Jill Kerby

WE NEED TO COUNT OUR INDUSTRIAL BLESSINGS MORE

We know how important tourism is to the Irish economy.  It employs hundreds of thousands of people. It is an all-Ireland industry, though Dublin gets a disproportionate number of weekend visitors.

We’re fortunate that our ‘season’ begins around St Patrick’s Day and ends in October, but domestic tourists have also increased since 2008, especially amongst older, retired people. And best of all, the numbers of visitors has been growing strongly, especially from North America and the world’s newest travelling cohort, the Chinese (even if their per capita spend is relatively low.)

Tourism is such a positive experience in Ireland and such an important wealth sector here along with IT, pharmaceuticals and bio-tech, financial services and agri-business, that It’s hard to imagine how it could be a destructive force.

But that is exactly what has happened in Venice, where this column has been written over the past four weeks.

No one is exactly sure how many visitors Venice gets anymore, though the government estimates that it is between 22 and 25 million a year. Mass tourism, in every sense of the word, begins around now and ends around the end of September with only the cold, wet misty winter months providing any reprieve from the mainly day trippers who travel across the Venetian lagoon by bus and train and create an endless human riptide of people in the triangle between the triangle of the Piazza San Marco, the Rialto and Accademia bridges.

With only a few hours to see the sights (and to push their way their way through the crowds) the day trippers spend very little: a slice of pizza for lunch, an ice-cream,  and a cheap Chinese-made “Venetian” glass or mask.  Even the Chinese, enthusiastic water taxi and gondola riders, are often duped into buying the Chinese knock offs in the Chinese owned shops that were  once the local bakery or dry cleaners.

And while they complain about the Chinese, the irony of Chinese traders buying up Venetian shops and business premises at huge premiums to sell Chinese-made ‘Italian” souvenirs isn’t lost on the Venetians. Their ancestors (like Marco Polo) opened up Far Eastern trade with the court of Kublai Khan. But the city not only flourished on trading exotic goods; it also producedigoods in Europe and the Byzantine world: blown glass, reams of silk and other fabrics, perfume, and art.  

The effect of mass tourism has been both fortuitous with money pouring in to save Venetian monuments, buildings and art, but also disastrous as property becomes unaffordable, the local population leaves or dies out and with them, local service jobs. The entire population of the islands of the lagoon is now a quarter of what it was 100 years ago and the average age of Venetians is now over 50.  Children are especially precious, but so few are being born that their schools are closing. While I was there, secondary students were protesting plans by the Ministery of Education to close yet another of their schools. I was told aside from too few pupils, their teachers cannot afford to commute the city, let alone live there.

And that is the crux of the problem:  Venice may or may not be sinking due to its unique construction (piles driven into the shallow, clay soil of the lagoon and rising seas) but mass tourism has caused it to become so depopulated that great swathes of the city are now only inhabited for short periods by wealthy tourists who rent or own the palazzo’s and renovated short-stay apartments (like the one I have rented.)

Ordinary Venetians doing ordinary jobs in the public or private service – like working in restaurants and hotels, manning the vaporetti waterbuses, protecting public buildings or repairing the canals have been driven out of their old neighbourhoods and now live on the mainland.  Fewer shops mean higher prices for the remaining locals.

Property owners have become very wealthy, but not every Venetian benefits from tourism. Wages and pensions are very low compared to Ireland and many areas of the city are disadvantaged. Elderly people especially struggle financially. Artisans are disappearing too and admit they have no choice but to increase their prices to pay soaring rents. Even better off tourists, they say, are spending less.

Even the cost of basic groceries can be eyewateringly expensive: a litre of fresh milk is €1.55; six eggs cost €1.83; a 750ml carton of fresh orange juice, €2.59. A 125gr slab of own brand butter is €1.25 and a two kilo bag of potatoes, grown in the nearby Veneto, €3.21.

Venice, breathtakingly beautiful Venice, is pricing itself out of existance. The  most pessimistic suggest there will be no actual Venetians left in the city in another 30 years unless the visitor numbers are reversed and access heavily controlled.

Dublin may be overly dependent on FDI’s; Detroit may be the world’s first post-industrial city. But La Serenissima seems on course to become the world’s first entirely commercial city of culture, manned only by a population of paid service providers and tour guides.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

GEORGE OSBORNE IS BEING VERY GOOD TO OUR YOUNG PEOPLE

It will be another six months before the next Minister for Finance delivers a Budget here, but he or she might want to consider at least a few of the measures that George Osborne included in his last week.

Let’s start with their new version of our old SSIA scheme which operated here between 2001 and 2006 and allowed for five years of tax free savings of up to €200 a month that the government then topped up by another 25% or a maximum of €50 a month.

The Irish scheme was introduced to try and encourage more saving and investing in what was already becoming an overheated economy. Unfortunately, as the scheme came to an end the boom was peaking and this great flood of money only poured more fuel on the mostly property-generated fire.

Osborne has decided that this scheme is needed to help mainly first time buyers finance their first homes. Like here (and especially in the south east of England) there is a shortage of homes and prices are extremely high.

In conjunction with the already available ‘Help-to-Buy’ ISA savings scheme for any first time buyers (whereby first time buyers get a £50 bonus for every £200 per month saved up to a maximum of £3,000 on £12,000 worth of savings.)

this new ‘Lifetime ISA”  or Lisa for short goes much further.

Aimed at savers between 18 and 40 it allows for up to £4,000 a year to be saved or invested with the account holder getting a 25% top-up from the Government until they reach 50. This fund can be used to buy a home worth up to a maximum £450,000, or, if they choose, to be taken out, tax free at age 60 to spend as they wish, but ideally to be used as a retirement fund. Early withdrawals for purposes other than a house purchase will result in a claw-back of the 25% plus any interest and a 5% tax. It is estimated that this new scheme will be worth at least £10,000 more than just saving with ‘Help-to-Buy’.

Not everyone is enamoured by the new scheme, which critics say is nothing more than a targeted tax refund to those who have sufficient income to divert £4,000 into longer-term savings. It doesn’t offer anything to young people paying increasingly higher rents (just like here) who have nothing left to save at the end of the month. 

But the UK budget did introduce other positive measures and tax cuts that our incoming Minister should consider, including raising the overall ISA (Individual Savings Accounts) limit from

£15,240 to £20,000 a year from 6 April 2017. 

(We still do not have any kind of tax-free savings other than the monopoly state savings products sold by An Post which have no investment alternative.)

Personal income tax allowances have also been increased in the UK from £11,000 (€14,700) in 2016/17 to £11,500 from 6 April 2017.  In Ireland, our annual personal tax allowance is a measly €1,650 and just €550 for the self-employed.

Meanwhile, British taxpayers will only start to pay 40% income tax on income over £43,300 (€54,500) in 2016-17 and from £45,000 from April 2017. (It was £42,385).  Their highest, 45% tax rate, only kicks in on income over £150,000 (€189,913). Our highest tax rate of 40% applies to all euro income over €33,800 and USC is now 8% on all earnings over €70,000 to €100,000.

The other giveaway that Osborne produced – and should also be considered by our incoming Finance Minister is the reduction in capital gains tax from 28% to 20% for higher earners and from 18% to 10% at the basic rate. After 2000 when Irish CGT rates were halved from 40% to 20% the State received a bumper tax crop and investment activity increased.  But with our rates currently at 33% and DIRT on savings and investments at 40% there is very little incentive to save and invest.

The UK annual CGT exemption has remained at £11,100, or nearly €15,000. Here, the annual exemption hasn’t changed for at least two decades and remains at a paltry €1,270.

All of these UK budget changes are significant because this Irish governments since the 2008 crash have bemoaned the huge loss of our young people. They have left, not just because the economy collapsed but because the taxes that were subsequently imposed and remain to this day mean that even if they wanted to return – from the UK, for example – with the current tax burden not only would they struggle to pay rent or buy their own home, but it could prove impossible to make those payments and childcare costs if they started a family.

Britain is being very good to our bright, highly employable young people right now. They’d be crazy to come back until they see how the next Irish Budget pans out.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

YOUR LETTERS: DEBT, SHARE DEALS, PENSIONS AND SAVINGS

BW writes:  My daughter, who has a long, chronic psychiatric illness has run up approximately €9,000 in credit card debt which has only come to my attention recently. MABS has advised her and her options are to try and get a credit union loan, or from me. What do you think would be a fair repayment term and interest rate? Her only income is disability benefit.

Credit unions typically charge c10%-12% per annum on the diminishing balance of personal loans, but the CU may not be willing to extend your daughter a loan given that she is unemployed and relies on a state benefit. If you want to be repaid for clearing her €9,000 debt you need to take into account that she may not have much leeway to even make a token repayment. Given that your daughter’s credit record is probably already impaired, I suggest she (or you on her behalf) speak to the MABS adviser about the option of applying for a Debt Relief Notice from the Insolvency Service of Ireland. The DRN allows up to €35,000 worth of unsecured debt to be permanently written off for qualifying debtors. See www.isi.gov.ie

Mr NB writes: At one point my 163 AIB shares, at €17.90 were worth $3,000.
Can you tell me if there is any way I can redeem these shares or is there any way that the government might reallocate something now that the bank is doing so well.  It would seem a bit unfair that the ordinary man can be left high and dry.
 
The collapse of Irish bank shares from 2007 came as a huge financial and psychological blow to thousands of ordinary people who, for good reason for so many years, that bank shares were a low risk, conservative way to invest their savings.  Pinning hopes on an single share, or even a few shares, no matter how strong an economy is, frankly, never a good idea.

Unfortunately for every AIB shareholder, they are nothing more than penny shares and the state is the single real shareholder. The bank is finally beginning to repay us (via the state shareholder) some of the c€20 billions we piled into it, and it may even be sold on some day, but you will not receive an individual payment. We can only live in hope that if and when the proceeds of the sale of AIB are “banked”, the money will be used to improve state services or reduce the national/government debt which has quadrupled since 2008.

TM writes: I would welcome your opinion on how best I can manage my savings over the next 12 months or so. I plan to retire later this year when I will be eligible for both a state and personal pension. I have been self-employed for the last seven years after being made redundant and have approximately €50,000 on deposit which will mature in October. With deposit rates dropping, and a pension tax free lump sum on the way I would like to get the best return and wonder about other options.

You may have more decisions to make than just what to do with your existing savings and the pension tax-free lump sum.  First, you are not obliged to encash your private pension at age 66 and take that lump sum. You don’t have to purchase an annuity income with the balance of the fund; you could keep it invested if you wanted to keep working, for example and the state pension (and work income) was enough to live on for the moment.  Either of these options are available to you if you switch your private pension fund into an Approved (and/or Minimum) Retirement Fund or even a Personal Retirement Savings Account. There are different tax implications for all of these options. 

What you need to consider doing first is to speak to a good, impartial, fee-based pension adviser. As for the cash, be aware that deposit rates everywhere are extremely low and could even be moving towards negative returns, by which we could all end up paying the bank to leave our cash with them. A good adviser can discuss other ways (albeit with capital risks) to produce a real return on your lump sums.

CF writes:  I've been getting emails from Vodafone lately and have no clue what they are up to. I am one of those who tried out the whole notion of buying shares for the first - and last - time on this floatation, and their value sank like a rock seconds after the deal was closed. I had decided to just leave the shares alone in the vague hope that somewhere down the line they might pick up. I have a suspicion they have done something now to make this difficult, but I am really not clear what. 

There’s nothing sinister going on. The UK company is simply offering the 334,000 plus Irish shareholders with up to 1000 shares a special low cost or even free share dealing service if they wish to sell their stock. The offer is open until May 24. Anyone with fewer than 50 shares can now sell them at no cost and those with between 51 and 1000 shares and an electronic share certificate will only pay a trading commission of 21 cents a share or 35 centc a share for paper certificate holders. Total dealing charges are capped at €42.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

ANOTHER FULL POSTBAG OF YOUR LETTERS

DM writes:  I am enquiring on behalf of my parents who are aged 79 & 77. They are looking to downsize their house, which has been valued at c€280,000 and move to a more suitable bungalow. The new property is selling for €140,000 and needs around €30,000 of work. They have savings of €80,000 and my father's pension is approximately €70,000 per annum. The stumbling block is that they will need to access €90,000 worth of bridging finance to purchase the new house. What are their chances of doing this? Could they sign the deeds of their house to a bank as security?

I asked Karl Deeter of Irish Mortgage Brokers in Dublin for his opinion and he told me that mostly due to your father’s age, a bridging loan is unlikely. Most banks tend not lend to over-70s. He suggests 1) finding an investor to buy their existing home who would agree to let them rent it back until their new property was ready to move into. 2) Hope to find a buyer who is also not quite ready to move in right away and pay that person rent, or 3) rent a bungalow themselves until their existing house sells and hope the one they want is still on the market when they finally have the full cash proceeds of the sale. Renting may not be the happiest solution, but the cost of it and storing their furniture and household goods will be affordable with current income and savings.

JL writes: I have a €125,000 term life insurance policy with Irish Life that I took out five years ago when I was 58 and matures in 2033. In light of how expensive the indexed premiums have become I wonder if I could get better value with a different company?

Buying life insurance in your late 50s is very expensive. The indexation has resulted in the policy (plus the 1% government levy) costing you nearly €160 a month.  The premium (and the value of the policy) will keep going up by 3% and this exponential growth will be very, very expensive by the time you hit age 78.  A good discount broker – I suggest John Geraghty of www.labrokers.ie – can search for a better quote for you, but he’s just as likely to ask you if you really to keep indexing the premiums. The value of the policy has already risen to over €133,000.  With practically zero official inflation, you might want to reconsider whether it will be enough to satisfy your beneficiary and cancel the indexing. N

GB writes: We took out a UK mortgage and endowment policy in March 1991.  When we returned to Ireland we continued with the endowment which is shortly due to mature. I believe that the money is tax free in the UK as it is a "qualifying policy". Are we liable to tax here in Ireland and would the liability only arise if we brought the money back here?  

The proceeds of UK endowment policies taken out since 2001 are subject to 40% Irish income tax here, so you are unlikely to face any liability if you bring home the proceeds of your UK account. But this tax question is one that keeps producing different answers from the Revenue, so you should contact your Inspector of Taxes (in your local tax office) for the decisive answer. If you decide to leave your proceeds in the UK, you will have to declare and pay any interest you earn on this money in an annual Irish pay and file tax return, which is due at the end of October.

FM writes: I would like to know what happens to my husband’s occupational pension if he predeceases me?

Most employees are usually asked by their company pension trustees to name their beneficiary in the event that they die in service. Usually it is a spouse if they are married. The rules of the scheme will determine what happens to the employee’s pension fund, but it can either be paid out to the widow(er) tax-free or be used to produce a pension for the widow(er) or dependent children.  The actual amount of the pension income (if a pension annuity is purchased) will, however, depend on the widow’s age and the younger they are, the lower the pension value. Some older schemes have been known to only pay the employee’s contributions plus interest so you husband should request a copy of his schemes rule to be certain of the exact benefits to you.

More of your letters next week…

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

CAN WE EXPECT MORE OF THE SAME? MORE TAX, MORE SPENDING?

As the election candidates and the parties come to terms with last Friday’s election poll results, whether by celebrating their victories or licking their wounds, the rest of us go about our daily lives.

The impact of this election – how many promises are kept or discarded; how much extra or less tax we will pay; new spending priorities - will only become clear once the new government is formed.

The purpose of a political class – they will no doubt disagree – is to spend other people’s money. What else is an election, the great HL Mencken once asked, “but an advanced auction of stolen goods”.

One of the most disturbing things that I observed about the campaign rhetoric from most of the party leaders and career politicians is that most of them didn’t have a clue how the income tax, USC and PRSI system and the effort to fund a retirement outside of the public service applies to the rest of us. But then I doubt if most of the career politicians know the cost of pound of mince, a litre of milk costs or the price of kid’s shoes. 

Those prices vary quite a lot in fact, but only folks watching their budgets regularly shop in a selection of discount supermarkets, department stores and high street corner shops know this.  Members of parliaments don’t spend hours and hours comparison shopping every week; they don’t fill up trolleys and baskets with infants and toddler in tow; they don’t waste hours queuing up and packing and unpacking their goods.

Other people do this work for them. They are busy, doing more important work ‘for the state’.  As

Robert L Smitley, writing in the 1930s said:  “Possibly the easiest act for any human being is to spend money which does not belong to him." Every five years or so we confer this privilege – of allowing a small cohort of not very well informed people – to determine how much of our earnings they will allow us to keep.

I mention this only to remind readers that while there had been a shocking amount of fuzzy thinking about personal finances, let alone the wider economy, that dearth of knowledge goes both ways. It isn’t just Gerry Adams who doesn’t know that every euro earned over €33,800 is liable to a combined income tax, PRSI and USC rate of 49% but that it jumps to 55% if you happen to be a sole trader and your business earns more than €100,000? (And would rise further to 62% if Sinn Fein ran the country.) 

The income tax system now generates about 38% of all the revenue of the state (it was about 20% back in 2008) so any changes the new Dail makes to their taxing and spending could be very significant.  Yet there was very little mention during the campaign of the general government debt of over €203 billion and annual interest payments of about €8 billion and how we are still short of balancing the annual budget by a few billion. (The debt was about €50 billion in 2008).

We spend nearly €13.4 billion a year on a persistently dysfunctional health system. Unemployment is still over 8%, there’s a lost émigré generation, and we have some of the highest levels of household debt in the world. Yet there is wide, cross party/political support for the maintenance of expensive, unsustainable universal welfare benefits like the state pension, child benefit, free GP care for all and unfunded defined benefit public service pensions.

So can or will the new government cut or abolish USC, reduce or revoke water charges and property tax, restore lost public service wages and refund their higher pension payments?  Will third level charges be abolished? Will the minimum wage rise again or a minimum living wage be introduced for everyone? Will old age pensioners get another €25 a week by 2021? Will all carers, single parents, the disabled, young unemployed, all see rises in their weekly benefits? Will there be Scandinavian-style childcare and Scandinavian-style tax subsidies?

Will people on “higher” incomes of €70,000, €80,000 or €100,000 (take your pick), pay higher income tax and new wealth taxes to pay for these promises? Will the new government maintain and extend services and benefits and salaries and pensions that are only affordable if we – in advance the earnings of future generations?

Elections are seldom  ‘elevating’ events. This one might prove me wrong yet. But forewarned is forearmed. If you haven’t done a financial review, checked how much tax you pay, looked at how much debt you owe or the size of your nest egg, maybe you should. An impartial, independent, fee based adviser can help.

There’s a whole new set of politicians in the Dail, just itching to spend your money…for the good of the country, of course.

Jill’s 2016 edition of the TAB Guide to Money Pensions & Tax is now in all good bookshops. If you have a personal finance question for Jill, email her at jill@jillkerby.ie or write to her c/o this newspaper.