Posted by Jill Kerby on March 29 2009 @ 22:07
LD writes from Dublin: Late last year my mother-in-law discovered that a life assurance policy her husband had taken out in the mid 1980's with Phoenix Life Limited (a UK company) was still valid. We wrote to the insurance company to see if this policy was still valid – he died in March 2005 - and they confirmed it was and was worth €7,200. However, when they found out he died in 2005 the amount was reduced to €4,800 as the benefit is calculated on the date of death. She finally received the €4,800 which included an ex-gratia payment of €737 due to the delay in settling the claim but they deducted income tax of €184. Is it correct that a death benefit is calculated on the date of death even if the policy was still earning earning interest from March 2005? Should tax have been deducted, even though my mother-in-law is not a UK resident? Will she have to pay any Irish tax on the payment she has received?
I learned that it was only after receiving correspondence from Phoenix Insurance in England that you discovered this lump sum policy existed and that it had been put into a ‘fully paid up” status not long after it was purchased. According to John Geraghty, of discount broker, www.labrokers.ie, Phoenix Insurance mainly sold with-profits whole of life policies and this policyprobably had a very low death benefit sum assured. The payments you were quoted are probably the investment values at those two dates, he says, that may also include a small death benefit. The amounts quoted are “puzzling” as is the tax deduction and should be investigated further, says Geraghty. You have no record of who sold your father-in-law this policy, but he believes it was probably sold through the Scottish Provident here, whose address is Styne House, Upper Hatch St, D2. (Tel 01 6382900). You should contact them for an explanation about the maturity value. “If your reader does not get a satisfactory explanation, she can progress her complaint to the Office of the Financial Ombudsman.” Finally, as a spouse, your mother-in-law is exempt from any Irish tax liability.
NG writes from Co Galway: When I reached the age of 66 in 2003 I invested that portion of my private pension fund not subject to the 25% tax free lump sum – less than €200,000 - into an Approved Retirement Fund (ARF). I was very attracted to the ARF as I was in receipt of the state pension and was still doing some consultancy work worth about €44,000 a year. I had been told I was in complete control of my ARF. In September 2007 I was advised that my ARF would now be subject to tax and was given some options. I chose to withdraw 1% of its value in the first year, 2% in the second year and 3% this year and future years, all amounts subject to tax. My combined pension and income means I pay higher rate income tax, but I had always intended to start withdrawing from my ARF after I was fully retired and paying a lower tax rate. I now find my ARF being eroded on two fronts – its value is dropping due to the economic climate and from the tax levy. I believe this disadvantage should be highlighted – it certainly is not the product that I invested in.
All withdrawals from an ARF are liable to income tax at your highest rate. But it was the Finance Act 2006 that introduced a tax on ‘imputed distributions’ of 2% on the value of the ARF in 2008 and 3% in 2009 and every year thereafter. That said, if you do make a withdrawal, that amount canbe deducted from 3% imputed tax. This tax was introduced as a way to encourage the withdrawal of some pension income, which the government claims was always the purpose of the ARF; it was not intended as a way to defer tax in retirement. Your concern about your eroding fund is understandable, but I suggest you review the underlying assets in your ARF and try to find a more secure assetsfor some or all of your money. Unfortunately, converting your ARF into an annuity and pension income – which you can still do - isn’t much of an alternative, given the poor state of bond yields.
FB writes from Limerick: I have recently been told that my mortgage with EBS has been transferred to a new company - EBS Mortgage Finance. The cover letter states that 'in the ordinary course of business' the society will set the interest rate and administer the loan. Given that my debt is now effectively owned by someone else, can this new subsidiary set a different rate of interest at some point in the future? I know the letter states ordinary course of business, but what if there is an extra-ordinary event? And can EBS just do this without my permission?
My understanding is that the terms of your contract with the EBS has not been changed as a result of this transfer of business to EBS Mortgage Finance company. Unless you have a fixed rate loan or a tracker mortgage contract, the building society can set a new interest rate at any time. Lenders usually don’t do this (unless the ECB rate changes) but it is within their right to do so, say, if there was a huge loss of lending or deposit business – the extraordinary event to which you refer. If you are unhappy with this new arrangement, you can always try to take your business to a different lender.