Posted by Jill Kerby on March 27 2011 @ 09:00
Lobby a TD if you need access to your pension
GM writes from Wexford: I have a pension fund with Bank of Ireland Investments into which I have contributed €80,000 over the last 15 years. It is now worth less than my contributions, which I have recently ceased.
I have an overdraft and am behind with my mortgage repayments and have requested the bank if I could have these funds released to enable me to try and restore my life to some sort of normality - to pay my overdraft, reduce my mortgage repayments. Once again they have refused.
I need these funds now, not in seven years. Bank of Ireland got itself into trouble as a privately owned company and the Irish taxpayer, people like me, has to five it what it needs, but when I’m in trouble, I can’t get my own money back? Is this a fair country we live in?
So many small business owners, and now, ordinary employed homeowners, are in the position you describe: they have money in pension funds, but are cash poor, with bills and mounting debts that have to be paid. Unfortunately, Irish pension legislation does not permit pension fund holders to encash their funds for any reason other than retirement or early retirement on health grounds. Nor can you raise a loan against a pension fund.
In its election manifesto, Fine Gael said it was prepared to look at amending pension rules to allow some access to private pension funds – as is the case in the United States and Canada, for example. You may want to lobby your public representatives to this effect, but in the meantime, I’m afraid you will have to try and raise capital some other way. (See Comment).
Tracker bond fears
RD writes from Dublin: I’m wondering if you can help me with a query on behalf of my mother, who is 69. In 2007 on the advice of Ulster Bank, she took out two separate six-year policies each for €20,000 with Irish Life and New Ireland. The capital is guaranteed at maturity, but have not performed well and both are worth less than the initial investment. I am worried that these companies are not covered by the Government Bank Guarantee. Can you confirm this and my mother have any cover in the event that these companies closed down? Is there much likelihood that this could happen in the next three years?
Six year tracker bonds, like the ones you describe, involve a large portion of the investor’s money being put on deposit to safeguard the capital over the term of the contract, and the balance used to track the performance of stock market indices. According to independent financial advisor, Vincent Digby of Impartial.ie, the millions of euro deposited by the tracker fund manager in their bank desposit account is not covered by the bank deposit guarantee scheme, which has an account limit of just €100,000. Corporate deposits – like a tracker deposit fund - are covered by the Eligible Liabilities Scheme, but only for institutions that joined the scheme between December 2009 and this coming June unless further extended. “Not only was your reader’s tracker deposit made in 2007, before the ELG came into existence, but Ulster Bank is not a participant,” says Digby,
However, Ulster Bank is part of Royal Bank of Scotland, and, with its parent bank Lloyds Bank, is mostly owned by the UK government. Digby’s view is that it is unlikely to fail in the next three years. Nor is there any reason to believe, he says that Irish Life or New Ireland will cease trading. Nevertheless, there is no compensation scheme for life assurance account holders in the event that an Irish investment company fails.
Deal or no deal
BT writes from Dublin: I have two mortgages on my house, a tracker worth worth €100,000 and the other, a €60,000 variable rate mortgage for an extension. I can pay off both with cash at the moment but I want to go to the bank and offer them 50c on the euro for the tracker, do you think that this would be right approach and would the bank take it as a serious offer?
Does the bank know you have sufficient resources to pay off the €160,000? If they do, they are unlikely to offer you any deal for surrendering the tracker loan. No harm in trying though. Do let me know you get on.
Put it in the post
SR writes from Dublin: I am an OAP with enough to live on with my pensions. My life savings are €100,000 and I would like to keep it together. I would need €2,000-€3,000 from my savings for the little extras. I was thinking of investing €90,000 in An Post three year deposit scheme at 10% and keeping out €10,000 to do me for next three years. What would you think of this plan?
An Post savings bonds are entirely tax free, the return is very competitive and the post office has always repaid saver’s capital, which is state guaranteed. The income you receive from the bond is also exempt from the universal social charge (USC) which is capped at no more than 4% anyway for pensioners.
That said, you are effectively leaving your entire life savings with a single Irish state owned institution, entirely denominated in euro. If price inflation begins to take hold – some suggest it already has and will get worse – you will have locked your funds in at rates that will not keep up with prices and the spending power of your capital will be at risk.
A good, fee-based advisor should be able to suggest ways to spread your risk – into other assets than deposits: inflation-linked bonds; relatively low risk blue chip shares or pooled funds that produce annual dividends/income that exceed deposit rates and will hopefully be inflation-proof and precious metals that will act as an insurance policy against the ongoing risk of currency debasement.