Jill Kerby

 

 

GET INFORMED AND TAKE ‘OWNERSHIP’ OF YOUR FINANCES

 

Even a currency and fiscal crisis comes with a silver lining and the one that I’ve noticed is growing is the realization by ordinary people that they have to take personal responsibility and ownership of all the decisions they now make regarding their money.

Last week I wrote about the importance of getting the right financial advice, ideally from well-qualified, fee-based advisors. 

This week, at the request of a number of a readers who either missed or misplaced an earlier article about how you can improve your own financial knowledge so that you can get the most out of a session with an independent financial advisor, I will again list the courses, periodicals and books that I use or subscribe to, which have gone some way over the years in making me a better investor and manager of my own money.

As of last week, I have added another one by subscribing - initially at least - on a trial basis.

Called CheckRisk (see check-risk.com) and just launched in Ireland, this UK-based financial newsletter approaches the investment decision-making process from a different perspective: it offers pre-investment risk analysis as a tool to serious investors or analysts to assist them in making informed investment decisions. (Like most of the others below, subscriptions range from €100 - €500 per annum.)

While CheckRisk is suitable for those higher net worth and established private investors who already have some financial savvy, it’s main target are financial advisors who advise people like you, as well as professional fund managers and trustees who are running your pension fund and the investment funds you buy directly from banks and insurance companies. 

(You might want to add CheckList to your list of queries when you are seeking the right investment advisor to hire, as in, “How do you establish the risk of the product/fund/asset you are recommending to me?”

Meanwhile, aside from the personal finance pages in The Sunday Times, the Irish Independent, The Financial Times and Toronto Globe & Mail, here is my checklist of favourite, free, on-line personal finance and economic websites and blogs:

1)   www.dailyreckoning.co.uk and .com

2)   www.fool.co.uk

3)   www.lovemoney.com

4)   www.bloomberg.com; reuters.com; moneywatch.com

5)   www.askaboutmoney.com

6)   www.itsyourmoney.ie

7)   www.nca.ie (National Consumer Agency)

8)   www.goldcore.com (daily blog)

9)   www.sovereignman.com

10)                www.caseyresearch.com

11)                www.gonzalolira.blogstop.com

 

These are my favourite (mainly Agora Financial) subscription publications/websites:

1)   MoneyWeek

2)   The Economist

3)   Agora Financial - Capital & Crisis and Mayer’s Special Situations

4)   Stansberry Research - S&A Resource Report and 12% Letter

5)   The Fleet Street Letter

 

Your should also check out www.InvestRcentre.com for investment courses you can take, ranging from the day long basic course to specialist subject ones on ETFs (exchange traded fund) investing.  Rory Gillen and his team also hold regular evening seminars around the country.

Learning about how the markets (and money generally) works – and all the capital, taxation, inflation and geo-political risks – will make you a more confident saver or investor and help you avoid the most common pitfalls.  They will help you to made informed decisions about the choices you make or that are recommended by an investment advisor.

Some of the most common money pitfalls are:

 

-      Being afraid to say that you don’t understand the financial products and services you are about to buy, whether a credit card, mortgage, education fund or pension.

-      Signing a contract before reading it.

-      Buying a financial product because it is tipped or is “a sure thing” (like Eircom shares and holiday homes in Bulgaria).

-      Putting all your financial eggs in one basket (like bank shares or property or euro).

-      That property – bricks and mortar – are superior to any other investment asset.

-      Not knowing the difference between a liability and an asset.

-      Not writing a Will (this is a pitfall for your heirs).

-      Not living within your means and sometimes, below your means.

-      Not saving for your retirement from the moment you start working.

-      Depending on “the state” for more than it – and your fellow taxpayers – can realistically deliver in a sustainable way.

Finally, my last list includes questions you must ask any regulated financial advisor before you engage them or purchase any product from them:

 

-      What are your qualifications. How many years experience do you have?

-      Are you independent or a tied agent?

-      How are you paid? By commission or fee?

-      What are your fees and how are they calculated?

-      How many agencies do you hold from financial product providers?

-      What is your investment philosophy? (I prefer the ones who say their first responsibility is not to lose your money.) How do you determine risk?

-      What sort of ongoing training and education do you undertake? What sources/periodicals, etc do you regularly consult (see above)?

-      Where do you invest your own money/retirement funds?

An informed saver and investor may not end up a great deal richer than a lucky, but ignorant one, but I doubt whether they will ever be poorer. 

 

Just a week after young Rory McIlroy’s superb win at the US Open, it’s worth recalling what every lucky, winning golfer says and apply it to the management of your money:  “The harder I practice, the luckier I get”.

 

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Debt managment firms lack state oversight 

NM writes from Dublin: My wife was made redundant last week – third time in five years - and we have over €100k from personal loans and credit cards. Our credit rating is not good. The majority of the personal loans arose from a property investment that went badly wrong a few years ago. Yesterday, I met with a debt management company, MoneyVillage that said in most cases they can achieve a 60% write off of unsecured debt.

My concern is that they did not disclose what the downside would be if we used the services of Money Village, apart from not being able to raise any form of finance for 5 years.

 

The biggest downside is that debt management companies are not regulated. MoneyVillage, Whose website says that it might achieve a 50% debt write-off for clients, has formed a trade body, the Debt Management Association of Ireland with a voluntary code of conduct and practice for its members.

MoneyVillage wants to be regulated, like other financial advisors, but there’s no sign of it yet from the Financial Regulator.

 

Debt managers often charge an initial fee and on-going monthly fees based on the number of credit institutions with which they will deal on your behalf. This is how MoneyVillage operates. However, you also pay over a sum of money each month to them which they then disperse to your creditors. Without any recourse to the Regulator if things go wrong, this must be an act of faith on your part.

 

The money advice and budgeting service MABS also provide a debt management service for clients in trouble with creditors and they do it for free. MABS’ resources are stretched, but you should still contact your local office and explain your situation to them. Good luck.

 

Digging in the dirt

 

 KM writes from Swords: Is there a limit on the amount of interest that the over 65s can earn on their savings above which they lose their exemption from deposit interest retention tax? Are there other conditions, hidden or otherwise?

 

If you are over 65 you will be exempt from paying 27% DIRT on the interest paid only if your annual income does not exceed the tax exempt threshold of €18,000 for an individual or €36,000 for a couple. Your bank can help you fill out the DIRT exemption form to the Revenue Commissioners. If your income exceeds these thresholds, your account will be automatically be deducted the 27% tax.

 

Adviser Advice

 

RH writes from Dublin:  Is there a list of "good, independent, fee-based advisors to help make the right choices" regarding investing a lump sum? I would appreciate some help in this matter.

 

 Getting good, professional, impartial saving and investment advice has never been more important. The Financial Regulator requires all advisors – fee-based, commission paid or hybrids – to meet certain basic standards before they are licensed. Recently, however, a new qualification –the Graduate Diploma in Financial Planning, facilitated by UCD in conjunction with the Life Insurance Association, the Institute of Bankers and the Institute of Taxation, with professional examination set by the independent Financial Planning Standards Board in America has been created and is open to any financial advisors, including tied agents of life assurance companies as well as fee or commission remunerated independent ones.

 

In July between 30 and 50 of the people who participated in the programme will be awarded the title of Certified Financial Planners by the Irish Financial Planning Standards Board. It is the highest standard of financial competence available here. It isn’t known whether their names will be published by the IFPSB but it should be.

 

Achieving this new international qualification doesn’t mean the holder is fee-based, just that they have achieved a high level of competency. You will need to still determine for yourself if they are independent agents (or a life company) and their level of experience.  A group of the graduates who are fee-based and with a certain number of years experience, led by the advisors at Goldcore Wealth Managers, where I am a client, are forming an association this summer and will be publishing their register.  They intend to provide as much information as possible about each member, their investment philosophy, products and services and their fees.

 

They say the register should be available later this summer.  Meanwhile, if you need an advisor do you own enquiries. You can start by asking friends and family for their recommendations.

 

Gift Rub

 

YM writes from Dublin. I have a daughter living and working in London, I was thinking of getting her to deposit some of my savings in her bank account in London, is there any reason why I could not do this?

 

If your daughter is willing to allow you to use her account, there is nothing to stop you transferring your money to her, though she may have to satisfy her bank’s anti money laundering conditions. As her parent you can make her tax free gifts of money up to €3,000 here in Ireland and £3000 in the UK.  There is no tax implication if you gift her up to €332,084 under Irish Capital Acquisition Tax regulations – which is effectively what you would be doing by shifting up to that amount to her account. (Over that threshold and a 25% tax is payable on the balance.) If she is a UK tax resident she will have to declare her inheritance in the UK, but the double tax arrangement between the UK and here means she is unlikely to have to pay tax in the UK. (check with Sandra)

 

There will be a currency exchange and small transaction cost in shifting your money to your daughter’s sterling account. 

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Costly Pensions board should take early retirement

With the Department of Finance firmly in control of all policy matters regarding pensions especially the survival of tax relief on contributions is there any point to the continuing existence of the Pensions Board?

The Board costs over €6 million a year to run, over half of which goes to its 38 staff in salaries and defined benefit pension contributions and for director’s fees. It has a number of responsibilities, one of the most important of which is to advise the government on pension policy issues.

Last week at the launch of its 2010 annual report, the Board’s chief executive Brendan Kennedy said that they provided the Department of Finance with technical information regarding the pension levy that was introduced on 11 May, which will see up to €1.8 billion confiscated by the state from the savings in private pension funds only.

Kennedy, who earned €192,356 in pay and pension contribution, again refused to say whether he or the board advised the Minister for Finance one way or another about this levy.  I too had been told by his spokesperson last May that the levy was a government policy that had nothing to do with them.

There is now one government department calling the shots about pension provision and it answers to the state’s paymasters in Brussels, Frankfort and Washington.  You can be sure they care deeply about their own hugely valuable pensions, but they don’t give a toss if you ever retire

The short termism of the Department of Finance’s hasty, ill thought out raid on private pensions is breathtaking:  the hundreds of millions they will secure through the levy and by reducing the tax relief incentives on pensions will temporarily plug one small crack in our crumbling fiscal dyke. 

By 2014, however, when the higher rate tax relief is gone - along with nearly €2 billion worth of pension savings – we will be left with fewer pension members, the closure of many more occupational pension schemes and whatever about any new jobs created by the Jobs Initiative, plenty of job losses in the pensions industry.

Pension coverage has been going downhill for years – 43,400 fewer people were in a pension scheme last year than in 2009 - despite the millions that the Pensions Board has spent trying to encourage women, the low paid, contract and part-time workers in particular to save for their retirement and for employers to set up flawed PRSA schemes for their employees.

The Pensions Board is now just another expensive office full of bureaucrats with a very mixed record of success and one last role:  to make sure existing pension schemes don’t break the mountain of overly complicated and expensive rules and regulations it helped create these past 25 years.

Since the Department of Finance has decided that private pensions are now a luxury and existing pension funds are cash cows to be milked to pay off the state’s creditors, the Board should be integrated into the offices of the Central Bank and Financial Regulator, which already supervises and regulates all non-occupational pension schemes.

Having no opinion on the government’s assault on the private pension savings unlikely to be missed.

 

No Credit here

 

The Irish Brokers Association says we need forbearance measures for unsecured debt, and not just for mortgage arrears.

Too many people, says their chief executive Ciaran Phelan are being “pursued to the bitter end” by credit card companies and the banks that extended them personal loans and which can pursue their outstanding debts with little or no restriction.

Intimidated, these poor consumers, says Phelan are paying off these unsecured debts instead of their mortgages or even putting food on the table. It’s a case of “who shouts loudest… gets paid first” even though the two sorts of debt are all part of the same problem.

The Financial Regulator is considering ways to curtail the over exuberant collection methods that unsecured creditors are using – like constant phone calls and red letters, but this nasty game of financial musical chairs the IBA have highlighted is only going to get worse until a proper system of personal insolvency resolution and bankruptcy is introduced, supposedly early next year.

I doubt if the Regulator will introduce a formal code of arrears forbearance – like the mortgage one - for unsecured borrowers.  Instead, perhaps both the IBA and consumers need to be reminded that it’s called ‘unsecured’ lending for good reason: you might have your car repossessed or the wide screen telly if you can’t repay your motorloan or credit card, and your credit record will be seriously impaired, but you won’t lose your house.

In the short term, perhaps  members of the IBA could donate a few hours every week to help the money advice and budgeting service, MABS, spread the word about the need for proper debt management. 

 

Growing Pains

 

Last weekend, the Jack & Jill Foundation, which assists families with seriously ill children, some of them with intellectual disabilities, took over the grounds of the Royal Hospital, Kilmainham for their annual family fun day. It was a wonderful – but also a very poignant and moving event.

On Monday, Down Syndrome Ireland and the solicitor’s Pearts happened to send me a booklet they’ve just launched for parents of children with intellectual disability, ‘Planning for the Future’.

This is a terrific guide for any parent with child who will be unable to look after their assets in the future, and it covers all the issues that I know are always at the forefront of such a parents’ thoughts: how can I best provide financial for this child and any others in the family; how do I nominate guardians and trustees; what the are tax issues we must contend with.

The booklet costs €10, and can be ordered from www.downsyndrome.ie.  While you’re at it, send another tenner or even your old mobile phone to www.jackandjill.ie

 

 

 

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RAISING THE BAR FOR FINANCIAL ADVICE IS IN EVERYONE’S INTEREST

 

Knowing when to seek help is a second step in the solving of any problem. (Admitting the problem is the first step.)

This includes our financial problems, many of which, from unemployment to the collapse of property and pension assets, on how to pay for a college education or how to protect your lifetime’s savings, are causing many sleepless nights these days.

I’ve always advocated sharing your personal financial problems with someone who is an expert, ideally, someone with a proven track record who charges a fair fee for their advice and expertise.

Unfortunately, it isn’t easy to find such a person, especially when the financial ocean is swarming with sharks who are incentivised with bonuses and commissions to generate volume sales.  Lesson one: make sure your advisor is impartial, in that they are working for your benefit as well as for their own by accepting your fee rather than the product manufacturer’s commission.

I only deal with fee-based advisors for the accountancy, tax, legal and investment advice I occasionally need, but in the case of investment advice I accept the reality of the industry that means even if you pay a fee, your advisor isn’t going to share the losses(though they could lose your business.) They get their money – just like fund managers – regardless of whether the investment they recommend goes up or down.

At the end of the day, you’re on your own.  Which is why you need to take ultimate responsibility for your own money.   Lesson number two:  never act upon advice you do not fully understand or accepts suits you.  Accept that the fee-based advisor you trust has only made a recommendation in your interest. You are the only one who decides to follow it.

From January 2013, the Financial Services Authority in the UK will ban commission remuneration for the sale of financial products on the grounds that nearly every financial scandal has been the product of commission remuneration. (It certainly is the case here too regarding the misselling of everything from endowment mortgages, whole of life assurance products, many pensions and most property investments during the boom years.)

Abolishing commission will make the cost of most investment products and financial purchases more transparent and it is hoped in the UK, will reduce the fees charged by product providers.

Until such a ban is implemented here (and there is no sign of it) it is difficult to find a properly trained, experienced fee-based advisor in Ireland.  The Financial Regulator declines to provide a list or advisors or to even set their own standard for such a category.

Nearly all advisors quoted in this column and in the wider personal finance press are fee-based; but their experience and expertise and the size of their fees vary. Some specialise in general investment products; others focus on pensions, for example.  Some take a very conservative approach – concentrating on wealth preservation and management; others focus on capital growth strategies. We seek them out relative to the topic being written about.

Lesson number three: When seeking a financial advisor for your own needs, you need to understand your advisor’s style and philosophy (as well as their credentials) almost as much as your own risk profile and motivation.

The Financial Regulator requires all advisors – fee-based, commission paid or hybrids – to meet certain basic standards before they are licensed. Recently, however, a new qualification –Graduate Diploma in Financial Planning, facilitated by UCD in conjunction with the Life Insurance Association, the Institute of Bankers and the Institute of Taxation, with professional examination set by the independent Financial Planning Standards Board in America has been available to any financial advisors, including tied agents of life assurance companies as well as fee or commission remunerated independent ones.

In July between 30 and 50 of the people who participated in the programme will be awarded the title of Certified Financial Planners by the Irish Financial Planning Standards Board. It is the highest standard of financial competence available here. (It isn’t known whether their names will be published by the IFPSB.)

It’s a good start.   However, it doesn’t mean the holder is fee-based or impartial. You will have to discover that yourself. It doesn’t mean the person is particularly experienced or that they have a sound investment strategy. Just that they have achieved a high level of competency.

However, a small, like minded group of the graduates, led by Mark Westlake of Goldcore Wealth Management (of which I am a client) are planning to produce a register, based on their credentials as Certified Financial Planners who are fee-based, have achieved a certain number of years experience and who share a common, though not rigid investment philosophy.

The register should be available in July and will hopefully provide sufficient information about each member to help you decide whether they may be a suitable advisor for you. 

Getting good, professional, impartial saving and investment advice has never been more important.  This new creditation is a start in the right direction.  I’ll keep you posted on the launch of the register, which will hopefully include an advisor in your area, as it happens.

 

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CRISIS IN GREECE RUMBLES ON – HOW PREPARED ARE YOU FOR WHAT MAY COME NEXT ?

 

With the passing of every new week, we get a clearer picture of exactly how the coalition government intends to proceed regarding the economy.  The implications are very serious for whatever savings, pensions or other assets you may still have, including your job, pension fund and even your family home.

Time ran out for Ireland Inc last November when the last government handed over our freedom to make our own financial and economic decisions to the EU, ECB and IMF in exchange for a way to delay admitting bankruptcy.

Acting in concert with the government, the troika are now forcing not just austerity on the country but the shrinking pool of taxpayers to repay virtually all the private bank debt plus the huge and growing national debt (from ongoing loans and overdrafts from the ECB).  The combined debt is estimated to be in the region of  €230 billion; the interest that must be met on the c€80 billion part of the of bank debt is 5.8%.

The new government could have called a halt to the insane course that Fianna Fail began in September 2008 with the blanket bank guarantee but it will now follow the same course.

We are now “in receivership”, as Minister Ruari Quinn describes it and are reduced to stealing pension savings to pay for a jobs stimulus plan that no one has costed or can guarantee will work. 

We will stay in receivership only with the cooperation of our bankers and creditors, who can otherwise ‘liquidate’ us at any point by cutting off our overdraft and shutting down the Irish bank ATMs and the chequebook that pays public service salaries.

Even this semi-permanent indentureship will only last so long as there are no more economic shocks, like the chaotic default of Greece or even another serious stock market fall.

What had been national debt worth just 25% of our gross domestic product in 2007 has now jumped to 44% of GDP in 2008, to 65% in 2009, to 93% last year and to a projected 113% of GDP this year. (In euro terms GDP is €156 billion.) Back in 2007- 2008 the euro value of our national debt was €38bn and €50 billion respectively. 

I am becoming genuinely frightened by the “ah sure, it’ll be grand” attitude of the new batch of government ministers. 

“We are not Greece,” they claim - again.  “We are meeting all our commitments to the EU/ECB and IMF”. Yet, three years into our economic depression, the government is continuing to add more debt to our already unpayable amount of debt, to further raising taxes and levies but will not prioritise their own excessive spending over and above what we raise in taxation.  The annual spending deficit is projected to be €18.2 billion in 2011 

Public sector pay and pensions account for c€18 billion of the c€57 billion national budget, the social welfare bill, €20 billion and about €14 billion for the health sector.  A six year old can work out that those three great items of expenditure alone exceed the entire annual tax take of about c€35 billion.  

Last Thursday night, the government rolled out the junior minister for Europe, Lucinda Creighton – the Sarah Palin of this administration - on PrimeTime to repeat that there would be no defaulting on the the EU/ECB/IMF bail out package. On the same day, the Minister for Finance suggested that income tax will be announced in the December budget, contrary to election promises. We already know that water and property levies will be introduced from next year.

The economy, with the exception of multinational exports, continues to weaken.

Property values and incomes in the private sector are still falling. Unemployment and emigration is still rising as is price inflation.  Bank lending and spending are both lower.

Despite the chirpy denials of Ms Creighton, every credible commentator outside the government believes we must renegotiate our debts, including defaulting on a large portion of it. We also need to live within our means, which means cutting our ties to the inappropriately priced euro, and prepare for many difficult years as we rebuild devastated state and personal balance sheets.

This is what happens when a state, company or person goes bankrupt but it’s also a chance for a new start.  In the short to medium term it means that Irish based savings, pensions and other assets will be devalued compared to the euro or other currencies.

Price inflation will be huge as the cost of foreign and imported goods soars against our new devalued currency, but a large amount of the value of fixed interest capital debts like mortgages will be inflated away.

And all this will last for several years.

You should try and protect some of your more liquid assets (like cash) from risks that could include loss of capital (if banks go bust); currency instability and devaluation; confiscation through taxation and levy, and price inflation.

Action involves everything from opening off-shore accounts, currency and asset diversification including stocks and shares, the holding of real money – gold and silver, proper inheritance and estate planning.  Good tax and pension planning also needs to be a priority.  Access to capital – real savings – will be the key to the long term recovery of this country.  Living off debt will not be an option.

A good, well-informed, fee-based advisor should be able to lay out those options for you and assist you to take action.  

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Persuade your son to save up for your inherited home

JM writes from Kerry: An aunt in England left me a small bungalow in which my son and his girlfriend now live. He pays me some money, though I don’t collect rent. He wants to buy it but doesn’t have the deposit. His solicitor says he can get a 5% mortgage if my husband and I guarantee the loan. My husband is on disability and we have only €10,000 left on our mortgage and a €3,000 loan with the credit union. What do you suggest?

It sounds as if the sale of this property would be a welcome windfall for you and your husband. I suggest you encourage your son to keep saving the money he doesn’t pay you in rent and to make as large a downpayment as possible towards the market value of this property.

 

Prize protection

TBM writes from Dublin:  I have €10,000 in Prize Bonds. Am I correct in assuming that if the Irish government is deemed bankrupt my prize-bonds worthless?

 

Savings from An Post form part of the national debt and are managed by the National Treasury Management Agency, as is the rest of the national debt.

It is impossible to predict what would happen in the event of a default. Savers with An Post accounts would hopefully be spared the haircuts that would probably be inflicted on investors in Irish sovereign bonds. These bondholders would challenge any attempt to shield prize bondholders from similar pain.

Investors in Irish sovereign bonds are being rewarded for the risk of default, with benchmark 10 year bonds yielding more than 10% last week. The NTMA appears to be short changing An Post savers though, by paying 4.14% a year before tax on the ten year national solidarity bond, which would appear to carry an identical level of risk

 

An Post Anxiety

LM writes from Kilkenny:  We have a lump sum of around €35,000 to put in trust for our 16 year old for about three years. We were thinking of An Post saving bonds as it seems to be one of the safest. There might be better rates elsewhere but it has no dirt tax. How safe is An Post if the country was to default? Is there something else we should look at?

 

 

This is a substantial enough sum of money and could be diversified into more than just a fixed interest, fixed term deposit product. Leaving all that money on deposit in Ireland leaves it open to not just a capital risk from higher taxation, confiscation or default, but also from inflation.

 

However, three years is not a very long time to invest this money in conventional funds because of potentially high set up costs and on going management charges, so any non-deposit option needs to be done on a low cost basis, such as those associated with direct share purchase or ETFs - exchange traded funds that comprise a group of shares that can trade like a single share directly on a stock exchange. Profits from shares and ETFs are taxed as capital gains, but these can be offset by the annual CGT allowance of €1,270.

 

Your €35,000 is at risk of both taxation and direct confiscation if it is left here in Ireland as well as possible currency debasement and inflation. Short-term government or corporate bonds that produce an annual yield and the return of the capital might be worth considering, though again, the annual coupon – dividend - is subject to tax.  Indexing the bonds to consumer price inflation will help mitigate any effects of inflation.  So would exchanging a portion of the €35,000 for ‘real money’ like gold or silver which can act as a form of insurance against the risk of currency debasement, devaluation and inflation.   

 

Many commentators believe stocks are overvalued and/or very difficult to accurately price because of they way governments and central banks have inflated the money supply and created so much new credit and debt since the global financial crisis began. Investing €35,000 – or €350,000 – safely, is not easy and many advisors are focussing on wealth protection over wealth creation.

 

Hire a good, independent, fee-based advisor to help you make the right choices.

 

 Foreign Pension

 

JH writes from Co Limerick: During the 1970s I spent over three years working in Germany before returning to Ireland in 1980 when I took up a teaching position. Is it possible to claim a pension on the basis of the contributions I paid during this period or can I have the money refunded or is the money just lost?

 

If you worked and paid social insurance contributions in an EU member state like Germany then you may qualify for what is known as a pro-rata pension. This means that the state pension you receive from age 66 will combine your Irish and German social insurance records. 

 

To find out if you qualify for the German pension contribution, contact the Pensions Division of the Department of Social Protection in Sligo at least six months before you reach your retirement age: State Pension (Contributory) Section, Social Welfare Services, Department of Social Protection, College Road

Sligo.  www.welfare.ie  

You will need to fill out a form EUP 65 which you can download here: http://www.welfare.ie/EN/Forms/Documents/EUP65.pdf

 

 

Northern Banks

MC writes from Dublin: Can you advise on a bank in Enniskillen, Northern Ireland in which I could open a deposit account?   

Enniskillen banks include First Trust Bank, which is owned by AIB; Northern Bank which is owned by Danske Bank and is a sister bank of NIB; Bank of Ireland and Ulster Bank, which is owned by Royal Bank of Scotland, part of the Lloyds banking group. There are three building society branches in Enniskillen, Abbey National, Nationwide and the Progressive building society, but according to Nationwide UK Ireland, under building society rules, you must be a UK resident to open a building society account in the UK. 

Before travelling you should contact the bank branches to see if they will facilitate your opening an account.  You can find the contact numbers for all the above on this business website: http://www.ufindus.com/banks/enniskillen

 

 

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Tell us how much it will cost to turn on the tap, Mr Hogan

 

It is very unlikely that our jails will be filled with water rates protestors this time next year, despite the belligerent stand that so many people were taking when they called into afternoon radio programmes like Liveline last week.

No one – not even well off citizens in functioning democracies – like to pay for the provision of water or for sewerage treatment or rubbish collection. Nearly everyone thinks these services should be ‘free’ because they already pay taxes or they think that someone else – someone more wasteful or wealthy than they are - should pay.

Minister Phil Hogan’s reiteration about the need for us to pay for and conserve water was nothing more than a way to soften us up to the reality of the new flat water charge which he plans to bring in from next January, even before the installation of meters.

Water, and let us not forget, property charges, have been well flagged in the Commission on Taxation report in 2009, the 2010 National Recovery Plan and budget and the coalition programme for government, but where he fell down badly last week was in not providing any idea of the water costs we might have to pay.

Instead, all sorts of figures were being bandied about – probably none of them accurate and I suspect most to be far off the real mark. Hogan’s vague hints about a ‘generous’ free provision of water only irritated Liveline’s listeners and infuriated the bloggers and tweeters.

The 2009 Commission on Taxation report did have a few concrete things to say about domestic water charges however.

In 2007 Irish people consumed about 160 cubic meters a day, compared to 116 cubic meters in Germany and 126 in Denmark. In those countries there is no free water allocation to househoIds and they pay the full delivery cost, which is what the Commission suggested we should pay.

Free allocation, it said, would be “fraught with difficulty. Setting a relatively generous quota would do little or nothing to encourage water conservation. Setting a low quota, or giving a number of units per member of the household, would present huge administrative difficulties. We concluded that it is preferable to have no quota in place and that those on low incomes could be dealt with through a waiver system.”

So what is it to be – a free allocation or no allocation?  And how much higher will the unmetered water bill be per household, if all the people who want to be exempt - the unemployed, social welfare recipients, the elderly, the working poor and those struggling to pay mortgages – actually qualify for a waiver?

Last weekend my brother in law and his Danish wife were visiting from their home in Odense in Denmark.  Their metered water bill for their two person household (their children are grown) is about €250 a year for water usage and another €250 charge for waste-water disposal.

The meter installation budget for 1.2 million households is expected to be over €500 million. I contacted the biggest provider and installer of water meters for commercial users in Dublin and asked them how much it would cost to buy and install a water meter in a domestic residence. 

“About €50 for the hardware”, but much more to connect it to the network and install it in the dwelling,” I was told. “I don’t suggest you buy one independently. It might not be compatible with whatever meter system is introduced.”

So much for thinking I’d accurately monitor our water consumption rather than just have to put up with an arbitrary charge next year. 

We’re only six months away from another brutal national budget so it isn’t unreasonable to ask the government to flag the water and property charges before then.

If the Government leave it to Budget Day they shouldn’t be surprised if our tempers are even more frayed than they are right now.

 

Dig deep for charity

 

Over 40,000 women ran last week’s Flora Women’s Mini Marathon with the same good humour and sense of fun that they do every year, but maybe with a greater sense of urgency: charities are struggling, just like the rest of the economy.

We’re  told that while volunteer labour has been going up since 2008, actual cash donations are down and it’s getting more difficult to deliver existing services.  What I didn’t know until I came across a report commissioned by the Irish Charities Taxation Reform (ICTR) group in 2009, is that of the €792 million raised by Irish charities that year, a shocking €460 million was donated by the state. 

That doesn’t auger very well for the beneficiaries since all official state spending is also being cut.

The ICTR would like a 2009 Taxation Commission recommendation to reduce the minimum amount on which tax relief can be claimed – from €250 to €100 – to be implemented.  Ideally they would like all donations to be tax deductable but that is even less likely now than two years ago.

The impact of the economic downturn on Irish charities has been underestimated, mainly because so few people realise how dependent they are on the state. 

If even more hardship is to be avoided, donations have to increase and that means more structured giving by everyone – by setting up standing orders and remembering them in our wills. 

 

 

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WATER CHARGES WILL RAISE TAXPAYERS HACKLES

 

Abolishing local authority charges and property taxes may have been hugely

popular, but now that they have to be re-imposed, it could be the straws

that broke the proverbial camel taxpayer’s backs.

 

The Minister for the Environment may have been marking our cards last week

about the imposition of water charges from next year, but there are no

details – just speculation - about how much it will cost us, who will be

exempted and what level of free water allocation we can expect. No one seems

to know exactly how much the proposed water meters will cost either.

 

There are a few clues, however, and they can be found in the 2009 Commission

on Taxation report, under a chapter headed ‘Future Financing of Local

Government’, Section 7: Water Charges.

 

This lengthy section describes how domestic water users in Ireland are

‘almost unique among EU Member States” for not having to pay local authority

water charges…in accordance with the polluter pays principle.  It reminds us

that up to 1997 many authorities did impose water charges on domestic users

and the average annual payment by 1996 was between €65 to €184.

 

By 2007, the gap between the cost and supply of water services was already

€394 million a year, says the Commission, a figure now quoted closer to

€450-€500 million.  A minimum €4 billion investment in water services was

needed. 

 

The Water Charges section is full of data about the cost of water for

commercial and industrial users here and in other countries as well as the

domestic water charges that users in other EU countries pay while noting

that “The indications are that excessive volumes of water are being used by

an [Irish] population that largely perceives water to be a free and

limitless resource.”

 

 

The government, it said, backed itself into a corner by defending a policy

that “to date has been to prohibit the charging for water to domestic homes

on the basis that this is ‘a core public service’.

 

 

That is exactly how the majority of angry listeners calling into radio

stations all last week see their water supply. A great many believe that

they already pay enough for it through general taxation of when they paid

over tens of thousands of euro in the form of property stamp duty when they

purchased their overpriced homes.

 

 

The latter, in particular, seemed to take a ‘over my dead body’ attitude to

the notion of paying either a water or property charge.  There was very

little tolerance or the Commission’s criticism that these same households

could install a swimming pool on their premises “and access a free water

supply to maintain that pool all year round at no cost.  In our view, this

is hardly a core public service.”

 

 

So what did the Commission on Taxation in 2009 believe the costs of water

charges should be and who would be exempt?

 

 

The cost of installing meters over a 4-5 year roll-out would be in the

region of €400-€450 million, based on 2008 estimates but the full cost

“should be borne by the state” and then passed onto consumers. Since the

state’s coffers are completely bare now, the suggestion now seems to be that

the individual householder will have to bear that upfront cost.

 

 

On the matter of a free allocation of water – perhaps a shower’s worth per

person per day - the Commission said this would be “fraught with difficulty.

Setting a relatively generous quota would do little or nothing to encourage

water conservation; setting a low quota, or giving a number of units per

member of the household, would present huge administrative difficulties. We

concluded that it is preferable to have no quota in place and that those on

low incomes could be dealt with through a waiver system.”

 

 

The waiver, it suggested, could be based on the existing free units of

electricity system for low income households, which would presumably include

social welfare recipients. There is no mention of negative equity households

or those who have already paid stamp duty on their homes. The waiver, said

the Commission should be determined by the local authority not central

government.

 

The Commission also recommended that the water charges be set low initially

but only be payable once the meters were installed.  Clearly that is not

this government’s intention if the charge is to start from next year, sans

meters. As for the cost I must be “based on a consistent methodology [by the

local authority] and applying the principle of full cost recovery.”

 

If other EU countries daily water charges are anything to go by, this will

be a substantial cost: the average cost per cubic metre of water in the EU

in 2007, said the Commission was €3.25; but in Germany and in Denmark where

there is ‘full cost recovery’ it was €5.09 and €5.63 per cubic metre

respectively.

 

This works out at 126 litres per customer per day in German and 116 litres

in Denmark per day.  In Ireland, we use 160 litres a day.

 

Expect a big bill. 

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Investing abroad wont pay any extra dividends



CR writes from Co Dublin: In your item headed "Canadian Option" this week you indicated that Irish income tax is levied at the highest rate on non-EU deposits. Is this also the case for dividends from non-EU companies?

The dividend payment a person receives every year (or half year) from a company whose shares they own, are already often subject to withholding tax in the country of origin. You are also obliged to pay Irish income tax on the dividend you receive but where double taxation agreements exist – or at least apply to dividends – you can claim a tax credit for the tax that was deducted at source, but only at the lower of the applicable country’s tax rates.

 

For example, if the foreign dividend was subject to a 25% withholding tax and you only pay 20% standard rate Irish income tax, you can claim a tax credit of 20%, not the 25%. If you pay 41% marginal rate income tax, you can claim a tax credit of 25% for the amount of tax that was deducted by the other country’s revenue authority so that you end up paying 41% tax, not 66%.

 

This is not a hard and fast rule, however. In the case of UK shareholdings, you cannot claim any credit for any of the 1/9th of the net dividend that is withheld by the UK tax authorities. You are also still obliged to pay your highest income tax rate to the Irish revenue on the net dividend you receive.  

 Seperate taxes

SM writes from Dublin: I inherited a house from my neighbour in 2006. At the time I was separated and living with my mother. I paid inheritance tax of €33,000. I recently came across an article that you wrote about capital gains tax exemptions for separated people and I am wondering if there was an exemption for me? I moved into the house straight away and am living there since.

The article to which you refer dealt with the tax treatment of inheritances between separated spouses, not capital gains tax.  Wealth transfer or inheritance between spouses is entirely tax free. Where a couple has not divorced, any inheritance they leave each other is not subject to tax; the couple in question were close friends and childless.

Despite your separated status, the house you inherited from your neighbour – and not a relative - meant that you had to pay more tax on the capital value of the property than if say, you were even the benefactor’s child, sister or other relative or linear descendent. Capital acquisition tax in 2006 was 20%; today it is 27%, and the tax-free inheritance threshold between strangers is just €16,604, compared to €23,908 in 2006.

 

 No Garuntee

KK writes from Dublin: After reading in an article by Niall Brady last week about how there are no real capital guarantee investments I went and looked at one of my own investments, a five year and 11 month tracker bond I have with Irish Life. It seems that my €100,000 capital is not guaranteed and if JP Morgan, the fund manager in this case goes bust, I get nothing.

I feel I was missold this product four years ago when I took out this investment as I wasn’t told that the guarantee is only as good so long as some bank in America doesn’t go bust. If I try to take my money out now it will be subject to early encashment clauses.

My question is, is there anything I can do straight away? If I went to the Regulator it would probably be two years before they got around to me and in the meantime anything could happen to this American bank. Any advice would be welcome even if other learn a lesson from it.

 

These tracker bonds are popular because they dangle the words ‘capital guaranteed’ in front of risk averse investors who also hope that at the end of the nearly six years they will also have earned a net return that what their money would otherwise earn if it was left in the bank.

Unfortunately, as you have discovered the capital guarantee only holds good so long as the institution managing your money – JP Morgan in this case – stays in business and you don’t withdraw your money before the maturity date.  This is encashment penalty to which you refer.  Some trackers on the market do ‘guarantee’ a small annual return, usually no more than 2%, but otherwise the profit depends on the performance of the invested index-based derivatives.

Tracker bonds are a bit more transparent than they used to be – which isn’t saying much since it is very difficult to establish the reduction in yield (RIY) after all charges, fees and commission are applied.

You shouldn’t automatically assume that the financial ombudsman is too busy to process your complaint, especially if you believe you have a cash (and evidence) that you were missold this product.  Otherwise your option is to keep the bond to its maturity date in the belief that JP Morgan remains in business or encash it now and live with any loss.

One lesson to be learned from your experience is that everyone needs to be more sceptical of financial guarantees of any kind and to never invest in any fund or asset that you do not fully understand.  With a sum as large as €100,000 at stake, the second opinion of a good fee-based advisor should also be sought.

For years the advisors I respect have discouraged their clients from buying expensive, opaque tracker bonds and instead recommended, if the client was still disposed to this kind of part deposit, part share investment that they place the bulk of their funds on deposit with a top interest yielding account and with the balance buy a small selection of carefully selected shares or low cost ETFs (exchange traded funds). 

At the end of the five or six years, the idea was that most or all of the capital would be returned from the deposit account and the shares or funds would have produced a profit in excess of the going five year net deposit return.

 

 

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Forget the mawkish ad, life cover is vital for parents

 

Irish Life’s has a new advertising campaign aimed at parents who should be buying life insurance: a young man reminisces about how he didn’t always take his dead father’s advice when he was alive, but how his own life has turned out pretty well because his parent had the foresight to take out an Irish Life protection policy.

Everyone I’ve asked about to about the advert shares my view – that it’s mawkish and maudlin.  One suggested that “it looks like it was produced by the same mind that came up with that horrible ISPCC ad about child abuse.”

Irish Life defend their new advert on the grounds that the feedback they received from focus groups showed “there is a lack of awareness and information out there for families on the importance of protection” and that the message needed to be a strong one if it wasn’t to be lost.

I couldn’t agree more that life insurance is probably the second most important form of financial protection that a parent can provide for their dependent children (having a good job is the first). The financial hardship that can happen when a parent dies prematurely is something I experienced as a teenager when my own father died, aged 50, leaving only an inadequate death-in-service benefit to support his family.

I think a more honest, straightforward message reminding parents of the risks they take by not having the appropriate amount of life insurance in place and how genuinely affordable the cover is – as little as €15 a month for €100,000 of insurance for 25 years - would be far more effective than the sentimental, soft focus claptrap that Irish Life seems to think will grab viewers attention.

It isn’t surprising that Irish Life is concentrating on life insurance for this campaign, which was preceded by a survey about people’s financial concerns if an unexpected death or serious illness were to strike.

High costs, poor investment returns; dodgy capital guarantees on tracker bonds and soon, the confiscation of pension savings by the government explains why the life companies are rediscovering the merits – to them – of promoting old fashioned and genuinely worthwhile products like old fashioned life insurance.

The margins aren’t as high as those produced by investment funds or pensions, but the industry only has itself to blame for systematically killing off that golden goose.

Buy life insurance. Your loved ones may thank you for it someday.

 

Yet another U-turn

 

Is there any end to the election promise u-turns that this coalition government has to make? 

The latest to be disappointed are parents and their college going children – again - who were told prior to the election by Labour’s education spokesman Ruari Quinn that there would be no re-introduction of college fees on his watch, and that he’d reverse the proposed €500 hike in the 2011 registration charge.

Did anyone really believe Quinn when he insisted that fees were gone for good? In this economy?  Still, there must have been a few Labour supporters who thought with their champion’s help, they might dodge the latest €500 hike which would otherwise see them forking out €2,000 for the 2011-12 college year.

So much for promises: the €500 hike falls due in September and Minister Quinn is repeating the government mantra that the country is broke and his hands are tied by his EU/ECB/IMF overlords, just like every other member of the cabinet, including Leo Varadkar.

He didn’t quite say that there will continue to be no money in the state coffers for as long as the €18 billion shortfall between money spent by the government and the revenue it collects remains and little headway is made on reducing the cost of the three biggest ticket items - public sector pay and pensions, social welfare payments and the health service.

The reality is that subsidized, let alone free, third level education – like heavily subsidized nursing home care for the elderly – was never sustainable.  It took just over a year for promised Fair Deal scheme to collapse and about 10 years for the free third level promise to be gradually withdrawn as registration fees were introduced.

Parents who want their children to have a college education have to start saving and investing from the time their baby is born. 

The £9,000 (€10,320) annual fees that now apply in England and Wales are probably as good a target to aim for as any if your children are still in primary school.

 

Best of a bad lot?

 

There are plenty of reasons why Nationwide UK Ireland is a popular deposit destination for thousands of Irish savers:  it offers very competitive demand and fixed rate deposit accounts; it is not owned by the Irish state, or the UK one either but by its members and it is regulated by the British Financial Services Authority, not the Irish Central Bank.  Its customer service is very good.

Nationwide UKs latest results are the other good reason why its Irish subsidiary should keep attracting worried Irish savers - it made a pre-tax profit of £317 million, and an underlying profit of €276 million last year, up 30% on the previous 12 months.

Do they pay their executives too much? Probably.  Do they share profits generously enough with its millions of member and customers? Probably not.

But its loan arrears are a third lower than the UK banking average, it has £189 billion in total assets, and has some of the highest capital and solvency ratios in the world.

The Nationwide UK building society emerged intact from the great banking crisis because it didn’t lose its collective head by discouraging savings and lending out more money than could be repaid. There isn’t a single Irish bank that can make such claims.

 

 

 

 

 

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