Jill Kerby

IS THE MORTGAGE DEBT NIGHTMARE FINALLY COMING TO AN END?

Personal insolvency arrangements or PIA’s are on the rise – and that is a very good thing.

It’s a good thing for the debtors who may have been in financial difficulty for some time and are finally able to achieve closure and get on with their lives. It is also a good thing for their creditors.

Where these creditors are wholly owned by the state, as in the case of AIB and its satellites, the ESB and Haven  – the winding down of long standing non-performing housing debts might mean that the far higher mortgage interest rates that are charged to new customers here may eventually settle at levels conquerable to what home borrowers pay in other EU states that haven’t had a 10 year legacy of property AND bank collapse. (The difference is nearly 2% in some cases.)

According to the latest report from the Insolvency Service of Ireland (ISI) there were 998 new debt solution applications in total for first quarter of this year compared to 946 in Q4 of 2017. The vast majority, 870 of them, were PIA’s, the personal insolvency arrangement which ISI Director Lorcan O’Connor described as “the solution that returns debtors to solvency while keeping them in their homes in 90% of cases.” 

Meanwhile, other debt solutions outside of insolvency – the Debt Resolution Notices (DRN) for smaller amounts of personal debt and Debt Settlement Arrangement (DSA) for non-mortgage debts have gone up (+9%) and down (-10%)respectively, between the two quarters.

There were also 462 Protective Certificates issued in Q1, down from 581 in Q4 2017. These certificates protect debtors from any further action by their creditors. 298 arrangements were approved in the first quarter of this year compared to 310 in Q4 of last year and there were 120 Bankruptcies compared to 163 in the final quarter of last year. 

Since 2014, when the service began, there have been a total of 2,519 bankruptcies, which are now discharged after just one year.

The total value of the debt concerned amounted to €1.164 billion, with buy-to-let mortgages accounting for 51% of that sum, or just over €588 million and private residential property debt nearly 19% of the balance or nearly €219 million. Bankrupticies accounted for €145 million of the debt.

The latest report also confirms what is already pretty well known in every town and city – that the majority of debtors (over 68%) availing of these settlements are in the most production cohort, aged between 35 and 54 and married or in a civil partnership (63.3%). 

Statisticians will certainly relish this latest set of figures.  Debt settlement applications and approvals have been falling off sharply – reflecting the general trend of debt being paid down (or written off), but also how much the economy has recovered.

The rise of engagement with the banks and of PIA applications certainly suggests that the tougher stance taken by the ECB and Central Bank about our ongoing, high volume of arrears may be working.  By the end of last year there were about 28,000 mortgages in arrears, and half of those, it has been reported could be in line for repossession if not other solution is found.

However, the consequences of pursuing this last tranche of debtors, who have either declined to deal with their banks until now, or were stymied by the banks when they did try to negotiate with them suggests, is going to have serious consequences in terms of homelessness, consumer advocates like David Hall of the Irish Mortgage Holders Organisation (IMHO) have warned.

Anticipating more Court actions, Mr Hall set up a not-for-profit housing body, iCare Housing, in September 2017 in association with AIB to facilitate the governments’s mortgage-to-rent scheme that aims to keep owners and families in their homes, this time as tenants. Under this scheme qualifying owners have their outstanding debt written off, get to keep their homes and have an option to buy it back some day at the price iCare purchased it from their bank.

To qualify for iCare you must be in arrears; your house or apartment must be within a certain value (ie less than c€365,000 or €310,000 respectively); you must be eligible for social housing and you will pay an income-related rent, based on local authority rents. Security of tenure is the aim of the scheme and some iCare clients will remain in their now-rented homes for life. (See www.icarehousing.ie for details.)

So are we finally coming to the end of a decade-long saga of mass property related debt and insolvency?

The ISI’s latest report would suggest so. 

But the most important message is that initiatives like iCare, Abhaile (the ISI’s service with mabs.ie for mortgage holders in arrears) and personal insolvency and bankruptcy arrangements (see www.isi.gov.ie) mean there may still be a chance for a ‘better’ outcome. 

And a brand new start.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

RETIREMENT OPTIONS NEED PROFESSIONAL INPUT

A frequent letter I get from readers is about pensions, and specifically what their options are when the reach retirement age.

This letter, that I received last week from Ms McC was no different:  “Hi Jill, I’ve been reading your column for years and could use some advice. I am single, and worked for the same small company as a bookkeeper for nearly 30 years. I joined the DC pension fund a couple of years later. Before that I worked for two other firms but they didn’t have a pension scheme. Three years ago I gave up work to become my elderly mother’s carer, for which I receive the full carer’s allowance [of €214 per week for someone under age 66]. I was earning about €50,000 when I left.”

“I will turn 65 this month and can collect my occupational pension. Next year I will be 66 and will get my State contributory pension.

“I’ve been in touch with my old company about my pension and at the moment it is worth about €220,000 (which is a pleasant surprise). I was sent out a booklet about what I can do with it, which I lost. But I wasn’t sure what any of it meant anyway. My old boss said the best thing would be for me to take my tax free lump sum and then an annuity, but can you recommend someone I can talk to? I have never had a financial adviser.”

Seeking professional advice is a message I’ve tried to promote at every opportunity over the years and I’m delighted that this reader agreed.

I have suggested that she contact the Society of Financial Planners of Ireland – www.sfpi.ie - to see if there is a SFPI member or practice operating in or near her midlands town and for her to arrange a consultation.

SFPI members are trained to take a holistic approach to a client’s financial position so a comprehensive review would lay out all her options, not just about what she might do with her pension fund, but also what sort of retirement she would like to have and whether it is achievable.

Ideally, you do this much earlier so you can adjust your aspirations, or even increase your funding to have a better chance of meeting them, but it’s never too late to get professional impartial advice especially about annuities.

The other reason Ms McC should deal with a good financial planner is that they can also check out the implications of any income that she may get or draw down from her occupational pension fund on her Carer’s Allowance (CA) which is a means-tested benefit. Currently, to qualify for the €214 weekly benefit, the first €332.50 of any income is disregarded, as is the asset value of their own family home.

From June, depending on what she does with her occupational pension fund, that income if it is high enough, could, theoretically, trigger a means testing of her Carer’s Allowance, according to the Department of Social Protection rules regarding this benefit. 

But an adviser I spoke to said that with such a modest pension fund (especially after she takes her tax free lump sum of €75,000) the balance is unlikely to trigger any means-testing.

“With annuity rates still so low, even a bog standard, single annuity* worth €145k would probably only produce an income of about €5,500 a year,” he explained. “At just €105.70 a week this amount is still well below the means-tested earnings limit (€332.50) for her to qualify for the full CA.”

(*It is the cost of adding a spouse’s pension, a five year payment guarantee and especially an indexing benefit that results in an even lower private annuity income for a new pensioner.)

The other pension fund choice other than buying an annuity that Ms McC will be presented with if she meets the financial planner is to consider keeping her fund under investment in an Approved (Minimum) Retirement Fund. 

Annual growth from the ARMF/ARF and even capital from the ARF can be taken “but a €145,000 investment is unlikely to produce enough income to trigger a cut in the CA payment.”

As this reader’s case show, retirement planning can be complicated, even for people without large pension funds.

She needs to take into account all of the consequences of the post-retirement choices she makes, including the fact that when she does collect her own pension next year there will be one final surprise: you can only receive one state benefit at a time. 

Luckily, a part-exception is made for people claiming Carer’s and Ms McC, is likely to still qualify for the half-Carer’s payment, or €126 (half of €252, the full payment for Carer’s aged 66 and over.)

Together with her state and private pensions Ms McC should end up with an income of about c€474.00 a week.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

FINANCIAL LITERACY IS MORE THAN JUST KNOWING HOW TO COUNT YOUR CHANGE

Why is it that some surveys report that the Irish declare themselves to be among the happiest people in the world, yet we are also come at the bottom others about our ability to handle money appropriately?

Being financially illiterate, most people would agree, can be a big cause of unhappiness, particularly when it results in years of unrelenting debt.

The obvious simplistic answer perhaps is that money really doesn’t equate with happiness and that many of us really to regard it as a necessary evil. Many people, the victims of rapacious governments, incompetent politicians and bureaucrats, of heartless landlords, employers, banks and playground bullies, (“your lunch money or your life”) would certainly agree.

Nevertheless, there’s nothing bucolic about a subsistence existence; just ask someone who lives hand to mouth or from paycheque to paycheque.

The recent Cambridge University/UCL literacy survey that was highlighted last week by the MoneyWhizz adviser Frank Conway, a long-time advocate of personal finance education in Irish schools, found that Ireland came bottom of the 31 participating countries when it came to working out how much change we might be due in a shop, the unit cost of an item, in calculating discounts on items like a season ticket to a sporting event or even in our ability to read a basic performance graph on a personal investment report, like a pension.

The probably reason (as opposed to a visceral dislike of ‘money’) is that most people never learn how to do these things as children or young people. Schools don’t money modules as part of the junior and senior cycle curriculum/exams and there is less emphasis on numeric skills. We all rely more on calculators and digital cash registers than brainpower to work out what things cost and how much change we’re due.

The relentless drive towards a cashless society isn’t helping: debit cards and smartphone apps that effortlessly tap for items worth less than €30 (soon to be €50) means that our acknowledgment of the value we put on what we buy and how much they cost is disappearing. Sub-consciously, tap-to-pay also affirms the retail culture of instant gratification and conspicuous consumption.

The lack of control of discretionary spending, say financial advisers, is not just a huge impediment to your day-to-day financial health, but to the long term wealth creation.

If you think this is an exaggeration, keep track of all those thoughtless, small tapped payments every day for a month and see what piece of essential spending they add up to. Is it your broadband bill, monthly car insurance, grocery bill…the rent?  And will you have to dig out the credit card (at 20% annual interest) a couple of days before payday to fill up the tank on your hire purchase car?

Learning how much change you’re due in a shop, or the unit pricing of an item is a pretty basic math skill. If you have children you can get a refresher course from their maths books.

But true financial literacy is also about having a clear understanding of more subtle features, like how much money you actually need, as opposed to how much you want. It certainly helps to understand the power of compound interest, the magical or destructive effect that time has on money.

The child who automatically saves or invests a percentage of their money/earnings right from the beginning, that provides a decent return above inflation can amass considerable wealth by middle age.

The reverse lesson is just as informative: the interest paid on money borrowed to buy liabilities with no asset value will turn them into a debt slave in no time at all.

The parent that introduces their child to a good deposit account and eventually to low cost investment vehicles, but mostly through their own good spending and borrowing habits, will them with a more valuable gift than any expensive toy or ‘lifestyle’ funded by other people’s money.

Being financially literate isn’t difficult once you know the rules:

-       Earn your money before you spend it.

-       Live within your means. Live below your means during tough times.

-       Be a regular saver, the unofficial motto of the credit union movement. Join one.

-       Do a budget. On one page list your essential spending, on the other, your discretionary spending. Keep the entries on the second page as small as possible.

-       Understand compound interest. A large variable rate mortgage payable from a small, variable income is a weapon of mass destruction.

-       Avoid convenient, expensive credit, another weapon of mass destruction.

Finally, assume the worst of your government whose aim is to extract at least 50% of everything you earn in taxes and levies. The smaller your debts the easier it will be cope with their extra, periodic claims on your income and wealth.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

PRIVATE CANCER SCREENING MAY PROVIDE PEACE OF MIND…AT A COST

How much confidence do you have today in the operation and management of the Irish health service?

Enough to lose weight, drink and eat less (or eat more healthily)? To give up smoking and to take more exercise, be more mindful of your mental health?

Enough to pay more in taxes – or extra, by going private - for more for preventative health interventions that have been proven to improve your health, like inoculations, regular health screenings and checks and timely GP and consultant visits?

Good health comes at a cost; and it’s a lot higher than most of expect.

The recent HSE scandal over the CervicalCheck programme is a reminder that while these ‘free’ cancer screening tests – the others are the breast and bowel cancer screening – have saved many lives, in reality they are both costly to operate and are not infallible. 

The outsourcing of much of the cervical testing to a laboratory in another country on cost grounds in 2008 may prove to be more costly to the State than if they had decided to put resources into local laboratory testing rather than using a Texas based laboratory.

We won’t know for sure exactly what went wrong at the testing end until the current investigation has been completed.  But what we do know is that the highly bureaucratic administration of CervicalCheck has showed how easy things can go wrong on the accountability front, that is when no one takes ownership of mistakes, instead passing them along to someone further down the line.

Lack of proper accountability in state-owned institutions; the regular cover-up of errors or mistakes; the court-led actions that patients and citizens must resort to for redress when something has gone very wrong; is pretty much what happens in every large, highly centralised, politically driven, tax-funded, loss-making organisation, such as a ‘national health service’.

Ireland’s HSE is no different, with its high ratio of administrators to medical personnel and poor accountability record.

(Since 2015, overall employees in the HSE has gone up by 11.5%. but the number of administrators has increased by over 17%. There are just over six administrators to every medical consultant here, compared to just over three to one in the UK, which they consider excessive.)

No extra amount of money pouring into the HSE each year seems to be able to lighten the medical loads of front-line staff, to reduce in-patient waiting times or to produce the same or better patient outcomes when compared to other EU countries with similar budgets.

Good health in Ireland, unless you happen to come from a family with superb genes, is certainly not a given, even if you do try to take care of yourself and you avail of every ‘free’ service going.

As every responsible GP and health practitioner has stated in the last few weeks, anyone invited for a cervical, breast or bowel screening should still attend their appointment. Even the cervical misdiagnosis victim and whistleblower Vicky Phelan has urged Irish women not to ignore their Cervical Check appointment.

The reality, however, is that this particular screening programme is now in crisis and there will very likely be delays if thousands of women – on the advice of their GPs - who are concerned about previous test results end up being retested. 

Therefore any woman who wants a test urgently or who has reservations about the state funded screening programmes, or who may no longer qualify for the free test – for example, women aged over 60 (over 64 for BreastCheck) should arrange for a private test. 

Most GPs, local health clinics, specialist clinics, like the Well Woman Centres in Dublin and Cork, the private hospitals offer private cervical smear tests. My own (limited) research last week found that samples are nearly always sent to Irish laboratories and the results are usually sent back to the doctor or clinic and the patient within 10 days. (It takes at least four weeks for the free CervicalCheck results to be sent to the doctor or clinician.)  The cost is typically €80-€85. (A mammogram typically costs €180-€200 at private hospital.)  Tax relief of 20% can be claimed by filing a Med 1 form with the Revenue.

Private health insurance customers should also check their benefits to see if their insurer/plan recommends a clinic or hospital that performs individual private cancer screens. Most policies that include outpatient benefits will pay a part or all of the cost of the test, depending on the cost of your plan.

The VHI, Laya Healthcare and Irish Life Health each offer a range of comprehensive clinical health checkups to both individual and corporate customers (usually once every two years). How much of the cost they pay, which can cost many hundreds of euro, again depends on your plan.

It can be quite complicated and time-consuming to find out about these offers, of which there are hundreds, so use a good health insurance broker to help find the most suitable and affordable one for you and your family.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

A BETTER GP SERVICE IS THE GOAL BUT WHO PAYS?

Discussions between the Department of Health and the nation’s General Practitioners are underway, and for all our sakes, we have to hope that they go well. The alternative – more early retirements, more emigration, more villages and towns without a family doctor - is not an outcome that anyone would welcome.

Pressure on the Irish GP service has been ramping up for the past decade as a result of the government’s austerity measures or FEMPI, the financial emergency measures in the public interest that were imposed after the 2008 economic crisis.

The c38% cut in doctor’s fees and support income for staff salaries and overheads, and more recently, the adding of the under-6s to the GP patient rolls has ramped up an existing crisis that can only be remedied by a comprehensive and properly funded new GP contract.

Restoring that money however, will cost about €120 million extra a year, about the same amount that the HSE is in deficit, per quarter, and productivity is still an issue, says the government.

The doctors meanwhile insist it isn’t just about money, but also about the mountain of paperwork and regulations, and the bureaucratisation of their health care that they argue has diminished their ability to properly do their real job, caring for the medical needs of their patients.

And those patients are getting older: as a nation we are living longer, surviving complex and complicated illnesses and conditions, but without the proportionate scaling up of access to in-hospital treatment in particular, let alone better community services.

Recent surveys by the Irish College of General Practitioners show –thankfully - that more young medical graduates want to become GPs, but also that nearly 20% of new GPs emigrate to countries where both pay and conditions are better.

Another worrying set of statistics is that while there are now over 20 million GP consultations annually in Ireland, we only have about 76 GPs per 100,000 population while in Canada and Australia that GP per population ratio is 100 to 100,000. Meanwhile nearly one in five of our GPs are over 60.

Not only do we need more family doctors in Ireland, but they need to be better remunerated for the average 50 hours a week they spend in their surgeries.

Under our General Medical Services scheme, GPs are a paid a single annual payment per medical card holder and while these amounts differ, depending on the patient (adult, child, nursing home resident, etc) it averages at about €9 per month, or €108 annually. (A doctor treating a private patient can expect a fee of between €50-€60 per visit.)

The GP shortage in the UK is even greater than here. Visits are free but waiting lists are long and doctor’s earnings are down 11% since 2008. Last year their number fell to 34,592 compared to 33,872 in 2015.

But the biggest concern there – and one we need to be aware of - is the waiting time for a GP visit. In a 2016/17 survey of its members, the Royal College of General Practitioners found that patients had to wait more than a week for an appointment on over 80 million occasions, which they estimate will rise to 102 million by 2022, even with the promised recruitment of another 5,000 GPs. Despite considerable improvements in community care for the elderly in the UK, A&E presentations are soaring. (There is no A&E charge in the UK, as there is here.)

In Ireland GP waiting times are not the issue that they are in the UK, mainly because about 55% of the population are required to pay for their visits and a relatively large cohort with private health insurance have outpatient benefits that pay for all or part of the GP fee. (Popular healthcare cash plans, like HSE.ie also include GP cover.)

Are we moving closer to a UK model for general practice with everyone entitled to receive free visits and treatment?

That seems to be the government’s intention and many Irish doctors heartily approve.  But not all GPs believe free visits are workable until both their numbers and the pay they receive increases. If their annual general meetings are anything to go by, many continue to express their contempt for the HSE’s poor track record in managing and allocating existing resources and especially the chronic shortage of both hospital beds and community care services for the elderly.

Meanwhile, if you don’t have private health insurance and you don’t qualify for a medical or GP-only card, you certainly should be setting up a household contingency or emergency fund that can be dipped into to help pay for unexpected medical expenses like GP bills, A&E visits (when you don’t have a GP letter), or the €75 public bed charge for an overnight hospital stay.

Being ill is enough of a personal crisis without turning it into a financial one.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)