Jill Kerby

The Sunday Times 

MoneyQs – May 31

By Jill Kerby 

KS writes from Dublin: I had a Quinn Life SSIA and when this finished I continued to put money into a new product to keep up the saving habit. I took some money out and at present have around €15,000 in the fund. My question is, how safe is my money? Is it protected by the banking scheme?

There is no equivalent to the bank deposit guarantee scheme for life insurance companies regulated by the Irish Financial Services Authority. Only two life insurers that operate here, Standard Life and Caledonian Life, would pay out compensation to their investment or protection policy holders if their companies became insolvent. This is because they operate here under the regulation of the UK Financial Services Authority (FSA) and participate in the UK Financial Services Compensation Scheme.  The scheme provides consumers of UK regulated life policies 100% of the first €2,000 and 90% of the remainder of the claim.  As for whether Quinn Life – which is licensed and regulated by the Financial Regulator is ‘safe’, the company replied last September to the same question from a customer who then posted the reply on the popular financial website, askaboutmoney.com on October 2, 2008. The company stated: “QUINN-life must adhere to certain rules on solvency as defined by EU Life Directive's and Irish legislation. The company must report statistical and financial information to the Regulator on a quarterly basis and is subject to random supervisory visits by the Regulator… Quinn Life has a very simple balance sheet in that the company is carrying no debt, no derivative type assets and the company has no guaranteed type products that depend on derivative transactions with other companies. In addition, Quinn Life is a ring fenced regulated company, meaning that the company's assets or retained profits cannot be drawn down or transferred to any other Quinn Group company without prior Regulator approval.”  However just three weeks later it was revealed that the owner of Quinn Life, Sean Quinn, was personally fined €200,000 and Quinn Insurance, the non-life company within his group was fined €3.5 million for not informing the Regulator of a loan of €288 million from Quinn Insurance to the Quinn Group that was used by the Quinn family to cover falling stock market investments and finance share-buying in Anglo Irish Bank. Mr Quinn accepted full responsibility for the breach of the regulation.   

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NO’C writes from Wicklow: Seven years ago I paid off the mortgage on my house that I had with Bank of Ireland. They sent me a statement showing a €0 balance which was accompanied by a congratulatory card! However, the bank has held on to the house deeds and as I would now like to have them in my possession, I wonder what steps I need to take and will there be a charge? Incidentally I am one of their "highly valued" Golden Years account holders and a pensioner.

You shouldn’t have any difficulty getting your deed back from your lender, I am told, hopefully without any cost though this could depend on the institution.  It is your property after all.  But you do want to keep it safe and that’s where you might hit a snag:  the Irish banks no longer offer safe deposit facilities, but your solicitor may.  (My solicitor has our house deed, for example.)  There may be a small annual fee to pay.  Home safes are becoming more popular; check out a good hardware, locksmith or security company for an appropriate model.  I know someone who had a below floor one installed in their house where they keep all their deeds, financial policies, passports and birth certificates and a few pieces of valuable jewellery.  After a spate of break-ins in his neighbourhood in which only car keys were being stolen from the hall table he now drops the keys to his Merc in the safe every night as well. 

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MD writes from Dublin:  I heard you speak last year at the Over 50s Show and came away relieved that my finances were okay. Recently, several of my savings certificates, building society fixed term accounts, etc have matured and I am at a loss about how to proceed. I am 75 years old, own my own house and while my savings is not a fortune – about €100,000 and a few more saving certs to mature in the next couple of years - I want to secure what I have.  I would like to be able to help my family afford a few luxuries like holidays and help with the cost of the education of my two grandchildren as well. 

Your desire to help your family is laudable, but I hope you are doing so only after you secure your own finances for both the short and long term, say in the event that you need either in-home or institutional care.  With interest rates so low, market volatility and falling house prices you need to err on the side of caution.  and there being so much volatility in both the banking and investment markets you need to be extra cautious; I expect your family will appreciate this too. I suggest that you speak to a good, fee based advisor to help you both secure your cash fund and generate a safe annual return which you can use both to boost you regular income and help your family.  A capital guaranteed bond, perhaps inflation linked, might be worth considering in addition to a selection of safe deposit accounts. Perhaps your family can help you find such a trusted advisor with the help of the Financial Regulator (Locall 1890 777777) who keeps a register of those that they regulate. 

Now that the effect of the health and income levies on our paycheques has finally sunk in, anyone who owns a pension or life insurance or assurance policy – the kind you contribute to for your children’s long term education costs – might like to know that they’re about to mugged on this front too. 

Tucked into the Minister’s budget speech last April was an additional levy – just 1% - on all life insurance and pension contract premium contributions.  (He also increased the existing general insurance levy from 2% to 3%.)

The implementation of the new life levy has been delayed until August 1st, but if it isn’t withdrawn or amended, I think it’s fair to say that the insurance and pension companies won’t absorb it themselves; they’ll pass it on to you and me. 

In other words, for every, €100 a month that you pay into a life assurance savings plan, or for every €500 a month you might be putting into a private pension, PRSA or AVC, the government will now expect to receive €12 and €60 respectively from your contribution. Every year. And that’s before all the other policy fees and charges. 

But this new levy is not a once-off event. It applies to all premiums and a very unlucky pension holder, could end up not just paying the levy on substantial premiums over the course of a year, but in they event they needed to transfer their pension to a new employer, to a buy-out bond or PRSA or use it to buy a retirement annuity or ARF (an approved retirement fund), the entire single premium value of the fund would be subject to the levy:  a €250,000 fund would now be €2,500 lighter; a million euro pension fund would be relieved of €10,000. 

The Irish Insurance Federation has pointed out how unfair this is, as is the fact that it does not apply – for some unknown reason - to self administered pensions used by high net worth investors or larger occupational schemes.  It also violates the fixed limits on charges that apply to PRSAs.

If the government insists on the levy, the least it should do, says the insurers, is to impose the 1% on all investment funds under management instead of individual premium payments. One pension company executive told me the levy on individual customer’s premiums will cost the firm €1.5 million to adapt their existing software package – a cost they will be forced to pass on. 

“The Pensions Board, which is already funded to the tune of 0.5% of pension premiums from all providers,” he said, “could simply add 1% to their bill which the Board would then pass onto the Exchequer. The life companies could simply send 1% of all life insurance premiums they take in and investment funds under management.” 

Bad tax policies that are formulated under pressure, and on the back of an envelope, are a speciality of this government.  

But this levy is just another nail in the coffin of private pensions, already hammered by high costs and charges, poor asset selection, the clawing back of tax incentives and our propensity to live longer. 

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The Financial Services Consultative Consumer Panel, in its report ‘Perspective of the Consumer Panel on the Current Financial Regulatory Framework 2009’  has now added its two cent worth of criticism to all the other well-deserved abuse that’s been heaped upon of the Financial Regulator over the past year. 

It blames the Regulator’s “failure to act” for the worst of the financial downturn here, and especially its failure to control the property market bubble, the high-risk lending game that the banks were playing and the poor general standard of governance in the banking sector. 

The Consumer Panel has no authority or power so its conclusions and recommendations which in places read like an indignant charge sheet laid against an unpopular school principal by a student council, has probably already been filed away on some high shelf on Dame Street.  

However, in spite of the wooly thinking, if we are ever to seen an improvement in the dysfunctional Regulator and Central Bank, some of the Panel’s more fundamental suggestions should be adopted. 

For example, they think if would be a good idea to widen the talent pool and no longer require that all senior staff in the Financial Regulator be recruited exclusively within the public service.  This might help to “limit political meddling” and help recruit staff who have a “proven track record of independent judgement”.  Under the existing system, the Panel points out helpfully, “The Minister for Finance may have previously been their boss and this could give rise to a conflict of interest.”

The Panel also wants a more transparent and independent selection process for appointments to the Regulator’s own board – i.e.  no more overlapping of board members between the Regulator and the Central Bank. They also think it would be a good idea introduce “independent inspection” of the Regulator in the event of a charge of “wrong doing”. Amending the legislation that “prohibits the disclosure of confidential information concerning ‘any matter arising in connection with the performance of the functions of the [Central] Bank or the exercise of its powers’” would also be a good idea in its view. 

That these things don’t happen already will be an eye-opener for anyone who may have naively assumed that such good governance would be automatic. If you fancy yet reading yet another denunciation of poor practices in a state agency the report is on-line at www.financialregulator.ie 

YOUR INSURANCE NEEDS INFLATION-PROOFING

There’s a lot of talk about the falling cost of living here – we’re in a deflationary environment with the cost of many ‘consumerables’, like food, housing, clothing and footwear, cars and electronic goods all tumbling in price. 

Not so for some bigger ticket – and very essential purchases -  like motor, home and health insurance.  A couple of months ago I wrote about ways to save on health insurance, which after the 23% increase by the VHI last January (the biggest provider with nearly c1.5 million members) has become a luxury that many individuals and families simply can’t afford anymore. 

That said, there are ways to mitigate this cost and still have some cover:  

You can drop down to a cheaper plan.

You can transfer to a better value provider – just be aware of the switching restrictions if you have an existing medical condition. There’s no problem if you are switching to the same level or a lower level plan, but you will have a waiting period (to cover your medical condition only) if you want to switch to a better plan. 

You can drop the expensive health insurance scheme and opt for a cash health plan like HSF (see HSF.eu.com/Ireland/) where a single premium will cover the entire family for a part payment towards your GP, dental and optical expenses, a visit to a physio or chiropracter, a consultant, for day or overnight visits to hospital, a recuperation grant and even a lump sum for having a baby. HSF plans cost just between €2 and €12 per week.

If you’ve had health insurance for many years and have never reviewed your policy, you should certainly do so this year. Do it yourself (with some difficulty, albeit) by going onto the Health Insurance Authority website (www.hia.ie) and use their comparison tables, or use the services of a broker you know who will charge you a modest fee rather than take commission for any switch.  (www.healthinsurancesavings.ie) 

Paying for health insurance or a health plan is discretionary:  motor and home insurance is not and the cost of these mandatory contracts is going up this year, in some cases by as much as 20%. 

The insurance companies say that accident claims are up, which does happen during a recession when money is tight and small dents or accidents that you would have paid for yourself now seem worth the effort of the claim. But the insurers are also suffering from their own investment losses and lost market share, and these inevitably get passed onto the customer. 

A very good general insurance broker told me last week that there are plenty of things you can do to lower the cost of motor and home insurance, but he also warned that going for the lowest cost premium (usually available from on-line or even ‘direct’ providers of the well-known insurers) can be a false economy. “They won’t necessarily remind you of the pitfalls – like underinsuring your contents,” he says, only for you to discover that the insurer will only pay out a proportion of the underinsured amount. “They might not remind you either of the importance of having a ‘no claim bonus safeguard’ clause for your car, or a ‘driving other car’ extension.”

So what can you do to actually reduce the cost of Motor/Home insurance?

Shop around!  Too many of us, especially for more complicated home insurance contracts, simply renew the cover each year without taking the time to go through the lengthy booklet or to compare prices with other providers. Check out the Regulator’s home insurance website survey at www.itsyourmoney.ie.  Call a good broker or do these calls yourself. 

Motor insurance costs are partly based on your age, location and driving record, but the age, model and make of the car is just as important.  Do you really need comprehensive insurance for a six or seven year old car? Its age alone should bring down the realistic cover you need …and the cost. 

Consider accepting a larger excess. The larger amount you agree to pay in the event of a claim, the lower the premium.  This might be a good incentive to drive more carefully, or be more safety conscious in your home.

Get good mortice and window locks installed. Use the home alarm – always.  Get it monitored by the alarm station.  Join the neighbourhood watch.  All these features will reduce the cost of your home insurance by 5% savings increments.  (You might even ask if your pet Doberman or shepherd is worth a 5% discount, but I was once told this only happens if the dog has public liability insurance of his own. No savings there then.)

Finally, the cost of rebuilding a damaged property has fallen significantly, says the Society of Chartered Surveyors (www.scs.ie). If you haven’t had your re-building costs reviewed in the last year, you are probably paying far more for your house insurance than you should be. 

CO’C writes from Dublin: We bought our current residence three years ago, and have a variable rate mortgage.  It is our understanding that since the recent budget changes, we will only be able to claim tax relief at source for the next four years. As a consequence, we would like to increase our monthly mortgage payments either by submitting extra money every month or by renegotiating a shorter mortgage term. Our question is: if we increase our payments, can we claim tax relief on the new larger monthly mortgage payments, or will the tax relief only apply to the current amount that we pay?

The amount of interest you pay on a variable rate mortgage in the early years of the loan is proportionately much higher than the principal or capital you pay off:  for example, if your loan was for €100,000 over 30 years and the interest rate (for argument sake) was 5%, your repayment would be about €536 a month of which €416 would be interest and €120 capital, and the capital would increase by tiny increments with each payment.  By the final years of the term, the bulk of the payment would be capital and only a small amount, interest. “I don’t think your reader entirely understands the value of accelerating the payments,” says financial advisor Liam Ferguson of Ferguson & Co in Dublin. “The whole point of accelerating your mortgage payments is to pay off more capital sooner, and therefore avoid future interest payments on that money. The interest payable, should your reader increase the repayment by say, €100 a month to €636, would still be in the region of €416; the extra payment of €100 is being used directly to pay off capital, not interest.”  Very simply, you will still receive the same tax relief on the original amount of interest you contracted to pay, but overall, you will pay far less interest on your total loan. 

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Mr JW writes from Limerick: I qualified for a partial UK old age pension having worked there for 10 years. Would you know if I could also claim medical expenses and if so where would I apply.

If you are a resident here in Ireland and are in receipt of a UK pension, then you are obliged to pay tax on your UK pension; if it is already taxed, then you can claim a tax credit for that payment against whatever tax you may have to pay here.  As an Irish resident and taxpayer (if there is a tax payment) you would then make any claim for qualifying tax relief for your medical expenses with the Irish Revenue authorities, not the British ones.  The Revenue website, www.revenue.ie explains how to claim your medical expenses (for up to four years of in arrears) using a Form MED 1. 

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JMcC writes from Dublin: I have a small bank account in France with Credit Agricole. I keep a modest few euro in it for emergencies whilst on holidays for car breakdowns etc. Notwithstanding the Government guarantee I was thinking of transferring some of my savings from an Irish bank to Credit Agricole to spread my risk just in case Armageddon comes over the hill. I am wondering if you are aware of how the deposit interest rates in general compare between Ireland and France and more importantly does the French Government provide a guarantee for savings and, if so, does it include savers resident outside France and up to what amount. 

The French deposit guarantee scheme, also known as the ‘cash guarantee’ is worth a maximum of €70,000 and it includes all savings accounts in France or held in deposit accounts held in French owned banks outside France. The guarantee applies whether you are a French resident or not. If you do shift your funds from Ireland to France the money will be subject to the same EU anti-money-laundering rules as apply here: You may have to provide the French bank with some proof that you are the beneficial owner of the funds. 

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EM writes from Foxrock: A friend of mine whose husband died last year went to her local solicitor to make her will. The house in which she lives was in the name of herself and her husband. However the solicitor is urging her to have the house put into her sole name. Is this necessary?

According to solicitor Deborah Kearney of Leman Solicitors in Dublin, “transferring the property into your reader’s sole name very much depends on whether it was held under a joint tenancy or as tenants-in-common.  As they were husband and wife it is likely that it was a joint tenancyand in that case nothing will have to be done to the deed.  If however, it is a tenancy in common your reader will have to extract a grant of probate before she can transfer the property into her sole name. If this is the case the solicitor will charge a fee for his or her services.  It appears to me that your reader’s solicitor is being prudent to ensure the title  is tidy in case of any future dealings with the property.”

The expression ‘zombie bank’ has been doing the rounds in recent months as lending nearly dries up altogether, except for the most credit worthy, income secure, borrowers.  

And even for those people, they could be very unlucky in their choice of lender, as one Dublin couple who wrote to me last week discovered recently. 

This couple, both in secure jobs and able to meet all their mortgage repayments, are now in the clutches of their zombie bank – Permanent TSB – because the value of their mortgage now exceeds the estimated market value of their home.  They have no need or intention to move, they say, but they do need to choose a new mortgage rate option now that the two year fixed rate that they took out two years has matured.  

“At the time [two years ago] money was very tight for us and we were very cautious in relation to our financial commitments.  We looked at every aspect of every loan offer available to us and having done this we decided that we would use Permanent tsb because what they offered – 4.99% for two years - suited us and was within our means. Needless to say we have honoured all of our financial obligations.”

Now, however, the bank has presented them with a list of six new rate options that vary from a tracker rate that is 2.5% above the ECB rate and higher than even variable rate loans being offered by other banks, to a seven or 10 year fixed rate of a whopping 6.1%.  Even if they simply replaced their existing two year fixed rate with a new one, they would have to pay 5.25% instead of 4.99%, and this at a time when the underlying ECB rate has never been lower. 

Because their house is caught in the negative equity trap - along with 339,000 other home owners, according to Daft.ie economist Ronan Lyons (see http://ronanlyons.wordpress.com/) - no other lenders (lenders like AIB and Halifax, who are offering the most competitive two or five year fixed rate of 3.10%) will touch them. 

“This [negative equity] is not of our making. Not only can we not sell the house … Permanent TSB can call the shots. We are very hard working, responsible people but we are not happy that our freedom to negotiate the interest rate has been unilaterally removed from us.”

They included the angry letter of complaint they sent to the Financial Regulator in which they demanded that PTSB be forced to offer them a better rate commensurate with those of other banks. Sadly for them, this will not happen.  The PTSB is no position to offer attractive, competitive lending rates; even those banks that are advertising lower rates are doing so partly because of the government bail-out they’ve received and they are still being hugely selective in who gets the money. 

Perhaps the best outcome for this couple would be if PTSB ended up merged with another bank or building society – most likely the EBS – and their toxic loans were quickly taken over by the debt management agency, Nama.  Then, perhaps, more affordable rates and products could emerge.  

With Nama having it’s own problems, they shouldn’t count on moving house…or lender anytime soon. 

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The Hospital Savings Fund, the charitable trust that was set up in the 1870s in the UK to help the working poor secure hospital access by making small weekly payments into the fund, celebrated its 60th anniversary here in Ireland with a lunch at Dublin’s Mansion House, hosted by the Lord Mayor. 

It was as modest an affair as the organization itself, which these days, despite having 100,000 members, is practically unknown among the wider population, despite the fact that one in two Irish people are the holders of comparatively expensive private health insurance. 

The HSF (www.hsf.eu.com/ireland/) pays tax-free cash benefits to members for a wide range of hospital and outpatient treatments and services and only charge a single premium that covers the entire family. 

But as executives who flew in from the UK to attend the Dublin celebration didn’t seem to me to be aware of how serious the unemployment and economic situation here really is, and even admitted that they’ve tended to rely on their strong links to trade unions and word of mouth for a large part of their business. 

They claim that membership is still growing (even after taking into account their takeover of the other health plan operator HSA Ireland last year) but they don’t seem to be factoring in the sharp fall in income and jobs here, or the fact that three health insurers are now fighting for every piece of business and are spending huge amounts of money to keep their brand in the public eye. 

This is a good, affordable product for anyone who is finding it hard to keep up with the ever-rising cost of their private health insurance, but unless more people know about them, HSF will remain a niche player in what is still a disproportionately large health insurance market for such a tiny population. 

KD writes from Co Meath: We hold An Post savings bonds and certificates, a ‘backs against the wall’ safety position which we took last September - justifiably paranoid I think, but probably naive. But is the government guarantee of An Post bonds and certificates any better (or indeed any worse) than its guarantee of savings in banks? Is it time to crawl out of the bunker and avail of the better savings rates in the banks? If the IMF or ECB comes calling next year should we be fearful for our savings? Is it time to swap cash for something tangible that may (or may not) lose value, but won't actually evaporate?

You certainly aren’t alone in asking these questions but it seems to me from the way you’ve posed your questions that you are already working out your own course of action.  As you suggest, our economy is in serious trouble and there is no certainty that the government’s tax and borrow plan for recovery will work. In the end, the delivery of the government’s 100% guarantee of everyone’s savings in the Irish banks hangs on the plan’s success; if you are worried, you should not leave all your funds in a single Irish institution. Instead, spread your money around, even on the basis that some are better capitalised and carrying less debt than others. An Post and its sister bank, Postbank for example, have no Irish exposure to any lending, whereas the main Irish banks keep updating the size of their debts.  Of the foreign banks operating here, the markets believe that Dutch bank, Rabodirect, and the UK deposit-takers Leeds and Nationwide are considered to be the most solvent. The deposit guarantee in the case of Rabodirect is €100,000 and €54,175 for UK institutions.  Finally, whatever about the prospects of losing our economic sovereignty to IMF or ECB bean-counters, my personal view is that inflation of the money supply – which could cause a rise in retail prices - is probably a greater medium term risk to the value of your cash holdings.  You could buy some gold or other precious metals as a possible hedge against the devaluation of your cash, though the price of gold, like most assets these days can be volatile.  

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YM writes from Dublin: I am 55 years old and have only belonged by my company DB pension plan for the past six years though I joined the firm in 1992.  I lived for many years in the UK and bought a property there with an endowment mortgage in 1986. I moved back here in 1997, sold the UK property but kept the endowment policy that costs £54.21 (€58.81)a month. It matures in October 2011.  It’s target value was put at £37,000 (€40,137), but I recently received a surrender value quote from AXA, the insurer, for £24,752.99 (€26,852.04), which is £1,000 (1084.80)less than a quotation I got in February.  I would like your opinion on whether I should surrender it now or wait and will I be taxed in Ireland on the encashment value if I put it towards my Irish mortgage (of €40,000 which will be paid off in 2017) or if I use it to support a family member with long term illness? I can afford to continue the endowment payments until the maturity date, but am very worried that the value will drop so much by then, that I will have lost all my savings. 

The £24, 752.99 surrender value is a combination of the basic sum assured – the premiums you will have made over 25 years - and the rolled up returns and locked in annual bonuses that your investment has accumulatedsince 1986.  The higher, €37,000 figure is the projected value, plus final bonuses that may or may not be paid upon maturity, depending on how well financially AXA is in 2011. With just two years to go, you need to decide whether you think this fund will perform well, or badly and how urgent your own need is for this money. I’m told that there isn’t much of a market for nearly matured with-profits policies, but you should still check with the likes of the Endowment Policy Purchasing Company (part of IFG) for a quotation. (See www.ifgteppco.com). Finally, the fact that you would spend your maturity value towards paying off your Irish mortgage or to help support a relative would have no mitigating effect on any tax you may have to pay on the proceeds of your policy.

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PMcLwrites from Cork:  I will be retiring in a few months and it has been recommended that I consider buying an annuity with my pension fund.  I was told that an indexed linked one is better over the long term but aside from my concern about the lower initial amount that I will receive I’m also worried about the indexing element. If inflation keeps falling – it’s already under 2% does that mean that my pension could actually be reduced?

According to Vincent Digby, of the Dublin financial advisors, Impartial, “both Irish Life and New Ireland, two of the biggest pension annuity providers, confirm that escalating annuities that are linked to inflation only reflect positive numbers. Deflation is ignored and in times of deflation there is a floor on the payment, which will not decrease.”  You are quite right to ask questions about buying an indexed pension:  the cost will be higher initially than a conventional flat rate annuity and it can take many years before you achieve the non-indexed pension value.  But on the plus side, the longer you live in retirement the higher your annual income.

The country’s defined benefit (DB) pensions crisis hasn’t gone away you know – it just seems that way. 

The shocking revelations that many Waterford Glass workers and those at SR Technics would end up without their full pension entitlements after a lifetime’s work, brought home the grim truth that workers in companies with defined benefit pensions – 90% or more of which are currently underfunded - could lose not just their jobs if their firms went bust…but their retirement income as well. 

Under considerable pressure from the employers, trade unions and pension fund managers the Pensions Insolvency Payment Scheme (PIPS) was quickly passed as part of the amended Social Welfare and Pensions Bill 2009 at the end of April.  (The funding standard had already been eased.) 

The Irish Association of Pension Funds in particular have been calling for a fairer distribution of pension fund assets when a company is wound up for some time.  Before this existing pensioners and their benefits were ring-fenced and any money left over once they were paid was only then distributed to active and former workers.  Now, existing pensioners may have to forego indexed increases, for example, in order for workers behind them to receive a greater share of the pension pot in the event of a winding up due to insolvency.

Meanwhile, the pension trustees can now also tap into the resources of the National Treasury Management Agency to purchase lower cost pension annuities for retiring workers.  

These issues and many others to do with low pension coverage here and even whether it would make sense to just beef up the old age pension, were to be addressed in the long overdue Pensions White Paper. 

Now the Department of Social and Family Affairs says there is no date set for its publication– the consultative green paper process has taken nearly three years already – and industry sources say the delay is to accommodate the report of the Commission on Taxation which is not expected before July. 

Too much attention, says pension specialists has already been focused on the €3 billion worth of tax relief given for private pension contributions, which they say is more widely distributed than it’s detractors claim and if reduced would simply result in fewer pension sales. 

However that row is settled – and in this climate of antipathy to anyone earning over the average industrial wage, it doesn’t look good for higher earners – the government might still want to reconsider putting one of its known time-bombs on a back burner while it tries to put the pin back into all the new ones that have been thrown into its lap.  

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Over the past year financial advisors have been scrambling to try and come up with a better solution for their anxious clients than just switching them into cash deposits or funds and out of volatile – and collapsing – equities. Falling interest rates and rising DIRT tax shows just how unsatisfactory such a strategy could be over the longer term. 

It’s no wonder that the better informed advisors are taking a much closer look at various bonds funds – government and corporate – for their clients and not just those approaching retirement. 

Bonds are not a widely held asset by ordinary investors here, who aren’t particularly well-informed about the merits of different assets anyway, though they’ve always made up a small part of the ubiquitous managed fund that people buy to fund their children’s education or for other longer term savings. 

In recent years some better informed trustees and pension fund managers have shifted huge occupational pension schemes exclusively into bond holdings (as they do on the Continent) because of the combination of longevity risk, the sponsor company’s funding obligations and flat or poor stock market performance over the past decade. 

The danger of large cash holdings, say an increasing number of financial advisors, is the price inflation risk that is building as the world’s central banks force up the money supply with near zero interest rates and massive debt financing of the insolvent banking sector. 

As this money spills into the wider market place, our cash holdings will devalue with the falling value of currencies.  Inflation-linked bonds – which offer protection from inflation that might impact negative on both the coupon (your annual interest) and the bond’s capital value could be a better line of defence than ordinary government or corporate bonds, I’ve been told. 

Anyone interested in a defensive investment position (that is if you don’t think the latest stock market rally is going to last) should speak to a good independent financial advisor about the merits of bond holdings.  You can check out a low cost inflation-linked bond fund for Irish investors from iShares here to get an idea of what protection it offers: http://uk.ishares.com/content/stream.jsp?url=/publish/repository/documents/en/downloads/factsheet_global_inflation_linked_bond.pdf

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I’m looking forward to seeing the new theatrical version of The Shawshank Redemption at the Gaiety Theatre – I’m a big fan of the movie.  

Clearly, so are the chancers behind ‘Dufresne & Andy International’, the American boiler room operation that was added to the Financial Regulator’s list of unregulated companies last week after they were found to be cold-calling Irish investors: ‘Andy Dufresne’ is the name of the leading character in the prison drama Shawshank Redemption. 

And if anyone from Ellis Boyd & Redding should subsequently give you a ring, ask them to put Morgan Freeman on for a chat.  The great American actor played Ellis Boyd ‘Red’ Redding, Andy’s closest friend and mentor in the film. 

NEED TO SAVE MONEY?  CALL A TAXI!

All over the country, PAYE worker’s jaws are dropping this month as their weekly or monthly pay packets or bank statements are opened and they discover just how much the income and health levies, the higher PRSI income ceiling (€75,000 instead of €52,000), the hopefully, temporary loss of mortgage interest relief and of course, for public sector workers, the pension levies that were introduced last February that are now taking such a big chunk out of their take home pay. 

If you are now struggling to meet your monthly bills you should be cutting back as much as possible - it’s only going to get worse after the next round of tax increases that might include a property tax, carbon tax, child benefit tax, etc as well as higher income taxes. 

If you are a typical earner your two biggest outlays (after taxation) is housing and food: regarding the former, especially if you are not getting the full benefit of the ECB rate cuts or have had your mortgage interest relief cancelled, you should speak to your lender and try and temporarily extend the term of your loan and/or revert to paying interest-only payments to lower your monthly outlay. 

Meanwhile, food prices are still coming down, but cutting out processed food, junk food, eating in more than eating out (including work lunches) and of course, being diligent about comparison shopping, means that you should be able to cut your food bill by at least 10% to 20% from last year’s levels.  A typical family spends over €10,000 a year on groceries; and such cuts represents a savings of between €1,000 and €2,000.  

HUGE OUTLAY

Another huge outlay in this country is the cost of running a car. Plenty of headlines have been written about the benefits to our pockets, health and the environment if we would simply ditch our cars and start walking, cycling and using public transport again. 

That’s all very well, but cars are very useful things if you don’t have access to decent public and even if you do, cars are very handy for picking up and delivering children and groceries and doing other necessary errands. (It also rains a lot in this country -  my excuse for being a fair weather cyclist and  pedestrian.)

However untenable it may seem at first glance, these are all reason why I think it makes sense to consider substituting someone else’s taxi for your own car in these trying financial times. 

According to the Automobile Association – based on their latest survey from June 2008 (see http://www.aaireland.ie/infodesk/cost_of_motoring.asp) – the annual cost of running a new, middle range family car worth c€24,500 is about €9,500 a year when the insurance, road tax, interest on capital repayments, depreciation, NCT, licence (over 10 years), indoor garage costs, and AA subscription is taken into account. However, this doesn’t include the cost of petrol, which could easily add another €2,000 a year to your bill, depending on your mileage and where you make your purchase. 

That total figure,  €11,500, can work out at €950 a month, €221 a week or €31.57 a day, an expense that wouldn’t necessarily reduce by much even if you do try to substitute unnecessary trips by walking or using a bike.

Instead, you could rent a Ford Focus ‘people carrier’ for five days for as little as €153 right now; multiply that by 52 weeks and it would only cost €7,800 (not including fuel).   But even this is a lot of money especially if you know that your car will lay idle for more than just two days every week. 

So why not consider substituting your local taxi service for your car?  This may not suit parents who are delivering small children to schools and simply can’t get them transported by foot, bus or bike, it still deserves consideration by everyone else who lives within a few kilometres of their work or mainly uses their car for domestic purposes. It would take a great many taxi trips to spend €30 or €35 every day, ie the €7,800 to rent a car, or the €11,500 to run your own. 

Even just the insurance, road tax, NCT and petrol on the AA’s example of a €24,500 family SUV amounts to nearly €3,900 a year, or over a tenner spent on taxis for every day of the year!

Until this country adopts the wonderful, cost efficient car clubs that exist in the UK (about which I have written in this column), your local taxi firm, if there is one in your neighbourhood, village or town would be only too delighted to set up an on-going tax account for you and your family.  It does require the loss of some driving spontaneity, but such a service would undoubtedly come at a generous discount too. 

In a week in which the doctors and nurses unions got together to warn us to expect even worse health care delivery over the next year due to budget cutbacks, it was encouraging to see that that Hibernian Aviva Health has decided to not just finally simplify and improve its product range, but to also lower its prices, however slightly. 

With this move last week, private health insurance brokers and consultants say that Hibernian has laid down the gauntlet to the state owned insurer Vhi. It’s certainly pulling out all the stops with a more transparent range of products, lower prices, and a big advertising and a cross selling campaign that harnesses its huge sales distribution channel. 

Anecdotally, brokers say they are selling more health insurance contracts these days than pensions and savings policies, even with record unemployment numbers.  It should be even easier now that Hibernian acknowledge, like their other rival, Quinn Healthcare, that what the great middle ground of consumers want is a good basic hospital plan or a good composite hospital and outpatient plan in a single wrapper with two competitive price points. (Despite the dozens of combination plans of plans available, over two thirds of the two million private health insurance members own Vhi Plan B or Plan B Options and the two Quinn Essential and Essential Plus plans.

One independent health insurance consultant claimed last week that Vhi, as the largest and most expensive provider, “is coming under so much pressure from Hibernian in particular on the vital corporate side of the market that it has been forced to adjust the cost of its corporate plans.”  Earlier this year it cut the price of child member premiums, a response to cheaper offers from its rivals. 

Nevertheless, the price differential between the Vhi, and Quinn and Hibernian, is growing so large that the Vhi is said to “hemorrhaging members” said the consultant, something that will only be confirmed when the Health Insurance Authority produces it’s next report. 

In the meantime, says fee-based health insurance broker Dermot Goode of www.healthinsurancesavings.ie, families in particular should take note of the latest cost comparisons: two adults and three children will save €455 in the space of a year by switching from Vhi’s Plan B at €2,520 to Hibernian’s new Level 2 Hospital plan at €2,065 and €186 by moving from Quinn’s €2,251 Essential Plus plan. 

It wasn’t long ago that a savings of €455 may not have been enough to shake off a member’s inertia, says Goode, but thanks to the April budget, “that’s the kind of money some families are losing every month to the new income tax and health levies.” 

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Anyone with a property down payment that’s burning a hole in their pocket should take a careful look at the latest Daft.ie National Rent Index survey.   

The 5% fall in rental yields nationally in the first three months of this year and 15.5% in the year to date isn’t just a phenomena of the rental market; it also reflects the general state of the market which in some areas is reckoned to be down 40% since it’s peak in late 2006. 

If this negative price pace continues over the next three quarters, rents, which are now averaging €840 a month, could drop by a further 20% in 2009.  With twice as many rental properties available than there were in 2008 and so many thousands of empty properties not even on the rental market, the buy to let market looks dead in the water.  Negative equity is the risk that the investor or owner-occupier takes if they try to wade in without at least a 20% deposit.

The banks – which were falling over each other to approve all those 100%, interest-only landlord loans – also share that view.  Despite the fact that rents are crashing, they have declined to pass on the substantial ECB rate cuts to buy-to-let clients with variable rate mortgages on the grounds that – wait for it - this would be irresponsible lending at a time when prices are declining. 

The only winners in this collapsed market are residential tenants of course, who, unlike their commercial equivalents are not hamstrung by long, inflexible leases and upward only rent reviews. But they still shouldn’t be tempted to jump into the market just yet.  The Daft report is one of the best indicators of the fundamental weakness of the wider property market and rising unemployment by itself will keep forcing rent and purchase prices lower.  

The time to buy – either for yourself or as an investor – will be when the historic ‘mean’ is reached again; that is, when a mortgage can be arranged that accounts for no more than three or four times the buyer’s annual salary or when the price of the investment property accounts for between 12 and 14 times the annual rental yield.  In other words when someone on €40,000 a year can buy a home for €160,000 and a property that generates the Daft average rent of €840 a month sells for between €120,960 and €141,120.

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An ATM card isn’t much use when it’s in your wallet at the bottom of the Canal du Midi in France or it’s been gobbled up by an ATM machine in Italy on the Friday evening of a bank holiday weekend.  Up to now all you could do was use your mobile phone – if you had one – to cancel the cards and ask for replacements. 

However, if you are one of the 52,000 Permanent TSB customers who loses their card every year (but not their mobile) you can now use your mobile to text yourself access to up to €100 a day of emergency cash for five days from any PTSB machine.  

And even if you lose your phone you can get someone else to text your account for you.   I expect this one will be rolled out by the other banks – and the sooner it includes international ATMs the better. 

SHARES? FUNDS? ETF’S?  WHICH INVESTMENT METHOD SUITS YOU BEST?

Investing in the current climate is either a leap of faith, or a carefully weighed undertaking, depending on how much effort you are prepared to make. 

The investment experts I trust believe that despite the recent global market rally and the huge value some shares now represent, many stock market indices are still overvalued and are likely to fall much further before a genuine bottom is met.  Anyone jumping into this market now could be badly burned.

But they also accept that timing a market is very difficult.  If you have a long enough investing perspective – 10 years and beyond – they say that buying strong, global companies that produce goods and services that we all need even in the depths of a recession, could be a very sensible decision. These companies need to have very low amounts of debt and large cash surpluses companies like like Exxon, Shell, Microsoft, Intel, Walmart and Tesco, Glaxo, Proctor & Gamble, etc.

Since no one knows exactly how the future will unfold and everyone’s risk profile is different, it isn’t just the assets you choose that is important, but also your investment method: 

Direct Investing:  This doesn’t involve share tips from a friend or a popular newspaper column. Instead, it involves careful research of every share, commodity or property you are considering, usually by reading serious business journals and magazines (The FT, Wall Street Journal, MoneyWeek, Barrons, Forbes, The Economist); broker reports, annual company reports and balance sheets for the statistical nitty-gritty, and subscribing to financial newsletters and free or pay to view websites (like The Motley Fool, Yahoo Finance, Agora Financial and its affiliates) for their insight and analysis. Even going onto a ‘investment beginner’ website (see http://beginnersinvest.about.com/) and buying a classic investment book like ‘The Intelligent Investor’ by Ben Graham, Warren Buffett’s mentor, is a good place to start. 

You will need to set up a share dealing account if you buy shares directly – check out www.sharewatch.com, the on-line brokers for their relatively low cost Irish service and then compare their charges with the Irish stockbroker’s dealing services (Davy’s, Goodbody’s, NCB, Merrion and Bloxham). If you have lots of money and lots of faith in stockbrokers, you can hire one to do this work, but their primary interest is to mainly make themselves and their firm rich…then you. 

Fund Investing:  If you prefer the convenience and comfort of buying a fund of shares or other assets, like property, cash, bonds (or a combination of all four) you can do so from well know Irish life assurance companies or your bank.  You are spreading your risk by buying into a fund of assets, but you should still read the prospectus so you know exactly what companies or sectors you are buying into and before you make a final decision, do some independent research on these sectors.  

The cost of buying into life assurance funds is high – up to 5% of your capital and annual management fees of up to 2% - unless you arrange to buy through a fee-paying advisor who will strip out commissions and can usually negotiate lower entry charges. My preference is to buy through discount brokers (see www.labrokers.ie and www.myadviser.ie) or from the likes of RaboDirect and Quinn Life, who offer a transparent range of international funds directly to customers for no upfront cost and lower annual management fees. 

Low Cost ETFs: The most important retail investment development of the last decade has been the growth of Exchange Traded Funds or ETFs which is a portfolio of assets, usually shares, but also of commodities that is listed and trades as a single share on a stock market.  

Many ETFs mirror the investment funds that are managed and sold by life assurance companies or stockbrokers, but the transaction costs are a fraction since they do not operate through the third party – the life company or fund management firm.  The only cost to you is the stock broking transaction commission and a low annual management fee of usually between 0.3% and 0.5% of the fund.  

There are hundreds of ETFs on the market – including 13 listed on the Irish stock exchange (see www.ise.ie).  Do your research into the ETF you are buying before you commit your money (the commentators I read favour ETFs that represent oil and energy shares, consumer durable companies, precious metals like gold, silver, platinum, food producers and big food retailers, and agriculture commodities.) 

How much further can stock markets fall? Who knows, but the signs are not good.  How long before this great economic crisis is over?  Again, no one knows for sure, but perhaps longer than we expect.   

But the longer the view you can take in trying to position yourself for that recovery, the better.