Jill Kerby

LETTER TO LEO…

Dear Leo (if I may),

You haven’t had much of a political honeymoon, which seems a little unfair given the rapturous response you got from the international media as the first Irish Taoiseach to break the mould of the older, Catholic, straight white male with two Irish born parents (with the exception of Dev).

I expect your mum and dad are thrilled that you’ve been compared to the unconventional 30-somethings, Emanuel Macron of France and Justin Trudeau of Canada. Too bad you don’t share their popular electoral mandates.

But I think you might enhance your personal and party reputation before the next election if you act quickly and decisively on the ‘New Politics’ front. My beat is money and personal finance, so I’ll stick with that theme.

For example, I was impressed when you said a couple of months ago that you wanted a new transparent, (soft)compulsory, invested, sustainable pension system for Ireland.

I couldn’t agree more. But the entire system – private, public and old age State pension provision - needs to become sustainable, fair…and universal.  You’d certainly earn cudos (and make international headlines) if you agreed to transfer out of your shiny, gold-plated, indexed Defined Benefit Rolls Royce politician’s pension and sign up for a well managed, universal, defined contribution pension with say, a maximum tax relievable benefit of €60k a year. 

Making a significant dent in the housing/homeless crisis in Dublin would certainly bring you loads of cudos.

If you really wanted to, you could take a stand and bring in emergency legislation that would 1) stop foreign property investors/our own banks from kicking sitting tenants out of their homes; 2) end the obscene practice of domestic land bank speculators and property owners (including local authorities) leaving highly desirable vacant sites and buildings undeveloped; 3) end the free pass that AirBnB landords are getting when they convert whole properties into casual rental units for tourists, who have permanent homes of their own.

If you and your government can’t even do this right now, why should anyone bother to vote for you in the future?

About our dysfunctional public health sector, I have one suggestion. Open a dialogue with the private health service community to whom over 2.1 million people voluntarily (if reluctantly) hand over several billion euro a year in addition to their share of the c€15bn compulsory taxation that funds the HSE.

Private sector hospitals, clinics, practitioners, like GPs, dentists, consultants, nurses, physiotherapists and other technicians, etc, deliver their specialised skills and services in a professional, efficient and timely manner. This is because the decision-making and delivery of private sector healthcare is made by health professionals, not by administrators. They treat their patients like the paying clients they are.

I know how foreign this sounds within the unaccountable HSE bubble, but poor treatment, bad service, lawsuits means private healthcare operators go out of business; everyone loses – patients, doctors, nurses, technicians, support staff, investors.

If you think, like I do, that an affordable, universal health service, delivered to the same service standard as the Irish private health sector is ideal, then you need to stand up to the ideologues of the right and left, to vested political interests and reach out to the private healthcare community instead of vilifying them. Learn from them.

Higher taxes, housing, healthcare (public and private), education and transport costs continue to take their toll. So ease that burden:

-       Get rid of the 39% DIRT tax on savings. Cut the obscene 41% tax on investment funds to the standard tax rate of 20%. Higher taxes and near zero returns on deposits mean people are taking far more risk that they should to just beat inflation. Investment funds help parents put kids through college some day, or young people to save for a wedding or new home. A 41% tax on this level of risk/returns is just wrong.

-       Stop calling the USC (the universal social charge), ‘universal’. It is not. At the least, the 11% higher rate on income over €100k should apply to everyone with that income (including you) and not just the self-employed.

-       Sort out the foreign multi-national tax situation before Mr Macron does…to our detriment.

-       Stop the sneaky unfair levies like the 5% of car, home, travel, public liability insurance caused by the failure of reckless insurance operators and poorly designed compensation funds.

Finally, if you want the support of younger voters, end the long tradition of wealth transfers from young workers to old retirees.  Pensioners, especially the over 70s, are the wealthiest cohort in Ireland with the largest pool of savings and assets (especially property and pensions). They enjoy widespread tax exemptions and preferential rates; free universal healthcare and even universal asset preservation in death (the “Fair Deal” scheme).

Tackle this injustice Leo, and I might even vote for you.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

CAN THIS NEW CASH BACK SMART ACCOUNT HELP SAVE AN POST?

My household spends approximately €150 a week on groceries and alcohol, including that extra litre or two of milk and bread that you inevitably pick up once or twice a week. Over the course of a year – and not including the big spending that happens at Christmas and other anniversaries – that amounts to about €7,800.

After rent /mortgage payments, food purchases are the biggest financial outlay for most people and families incur so any way to cut that bill, as well as other sizeable bills, like utilities and insurance are always going to be welcome.

I tend to divide my grocery spend between Lidl and Supervalu, with the Lidl shop, which is nearer to me, getting the lion’s share of that €7,800. Since I really don’t enjoy the tedium of grocery shopping, I really like their more limited selection.  It means I buy what I need, I don’t get as caught up in impulse buys, the parking is free and plentiful and I’m in and out of the shop in about 30 minutes flat.

Even though the price of goods at Lidl has gone up, just as they have in other grocery stores (either that or the size/portion of many packaged goods in particular has been reduced) my loyalty to Lidl, could end up really paying off.

Last Thursday, An Post announced the launch of its new Smart Account, a new current account banking facility that includes a savings ‘wallet’; a debit card in partnership with Mastercard that facilitates money back on purchases (and can be used as a normal ATM card; and a user-friendly App to keep track of your cash back balance and purchases.  

The Smart Account is being rolled out across its network of post offices starting this month and you can check to see if (or when) the post office near you begins to participate, as well as the list of participating retail outlets – like Lidl – at www.smartaccount.ie 

So how much could this account be worth to you?  There are only nine participating retailers but the company expects dozens more by the end of the year. The shopper who spends €25 or more at Lidl will get 5% back on their purchases; 10% back on their electricity costs with SSE Airtricity; 5% back on all An Post car and home insurance costs; 8% back on in-store and online spend with Intersport Elverys; 5% back on holidays with Sunway; 10% back on direct payments to Oxendales. There is a 5% money back payment on hotel bookings with GreatBreaks, online book purchases with Kennys.ie and garden furniture purchases with OutdoorLiving.ie respectively. 

Even if you only shopped at Lidl and spent €560 a month (nearly what I spend) and also paid €170 a month to SSE Airtricity and €40 to Post insurance, you could expect to save €47 month or €588 back over the course of a year.  Add an annual summer holiday purchase with Sunway for the family – say €3,000 between flights and hotels – and you’d net another €150.  It all adds up.

There are minimum purchases to watch out for and the cost of running this new current account is €5 a month – someone who gets free banking may want to take that into account – but the payback is that the savings from purchases that are put into your Smart Account “wallet” and any additional savings you may want to make, could yield a return of anything from 5%-10% on the purchases you subsequently make with participating retailers. Savings accounts these days are yielding practically zero percent interest.

Cash back schemes are popular, but they are not all good value. When Supervalu was Superquinn you could use your accumulated points to reduce your grocery bill. Today you get a cash coupon that you can only use between certain week dates. I preferred it the old way when I saved up all my points and reduced my big Christmas shopping bill. 

This scheme is certainly on the attractive end of the cashback spectrum, assuming the participating retailers offer good value. You still need to shop around. And for this Smart Current Account to really take off it should add more big-ticket retailers like, for example, a health insurer or an airline.  Frequent flyer points for credit/debit card purchases are huge incentives for people to use that particular card.

You can apply for a Smart Current Account online or you can pick up an application at a participating post office. You then bring the completed form and your identity documents to the post office which will then send out a start-up kit 7-10 days later.

Banking still needs a shake-up in this country. Customers are looking for better returns on savings and tangible rewards for loyalty.  The post office needs to become more relevant.

This could be the way to achieve all three.

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.

MORAL DUTY…AN INHERITANCE HAZARD THE STATE INTENDS TO REMOVE

Irish people have very liberal, generous views of inheritance.  Nearly every older person I meet wants to leave something to their children or grandchildren when the die.

In many ways this is commendable, but perhaps not as realistic as it once was when people didn’t live as long and extended families meant that elder care was frequently provided within the family and not in institutions like public or private nursing homes.

Whatever about the short-term availability of the ‘Fair Deal’ nursing home assistance scheme, in which the applicant only pays a portion of the cost of expensive institutional elder care along with the state, the growing cost of this care to the state as the population ages means that pressure will continue to be put on people (and their families) to pay more and more of the cost from their own assets.

It is this state funding liability issue that the inheritance laws need to be reformed, claims the government. The Law Reform Commission has proposed that section 117 of the Succession Act 1965 should be amended so that parents no longer have a ‘moral duty’ to make financial provision in their wills to their adult, non-dependent children.  

The reformed Act will still require them make some provision for children over 18-23 who are still in full-time education or for an adult child who is already dependent due to a health or disability issue or where an item from the parent’s estate may have a particular sentimental value or attachment. This is not expected to include fixed assets like a house, land or family farm, say legal experts, but more likely be items of sentimental (and perhaps monetary value)  like a piece of furniture, art, jewellery, or even a coin or stamp collection that, say had always been promised to a particular child.

The notion that a parent has an automatic moral obligation to leave a part of their estate - cash, land, property - to any or all of their adult children, regardless of their financial position or the nature of their relationship, will no longer apply.

The most contentious wills I have ever come across have been ones that didn’t so much as disinherit the adult children, but favoured one or two over the others.

Such settlements often come as a surprise when the will is read - the parent(s) having never discussed their intentions with their children – and it can sew seeds of dissent among the siblings where there were none before.

However brusque this reform proposal may appear, it will be at least be a formal warning that no matter how ‘unfair’ the parents’ decision, there will probably be no point in contesting it since, ultimately, the only beneficiaries will be the solicitors.

Making a will should be a pretty straightforward process where the estate is transparent and uncomplicated.  You die owning, say, a bank/post office/credit union deposit account, a family home; some life insurance and maybe even a private pension fund like an ARF (approved retirement fund) which can be passed on. 

If there is no surviving spouse to inherit (and who can never be legally disinherited) and no medically dependent children, once your debts are paid you most probably will leave your estate to your adult children, grandchildren and whoever else you want to enjoy a windfall.  Good tax planning can reduce the share that the government will collect.

However, up to now under Section 117 of the Succession Act 1965, you needed to be careful about acknowledging the ‘moral duty’ clause, even if you felt you already had a strong moral argument to favour one child over another, or leave nothing to any of them, instead leaving your estate to friends or charities.

(Uncommonly, a wealthy friend of mine, a father of five adult children told me once that he always felt that his ‘moral’ obligation to his children was to love them unconditionally, make sure they had a good education and perfect teeth.  Once the latter two were achieved, as independent adults “their financial situation is their own business.”)

Where no will is made, the 1965 Act is perfectly clear.  Intestacy could end up as the favoured response by some families if the Dail passes the new proposals, since the Act requires a surviving spouse to automatically receive two thirds of the estate and children (or grandchildren if the child is deceased) to share equally the remaining one third. This won’t change.

Bereavement is stressful enough for any family, and family life in Ireland is getting more complicated.  A full and frank discussion between parents and adult children about inheritances and the huge potential cost of elder care is something that shouldn’t be put off indefinitely.

Perhaps you could tactfully begin by raising those sentimental bequests:  it’s never going to be worth falling out over who gets the ‘good’ china set. 

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

HIGH COURT MORTGAGE DEBT CASE OPENS A FORBEARANCE CAN OF WORMS

The fact that personal insolvencies and bankruptcies are up sharply in the first quarter of 2017, compared to the same time last year, will be greeted differently depending on whether you are a ‘glass-half-empty’, or ‘glass-half-full’ sort of person.

I think this is great news. It shows how once the Insolvency Service of Ireland service was modified - last year - to reflect the reality of the on-going debt problem in this country (something government simply refused to consider when it was first set up in 2011) debtors and personal insolvency practitioners could construct debt repayment agreements that were realistic, sustainable and fair.

Last week, the High Court set an important precedent in also supporting this new  reality when High Court Justice Marie Baker supported an earlier Circuit Court judgement concerning a personal insolvency arrangement that wrote off a large portion of a mortgage debt. The bank which appealed this earlier finding, had wanted a smaller debt write-off and the setting up of a ‘split-mortgage’ for the remaining debt.  Ms Justice Baker described – quite rightly – the split mortgage arrangement as nothing more than the ‘kicking the can down the road’.

This High Court appearance is part of the restructuring of the way the ISI and its officers now do its business as part of the Abhaile progamme introduced a year ago that aimed to facilitate sustainable personal insolvency arrangements that also involved the family home.

In this case, the borrowers, a young couple from Drogheda with young children had borrowed nearly €286,000 for a three bedroom, semi detached house but then both lost their jobs.  They fell into serious arrears of capital, interest and penalties, but secured the services of a PIP from Co Donegal. His proposal, which was accepted by the Circuit Court involved writing off €242,000 worth of total debt; their new mortgage would be €120,000, which is now worth €105,000.

The Bank appealed this decision to the High Court. Instead it wanted a final mortgage debt value set at €270,000, with half of it, €135,000 to be repaid as capital and interest by the couple and the other half ‘parked’ for an indefinite period, with no interest accruing and only paid off later, including if the house was sold or from their estate.

By siding with this couple, the High Court has fired a shot across other mortgage lenders’ bows that split mortgages that will chain a family to mortgage debt long after the normal lifespan of a home loan, may no longer be considered an acceptable personal insolvency arrangement.

According to the Central Bank, as of the end of last year (Q4) there were still 95,000 mortgages worth €10.6 billion in arrears of more than 90 days. 

Nearly 336,500 mortgages have already been restructured since the crash, with over 27,000 of them now ‘split’ mortgages, with the parked amount expected to be paid at some time in the future.  The value of those split mortgages at the end of the year, according to the Central Bank, was over €2.7 billion.

With the courts now an integral part of the insolvency process since last year, and judged mediating on personal insolvency arrangement disputes between debtors and their personal insolvency practitioners and their lenders, the big rise in total insolvency applications from January 2016 and January 2017 (+128%) and PIA arrangements (+19%) should be heartening for anyone in serious debt.

From January to March of this year alone, PIAs arrangements were up 10% compared to the last quarter of 2016 and in a sample of 100 PIAs that involved the family home, 90% of them were settled with the debtor remaining in their home. Where part of the solution was the writing off of mortgage debt, the average amount was €93,338.  (In the case of the Drogheda couple before Ms Justice Baker, the amount of mortgage debt written off was €242,000.)

Of course every personal insolvency arrangement has to take the unique circumstances of the debtor and creditors into consideration including the original market price, the size of the loan, the borrower’s ability to pay it back then, and now.

But the success or failure of any mortgage forbearance deal also has to consider, as impartially as possible, whether there is any chance that the property at the centre of the insolvency will realistically be worth what it was bought for before the crash within a reasonable time span.

The case that went before the High Court, aside from giving more hope of a more just solution to people currently pursuing a mortgage-related insolvency arrangements, will undoubtedly also prompt other people with existing PIA’s to wonder whether their split mortgage (and mortgage debt write-off) was really such a good best arrangement after all.  

Anyone who is in such a situation and wants their debt settlement reviewed should consider contacting their PIP or the Insolvency Service of Ireland. (www.isi.gov.ie)

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

14 Fitzwilliam Square Dublin 2  +353 1 539 7244   info@portfoliometrix.ie

Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.