Jill Kerby

BUYING IRISH BANK SHARES IS A PUNT, NOT AN INVESTMENT

There’s a little flurry of interest out there in bank shares…again.

A reader from the south-east sent me this note recently:   “I am just wondering if you think buying bank shares are a good idea right now?” 

Another wrote:  “I would like to get your advice on buying shares. I have about €5,000 in savings and was thinking about buying shares in AIB or Bank of Ireland. My reasons are that share prices are reasonably low and the banks seem to be getting stronger along with Ireland's economy. It would be an investment for maybe 10 years depending on share prices.”

Finally, a third asked, ”Can you recommend a cheap stockbroker?”

First, and I am not being facetious, there is no such thing as a ‘cheap’ stockbroker.

Stockbrokers everywhere work on the premise that theirs is a business wholly and solely from which to make profits from the buying and selling shares of shares and the big ones trade not just their clients portfolios but more importantly, their own. 

Stockbrokers who claim to give advice - as opposed to providing an ‘execution only’ service – involves recommending individual or lists of shares for you to buy, hold and sell. Often, these will be shares of companies for which they also act as the broker.  The more you buy and sell, the more money the broker makes.  

‘Advice’ should always be impartial and independent. If you think you are ever going to get that from a stockbroker, you are delusional.  The recent Davy Stockbroker court case that highlighted that company’s total lack of duty-of-care to a vulnerable 20 year orphan with a learning disability, is a case in point.

Execution-only transactions are another matter. The commission varies depending on the stockbroker and online accounts are cheapest. A relative newcomer, Sommerville Advisory Markets (www.sam.ie), claim to take the lowest commission - only 0.15% to trade shares or ETFs. (Exchange traded funds are pooled groups of shares that spread risk and trade as single shares on stock markets, thus keeping transactions costs down.)

Now to AIB and Bank of Ireland.  I think one of the reasons why so many older people (who should know better) are asking whether these shares are worth buying again is because deposit returns have been so pitiful.

When tax (41%-45% DIRT/PRSI) and inflation are taken into account, deposit returns are effectively negative, and savers who are dependent on an income from their capital are compelled to consider riskier options, like stocks and shares or buy-to-let properties or property funds.  Unfortunately not enough of them consider the risks they are taking - volatility, management fees, commissions, charges and taxes.

So this is my answer to those readers and anyone else who considering “investing’ in AIB and Bank of Ireland:

The best time to buy shares – or any asset – is when they are cheap. AIB and Bank or Ireland certainly fall into that category if you are comparing their current prices of c13 cent and c28 cent respectively to their peaks of c€23 and c€18 back in 2007. 

However, these penny shares represent banks that are still loaded with bad debts and mortgages assets of dubious value. Some continue to report annual losses in the hundreds of millions of euro. Let us not forget that they operate in one of the most indebted countries in the world. State-owned AIB, and BOI are both still a long way from lending at anything resembling normal levels (which is how banks make profits) or from paying decent dividends to shareholders. The ordinary retail shareholders who were wiped out between 2007-2010 can probably never realistically expect to recover their losses.

Meanwhile, Wilbur Ross, one of the prominent American vulture capitalists who invested in Bank of Ireland has already sold off a part of his holdings: the nature of these corporate bottom feeders is such that we probably shouldn’t expect them to stick around for the long term.

The same investment advisers that remind clients to buy really good quality shares at the lowest price, inevitably suggest that you also spread your money and investment risk in a large collection of such assets. Aside from equities, these also include properly weighted bonds, cash, property, commodities, etc in widely spread geographical locations. 

Picking a single stock or two out of the tens of thousands on public markets, they would suggest, is just another form of gambling.  Even Warren Buffett, one of the world’s greatest stock pickers warns that ordinary folk who don’t have his expertise (or capacity to absorb stock market losses) should stick with diversified, low-cost indexed funds.

Finally, and this is probably the best advice of all:  Never gamble with money you can’t afford to lose. Just ask Sean Quinn how that worked out for him.

GP TALKS ON UNDER-SIXES GET OFF TO A SICKLY START

As the row heats up between the government and general practitioners about the provision of free GP care for the under-sixes, parents will be forgiven for wondering exactly how much they will have to pay if their child needs medical attention from this summer.

The Health (General Practitioners Service) Bill will be passed in the next couple of months by the Oireachtas, the government has said, and free-GP care will then be available to the nation’s 420,000 under-sixes. Meanwhile, surveys by the family doctor’s professional organisations claim they will not accept the revised draft contract. 

Those who do not sign, warned Minister of State for Primary Care, Alex White recently, could lose their existing general medical service (GMS) roll of under six patients.

If that happens, all parents will have to find €50 - €60 to pay for their child’s GP visit.

This isn’t a good start for the ‘talks about talks’ expected to get underway shortly between the minister and doctors, though all sides seem to agree that free primary care for this mainly healthy age group is a good idea and should be affordable since most children are healthy and shouldn’t be a drain on current HSE finances. 

Out of an annual HSE budget in excess of €13 billion, just 3% of it now goes to family doctors. Existing child medical card-holders account for just €28m of that vast budget and the Department of Health estimates that just €37 million is required to fund acute and chronic care for all under-sixes.

However, it is this definition of care that is behind much of the GP protest about the revised contract.

The €43 per child per annum fee that GP’s currently receive from the HSE is supposed to cover the cost of acute care only, that is, visits and treatment for more serious illnesses or condition, not the usual seasonal colds and flu viruses, bumps, bruises and cuts. Family doctors say that single fee covers every visit, no matter how frequent or trivial.

The irony is that while 97% of the members of the National Association of General Practitioners have voted against this draft contract (in which a higher annual fee of c€70-€75 has been suggested) they say they would support caring for all under-sixes under a free medical card system if they had the proper resources.

Too many parents, they say, postpone bringing children who are genuinely unwell and need urgent treatment to their surgery until the last minute because of the cost of the fee.

The revised contract addresses the cost disincentive but will result in too many extra consultations that the average practice will not be able to handle. The result will be less time to treat patients who really need their attention, like the chronically ill and especially the elderly.

GP’s have already seen a 38% reduction from their share of the HSE budget in recent years amounting to €160 million, yet they conduct 95% of all medical consultations with no delay.  In Northern Ireland and the UK, where GP consultations are free, they see about a third more patients. (GPs get 8% of the NHS budget in Britain, which they say is also “woefully” inadequate.)

Last week the HSE figures on how long patients are waiting to see specialist consultants showed that children are faring particularly badly: by the end of January 2014, 1,464 had been in the queue for a year, up from 1,282 in December.

The new under-sixes payment to GP’s is expected to be approximately €74 per child per annum.  Some surveys in places like Northern Ireland and the UK where all family doctor visits are free, but access is usually by appointment, except for emergencies, the average number of child consultations increases by about a third.

Meanwhile, here in Ireland, the over-70s with gross retirement incomes of €500 per week or €26,000 per annum or €900 per week for a pensioner couple. Or €46,800 per annum still automatically qualify for a full medical card.

Before parents condemn the GP’s for resisting this new contract, they should know that there is already a shortage of family doctors. One in eight are aged 64 and emigration by newly qualified doctors and general practitioners is the highest for decades, according to the Irish Medical Organisation, which is holding its annual conference this weekend.

If the resource problems are not addressed, it said, the revised contract will hasten the retirement of many older GP’s and discourage young doctors from taking their places.

Caught in the firing line between the state and doctors are children and parents who may have to a new, participating GP if a deal can’t be worked out and their own doctor leaves the GMS scheme. 

Meanwhile, parents to may have to keep doling out €50 or €60 fee a visit should review the outpatient benefits offered by their private health insurance policy, if they still have one.

Families that have already dropped their cover might want to investigate cash health plans like HSF.ie (Hospital Saturday Fund) in which cash payments are made towards GP and other out-patient visits in exchange for a single family premium.

Working parents without any insurance cover or medical card should always keep their receipts and claim back the standard rate tax relief from the Revenue for their healthcare expenses.

With compulsory universal health insurance payments to be introduced from 2019, in which primary care will be a pillar benefit, this funding row could be just the first of many such confrontations.

Ends

Sidebar

Free healthcare for children is standard practice in Britain and many other European countries. It was also the starting point for the creation of Canada’s Medicare system back in the 1940s.

Today, all Canadians receive free primary care from family doctors who increasingly work within teams of practitioners in neighbourhood clinics.  Once they fulfil their time and residency qualifications, the 10,000 young Irish who are now setting off for Canada with their two year working visas will no longer have to pay to see the GP, or receive other primary care services.

Even when I was a child in Canada in the 1960s and ‘70s, the Canadian family doctor was paid per patient visit by the provincial health authority. 

All GP’s operate as private practitioners and run their own individual practices or health clinics as private businesses. They bill the province for a range of qualifying treatments and services, which are subject to regular contractual negotiation.

It can sometimes be difficult to find a GP that will add you to their patient lists, and in poorer maritime provinces like Newfoundland, but also in some deprived urban areas in richer provinces, waiting lists can be long and patients sometimes have no choice but to resort to hospital accident and emergency departments for treatment.

Unless it is an emergency, often determined over the phone by the practice nurse, Canadians have to make appointments to see their GP. Family members who live Montreal, Ottawa and Toronto tell me that you can usually expect to be seen within 48 hours if you are sick. (By then, a nephew with young children told me, “you might have already resorted to visiting the pharmacist for his opinion.” Non-hospital prescriptions are not covered by the Medicare system.)

Appointments for non-acute consultations like check-ups, dermatological treatments, general aches and pains can take weeks or even months.

An ageing Canadian population, especially amongst the more affluent baby boomer, means that queues for elective procedures like hip and other joint replacements, and common optical and dental procedures have grown very large.

Those who can afford to buy supplementary risk-rated private health insurance to bypass the Medicare system and even to secure semi-private and private accommodation in public hospitals, once you get in.

Many more private clinics and hospitals have also sprung up across Canada in the last 20 years, but there is no public funding available and only cash buyers or the well-insured have access. There is no queue jumping over the public hospital waiting lists.

The Canadian public health system is under considerable pressure from its ageing population and rich provinces like Alberta and British Columbia object to the Medicare transfer payments they make to the poorer ones’ schemes.

Yet most Canadians claim to be satisfied with how the free primary care system.  Family doctors (and consultants), who are self-employed are also mainly satisfied with their status and have no desire to be directly employed by the state.

The primary Medicare system in Canada, they say, is relatively efficient and relatively cost effective because it avoids using insurance companies as middle-men.

Which, ironically, is exactly what is being proposed for currently private, but contracted Irish family doctor’s services from 2019 when the new risk-rated universal health insurance system is supposed to begin.

GUARANTEEING A DAUGHTER’S MORTGAGE IS NOT CHILD’S PLAY

JB writes from Cork: In 2006 my daughter was approved for a mortgage of €200,000 to purchase an apartment for €245,000.The shortfall of €45,000 was being provided by me by way of a cash gift.  Her mortgage provider, made the loan subject to me and her father signing their document, confirming that I had made a gift of €45,000 and that I had no interests in the property or in the proceeds of its sale etc. They also required me to sign a “Continuing Guarantee” for the amount of the mortgage.

 Legal advice was along the lines that the bank was just requiring another piece of paper and that the loan would not be disbursed unless we signed. I am not mentioned on any title documents, and have never received nor been advised by the Bank of my liability. No financial statements were requested from me and as far as I know, my credit rating was checked, even though I was unemployed.

 My daughter has not defaulted in her payments and has over the years reduced the outstanding principal. While I am not concerned, I have recently decided to get my affairs in order and would like to resolve this issue and have the guarantee released. Perhaps you can comment on this and advise what action I need to follow.

Your legal advice back in 2006 sounds like it was very cursory, but that doesn’t surprise me – that’s often how the mortgage approval process was undertaken. What you and your husband appear to have signed was a guarantee for the payment of the mortgage to the end of its term, and from what you say, the solicitor failed to outline all the implications and consequences of this commitment.  You now need to have the contract reviewed by a new solicitor whom you trust will be more conscientious and thorough. If it is full guarantee, said a solicitor I consulted, you will remain on the hook for the balance of the mortgage until it is paid off.

“The fact that your reader was unemployed in 2006 is irrelevant if the bank was satisfied that as a couple they had sufficient resources other than income to pay the mortgage if the daughter defaulted,” the solicitor said. “This would include having to raise a loan on, or even to sell their share of the family home.”

 You can always ask the lender to release your from this guarantee, based on your daughter’s payment track record and her current income and employment.  Or you can repay the loan yourself, if you have the means. If you want your daughter to repay that debt, she will have to raise another mortgage/loan, so finding out if that is possible should also be part of your financial plan.  Speak to a good financial/mortgage adviser.

REVENUE DOESN’T CARE WHERE YOU SPEND YOUR €€ SO LONG AS YOU PAY YOUR TAXES

MS writes from Dublin: I am looking at buying a commercial property in the UK through a UK Registered company.  As I am domiciled in Ireland, will Revenue allow me to buy a UK property through a UK registered company? This would mean that it will not affect my personal allowances and I could avoid paying tax on rents at the higher rate of tax in Ireland as well as USC charge. I don’t have enough money to buy it through my pension.

The Irish Revenue have absolutely no authority to prevent you from spending your money wherever you wish. However, as an Irish tax resident if you remit any income or profits from your UK company back to Ireland you will have to declare that income on your Irish tax return and pay the appropriate tax.  You also need to check with a good accountant or tax adviser about any corporate tax liability you may have in the UK before you proceed with the purchase and how double tax agreement treaty with the UK might apply. Just make sure your tax advice is comprehensive: for example, from next year capital gains tax will be liable on the sale of UK property held by foreign non-residents, and tax-free thresholds that usually apply between married couples for inheritance tax purposes do not apply to non-resident asset holders in every case.

B.I.K. TAKES SOME OF THE GLOSS OFF GREAT EMPLOYMENT BENEFITS

CN writes from Dublin: I am 21 and have been offered a graduate entry job with US multinational that begins in July. The salary is €32,000. On top of that I will get paid health and dental insurance, an annual travel insurance policy, life insurance and income protection insurance. Do you know if I would be taxed on all these benefits as benefit in kind and how much tax will I have to pay. I’m not overly knowledgeable on tax and am finding it hard to read between the lines on the Revenue website.

First, many congratulations on getting such a great job and with a company so committed to providing important benefits to its employees.

The life insurance and income protection insurance you will receive is not subject to benefit-in-kind (BIK) liability. It is most likely part of the company’s occupational pension scheme, of which you are no doubt automatically a part. Find out more about the pension, as it will be the most valuable benefit of all and remains one of the best tax deductions available. Anyone starting a pension at your age (and maintaining annual contributions of at least 10%-15% of gross pay) will have no retirement income worries at retirement, all due to the magical combination of time and money.

The health, dental and travel insurance benefits are all subject to BIK, says tax expert Sandra Gannon at TAB Taxation Services in Dublin (www.tab.ie)  “The annual cost of these benefits will be added to your reader’s annual salary and be taxed normally. If they push him over the €32,800 standard rate tax threshold he will have to pay 41% income tax, 7% USC and 4% PRSI.  In the case of the health insurance, your reader will have to claim the 20% tax relief directly from the Revenue, as he is not purchasing the policy himself. The BIK, meanwhile, is deducted and administered by his company accounts office, so he doesn’t have to take any other action.”

 The 52% tax on these BIK benefits takes some of the pleasure out of receiving them, but nevertheless you are getting valuable insurance cover at a very enviable (nearly) half-price discount. Long may it last.

AVIVA’S IMPAIRED ANNUITY MEANS HIGHER PENSION INCOMES

The cost and availability of insurance – of all kinds - is anything but consistent in this country.

On the one hand, we offer the same price for health insurance plans to any adult who wishes to buy it, regardless of age or the state of their health but charge high premiums for smokers who want to buy life insurance.

Car insurance is less expensive for older than younger drivers but insurance premiums for new cars with high safety records (think Volvos) pay the same premium as another “less safe” brand that has the same engine size and replacement value.

One inconsistency that is finally being addressed concerns the pension income-for-life value that a retired person with a serious health condition will be offered. For at least a minority of retirees, that pension is about to go up as a result of the arrival of Aviva’s unique ‘impaired health’ annuity.

PRE-EXISTING CONDITION

Anyone who has ever been turned down or quoted a much higher price for life insurance due to a pre-existing or current health condition will appreciate just how difficult it can be to find affordable, but necessary cover.

Cancer events, a serious heart condition, a stroke (that you’ve survived) and other significant health problems inevitably make securing any life or protection policy either impossible (especially if you are middle aged or older) or simply unaffordable. 

Even a younger person may have a long waiting period before they will be covered for future claims related to a past serious illness or condition. Even smokers will pay significantly more for their protection insurance because of the greater risk that their life will end sooner.

However, when it comes to retirement, annuity providers have not, until now, used the same health risk assumptions when determining how much income a retiree with a serious health condition can expect.

Instead, the state of the pension fund holder’s health, and especially any really serious of significant illness/condition hasn’t been recognised; effectively, the same annuity rate is quoted for both an unhealthy 65 year old, for example, as a comparatively healthy one.

Annuity rates have fallen sharply over the past decade and are quite rightly, perceived as poor value by retirees.

Today, a 65 year old who wants a secure income, plus a reduced benefit for their spouse or other dependents (guaranteed for at least 5 years even if they die sooner) will be lucky to secure an income of about €6,000 a year from a pension fund worth €120,000. 

Pension advisers seldom recommend annuities as a first choice and large numbers of their clients instead opt to convert their pension pots into approved retirement fund or ARFs from which an income can be drawn down. Their pension money remains invested – though is exposed to market or deposit volatility - and upon the ARF-holders’ death is either inherited tax-free by a spouse or civil partner or at a special income tax rate of 30% by their offspring. 

By comparison, annuities payments are set for life and the fund of money from which the income is derived reverts back to the insurance company when the fund holder dies. Aviva’s new impaired annuity at least addresses the health issue by offering retirees aged between 50 and 80 who suffer from a list of illnesses or conditions l that include cancer, angina, stroke, diabetes, multiple sclerosis, high blood pressure, obesity and even being a heavy smoker higher annuity rates and pension incomes.

Annuity enhancement of up to 30% is possible, based on the seriousness of the condition and the person’s age.  (An example supplied is a 65 year old smoker with a past heart attack who is quoted a 10% increase on the standard Aviva annuity income.)

Financial advisers now suggest that other insurers may have to review their own policies about annuity benefits. “There should be a place for an annuity for many new pensioners” I was told recently, especially for someone who is a member of a defined contribution scheme, is very low risk averse, whose pension fund is not particularly large and who can’t really afford the fees and charges and volatility that come with invested ARFs.

This annuity, however, may also prompt not just employees with health conditions and defined contribution pension funds to consider such an option, “but also the self-employed or companies directors who have medical conditions,” who might also be willing to split off part of their pension to an annuity that gives a guaranteed payment but leaves the rest of the fund invested.

No one who is on the verge of retirement should ever make long term income decisions – whether it is about how much of their pension they should take tax-free, whether to buy an annuity or go for an ARF.  The arrival of this new product is one that should also be made in consultation not just with a good financial adviser, but also with your doctor. 

If you have a personal finance question you would like answered, please write to Jill at jill@jillkerby.ie

AVIVA’S IMPAIRED ANNUITY MEANS HIGHER PENSION INCOMES

The cost and availability of insurance – of all kinds - is anything but consistent in this country.

On the one hand, we offer the same price for health insurance plans to any adult who wishes to buy it, regardless of age or the state of their health but charge high premiums for smokers who want to buy life insurance.

Car insurance is less expensive for older than younger drivers but insurance premiums for new cars with high safety records (think Volvos) pay the same premium as another “less safe” brand that has the same engine size and replacement value.

One inconsistency that is finally being addressed concerns the pension income-for-life value that a retired person with a serious health condition will be offered. For at least a minority of retirees, that pension is about to go up as a result of the arrival of Aviva’s unique ‘impaired health’ annuity.

PRE-EXISTING CONDITION

Anyone who has ever been turned down or quoted a much higher price for life insurance due to a pre-existing or current health condition will appreciate just how difficult it can be to find affordable, but necessary cover.

Cancer events, a serious heart condition, a stroke (that you’ve survived) and other significant health problems inevitably make securing any life or protection policy either impossible (especially if you are middle aged or older) or simply unaffordable. 

Even a younger person may have a long waiting period before they will be covered for future claims related to a past serious illness or condition. Even smokers will pay significantly more for their protection insurance because of the greater risk that their life will end sooner.

However, when it comes to retirement, annuity providers have not, until now, used the same health risk assumptions when determining how much income a retiree with a serious health condition can expect.

Instead, the state of the pension fund holder’s health, and especially any really serious of significant illness/condition hasn’t been recognised; effectively, the same annuity rate is quoted for both an unhealthy 65 year old, for example, as a comparatively healthy one.

Annuity rates have fallen sharply over the past decade and are quite rightly, perceived as poor value by retirees.

Today, a 65 year old who wants a secure income, plus a reduced benefit for their spouse or other dependents (guaranteed for at least 5 years even if they die sooner) will be lucky to secure an income of about €6,000 a year from a pension fund worth €120,000. 

Pension advisers seldom recommend annuities as a first choice and large numbers of their clients instead opt to convert their pension pots into approved retirement fund or ARFs from which an income can be drawn down. Their pension money remains invested – though is exposed to market or deposit volatility - and upon the ARF-holders’ death is either inherited tax-free by a spouse or civil partner or at a special income tax rate of 30% by their offspring. 

By comparison, annuities payments are set for life and the fund of money from which the income is derived reverts back to the insurance company when the fund holder dies. Aviva’s new impaired annuity at least addresses the health issue by offering retirees aged between 50 and 80 who suffer from a list of illnesses or conditions l that include cancer, angina, stroke, diabetes, multiple sclerosis, high blood pressure, obesity and even being a heavy smoker higher annuity rates and pension incomes.

Annuity enhancement of up to 30% is possible, based on the seriousness of the condition and the person’s age.  (An example supplied is a 65 year old smoker with a past heart attack who is quoted a 10% increase on the standard Aviva annuity income.)

Financial advisers now suggest that other insurers may have to review their own policies about annuity benefits. “There should be a place for an annuity for many new pensioners” I was told recently, especially for someone who is a member of a defined contribution scheme, is very low risk averse, whose pension fund is not particularly large and who can’t really afford the fees and charges and volatility that come with invested ARFs.

This annuity, however, may also prompt not just employees with health conditions and defined contribution pension funds to consider such an option, “but also the self-employed or companies directors who have medical conditions,” who might also be willing to split off part of their pension to an annuity that gives a guaranteed payment but leaves the rest of the fund invested.

No one who is on the verge of retirement should ever make long term income decisions – whether it is about how much of their pension they should take tax-free, whether to buy an annuity or go for an ARF.  The arrival of this new product is one that should also be made in consultation not just with a good financial adviser, but also with your doctor. 

ENDA LOOKS INTO HIS CRYSTAL BALL … HEY PRESTO…SEES A €248 WATER CHARGE

You really have to wonder what kind of PR advice the government is getting these days. 

A political coalition is always a tough gig, especially when the minor partner, which once claimed (in a different century) to the champion the workingman and the poor is being hammered in the polls.

But this FG/Labour coalition keeps scoring one own goal after another, the latest being the lack of cabinet consensus over the new water tax…er, charge.

As ex-Green ministers, Sinn Fein and Fianna Fail deputies and various independents keep reminding us, the primary purpose of introducing water charges was to encourage conservation and the efficient delivery of clean water.

From October, when the ‘charge’ begins and then from January when the first quarterly bills must be paid, only about a quarter of our 1.6 million households will have metered bills. Everyone else will get an estimated one, based on the property size, numbers in the household and which end of a subsidy you are on.

So much for a ‘free’ water allocation for all.

The Troika informed the government(s) soon after its arrival in 2010 that as the last remaining EU country with no water charge, we had to introduce one, or else.

The paymasters didn’t outline how this had to be done, which is too bad because one of them should have pointed out that plugging the leaks – about 40% of clean, treated water never makes it to our respective taps – might be a good place to start.  The simultaneous installation of meters as the repair work was being done would also make sense after which accurate, representative bills could then be delivered.

Personally, I wouldn’t even have minded paying an estimate if I could see that real progress in upgrading the system was being undertaken.

We now know that the set up costs of Irish Water, with its legionary numbers of consultants, a payroll packed with thousands of existing, unionised local authority water workers, every one of whom will keep their employment contracts for another 12 years, and the installation of meters (which will cost €570 million alone) is going to make the cost of water here just as expensive as electricity and gas - that is, more expensive than in nearly every other EU country.

After a very acrimonious cabinet meeting and a quick glance at his trusty crystal ball, the Taoiseach said that we won’t pay more than €248 a year on average. (That figure is closer to half the average charge paid by most EU households.)

The math doesn’t add up, of course: when you multiply 1.6 million households by €248 you come up with €397 million.  Irish Water needs €720 million a year in operation costs and €500 million a year to refurbish the system. (Another €500 million plus has been loaned by the Pension Reserve Fund to install the meters.)

Since so much water thunders down from the skies onto my roof every other day and then courses through the gutters back into the ground (and fills my garden water butt in about three minutes) I’m looking into ways to not just to conserve water but to bypass Irish Water.

I’ve come across a company called Waterways Environmental in Balbriggan (waterwaysenvironmental.com) that will harvest your rainwater by installing an underground tank in your garden (or attach it to your house), then pump it back in for non-drinking uses like washing machines and toilets.  It claims to reduce mains dependences by 50%.

For a higher price – and full domestic packages for a typical three-bed semi-d, the water will cost under €1,500 I was told – they’ll install filters so that you can also drink and shower with the harvested rainwater.  This represents about 3-4 years of the more likely Irish Water annual charge.

As this latest state ‘service’ fiasco gains ground, I expect we’ll see all sorts of helpful new, private sector water service companies spring up. And if they don’t deliver what they claim… they’ll go out of business.  

Meanwhile, just in case there’s any confusion outside the Cabinet, Irish Water is a monopoly… with a great future ahead of it.

WHAT ANOTHER FINE MESS

It is a lending requirement that if you have a mortgage, you must have a mortgage protection policy so that in the event of your untimely death, the bank gets its money.

If you stop paying your mortgage, as a terminally ill woman, an AIB customer discovered recently, and you also stopped paying the separate mortgage protection policy, the bank will come after your heirs to pay off the mortgage balance.

That particularly sad case, which involved insurance premium arrears of just €260, which is probably about a year’s worth of premiums, was highlighted by an MEP candidate, FG senator Deirdre Clune.

After the intervention of the Irish Mortgage Holders Organisation, a charity, which is contracted by AIB to process their tough mortgage arrears cases, “an arrangement” have been agreed and the mortgage is expected to be cleared.

Every debt and insolvency manager has clients who have stopped paying this insurance. Every one of their dependents is vulnerable to a substantial mortgage debt if the policyholder dies uninsured. 

The IMHO can’t fire fight every sad case, nor should they. Why would anyone (let alone an indebted mortgage holder) bother to pay this insurance if the banks took the hit every time a family man or woman died?

The word needs to get out that whatever about being able to pay your mortgage, you need to keep paying the mortgage protection insurance otherwise this terrible debt will be paid from the forced sale of the property or from another life insurance benefit (if you have one).

What another fine (property) mess. What a way to run an historic debt crisis.

PUNTING ON 'CHEAP' BANK SHARES IS NEVER A SURE THING

PD writes from Cork: Could you please advise if buying AIB or BOI shares is a good idea at this time?

The best time to buy shares – or any asset – is when they are cheap recommend astute investment advisers.  AIB and Bank or Ireland certainly fall into that category if you are comparing their current prices of c13 cent and c28 cent respectively to their peaks of c€23 and c€18 back in 2007. 

However, these penny shares represent banks that are still loaded with bad debts and mortgages assets of dubious value. They continue to report annual losses in the hundreds of millions of euro. Let us not forget that they operate in one of the most indebted countries in the world. State-owned AIB, and BOI are both still a long way from lending at anything resembling normal levels (which is how banks make profits) or from paying decent dividends to shareholders. The ordinary retail shareholders who were wiped out between 2007-2010 can probably never realistically expect to recover their losses.

Meanwhile, Wilbur Ross, one of the prominent American vulture capitalists who invested in Bank of Ireland has already sold off a part of his holdings: the nature of these corporate bottom feeders is such that we probably shouldn’t expect them to stick around for the long term.

The same investment advisers that remind clients to buy really good quality shares at low prices, inevitably suggest that you also spread your money and investment risk in a large collection of good priced assets. Aside from equities, these also include properly weighted bonds, cash, property, commodities, etc and that they include wide geographical areas.  Picking a single stock or two out of the tens of thousands on public markets, they would suggest, is just another form of gambling.  Even Warren Buffett, one of the world’s greatest stock pickers warns that ordinary folk who don’t have his expertise (or capacity to absorb stock market losses) should stick with diversified, low-cost indexed funds.

Finally, and this is probably the best advice of all, never gamble with money you can’t afford to lose. (Just ask Sean Quinn.)

REST ASSURED, PENSION SAVINGS ARE NOT MEANS TESTED

MP writes from Co Carlow: My husband is reaching old age pension age. He will be getting a Contributory Old Age Pension. I do not work outside the home, and am 55. I will be means tested as his dependant. The only savings I have of my own are a PRSA with a current surrender value of €11,000 and another pension policy worth €31,000. Neither of these can be cashed until 2019-2020. How can the Department of Social Protection count these as capitol for means testing as I have no access to them until 2019-2020.It would seem that no woman who does not work outside the home should bother having pension funds in her own right.

 Your pension funds are safe from means testing. All spouses, civil partners or cohabitants of recipients of contributory state pensions, who apply for the qualified dependent’s allowance will be means tested, for both income and capital assets, like savings, investments and property (though not the family home.)   However, the value of a pension fund, states the Department of Social Protection, “is only accessible for means when a person has access to the pension fund. The rules of a pension scheme will determine what and when benefits are payable from the scheme.” 

From what you’ve written, your pension income becomes available in five years time, after you turn 60. Then, says the DSP, your “pension payments will be treated as income for means purposes. The value of any cash otherwise available from a pension fund will be assessed on the basis of the capital valuation of that fund.”  Until then, presuming you continue to own no other assets and don’t earn more than €100 a week, which is disregarded, you will qualify for the full dependent’s allowance of €153.50 a week.

€50,000 WEDDING GIFTS TO CHILDREN ARE TAX-FREE WITHIN LIFETIME THRESHOLDS

MH writes from Dublin: My husband and I have given each of our three children €3,000 this year. My son was married last July. Is it possible to give him another €50,000 tsx-free within one year of his marriage? 

The €3,000 gift is tax-free and can be given to your son (or anyone else you wish) every year and it doesn’t have to be reported to the Revenue by either party. This is a very tax efficient way to distribute funds to your loved ones during your lifetime.

You can certainly give your son another €50,000 as it is well within the current, €225,000 lifetime tax free threshold between parents and children and the €3,000 gift will have no impact on the threshold. The fact that the gift would be given during his first year of marriage is irrelevant, but his lifetime tax-free threshold will now to reduced to €175k. In the event that either of you leave him an inheritance in your wills, he will have to pay capital acquisition tax or CAT, currently 33%, over that aggregate total of €225,000. A good tax adviser or your family solicitor can take you through all the details.

Ends

OUR RETAIL BUSINESSES NEED A SERIOUS SALES BUMP

The Bump.

Not the bump in the road.  Not the baby bump. Not a bump on one’s head, but rather a retail concept where the seller gets their customer to go that extra euro to buy another item or extend or upgrade the service they purchased.  It’s the selling device that made low cost Ryanair’s turnover soar. Grocery stores too are the grand masters of bumping.

You’d think getting a bump and grind working in Ireland would be a priority for Irish retailers too, what with spending still just a fraction of what it was before the 2008 crash.  Yes, there’s been a modest rise in spending in the last six months, but that’s more a testament to the fact that the great Irish economic downturn is now nearly seven years old and that in that time stuff that was getting old, broken, out of date and no long fit for purpose (like a lot of computer gear). This stuff needed replacing.

There are also new jobs being created – about 40,000 in the past year - and these new employees and newly re-employed people are beginning to make up for lost time.

So where’s the bump?  Where’s the spike in microwaves to go with the new dishwashers?  The new carpet to go with the new sofa (that was so saggy it wasn’t worth respringing?)  The metallic finish for the new car (that replaced the 12 year old one.)

Our 21st century Irish economic model doesn’t only just need steady consumption, ideally funded with debt (say the sage economists and politicians) but it also needs that extra bumping to ensure that we not only have our needs fulfilled, but also our ‘wants’.

So it might help if retail and services industries focussed on who has money and is more likely to be tempted to spend even more of it if they were targetted better.

In a perverse sort of way – since I don’t buy into consumerism quite as enthusiastically as a lot of other people – I don’t see much evidence of Ireland’s biggest cohort of debt-free, asset and cash rich consumers, the 50 and 60 something’s and older pensioners figuring very large in the campaign to get the country spending again.

Not only are they not being bumped…they’re practically ignored if you exclude SpecSaver ads and the Over50s Shows.

Just for the record, according to the CSO, there are nearly 100,000 more people aged 55 - 75 in 2013 than there were in 2008:  806,300 versus 707,900 with 404,500 being women (in ’13). Meanwhile, nearly 90,000 mainly younger people emigrated in 2013. Nearly 35,000 of those were in the 15-24 age group.

The fall in the younger population is striking, yet there has never been any shortage of goods and services being designed, promoted and advertised at this debt-free cohort. If anything, the marketing world is black with account executives who reflect the age and interest of their favourite, target audience; they not only anticipate their every desire, they also convince them that those desires are eminently affordable, whether in a high street boutique, a big department store chain or on-line.

Maybe I’ve missed something but it doesn’t seem to me that anywhere near the same effort has been made to snatch a bigger share of the rapidly growing ‘grey’ euro – the Baby Boomer generation that has access to a vastly more powerful spending pool that the heavily indebted Generation X or the Millennials. It is the Boomers, not the Millennials who own much of the €100 billion in savings accounts and €80 billion in pension funds.

Baby Boomers are the most entitled and demanding generation ever. They downsize by choice and purchase less, but they can afford to spend more. Age often brings discernment, though I’m still waiting I’m still waiting to see a major Irish fashion campaign on capsule wardrobes for my age group – ideally in silk, linen and cashmere.

A lot more could be done to get purse strings loosened starting with the government committing itself to reducing high personal income taxes, wealth levies like the €2 billion pension levy and the annual health insurance levy which is nothing more than a subsidy for their own unregulated, undercapitalised health insurer, the VHI.  (Note to government:  this is also the secret to getting the rest of the population spending more and to more job creation, too.)

The biggest disincentive to older people spending their income and savings - the latter is down to about 8% per capital of disposable income after being nearly twice that a few bleak years ago - is the high cost of government services like energy, health, education, transportation and local government and the fear of high long term care costs.

With every earned extra euro over €32,800 now being taxed at 52% (and 55% for self-employed earnings over €100,000) any reluctance by working Boomers to spend is an understandable reaction to the financial mugging they’re getting at the hands of government and the realisation that retiring is going to be more aspirational than attainable if it doesn’t stop.

Yet the spending doldrums among older and mostly financially unencumbered consumers isn’t entirely the fault of government or the youth-obsessed advertising and marketing agencies. 

Irish retailers continue to languish far behind in the good service stakes. They spend ludicrously few hours and even less money actually training staff how to sell and especially how to bump up turnover.

I recently heard a cranky young shop assistant, sorting clothes near a changing room say to a colleague about a manager who must had admonished her for her long face: “Can you believe it?  She thinks they pay me enough to smile?”

Maybe retailers in particular (but let’s throw in maitre d’s and bar staff too) believe that only the young and beautiful buy clothes, makeup, electronic goods, food and alcohol. They too often treat older shoppers as if they’re invisible, completely ignorant of the fact that their bank balance and cash flow may very well be healthier than anyone else shopping that day.

Boomers have always been spenders (and borrowers). They came to adulthood just as the greatest credit boom in history began in the 1970s and 80s. I know, because I am one of them.

So just as the Christmas sales were ending, I went shopping in a well-know city centre department store. I hate the sales, and I’m not a regular shopper at this over-priced store, but I wanted to buy a wedding gift, (always luxurious bed linen) and I was keen to get a new pair of leather boots and to replace my favourite colour lipstick in my favourite French brand.  I was also meeting a friend for lunch.

I was in a rare mood to spend some serious money.

I was ignored by the skinny black-draped girl with the bored eyes in the linen department.  When she did glance over, she saw me not just holding a package of pricey sheets but feeling and admiring a beautiful woollen bed throw.  She resumed ignoring me. I only bought the sheets.

Downstairs in the shoe department, the boots I bought matched all sorts of bags, but just like in the linen department there wasn’t a hint of bump:  “This bag/throw would be perfect with those boots/sheets, don’t you think?” 

I even gave the girl at the makeup counter a chance to match the lipstick (at a whopping €28) with the nail polish. 

She didn’t. So I didn’t either.

Maybe things really aren’t as bad in the high streets as all those empty shop fronts suggest.  Maybe Irish retailers really don’t think it’s worth spending big money on ad campaigns that don’t focus on 20 year olds and are happy advertising new fascia boards or hearing aids or mid-week hotel breaks for two.

But that’s not the trend in other places where the unencumbered grey dollar, pound and yen is being fiercely targeted by everyone from luxury goods manufacturers to neighbourhood cafes and gyms.

No wonder the Boomers like spending their money abroad. It’s all about the bump effect.

DENTAL COSTS - YOUR TEETH IS NOT A STATE PRIORITY

The White Paper on Universal Health Insurance (UHI) may have been completely devoid of any costings for this great reform, but it was specific about one thing – that there is to be no dental care included in the minimum UHI package from 2019. 

If you want a set of healthy, sparkling teeth you will have to pay for them yourself.

Since medical card holders and people on very low income are earmarked to be given their UHI plan free or subsidised, there is an assumption that certain dental treatment or cover for the latter will continue. The question mark is whether all preschool and primary school children given referrals from child and school health services will continue to receive the same level of dental treatment from HSE clinics and whether the sole, free annual check-up for PRSI contributors will also continue.

I have just one offspring, who has been blessed with good teeth, something neither his father nor I experienced. Luckily he has been exposed to a good diet, fluoridated water and toothpaste and received sealant treatment as a young child. His dental bills have been very low compared to other children we know and those bills for broken, chipped, crooked, rotten and impacted teeth have amounted to thousands of euro a year for many of their parents.  (Now they all want their teeth whitened every year.)

With my son approaching his 21st birthday, after which he will be classified as an adult, I’m reviewing the cost of his healthcare (which includes private cover - PHI) and how to get best value.

First, a healthy young adult does not need advanced health insurance. Nor do they need the most expensive dental insurance, though it is a fraction of PHI.  There are various dental payment options however, starting with private health insurance plan benefits.

All PHI covers some emergency medical/dental events where teeth are damaged, but the amount paid will depend on your policy. 

Policies that include or offer separate day to day cash benefits for out-patient costs will also pay something towards routine dental benefits like an annual check-up and teeth cleaning.  However this might only amount to €20-€35 towards the annual bill.  Higher cost plans like the one I have - Laya’s HealthCareTotal Health Select - covers 50%-75% of routine care costs up to €500 a year and accidental treatment benefits up to €500, but it is an expensive policy.

Another option is to take out separate dental insurance. 

DeCare Dental Insurance, (www.decaredental.ie) is an American insurer and has operated here for 10 years. It has four child and four adult plans that cost between €74.64 and €125.52 a year and between €108.60 and €219.12 respectively. All premiums cover a minimum of two annual dental exams, x-rays, two dental cleanings and one emergency treatment.

The second level plan for children (at €96.48 p.a), cover 70% of fillings, extractions and gum disease treatments (and sealants/separators/stainless steel crown) up to €1,000 a year after a 3 month waiting period. (The first plan maximum annual payment is €500 for adults and children.)

Adults get 70% of the cost of these common treatments on the top three plans (after three months) up to €1,000 per year but orthodontic care is only available on the top plan for both adults and children. Maximum benefits rise from €1,000 to €1,500 to €2,000 depending on the treatment; a two year waiting period must be served.

Finally, you should also check out dental cash benefits from HSF, the cash plan company (www.hsf.ie) . Depending on the plan – which can range in price from just over €100 a year to over €1,050 a year for the entire family, total annual dental bills that can be claimed also range from about €80 a year to as much as €800 a year shared between the family members.

Working out what is the best option can be complicated and time consuming. Use a good specialist health insurance broker to help you find the right combination for you. Young families tend to spend far more on non-hospital costs (like GPs, dental) than older people with chronic illnesses who may need hospital treatment; a combination of a good health cash plan and dental insurance may be more affordable for them than full health insurance.

If you can’t afford any insurance – and 250,000 have dropped their private cover in the last five years - at least make sure you keep all your receipts and claim back standard 20% tax relief on Med 1 and 2 forms from the Revenue.

You can claim up to four years worth of back medical and dental expenses. (See http://www.revenue.ie/en/tax/it/leaflets/it6.html for an explanation on how to make this annual claim.)

WHY GP'S ARE MAD AS HELL AND WON'T TAKE IT ANYMORE

If you were on the verge of a heart attack or just needed a prescription filled last Wednesday night, the Double Tree Hilton in Dublin (aka the Burlington) was the best place to be.

Nearly 500 Dublin GPs were gathered to make their feelings known about the draft GP contract that junior minister Alex White claims will be amended and introduced this summer and will introduce free GP care to all children under age six.

Either the minister has found hundreds of millions of euro to solve all the problems related to their primary care service, or he just hasn’t been listening to why they insist the system he is proposing is unfair, unworkable and even immoral.  (Healthy children will take resources from the sick and chronically ill.)

First, some background. 

The NAGP have been holding their town hall-style meetings all around the country since the start of the year…to packed houses. TDs and local representatives are finally paying attention to their complaints about the existing system.  They’ve even found support from the establishment, College of General Practitioners and Irish Medical Organisation (IMO).

Every meeting has set out the fundamental issues that make the idea of extended “free” GP visits to the under-sixes – which the HSE insist will only cost the taxpayer another €37 million – so untenable.  Until these issues are addressed, they say that the introduction of universal health insurance (under which GP care will be a minimum benefit is also impossible:

-       Primary care services have seen cuts of €160 million in the last four years – up to 38% of the original budget - despite becoming a ‘priority’ for the health system. Another €70 million in cuts is earmarked for GP services.

-       Up to100 GP practices are reportedly insolvent as a result in these cuts, including one of the biggest primary care clinics in Dublin, that were set up by GPs prior to the start of the cuts.

-       GPs see 95% of all consultations/referrals as front-line practitioners, but get just 3% of the HSE budget. (This compares to 8% in the UK, where ‘free’ GP care is universal but even that percentage is considered inadequate, according to the UK College of General Practice.)

-       There are 24 million GP consultations in Ireland every year.

-       The percentage of GPs in practice here is 50% of the international norm. (The number of consultants is 40% of the norm.)  Places in the College of General Practitioners are now failing to be filled and young qualified GPs are emigrating in large numbers.

-       It takes over 10 years of study to become a General Practitioner.

-       When the GMS/medical card contract was first set up 40 years ago it was designed for acute care only; 23% of the population had cards. Today, 44% of the population have full or GP only medical cards, including over-70s with individual gross income of up to €500 per week (€26,000 per annum) or €900 per week per pensioner couple. (€46,800 per annum.)

-       The OECD recently ranked Ireland’s health service as one of the most inefficient in the world.

-       The HSE employs 110,000 people, greater than the population of the city of Galway. Over 2,000 of them are employed in the HR department.

-       The GPs challenge a HSE report that 1,000 GPs have received €250,000 per annum in GMS payments. They claim that a GP practice with an average panel of 880 patients receive €59,000 gross per annum after practice expenses such as rent/mortgages, hiring receptionists, practice nurses, locums and equipment, utilities and insurance.

-       41% of GPs have been unable to replace equipment, 56% were unable to afford locum cover.

-       New equipment grants stopped nearly 15 years ago.

-       The proposed average GMS payment per under six will be worth c€75 per annum, regardless of the number of visits. Treatment is expected to include annual health checks per child which include taking blood pressure and noting weight and height changes, which they describe as “entirely unnecessary” for all under sixes. Unhealthy children already receive this monitoring.

DOGGED PUSH

The high headline cost of GP visits, especially in the main cities for non-medical card holders is driving much of the Ministers’ doggedness in pushing ahead with this new GP contract and free cover for the under-sixes. 

Middle income families have been hit hard by all the additional taxes, levies and obvious and hidden price increases since the economic crash and in which the state has played such a direct and indirect part in driving up: I refer to health care and insurance, energy, transport, education, banking and legal services. 

These angry GP patients will be voting again soon in local, European and general elections and they are mad as hell.

The dysfunctional, wasteful HSE and Department of Health and their political masters need as many scapegoats as they can get and GPs and their private fees (and the private health insurance companies) are chained to the stake, just waiting to be devoured.

The problem for the GPs, is that they are caught in a deeply dysfunctional system that was not their doing, but in which they are now trapped.

In our two tier health delivery system they are both employee and self-employed.

They are the recipients of a medical education in Ireland at a relatively low financial cost (to them), yet are not required to repay the state for that cost with a compulsory term contract. Once in practice, they collectively receive over €400 million in fees but as that pool of fees falls are still required to run their own practices as private businesses and for profit.

Meanwhile, though they object to cutbacks in previous contract terms they still want (and still receive) a private pension from our bankrupt State for their GMS service.

The angry, disillusioned GPs who have been attending the NAGP town hall meetings – as well as the politicians – have run out road. 

Either they agree to a mutually agreeable and affordable new contract soon or they don’t.  A contract of some sort looks like it will be introduced, with or without the GP’s consent.

They can opt in and tighten their binds to the state, or opt out and treat all their patients as private customers.

But if they opt out they’ll need to adjust their own earnings and lifestyle expectations drastically since this time, the real market of ordinary Irish people, and not the overpaid, out of touch political bureaucracy will dictate what they can afford to pay for their services.

Meanwhile, the younger GPs can always emigrate. Some older, solvent ones can retire to those golf courses where so many people seem to think they idle away every other afternoon.

But if they can’t and join the ranks of the unemployed, they can always ask Joan Burton if she can find them a re-training course …or maybe a JobsBridge place.