Jill Kerby

 

TIMES ARE TOUGH, SO START HOOVERING UP YOUR LOST RICHES

 

The Pensions Ombudsman in his annual report last week claimed that thousands of people have not claimed old pensions that could be worth up to €500 million.

These are pension funds that they may have contributed to as an employee or privately, but have since forgotten about because they’ve moved job, emigrated, their company went bust before formally winding up their scheme and they were under the misimpression that they were then no entitled to a claim on the money.

With times as tough as they are for many people, Paul Kenny, the Ombudsman recommended that anyone who thinks they might have a claim on a pension fund make the effort to search out their old firm, the trustees or fund provider (such a life assurance company.) 

Ideally, once you make contact with all or any of the above, you will need to provide these sources with your name, age, when you joined the scheme, and any details of your participation, like a scheme ID number or other membership evidence..

"We know that pension providers have numbers – possibly thousands – of orphan schemes on their books, that should have been wound up, but were not," said Mr Kenny. Difficulties arise when not just the participating employer has gone out of business, but the pension fund provider as well.  Several mainly UK based pension companies have wound up operations here in recent years and have sold on the administration of the ‘paid up’ schemes to specialist operators.

 

The ideal solution to this issue of lost pensions is for a tracing service to be set up that ex-members could apply to, as exists in the UK. The Pensions Board would be the logical organisation to provide this service.

Until then, anyone who believes  that they might have a long-lost pension could approach a good pension broker or financial adviser to help them with the search, paying them a fee for advice on how to proceed. (Since this could be a long slog requiring hours of investigation, correspondence and form filling, it might be too expensive, unless the amount in question is to turn the entire search over the adviser or broker.)

If you do find your old company/pension scheme be aware that funds that have been frozen, say if the company has closed and no further contributions have been made for many years, will have been attracting fees and charges which will most likely deplete the value, even if there has been fund growth.

That said, you should still be entitled to something at retirement date in the form of a tax free lump sum worth up to 25% of final salary and/or an annuity income.

Lost pension funds are not the only sources of dormant money you may be entitled to:  it is estimated that another €600 million is sitting in dormant deposit accounts and insurance policies (now being minded by the National Treasury Management Agency), unclaimed Lottery winnings (though only for 90 days) and 18,000 Prize Bond winnings, which can be claimed anytime and even unclaimed cash refunds, from the likes of Dublin Bus.

All the banks have now closed their safe-deposit schemes, but a treasure trove of goods exists in the great vault under the Bank of Ireland branch in the House of Lords building on Dame Street in Dublin, left, and now unclaimed by their owners dating back to the late 1700s.

A former bank employee (now head of pensions at Standard Life) Jim Connelly has been calling for many years for Bank of Ireland to either make a last concerted effort to trace the owners’ descendents or for the treasure to be donated to or claimed by the State under the National Monuments Act, for the benefit of the nation. (You might want to go through those old records if you think a relative may have left behind the paintings, gold and silver, furniture, china, jewellery, old uniforms and ceremonial swords that Connelly observed in the Bank’s vault.)

All the money in lost or dormant pension funds, dormant accounts, investment policies - or in bank vaults - can be claimed by rightful owners and heirs.  If the money can be traced it will be subject to all the usual tax or inheritance regulations that would otherwise apply: access to pensions funds will follow retirement regulations (and retirement ages), investment profits will be subject to exit tax. Prize bond winnings are tax free. 

The NTMA consider deposit accounts to be dormant after 15 years of non- activity but you can claim the money back by filling out a filling out a Dormant Account Claim Form and sending the application to the

Irish Banking Federation Nassau Street, Dublin 2, to the Dormant Accounts Division at the  Department of the Environment, Community and Local Government, the Customs House, Dublin 1 in Dublin or to Pobal, Holbrook House, Holles Street Dublin 2.

 

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

 

 

 

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TAX TRAPS CAN CATCH UP WITH YOU…NO MATTER WHERE YOU LIVE

 

Coping with our own complicated tax laws are difficult enough without also being subjected to those of another country.

Tens of thousands of Irish people and foreign nationals who have worked and lived in Britain or the United States and still have investments, property and even pension funds there, are particularly vulnerable to those countries tax regulations.

Soon, one group in particular – the nearly 12,000 American citizens living in Ireland (with or without dual citizenship) and the unknown number of Irish citizens who have dual citizenship or are holders of US green cards but reside here  – will begin to discover just how vulnerable they are.

From July 1, their banks and other financial institutions are obliged to begin reporting them to the American tax authorities under FATCA – the Foreign Account Tax Compliance Act 2010.

Tax obligation

Americans (and US green card holders) who live outside the United States and have relatively modest earnings, savings or assets have always been obliged to file annual US tax returns, even if they didn’t have any tax to pay.

Only income under $10,000 (€7,350) for a single unmarried person under age 65 or $21,200 (€15,580) for married persons over 65 and filed jointly, have been exempt from the filing of IRS Form 1040. However, under a 1972 FBAR (Foreign Bank Account Report) regulation, Americans or green-card holders with foreign deposit accounts holding just $10,000 (€7,350) were required to file this information with the IRS every year.

Few foreign based Americans or green card holders – who number in the millions - have been aware that their citizenship, and not their residency, determined their tax status and obligations. (Americans employed abroad in US multinational companies or agencies can depend on their companies to ensure compliance.)

Tax and financial advisers here say that awareness is low among Americans who are long time residents, Irish nationals with US citizenship by birth or marriage or returned émigrés who have kept their green-cards.

Up to now, without sufficient resources, it was also impossible for the IRS to globally enforce their own tax rules, but that also explains the periodic tax amnesties it has arranged for non-compliant Americans living abroad and green card holders.

The last amnesty occurred in 2013 said tax adviser Declan Dolan of Dublin accountants, DCA, who deal with many foreign resident clients, including Americans citizens and Irish who have lived and worked in America.

“In the case of last summer’s amnesty,” he said, “US residents here who filed up to three previous years declarations and paid any tax, were then considered to be tax compliant by the IRS.” Penalties and surcharges were waived.

However, since 2010 and the passing of FATCA, to which Ireland was one of the earliest signees, compliance has now shifted. Financial institutions have been obliged to identify their American customers with offshore accounts to the IRS, starting with large institutional investment customers.

From this July, retail customers with foreign bank accounts and investments with an aggregate value as low as $200,000 (€147,000) for single people and twice that for married couples filing jointly, must be reported. Financial institutions and banks that do not cooperate with FATCA themselves face onerous, annual tax withholding charges on their US assets.

Once the identities of the FATCA account holders are known, the onus is on the IRS to pursue their citizens and green card holders for any current or back income tax, capital gains, inheritance or other taxes on these holdings. A FATCA alert, the theory goes, could trigger a wider IRS audit.

This is an enormous task for the American tax authorities and FATCA itself is only expected to raise about $900 million per annum.

However, between income tax filing obligations, reporting deposit holdings under FBAR and banks and other institutions reporting customers under FATCA, US citizens, dual citizens and Irish green card holder are potentially open to not just back tax bills but penalties and surcharges, warn tax and financial advisers here. 

UK Holdings

The tax position of Irish or British residents who are holders of UK financial accounts and assets is not as onerous or intrusive as it is for Americans, according to financial adviser Marc Westlake of GoldCore Wealth Management, who specialises in advising foreign nationals on investment strategy.

Double taxation agreements (which also apply between Ireland and the US) ensure that people don’t pay tax on British assets twice, but  “UK tax is a very complex subject full of pitfalls for the unwary,” said Westlake.

“For example, thousands of Irish people own investment property in the UK. Up to now there was no UK capital gains tax upon disposal for non residents, residents but that will change from next year when British CGT will apply as well as Irish CGT.” 

Another common tax anomaly arises when long time Irish residents in the UK return to Ireland but keep their individual savings accounts (ISA’s). “These accounts are only tax-free upon disposal to UK residents. If encashed after the owner leaves, they are subject to both UK and Irish capital gains tax.”

Inheritance tax can also be problematic where foreign assets are concerned, said Westlake.

If the owner of UK or US-based assets dies, and that person is neither a resident nor a citizen, a different set of estate tax rules will apply, he explained.

“First, the tax-free transfer between spouses does not apply in the case of non-resident aliens, or NRA’s, the term that is used in the United States. Normally, a US estate is tax-free up to a value of $5 million dollars. But in the case of a surviving NRA spouse who is living here in Ireland, and is not a US citizen, the tax-free threshold is just $60,000 and a tax of 35% is liable on the balance.

“In the UK, the non-resident surviving spouse will pay 40% tax on any chargeable assets worth over £325,000. Only spouses who reside in the UK enjoy a tax-free inheritance from their late husband or wife’s estate.”

Westlake warns that “holding assets in foreign jurisdictions adds a significant layer of complexity to personal finances” and shouldn’t be undertaken lightly.

 

“Before anyone invests abroad, purchases assets, or takes out foreign citizenship, they should get proper financial, tax and legal advice,” recommends Declan Dolan.

 

 

 

 

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Going on Holidays? Make Sure You Are Properly Insured

 

 

It’s holiday time and you are joining the family – your children and theirs – at a lovely Spanish resort. Everyone is looking forward to the sun, sea and surf, the late night suppers and the colourful markets.

 

No one expects anything to go wrong but flight delays, lost luggage and accidents do happen and only the foolhardy go on holiday without a good travel insurance policy. Nevertheless, a survey undertaken by AA Ireland a few years ago showed that one in nine Irish travellers don’t bother with insurance – many of them to their financial regret.

 

Travel policies come in different guises:  tour packages include insurance that you can refuse to purchase if you prefer to buy your own single or multi-trip policy.  The latter policies are very good value for regular travelers, but usually limit cover to people aged under 65 and sometimes, under 75. 

 

If you are over 75 you should contact an insurance broker like AA Ireland as there are only a limited number of companies that will provide you with cover.

 

Aside from the usual cover for cancellations, lost luggage, thefts and accidents you need to ensure that you understand the limitations of your policy and there is likely to be an excess payment (or a number of different excesses.)

 

Older people may not be undertaking dangerous activities (though many do ski and scuba dive) but if you do, make sure your policy covers these. If you are travelling to a country where there is some unrest (like parts of Africa and the Middle East), or even Thailand where martial law applies) you may not be fully covered. Checkk with the insurer.

 

 

A standard feature of most travel policies is that they do not cover any claims related to pre-existing medical conditions.

 

That doesn’t mean that you can’t secure cover for such a conditions, but you must declare them and ensure that they are covered in the policy.  This will increase the price.

 

Even members of the family travelling with you may have to declare that they know about your pre-existing conditions and accept that they will not be able to claim compensation if your condition results in their holiday or travel plans being compromised.

 

The sort of pre-existing conditions you need to declare on a typical travel insurance policy include all respiratory, circulatory, heart or back conditions, and any diseases or conditions for which you have been previously diagnosed and treated, including cancer or mental illness, even if you are now disease clear or cured.

 

Not declaring pre-existing medical conditions is the biggest cause of claims being rejected and potentially huge costs perhaps being incurred, especially if you fall ill and need treatment outside of the EU, where at least you can present your EU health insurance card to ensure emergency treatments.  A single night’s hospital stay in the United States can costs several thousand dollars and being air-ambulanced home can cost up to €20,000.

 

You should also be aware that most standard travel policies only cover individual holidays that last no more than 30 days; if you are staying away longer, you must ensure that your single or multi-trip contract allows for extended stays.  

 

Health Insurance

 

There is a popular misconception about private health insurance policies that the overseas emergency benefits they include mean that you won’t need travel cover as well.

 

Depending on which policy you have, your health insurer will offer emergency cover up to certain maximum benefit, but only for illnesses or accident that happens only while you are on that holiday. If you need on-going treatment for an existing condition – even something as innocuous as a new cast for that broken wrist that happened before you left because it got accidentally soaked in the hotel pool – that treatment at the local hospital will not be covered by your health insurance.  Make sure to bring your EU health card (and your credit card.)

 

The EU card is strictly for free access to emergency treatment in public health facilities and not in private clinics or surgeries.

 

Your private health policy may also pay to medically evacuate you to the nearest medically appropriate country or to Ireland, whichever is closer but treatment and medical evacuation or travel must be pre-cleared by the Irish health insurer to ensure that payment is refunded.

 

What won’t be covered, or refunded, is missed flights, unused hotel or travel bills, etc.  For that you will need a genuine travel policy (which are often sold by health insurers though not usually for people aged over 75.)

 

The cost of travel insurance can usually be discounted if you have a good health insurance policy but the travel insurance company will usually require that you go to that insurer for medical/repatriation costs.

 

I checked the cost of a world-wide, comprehensive annual travel insurance policy for a couple aged 61 and 63 with no pre-existing conditions, but an existing health insurance policy, and once for a couple with the same profile, but 10 years older. 

 

Even without any pre-existing medical conditions the prices were €63 and €108 per annum respectively.  Neither of policies I checked would cover people aged over 75.

 

Ideally, and at least a few weeks before you intend to travel, you should dig out any existing travel or health insurance contracts you have and check the terms and conditions.

 

If you are over 75, contact a good broker to shop around on your behalf for the best value and appropriate plan.

 

 

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PENSION INVESTING NEEDS TIME, MONEY AND GOOD FUNDS

 

Last week, after chairing an investment seminar that RaboDirect Bank was hosting for over 100 of its customers in Cork, I spoke to a number of people in their 50’s and 60’s who told me that they were there in order to look for ways to “beef up their retirement funds”.

It’s an expression I heard a lot, back in the mid-2000’s, when purchasing a buy-to-let property (or two or three) was the way this age group (and even people in their 40s) intended to fund their retirement. 

They didn’t see it as ‘heart attack” investing – which it was – because they genuinely believed that property prices could only keep going up and by the time they were ready to retire – early 60s for most of them – they could sell either sell the property (or properties) and live partly off the inevitable gain, or sell one, pay off the capital on the other and live off the rental profits.

So much for those plans.

No one I spoke to in Cork had buy-to-let properties, but a few still wondered if now was a good time to buy one.

The best time to buy property, or stocks and shares, or any other asset, is when they are cheap. In the case of Irish property, they hit their lows in 2012, though some property values in undesirable areas of the country continue to drop.

Stocks and shares were cheapest in mid-late 2009 after global markets crashed in late 2008.

Today, some shares and markets (like the US) are very expensive and so is Dublin property. Residential property in most Irish cities have gone up over the past year.

But back to pension plans.

The RaboDirect customers I spoke to had good reason to be worried. They hadn’t put enough into their pensions over the years, or their employers had not. They were now very worried that by the time they retired in five, ten or 15 years and the state pension was perhaps not be as generous as it is now and taxes and state services were even more expensive, they would see a serious fall in their incomes and lifestyles.

The Irish Association of Pension Funds represents fund managers and occupational pension scheme operators, and it agrees that there is plenty to worry about. 

A survey they’ve recently conducted shows that, on average, a total of just 11% of annual salary is being invested by workers and their employer’s into their defined contribution retirement schemes and that people who retire on salaries of €50,000 per annum will end up with an annual retirement income of just €8,500.

 

If they also have sufficient PRSI contributions, the state pension will boost this income by another c€12,000 (or its equivalent value in the future.)

 

Unfortunately only about half the working population has an occupational or self-employed pension; the other half will either have to keep working after age 66, live off their state pension only or off a state pension and any private savings. The most desperate may have to rent/sell assets (like their homes).

 

Few of the older people I met in Cork looked like they could live comfortably on €12,000 or even €20,500, which is why they attended the seminar. They were interested in possibly invest savings or surplus income, which is currently subject to very low deposit account yields and up to 41%-44% DIRT tax.

 

Unfortunately, there is no magic bullet solution to late retirement planning.

 

RaboDirect provides a big on-line platform of international fund managers and provides a huge amount of information about individual funds, such as the underlying companies or commodities, bonds, etc under investment, current and past performance, risk profiles and annual fund charges.  (RaboDirect itself charges 0.75 entry and exit fees.)

 

It’s a good place to start to familiarise yourself with fund options, but it is an execution only service. At the seminar, the case for active or passively managed funds was made by one of RaboDirect’s listed fund providers – Blackrock, the biggest investment manager in the world. Many in the audience came down on the side of low cost passive funds.

 

That said, there is always a place for good, impartial advice before you invest. The cost, effort and the risks that need to be taken in your 50s to secure a pension is much greater than in your 20s or 30s and an experienced adviser – especially if you’ve done some research yourself – can help you choose the most suitable, diverse, ideally low cost investments.

Proper investing is the opposite of short term speculating. – whether in a single, buy-to-let property with a too low annual net yield or penny bank shares that the buyer hopes will double in value so they can then sell for a huge, instant profit.

It’s also known as “heart attack” investing… for good reason.

 

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

 

 

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