An Post does not offer credit cards or loans.

Credit unions, despite the Newbridge setback, have just been given permission by the Central Bank to provide electronic credit transfers. The participating CU’s will start rolling out this service for wages and social welfare payments (like pensions) to be paid directly into member’s accounts. Later they will offer direct debt, standing orders, on-line banking (like money transfers) and eventually debit cards. Banking services have historically been free at the credit unions.

Everyone should be concerned about the solvency and security of their banks and credit union. The €100,000 deposit guarantee is in place and should be adhered to, despite the fact that 100% of deposits were covered at Newbridge (15 members collectively had €1.1 million in excess of the guarantee limit in their accounts.)

The Central Bank is refusing to make public the list of 20 credit unions unable to meet solvency ratios, though the bailout costs would amount to just €11 million, suggesting these are very small CU’s. Politicians say there is a risk of a ‘bank run’ if the list was published.

Nor will they identify or explain why the other 100 CU’s are under examination. Existing members (or prospective new members) should therefore make it their business to find out if their CU is on the Central Bank’s lists and they should be asking question like:

• What share dividend is being paid and if none is, why not? 
• What lending criteria is now in place? Are you lending to mortgage holders, to people with bank overdrafts or credit card balances? What about to couples where a spouse/partner is unemployed?
• What is the loan to debt ratio in this CU?
• Are deposits increasing or decreasing in value?
• Are you actively seeking a merger with other nearby credit unions?

Finally, Newbridge Credit Union members business has been transferred to the local PTSB branch have been told that all the terms and conditions of their CU accounts will not change.

They may want to consider carefully what this means: yes, the same interest rate on loans will apply (and the loan will be insured) but PTSB itself is offering an easy access account that pays 2.25% gross on sums up to €50,000 and 2.5% interest over 18 months on minimum sums of €10,000.

Loyalty is all very well, but leaving money in any institution that pays no interest whatsoever benefits no one but the bank.

Taxman takes a bite from the bottom of your ARF

 
BE writes from Dublin: In a reply last Sunday (November 10) you stated that one is not liable to PRSI on any income, including pensions, when over age 66. You might clarify whether the PRSI exemption applies also to Approved Retirement Fund (ARF) income.

An ARF is not considered a pension by the authorities – that is why it is not subject to the 0.6% pension levy (0.75% for 2014, and 0.15% in 2015).

However, as a post pension investment fund, the holder is obliged by the government to pay income tax on 5% of the asset value of their ARF every year – the technical term is “imputed distribution”, whether they actually want or need to draw down this income. If the ARF holder is over age 66 they will pay no PRSI on the income that is drawn down (whether 5% or more) but they may pay some universal social charge depending on their age.

This is the Revenue.ie Universal Social Charge link:  http://www.revenue.ie/en/tax/usc/

SO’D writes from Dublin: I need some clarification about the inheritance of a mortgaged investment property from a civil partner. The property and mortgage are in the sole name of the deceased partner and the tracker mortgage balance exceeds the market value of the property. The rental income does not meet the mortgage repayments. Can the tracker mortgage be transferred to the surviving partner and will it be on the same terms? Can the mortgage company call for immediate repayment of the mortgage?

From what you write, it appears that there was no mortgage protection insurance in place to clear the outstanding balance of this investment loan. According to Naas solicitor Susan Webster, of Susan Webster & Co, “unless the will otherwise directs, the surviving civil partner inherits the property with and subject to the mortgage.” Civil partners have the same inheritance rights as married couples, she adds and even if there is no will, and no children, the surviving spouse will inherit the entire estate.

The only way a surviving partner will know if the banks’ intention regarding the repayment in full of the mortgage debt or whether it will allow it to continue to be repaid at the same terms is to ask. “Nobody can be compelled to accept an inheritance, but they need to do this before receiving any benefit from it. A surviving partner may disclaim one or more specific gifts but not part of an inheritance.” In other words, there is no picking and choosing which parts of an inheritance to accept, such as a loss-making property in negative equity.

Good legal advice is essential before a meeting is scheduled with the bank.

ECO and LC both from Dublin write:  In relation to the PRSI charge on un-earned income is it all un-earned income combined? My interest will be approximately €4,000. Will it calculated on the difference between €3,174 and €4,000.00 and a 4% charge on €826.00 or is it 4% on the entire €4,000.

From next January, any PAYE worker who earns over €3,174 from unearned income such as rent, deposit interest, investment returns or dividends, and who is not age 66 and over and therefore exempt, will be liable to pay the 4% PRSi on the entire sum.  Calculated under Class K of PRSI, this 4% PRSI payment does not come with any social insurance benefits. You will be required to declare this extra tax in any annual tax return. This income is already subject to your highest rate of income tax and USC.

JM writes from Dublin: I have 300 Elan Corporation shares purchased at €12.75 per share. The company is about to be acquired by the US pharmaceutical company, Perrigo. I have two questions: If I accept $6.25 (€4.68) per share offer will it be subject to tax and PRSI? Should I cut my losses and sell them before the merger takes place?

Perrigo have offered to pay $8.6 billion (€6.44 billion) for Elan, and both company’s shareholders will have their say later this month. The merger between Elan and Perrigo involves Elan shareholders getting $6.25 (€4.68) in cash plus 0.07636 Perrigo shares for each Elan share they hold.

Perrigo shares are currently worth about $148.50 (€111.19) and that means that the share swap element of the offer is worth $11.36 (€8.51) to Elan shareholders, making the entire offer worth $17.61 (€13.19) a share to you, which exceeds what you paid for them. 

According to tax adviser Sandra Gannon of TAB Taxation Services in Dublin as far as the Revenue is concerned the cash part of the Perrigo offer “does constitute a part disposal of your reader’s Elan 300 ordinary shares for the purpose of Irish capital gains tax. He will have to file a return to the Revenue, but the amount payable can be offset by some costs involved in this payment and his annual CGT exemption of €1,270.”  A good tax adviser can help you work out what you owe.

Meanwhile, you will only pay PRSI on these shares if your dividends (which may also be subject to income tax and USC) and all your other sources of unearned income exceed €3,174 from next January 1 2014 and you are under age 66. 

If you dispose of your new Perrigo shares some day for a profit, the difference between the acquisition and sale price will be subject to CGT only.

ET writes from Dublin: Is there any circumstance in which PRSI is paid by people over 66? I have a state widow’s pension, a very small private pension, a small part time job, and some income from investments.  I am 67 and I think I am paying PRSI.

If you are over age 66 you are no longer liable to PRSi on any income, even your earning from your part-time job or investments.  This is because you are now receiving the benefit of all your years of contributions or your late husbands’ contributions. You are not charged any more PRSi on your part-time earnings because as a pensioner already, you would not benefit from any further contributions paid.

If you bring your pension documents and P60 to either your inspector of taxes, to your local Citizen’s information Bureau office someone will be able to clarify whether or not you are paying any PRSi. You will be able to apply for a refund if you have been making further contributions since you turned 66.

THE MONEY SAVING FRUiT iS HANGING EVER HIGHER…

Like pretty much every other household of my acquaintance – I live in a working class city neighbourhood, most of our family and close friends are middle income earners (like journalists) or self-employed, that is, no hospital consultants, barristers, senior civil servants or politicians – budgeting and money-saving is a common post-Budget topic of conversation.

The cost of food, energy, healthcare and telecoms are at the top of everyone’s pantheon of complaints. (School uniforms and books are more likely now the hand-me-down, second hand and rental variety for the families I know.)   

A few of our friends who run their own businesses – mostly as small retailers or in financial services as one or two person accountancy or tax practices say they’re “managing to survive” but are not flourishing.

Like most small business people they’ve taken personal pay cuts, shed staff, slashed expenses, etc in an effort to keep up with lower sales and higher rents, rates, energy costs and local authority charges.

Every time I chat with my friends and family about how everyone is coping with the latest budget cuts or taxes, I hear the same story:

“We keep cutting back on the food budget and we drink a LOT less. We shop mostly at Lidl or Aldi and watch the local corner store for their ‘specials’ and only then do a big shop maybe every third or fourth week at Tesco/Dunnes/Supervalu.”

“We don’t go out very often at all anymore – even to the movies - special occasions only.” 

“I’m buying a lot more stuff on line – eBay and Amazon too - after checking out prices on the high street.  I wait for sales, or don’t buy anything – clothes, household stuff, books, music, unless an item is on sale. I feel guilty because I know that people really need my business.”

“We are definitely cutting back on Christmas gifts, decorations and will recycle instead.”

“The credit cards will be gone by early 2014. I estimate we’ll save €400 in annual interest payments and €60 stamp duty once we pay off the balance.”

As conversations like these show – especially the references to the big-ticket items that are hard to entirely dispose of – the low lying fruit (the government keeps going on about) that could be cut, has been cut in most middle income households.

So I’ve started asking, “How are you going to offset the latest cuts and taxes this coming year?”

Here’s the first batch of practical, post Budget 2014 decisions that my family, friends have shared in the past month:

“We have saved €25 a month by just cancelling the land-line part of our broadband package. We all use mobiles anyway and all overseas calls are now free on Skype.” (See www.skype.com)

“We just switched, via the broker you suggested, our health insurance policies to a slightly cheaper/lower benefit plan, but the corporate version, not the ordinary one. We’ll save at least €350 each and because the total cost is just under €1,000 we’ll still get full 20% tax relief on the whole amount.” (From January tax relief will apply only on gross premiums up to €1,000 for adults, €500 for children.) Contact www.healthinsurancesavings.ie for switch suggestions.

“We finally got around to comparing broadband/telephone/cable providers after a cold-caller for one of the other company’s knocked on the door. We had been with the same provider for at least three or four years and when I threatened to leave them, they upgraded us, put us on their newest plan, waived the cost of the new modem and we’ll save about €700 this year.” (Compare new offers at www.bonkers.ie or www.uswitch.ie ) 

“The old banger [the second car] is going. Between petrol, insurance, tax, NCT and maintenance we’ll save about €1,800 - €2,000.  My bus and taxi fares will go since herself will be driving my car a lot more.”

“We’ve are going to save €200 by just switching to a new gas/electricity provider (see bonkers.ie / uswitch.ie ) and another €300 by changing the house alarm provider.”

I haven’t met anyone still working who has dropped their broadband or cable television altogether, but I do have a close friend who expects to save at least €300 a year by joining her daughter and giving up all red meat (including rashers!)

Meanwhile, any struggling homeowner with a tracker mortgage was handed a valuable gift from the ECB last week. This latest 0.25% ECB interest rate cut will save a €250,000 tracker holder up to €375 over the next year (or €13-€15 for every €100,000 owed.) Long may it last.

Finally, I just received my insurance renewal for my six year old Almera and it’s a lot more than I expected (or other women are paying) even after factoring in last December’s enactment of the EU gender directive.   

That ringing telephone in my broker’s office… is me.

Mortgage holders must believe in miracles, not AIB

Maybe miracles do happen. 

Maybe David Hall’s Irish Mortgage Holder’s Organisation, a charity now working on a six month pilot project with AIB to try and resolve 1,000 of their most intractable mortgage arrears cases will succeed with just a handful of people and the €150,000 budget they’ve been given by the bank.

Maybe the process that the IMHO claim they have put in place over the past year in their dealings with AIB to sort out iMHO members’ arrears, will end up as the template for all the banks. 

Maybe Mr Hall has cracked this intractable nut which entails an estimated €100,000 people who have not paid their mortgages in 90 days. About four in 10 have paid nothing against their loans for two years. The amount of money in arrears or that has been restructured is staggering: the IMHO itself estimates it amounts to €46.6 billion of all outstanding mortgage loans.

Something certainly has to be done. David Hall says his ambitious arrangement with the IMHO’s once bitter adversary AIB, is not the only solution to the great debt crisis. No one, he says, is being forced to use their service and people can engage a private adviser.

That would be my first choice, if I was in debt distress. But only if I could afford such assistance.

The great appeal of the IMHO is that it has pledged to do its utmost to keep people in their homes and to try and force the banks to own up to their role as reckless lenders. Mr Hall’s passion has created a powerful lobby group with a powerful agenda and he has been very effective.

The IMHO also only charges people who can afford to pay them for their help and 45% of all cases they have been on a pro-bono basis Mr Hall told me. He is adamant that the IMHO’s role as the champion of the debtor will not change and their independence will not be compromised because its expenses (the directors will not get any remuneration) are to be funded by AIB. 

This question of a potential conflict of interest would never have arisen if mortgage debtors could have afforded to pay for their own financial advocate – an accountant or experienced insolvency practitioner - who could then support them in stressful debt restructuring negotiations with their banks.

The Central Bank should have stepped in long ago and insisted that this great imbalance of power between debtors (with no resources to get proper impartial advice) and the banks end by the banks picking up the cost of this independent, professional advice.

The Central Bank along with the politicians have made things progressively worse.

The deadlines they set to clear the great overhang of debt is unrealistic without massive debt write-down.

Even without that, it intentionally sidelined Mabs, the money, advice and budgeting service, with its 60 offices around the country, 25 years of experience in debt resolution and an existing budget of €18 million from both the formal insolvency process and from having an official role in the ‘informal’ representing of debtors who are afraid to engage with their lenders.

Instead the CB has permitted all kinds of regulated and unregulated bodies (like the IMHO) and individuals to operate as debt advisers, facilitators and negotiators.

As Mr Hall has pointed out, he wanted to be regulated, but that is only now possible with the introduction of new regulation for a new category of adviser, the debt management firm. Perversely, the existence of this new layer of regulation  may prevent many trained and regulated accountants, QFAs and PiPS (personal insolvency practitioners) from dispensing debt advice until they too qualify under this category.

Meanwhile, we have a generation of young people and families and a domestic economy paralysed by debt.

We have banks that cannot get thousands of its most indebted customers through the first phase of the mortgage resolution purpose – form filling - without resorting to the paid assistance of a well meaning consumer debt advocates.

And if all that wasn’t enough, the brand new insolvency Service of Ireland is already losing the confidence and respect of the people it was set up to help – the indebted, who cannot avail of its services because they are too poor to hire the compulsory personal insolvency practitioner.

In the absence of tens of billions of mortgage debt write-down it really is going to take a miracle to sort out this mess.

Inertia costs money. 

We write a great deal on these pages about the need to shop around to ensure that you get the best value financial services and products but not all of us follow this good advice as diligently as we should.

After putting off the review of two of three big household expenses, the cost of our electricity and gas bills, our bundled telecom package of telephone, broadband and cable TV service and home security monitor, we finally made the effort to compare different offers with the help of bonkers.ie, u-switch.ie and our own Money page features.

We’ve saved a total of €1,300 making the various switches.

The expensive motor insurance renewal quote that I just received is this week’s task.

TAX BREAKS SHOULD NOT INFLUENCE ANY PROPERTY PURCHASE

Has your family home or buy-to-let property increased in value by 3.6% in the last 12 months, as the latest CSO property index for national price movement suggests?

Is the trend in your neighbourhood or town higher or lower? Are certain kinds of houses or apartments selling faster than others?

Some things never change in any property markets and location, supply and demand and the availability of mortgage finance are the three certainties. A closer look at these figures and the ones issued as well by the private property indices at daft.ie and myhome.ie show that there continues to be an oversupply of property outside of Dublin. The huge number of new(ish) estates in unpopular locations and the continuing difficulty in securing a mortgage means that there is a very slow, and inconsistent recovery. 

Nevertheless, this has been the best year for property prices though the Trinity College based economist Constantin Gurdgiev reckons that at the ‘normal’, steady, historic price inflation rate that has pertained in most western economies, it could take c37 years before Irish house prices are restored to their 2007 ‘bubble’ levels.

The other factor that needs to be considered before anyone races out and buys a less than ideal property (right house, right neighbourhood, right price) is that Dublin prices in particular (up 12.3% in the past year) are being driven by mainly cash buyers (60%) and by the very tight supply of family homes in higher priced neighbourhoods mainly in south Dublin, but also in certain north city areas like Clontarf, Glasnevin, Howth and Malahide.

Whether rents – which are up as well – can keep up with the price hikes is another matter. They have not done so up to now, and this was always the most striking signal that something was very wrong during the property bubble years: yields never reflected the soaring capital values and too many landlords were subsidising their tenants.

Property investors should also be warned that the government, which has given a moderately enthusiastic reaction to this rise house prices as another sign of general economic recovery continue to interfere with the market.

Its latest wheeze is the extension of a capital gains tax (CGT) exemption that was introduced in an earlier budget on the sale of residential and commercial investment properties that were purchased between December 7, 2011 and December 31, 2013 on the grounds that were held for at least seven years by their owners. 

The latest Budget has extended the purchase and seven year holding deadline to December 31, 2014. Any profits earned from the sale of such properties after seven years will not be liable to the 33% CGT.

The original exemption was introduced in an effort to stimulate investors to come back into the moribund Irish market. Auction results showed however that cash rich investors were already the biggest group of buyers cut price properties and hardly needed more tax incentives.

Now, with a supply shortage in Dublin this extended tax exemption is likely to fuel prices as some people opt – mistakenly perhaps – that this is a buying opportunity that could pay off in seven or more years time when they can sell their investment and not have to pay 33% of their potential profit over to the state.

Perversely, at a time when the government is also keen for people to spend the savings here, this CGT exemption for investment properties held at least seven years is also available for property purchased anywhere in the EU and the European Economic Area (EEA) countries that include Iceland, Lichtenstein and Norway.

Financial advisers said this past week that they are already getting inquiries from clients who are unhappy with poor deposit returns, DRT tax on those deposits that go up to as much as 45% next year (if they are liable to the 4% PRS charge on ‘unearned’ income) or who are not willing to invest in the stock markets.

Property remains their investment of choice (or last resort), despite the uncertainty about rental yields, growing income tax and capital tax liabilities, the impact of management and maintenance charges and other costs on potential profits.

The advisers I have spoken to share the same concern:  that some people, with very short memories, will buy domestic or foreign property for this limited tax break without weighing all the other pros and cons.

Buyer beware.

Property should be considered a medium to long term asset, whether you are buying a family home or an investment. It isn’t as liquid an asset like deposits or shares (even funds of shares, especially ETFs) and it carries numerous initial and ongoing costs and charges.

And as thousands of amateur landlords have discovered, a property can drain your emotional resources as well as your financial ones.

PRSI will trail part time pay till you hit route 66

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

WMcG writes from Cork:  I understand that there is a seven year CGT dispensation for people who bought property up to last year that has been extended in the Budget.  I bought my property in December 2006. I may (just about) make a profit on such a sale. Could you explain how it works? Also, does it apply to foreign property?

I’m afraid you have misconstrued how the seven year holiday from the payment of capital gains tax on certain property works. The CGT holiday was introduced in Budget 2012 for properties bought from December 7, 2011 to December 31, 2013 and then sold up to seven years later. This latest budget extended the deadline for buying such CGT exempt properties to December 31, 2014.

Keep in mind that if you make a loss on the sale of your 2006 purchased property there will be no CGT liability anyway. If you earn a profit, your annual €1,270 CGT allowance will reduce your tax bill.

Finally, and perhaps perversely, the CGT exemption applies both to land or buildings purchased in this state and to those situated in any EU or EEA state, including the likes of Norway or Switzerland, which are not members of the European Union.

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

MCC writes from Dublin:  I am sure this is a very common question but perhaps you can still help me. I am 35 and have some savings, not much, €30,000 roughly. It is in a savings account with little return, which will be mostly wiped out by the increased DIRT tax.

I let a pension lapse some time ago. Would you advise to siphon this money towards a pension now? I know the area of pensions is murky but I can carry out my own investigations into that issue.

Contributions to private pensions continue to attract marginal rate income tax relief of 41% (though not PRSI or USC relief) – a rare concession these days where the standard rate is far more common. If you can find a pension fund with low charges and fees and a well diversified choice of assets that produces a steady (tax-free) return, this would certainly be a better home for your €30,000 than a loss-making deposit account.  Pension funds not only grow tax-free, but at retirement allow you to take 25% of the fund tax-free. Any pension income is subject to your highest rate of income tax.

Putting money into a pension is a very sensible choice but only after you weigh up the downsides.  There is no access to the money you contribute until retirement. The state can – and does – arbitrarily change the pension rules, such as tax relief. From 2014 it will confiscate 0.75% of your €30,000 (if you decide to invest the entire amount) which will cost you €225. From 2015 the levy will be 0.15% but could be raised at the Minister’s whim. 

Speak to a good, independent, fee-based adviser before you act. The adviser will review your wider financial position and once they are aware of your needs, expectations and risk profile, will recommend a suitable and affordable pension fund or reactivate your existing one. You should certainly also do your own research and learn as much about how pensions work. The Pensions Board provide this information online: www.pensionsboard.ie

RM writes from Dublin: I heard you speak at the Over50s Show recently and you explained how the 4% PRSI on deposits would not apply to pensioners over age 66 who are exempt, regardless of the size of their income. I took early retirement at age 58 (a year ago) and I do not pay any PRSI on my income. Should I be?

No. PRSI does not apply on any pension income, even if you are in receipt of one under age 66. However, if you have earned income, say from a part-time job you will pay PRSI until age 66. Unearned income that exceeds €3,174 from a rental property, deposits or dividends will be liable to 4% PRSI from 2014.

Let Revenue deadlines go hang – it pays to delay

The Revenue Commissioners has decided that the local property tax return for anyone who opts to pay their tax in a single lump sum via a debit or credit card, by cash or cheque will be this Thursday (Nov 7),

This deadline is nothing but a stick they have handed you with which to beat yourself.  Don’t do it, unless you are tax masochist (the Revenue love such people who pay them in advance) and don’t mind losing access to your capital and any interest it might be attracting.

I’m told that large numbers of mostly older people have preferred the lump sum option because they don’t have a computer or don’t know how to use them for bill payments, but this is a feeble excuse in an era of Grey Surfer technology awards that are promoted by lobbyist for the elder sponsor.

The simple truth is that not making an effort to get on-line, whether with the help of a family member or friend, local Consumer Centre or library means you are financially penalised, in this case by an agency of the state.

The Revenue Commissioners do not want your cheques or your debit and credit card payments on the grounds that they will incur a merchant processing charge they decline to pay. Even post office customers will be charged €1 every time they pay their LPT in full or part-payment in cash or with a debit card.

The Revenue insisted last week that how the tax is paid is left to the homeowner. They say they have provided the widest range of methods, but by setting favourable later deadlines like March 21st for lump sum electronic payers and emphasising easy monthly electronic payments, they’ve made their preferred method of choice eminently clear.

Last week the Tanaiste Mr Gilmore tried to sound very stern by saying that the Revenue Commissioners must accommodate everyone who is doing their best to pay their 2014 LPT on time.

He clearly doesn’t understand that the logistics of this tax (and all others) are drawn up to accommodate the State’s tax collector’s first, and then the rest of us as tax serfs.

And if you don’t believe me, do read the lengthy ‘Enforcement’ section of the Finance (Local Property Tax) Act 2012 and the powers that authorised Revenue officials have – including entering your property to decide for themselves how much it’s worth and how much you owe.

And if you think this story is just a storm in a teacup, wait until the tax itself, at a mere 0.18%, starts inching up to the 1% rate that so many property tax jurisdictions charge.

It won’t be the method of payment we’ll be complaining about then.

The flurry of ‘For Sale’ signs popping up in my Dublin city centre neighbourhood in the past few weeks and even across the Liffey around the Phoenix Park suggests that the mini-price boom that began last spring in south Dublin is rapidly spreading right into the inner Victorian housing archipelagos of 7 and 8. 

The fashionable neighbourhoods of Rathmines, Ranelagh and Rathgar were infected with the new property price virus during the summer and you can’t walk down a single leafy street anymore without seeing ‘Sold’ signs everywhere.

Choice areas of Fairview, Drumcondra, Raheny are also entering the bubble’s spotlight, Glasnevin and Clontarf having succumbed around July, I’m told by friends who spent the summer observing the moving vans on their North Dublin streets.

The CSO say that the average Dublin house worth €300,000 went up by €12,000 in September alone. Long may it last if you need to sell and are no longer in negative equity, or if you are trading down or just want to get out of the country and start a new life in a place where there isn’t the risk of lifelong debt-serfdom.

I’m guessing this price surge will run out of steam once the market runs out of cash buyers, probably when someone they listen to points out the puny net return most of them are getting on their capital; when the market runs out of sufficient numbers of professional, first-time buyer couples who somehow avoided the first boom and have squirreled away big-down payments and when the banks finally acknowledge their billions in bad mortgage debts.

The latter is going to have an impact not just on supply and demand, but on prices and future lending practices until the all-clear is sounded.

God forbid there’s a rise in mortgage interest rates in the meantime though this is more likely to occur within the Irish banks than prompted by the ECB.

No one knows better than Frankfurt central bankers (or their counterparts in London and Washington) that a lift in interest rates anytime soon will tip millions into bankruptcy.

Are you as flummoxed as I am about the latest extension to the seven year capital gains tax exemption for investment properties?

The Minister for Finance announced the original tax wheeze back in Budget 2013 – early December 2012 remember when the property market was still officially in decline. He said he was exempting from capital gains tax, investment properties that were purchased between December 7, 2011 and December 31, 2013 that were held for at least seven years by their owners.  On October 14, the Minister extended the purchase deadline to December 31, 2014.

This is just more tinkering and interfering with an already hyper-dysfunctional market that has incubated a mad little Dublin property bubble while the rest of the country remains in the on-going post-Tiger property bubble.

Not only is encouraging property investing here unnecessary, but due to EU and EEA economic agreements, the 33% CGT exemption applies to domestic or commercial investment properties purchased abroad as well.

So much for spending in the Irish economy.

One financial adviser told me last week that some of his cash-rich older clients, disgusted by derisory deposit returns, 41% DIRT, and fearful of most other asset classes are again showing interest in overseas property for tax reasons.

The danger, he said, is that they’ll be part of a new flock of sheep who all get caught trying to sell their “sure thing” properties at the same time in 2015.