The Sunday Times - Money Questions 01/02/09

Posted by Jill Kerby on February 01 2009 @ 22:33

RO’S writes from Dublin: I have a windfall of €10,000 and as I do not presently need cash I would like your advice on how best to get a return.  I am 57 years of age and could leave this cash for 12-18 months if necessary.  What are the best options for a return on a notice account or are there other "safe" places. I have been told that government bonds might give a good return.

Government and/or corporate bonds are not usually considered to be short-term investments:  usually, the longer the maturity date of the bond, the better the annual yield. That said, there is a huge demand for bonds as investors seek security and short yields are quite low. (Corporate bonds are paying much higher yields but are considered riskier.) A stockbroker can assist you to buy into a government or corporate bond issue. If you are willing to leave your funds on deposit for 12-18 months our Best Buys page currently shows that the nationalised Anglo Irish Bank is offering 5.25% AER fixed for 12 months and 3.5% AER for two years on minimum deposits of €1,000 though it’s hard to understand why such a high rate is still on offer now that it is owned by the state. First Active’s 4.6% 12 month rate is unlikely to last now that it is being subsumed into Ulster Bank which leaves you with the Permanent TSB 12 month rate of PSTB 4.4% fixed rate.  With ECB rates likely to fall further, you might want to move quickly to lock in your money at these rates.




PC writes from Athlone: I have €150,000 on deposit with Anglo, in a self-administered pension fund, the trustees are myself and ITC. It was funded by my company putting in €120,000 and €30,000 of my own savings. Unfortunately like so many others, I need cash to run the business and cover personal loans. The €150,000 is my only source to funds, however I am told by ITC that I cannot get access to it until I am 65, or if I retire from the business. I cannot retire as I am the business and by the time I get to 65, well, it will be all too late then. What a pity to leave funds sitting in an account getting 2.3% when, if I could get access to it I could keep the business going. I am a retailer in Athlone selling gifts and silver jewellery.


The information you were given is correct says John Mulholland, a director of the pension advisors, Custom House Capital in Dublin. If you were age 50 or over and ready to retire, you could have transferred your existing fund into a PRSA (this also assumes that the fund was set up no earlier than 15 years ago) from which you could immediately access 25% of it tax-free and then either encash the balance (with an income tax liability) or transfer it to an approved retirement fund (ARF) from which you could draw down a taxable income, but keep the capital invested. This is also an option for pension fund holders over age 50 who are made redundant. In your case, Mulholland says you must wait until you are ready to retire – and hope your business stays afloat in the meantime. (See MoneyComment.)




PT writes from Dublin: All the different literature I have read about how to qualify for a medical card if you are over 70 doesn’t seem to provide an answer for the following: is gross income, i.e company pension, state pension, investment income such as dividends and deposit interest based on based the current or previous year.  If it is based on the current year, you may not have all the information to hand regarding your income. Can you clear this up?


My understanding is that the new means tested terms for the qualification of a medical card applies on gross “pensions, earnings, interest from capital and all other sources of income” up €700 per week for an individual or €1,400 for a married couple that is earned from March 1, 2009. Income from the first €36,000 capital (for an individual) and €72,000 for a married couple is not taken into account. There is also some discretion that can be exercised regarding applicants who may have high medical expenses but whose qualifying incomes exceed these limits.  You don’t say whether you are over 70 and have had the card already, only people whose known incomes are higher than €700 per week have been contacted by the HSE. If you are worried that last year’s income disqualifies you from keeping your card, but that you believe your income is likely to drop in 2009 (perhaps as a result of loss of share dividends) and that you would then qualify for a card, I suggest you ask for a meeting with an official in your local health office or call the HSE information line at Callsave 1850 24 1850 to explain your situation.  





CM writes from Cork: Our son is likely to be studying at university in the UK from this September onwards and my wife and I will be responsible for paying his fees and expenses. The sterling rate is quite favourable at the present time and we wondered if we were to change money at the present time is there any way in which we could open a Sterling bank account, either here or in the UK, to make advance provision for his expenses.

You can speak to your bank about opening a sterling account here into which you can make sterling deposits at rates that you believe are favourable against euro.  Make sure to ask about the cost of running the account, and any deposit or currency exchange charges that may apply, especially if you are transferring euro into it, and an exchange charge applies.  Once your son is in the UK, he can open his own account and you can transfer the accumulated sterling into it, or feed it every month, but again, be sure to ask about the fees and charges which will vary from bank to bank.





GD writes from Navan: Could you please advise on how to go about buying gold, who to approach what banks, what quantities etc. I would really appreciate your assistance.


Gold pays no dividends or annual yield, but nor does it disappear. It’s job – for the last 5000 years has been to simply endure as a store of value during times of inflation, war and general economic uncertainty.  It is why the price of an ounce has risen from c$250 an ounce in 1999 to nearly $900 an ounce today.  (It was $801.50 two weeks ago on January 15th.) Some commentators, including the Irish gold bullions dealers, Gold and Silver Investments in Dublin predict the price will rise to over $1,200 an ounce this year as the risk of inflation returns due to the huge supply of debt and credit by central banks since last autumn. You can buy it in a number of different forms – gold coins and bullion which carry a c10% premium on top of the spot price due to the high demand for physical gold and as gold certificates from the Perth Mint of Australia, (which I own) which represent the value of a quantity of physical gold that you have purchased and which is kept in the Perth Mint vaults. You can also buy gold in the form of an ETF – an exchange traded fund, that trades like a share on a stock exchange or you can opt to buy gold mining stocks which have underperformed the spot price for the past year. If you buy physical gold there are delivery and insurance charges and you will need somewhere safe to store it (at an annual charge). ETFs are a relatively inexpensive way to buy the shares, but there is counterparty risk to consider (ie the trading firm) and you will have to pay a broker sales commission and a (low) annual fee of probably less than 0.5%.  Gold certificates carry a sales commission of between 2%-4%, but there is no annual charge or storage charge and they involve no counterparty risk.  See www.gold.ie for information about gold in its different forms.  


1 comment(s)

The Sunday Times - Money Comment 01/02/09

Posted by Jill Kerby on February 01 2009 @ 22:32

With businesses closing by the week due to a shortage of capital is it any wonder that their owners are prepared to resort to desperate measures to stay afloat, from pay cuts and unpaid holidays to mortgaging their private homes (if they can) or even dipping into their own pension funds. 


Except of course, that in this country, this latter solution is not available to them. 


This week a reader from Athlone, who owns a giftware and jewellery shop has found himself in exactly this position – with a personal pension fund worth €150,000 but no access to the money under existing pension regulation, unless he retires.  Without the money, it looks like he might be retiring whether he likes it or not. 


Restricting access to pension funds was introduced in the Pensions Act 1990 and was a major reform at the time because up to them it was commonplace for people to cash in their pension savings when they left an employer.  Too often the money was spent, rather than re-invested in a new occupational or private scheme.  By locking in pension contributions and fund growth until retirement, the idea was that by default, the person would have some sort of financial security in their old age. 


That’s all very well when your job is secure, credit is available and the world isn’t sliding into the deepest recession since the 1930s. 


Aside from preventing an Athlone shopkeeper access to his own capital to save his business, the no-access pension rule has never been very helpful (even in good times) in the campaign to encourage younger people to set aside money now for an income they will only enjoy in 40 years time.  


Ironically, the state is now about to raid its own statutorily ring-fenced pension fund – the €16 billion National Pension Reserve Fund which is needed, says the government, to keep the ship of state afloat.  It wasn’t to be touched until 2025, said Charlie McCreevy when he set it up to help pay part of the pay-as-you-go civil service pensions bill. He knew then that the huge fund would always be a tempting source of capital to his Dail colleagues, hence the fence. 


It’s time to revisit the access restrictions that apply to the retirement savings of the rest of us. In the United States and Canada, where there is limited access to private 401k pension funds, it is perfectly reasonable for any money withdrawn from Irish pensions to be subject to the same level of tax it enjoyed on the way in. 


But other than that part of the money, the rest of it is the individual’s own, and not the state’s.


Pension legislation is beginning to resemble a Medusa’s head of hissing, tangled snakes as one problem after another arises in the current system.  Just ask anyone whose defined benefit pension has been wound up due to insolvency how fair it is that existing pensioners take priority over everyone else in the payment of retirement benefits.


Time is running out for the Athlone shopkeeper, and all the other employers and business people who are being strangled by pension policy and regulation that is no longer appropriate.  


They need pension reform now, not later this year or next year.  




The only positive thing to say about the introduction of a property tax in this country at this time is that it will help accelerate the fall of property prices, and anything that does that is a good thing.  


I say this, not because I like the idea of my own house being worth less, but because the return of consumer confidence here – and in the other anglo-american countries that experienced huge price bubbles since 2001 – is so tied to the value of the bricks and mortar we own. 


Prices are still sliding, but the price bottom is a long way off because the volume of trading is so low. We need normal (and I don’t mean ‘bubble’ normal) levels of property transactions to resume before every homeowner can come to terms with the true size of their personal wealth and then get on with the personal decision of whether they can afford to return to the wider marketplace.  

That said, even if our house prices finally levelled off, the wider banking crisis would still hinder our recovery, but at least those people who have stable incomes and jobs, and are not overburdened with debt might feel confident enough to replace their car, or buy some new curtains or dine out again.  


My main gripe about the modest property levy on second homes that the government seems to be considering, is that it is so typical of the short term, piecemeal and utterly inadequate way in which tax policy is operated by this government.


There was never any clear thinking about the tax treatment and incentivisation of property here and we are now living with the consequences of not just our own mess, but the global banking disaster caused by the over-encouragement of the property industry in other Anglo-American countries. 


Aside from that one unintentional benefit (if you can call it that) the introducing of a property tax at a time when so many property owners can’t even meet their mortgage payments doesn’t sound like joined up thinking to me.    But that’s probably a lot to ask of our politicians these days. 


*                               *                           *

Can anyone explain to me how taxis are so expensive when there are so many new licences still being issued and an alleged over-supply of cars?


Theoretically, when there are an abundance of goods and services, the price goes down. But not, alas, when the government decides the price of the service and also influences, in this case, the number of traders.  


A taxi-driver told me the other day that he was on a big demonstration recently demanding that no more taxi licenses be issued and a cap put on the numbers of drivers. 


The mistake, he said with a straight face, “was deregulating the industry and letting anyone to buy a plate.” But what about fares, I asked. They were never de-regulated. 


“Of course not, you couldn’t have that,” he said.  


I can’t wait to see how it works in the banks.

0 comment(s)

Women Mean Business - February 2009

Posted by Jill Kerby on February 01 2009 @ 21:57


“I think 2009 is the year that we all rebuild our balancesheets,” says a friend optimistically.  He says he’s quite hopeful that the worst of the credit crisis is over (he was able to renegotiate a loan back in December) and that his business – he’s a craft butcher with strong cash flow – is as recession-proof as it will ever be. 


He hasn’t had to let any of his staff go – yet, I think pessimistically to myself – but they’ve been with him for years and would accept pay cuts if necessary.  He doesn’t regret expanding his premises a couple of years ago.


And while he still stocks a fantastic selection of fine cuts of meat, Sheridan cheeses and the trays of stuffed olives and artichokes and semi-prepared meals that we all agree taste way better than anything Marks and Spencer’s can do - he also now sells great lumpy vac pacs of inexpensive cuts of beef, lamb and pork that many of us having got a clue how to cook.  


“I’ve got that sorted too,” he says enthusiastically.  “I’m adding interesting marinades to help tenderize the meat, and passingon some hints on how to cook it.”  I suggest he collect loads of great recipes for soups and stews, braised dishes and hot-pots, print them up and hand them out to customers…maybe with a free stock cube and a little bunch of herbs.  


He’s always been open to suggestions – hence the lovely (but expensive) range of fresh herbs and spices, veg, marinades and pasta, artisan yoghurts and ice-creamthat he also stocks.  But these items are now luxuries; cookbooks and baking pans that have been tucked away in sideboard cupboards and at the bottom of kitchen drawers for years are being dug out again as home cooking is rediscovered.


The great Irish butcher – the ones who as apprentices get A+ scores in their ‘how to flirt with your women customer’ classes -will always get my custom over the soulless drones that work behind the meat counters in the major grocery chains. But I also admire my butcher’s determination to do whatever it takes to survive by cutting his costs to the bone (no pun intended), by extending his opening hours, rethinking the product he sells so that it’s affordable enough to stop his customers from shopping exclusively in the discount grocery chains and by keeping up the all-important delivery of friendly, efficient service. 



His balance sheet observation is a pertinent one for all of us. 

I don’t share my butcher’s optimism that the worst is over, however. My guess is that fearful consumers everywhere will drive price deflation further and it will devastate all but the most resilient industries and service providers in the coming months.  Those that do hang on will then be hit by the second wave of destruction:  the consequence of all the re-inflating of the global financial sector and all the other bail-outs that have taken place since last autumn. 


Once the central banks and governments have brought interest rates to zero (ie. ‘free’ money), have no more government bonds or debt to issue or exchange for the toxic sludge held by credit institutions, and have sent out the extra hundreds of billions of dollar (and equivalent currency) stimulus cheques to ordinary consumers to get us all spending again, the real end-game will probably emerge. 


The professional moneymen and dealmakers will know, early on, to snap up the oil and food commodities, land, precious metals, water resources and the strong, giant household durable companies that produce goods we cannot do without. 


They’ll know that you can’t pour trillions into the money system (in the space of months!) and not expect the existing paper currencies in people’s pockets and their savings to maintain their value, hence their quick market action.


The ordinary punter, as usual, probably won’t know what hit her until it’s too late; the middle classes tend to get wiped out if and when hyperinflation hits.  


I thought such a scenario sounded pretty unbelievable too – apocalyptic even – when I first read about it a few years ago, long before the American and European banking system imploded.  


An old-fashioned bunch of Austrian economists, led by Ludwig von Mises and later by Nobel Prize winner FA Hayek, first described back in the 1920s what is happening now in 2009.  Back then, the post-World War I Weimar Republic in Germany lost control of its money supply in its effort to repay its unbearably high war reparation debt. Housewives ended up carrying suitcases of banknotes to buy their daily pumpernickel. 


Hayek and von Mises argued then that the artificial inflating of the money supply by governments inevitably ends in an economic slowdown and then recession, but that recession is a painful but necessary period of balance sheet correction. 


Trying to prevent the correction by the further expansion of the credit supply and by bailing out insolvent businesses by redistributing scarce credit resources to them, said the Austrians, instead of making it available to worthy, solvent enterprises, only temporarily avoids the correction.  It ultimately ends with the destruction of the currency system itself. 


Since the credit crisis began, the US and other governments and their central banks have borrowed or created the equivalent of about $10 trillion dollars of extra credit, debt and cash (the latter out of thin air) to try and recapitalize the banking system and inflate away the historic amount of personal and corporate debt that has been accumulated since the 1970s, but especially since 2001. 


It would be nice to think that this time the central bankers and politicians – who got us into this fine mess in the first place - will know how to put the genie back in the bottle once all those hundreds of billions of paper notes are pushed out into the marketplace. But I think that’s a long shot.  




I’ve written a few times in these pages about the importance of knowing the difference between your ‘wants’ and ‘needs’. Chances are that this is the year that you’re going to find out just how important is that distinction. 


The deflation we’ve been experiencing – in the falling price of property, stocks and shares, pension funds, food and oil, household goods and even wages is a reflection of the mountains of debt instruments that have been unraveling, and the fear of consumers that there is worse to come. 


For as long as the deflationary periodlasts, it won’t be a good time to have outstanding debts.  But if and when inflation takes off, your debt will start to fall in value; the trick is whether you can stay solvent long enough to enjoy its depreciating effect.


Lean and Mean


Ideally, you want your personal finances to be as lean and mean as your business. Cut your overheads as much as you can by assessing just how much you need to consume to keep yourself and your family healthy, well-fed, clothed and educated or amused: 


Review your housing and food costs, the two biggest expenditure most families have; aim to save at least 10% or more from your food bill, if you haven’t already.


Try to cut transport, utility and insurance costs.  Regarding the latter, comparison shop for lower house, motor and health insurance. You may not need the annual, family travel insurance this year or the expensive – and mostly useless – payment protection insurance that comes with mobile phone contracts, expensive electrical goods, etc. 


Do not sacrifice your term life insurance contracts if you have dependents or PHI, also known as income protection insurance, which pays out in the event that you fall ill or incapacitated and can’t work. A good independent broker should be able to help you source all sorts of cheaper insurance contracts. 


Reconsider your holiday plans. The Irish are big spenders on holidays abroad – this could be the year that it pays to rediscover the joys of your own back garden and magical mystery day trips with the children here in Ireland. 


Start using cash, rather than credit.  Take up a cheaper hobby or past-time, anything other than ‘shopping’. 



Economic downturns don’t last forever.  All those spa treatments, designer clothes and shoes, botox and hair extensions, endless gadgets, new cars, weekend city breaks, private education for the kids…even the mad property investments in some far away sunspot will come round again.  They always do.   


The problem with a global recession-cum-depression is this kind of conspicuous consumption will simply jump a generation…or two. 


0 comment(s)


Subscribe to Blog