Jill Kerby

IS YOUR COMMUNITY BUILDING ITS ARK?

Building an Ark – a financial Ark – for your family and friends is something I’ve written about in this column before. It involves reviewing your personal finances in the face of this great recession, now five years long and counting and without knowing how the future will pan out, doing whatever you can to build that Ark as watertight as possible if the debt, devaluation and debasement floodwaters rise even higher and big enough to protect as many of your loved ones as possible.

Very briefly, the Ark requires:

-       A review of your personal finances so that you know exactly your position regarding income, expenditure, savings and debt, future financial requirements (to educate children, for healthcare and retirement).

-       Steps to strengthen your financial position, whether that involves eliminating debt faster, spending less, conserving more, protecting what wealth you have from external risks like increasing taxation, banking insecurity, currency debasement.

-       Parents and grand-parents, children, siblings, cousins speak to each and dearest friends about the Ark building you are doing and inviting them to join the Ark.

-       An extended family wealth audit to see if how the Ark can be strengthened and resources shared if the financial flood gets worse. It means reassessing the family unit – the nuclear versus extended one.

-       Looking at ways the family wealth – once everything has been done to preserve and protect it - can be fairly and appropriately utilised so that the children continue to be educated and trained; healthcare and emergencies are met; that family businesses don’t go under (or its young people forced to immigrate) for lack of an overdraft, a start up loan or collateral.

-       A proper legal/accounting structure.

The idea is slowing catching on with many people in Ireland – who don’t even know they’re building an Ark. But the Ark idea extends to communities as well – interest groups, neighbourhoods, villages and towns that should be encouraging the accumulated talent, resources and wealth in the community to work together for its continuing survival.

Many places have already seen a surge of volunteerism. Dragon’s Dens and private equity angels are popping up in communities inviting entrepreneurs to pitch them business ideas. Mentoring, by existing and retired business people, is thriving, often leading to them making equity investments.

Yet indigenous businesses are still failing at a rate of about five a day. In its recent survey, business and credit risk consultants Vision-Net found that while this rate of failure is down 15% from July 2011, of the over 9,428 Irish companies they stress-tested, about half are at high risk of failure.

The reasons are obvious: not enough customers; not enough access to capital; banks calling in debts and raising the cost of debt servicing. According to Vision-Net, businesses in the hospitality, construction, IT, motor, wholesale and retail sectors are most at risk of failure.

Who’s left, you might ask? Clearly, the much lauded foreign owned multi-nationals (that still only employ about 100,000) and people on the government / taxpayer payroll.

This column’s beat has been personal finance, but I’m convinced that not only should every one of us should have an Ark, but with business failure figures like this, every community needs to be Ark-building too.

The idea is to find ways to incentivize the community to not only spend their money locally on a regular basis, but more of it too.

The popular discount coupon schemes have helped (though at a high initial cost to the retailer). 

Has your town considered its own ‘currency’ – a form of exchangeable (and branded) scrip or that gives locals and visitors extra spending power? There have been mixed reports (from here, the UK and US), so it might be worth investigating how places like Fermoy, the first reported town in Ireland to issue its own ‘money’ that would stay with the participating local retailers have managed.  Or check out how well Clones, Co Monaghan’s old punt exchange has worked to support the funding of town events like the St Patrick’s Day Parade and their Christmas lights this December.

If we want businesses in local communities to survive we need to support them and we need to start spending more money with them.

Even diverting 5% worth of a weekly shopping basket (€200 for a typical family of 4-5) diverted from imported foodstuffs from Tesco, Lidl or Dunnes shelves to a local producer or farmer’s market is an extra €520 (€10 x 52 weeks) spent in the community also supporting local jobs. 

The worst kept secret in this country is that the black economy is thriving again, “but it’s also probably the single reason why the emigration figures are not higher than they are,” a financial advisor told me recently. 

“This will only change only when it makes sense for people who are topping up their dole or their struggling businesses to fully declare all their business again,” he said. And that can only happen if they get sufficient custom to afford to pay the higher taxes and the heavy cost of the dead hand of government that every business suffers in this country.

Since the Dail is now the fiscal glove puppet of the EU/IMF/ECB (who don’t really care how the billions they’ve lent us is repaid) it’s up to all of us outside the protected political circle to do what we can to build these Arks, no matter how small the effort.

Perhaps we can all start with our next purchase. 

AIB FIASCO GOOD REASON TO CHECK YOUR CREDIT RECORD

How important is a good credit rating?

 These days, with bank lending at its lowest - just €450m was approved in new lending in the first quarter (Q1) of 2012, down 96% from peak in Q3, 2006 – it has never been more important. You need a sterling credit record and capacity to repay your loans over the entire term to qualify as a borrower.

The only credit that isn’t so difficult to secure – and that is also a very qualified comment since credit card interests rates are eight times that of mortgage ones – is on a credit card balance.  But it’s also one of the most common ways to impair your credit record by missing a payment or not having sufficient funds in your account to pay an automatic credit payment.

 Last week’s revelation by AIB that is misrepresented the credit position of 12,000 of its customers to the Irish Credit Bureau (ICB) between 2006 and 2012 by exaggerating the number of defaulted payments (for example, 4 missed weekly payments were reported as four months of missed payments, a far more serious and reportable default) is a blow to the already very low public reputation of the bank and very mixed news for its customers who may have been financially penalized unnecessarily.

 Any one of those 12,000 known customers who were victimized by the bank (and there really is no other way to describe it) may have had to pay more for any credit they did secure in the period. They also, of course, may have been turned down for a loan.

 The ICB has corrected AIB’s mistake and the credit records of the 12,000 customers have reverted back to what they were before the error. But now the question that needs answering is how the bank will settle up with their customers, which they say will happen on a case-by-case basis.

The Data Protection Commissioners have now informed all the banks that their credit rating processes will be audited in light of the AIB event.

 Meanwhile, anyone with an AIB loan taken out since 2006, but who did not receive a letter informing them that they were one of the unlucky 12,000, should still check their credit rating with the Irish Credit Bureau to see if their record is impaired or not.  Too many people accept without question when their bank says, ‘yes, we’ll give credit, but at a higher rate of interest’. Too often they do this because most of us, at some point, have missed or been late with some credit payment and because we may not understand the mechanism of credit record reporting (there is a five year limit, for one thing).

 In light of what has happened to so many known customers at AIB, everyone with a loan in the last few years might want to check their credit record.   Checking your credit score is easy: log onto www.icb.ie or call 01-2600388 and fill in a personal credit score application. It will cost you €6 (a fee AIB will refund any of the 12,000 who make an application.)

Your credit record at the ICB includes all the names of lenders and account numbers of the loans you have had or that have been active over the past five years. It will note repayments made or missed for each month on each loan that have been reported by your bank; whether you have failed to clear your loans; settled loans for less than originally agreed and any legal action that has been taken against you.

 With this information you should be able to see if any credit reports that a bank or other credit institution (148 of them are members of the ICB) made about you are correct or not. If they are wrong, it is the bank that must make the correction; the ICB only carries out their instruction.

 Finally, if you are an AIB customer (or find out your own bank has made a similar mistake) you must decide whether an apology for the error is sufficient.  If you were turned down for credit, but didn’t pursue your application with any other bank – and just did without the money – then you are unlikely to be compensated:  there hasn’t actually been any loss.

If you did get credit, however, but at a higher cost than if your record hadn’t been misrepresented, then it isn’t unreasonable in my opinion, to expect compensation. That is, the difference in interest between the good score and bad score cost over the term of repayments. You might also want to make sure that any other institution that extended you the more expensive credit realizes what happened and adjusts their records about you as well.

 The Data Protection Agency has described this event as on the ‘more serious’ end of the scale of infractions. If you are not happy with AIBs handling of your case, you can take a complaint to the Financial Services Ombudsman. (See www.financialombudsman.ie ; LoCall 1890 882090).

BREAKING A MARITAL HARMONY RULE TO BREAK THE MYTH OF THE LOW TAX ECONOMY

Many years ago my husband forbade me from discussing money issues – the collapse of house prices, the floundering economy, the national debt, bankrupt banks, the endless black hole that is the public health service, pension ponzi schemes and the eye watering conceit of politicians who accumulate private wealth at the public’s expense – when we socialise with friends.

And that’s only a small part of the taboo topics.

He’s right of course. I have plenty of outlets, including this column to vent my anger, confusion and disgust, including the most recent, the amazing (and highly addictive) Twitter without inflicting such grim opinions on people who seldom get out these days, and when they do, want to leave their problems (and the country’s) behind them.

It’s hard to veer away from all these subjects over the course of a long evening and so long as I don’t originate the conversation (I steer towards cookery, holidays I keep putting off, the joy of teenagers, movies and books) I’m allowed to participate in – but not dominate – someone else’s rant about the economy/public service/central banks etc.

Which is how I came to discuss the jolly topic of Irish tax rates with some friends and acquaintances one recent sunny evening at a last minute barbeque.

“We really don’t collect enough income tax in this country, certainly not compared to Scandinavia or Germany, or even Canada,” said the private sector management consultant whose comfortable earnings are generated by the substantial fees his company earns from public procurement contracts. His wife was a teacher (and doesn’t share his view).  He wasn’t referring to ‘the rich’ – the very high bracket earners or the millionaire tax exiles.  He was actually referring to anyone outside of the lowest earners.

This guy drives a company car.  The company picks up the cost of his family’s private health insurance. His business travel is sometimes arranged to coincide with a private weekend break in London or Paris or some other nice spot where he is joined by his wife. He enjoys the box seats the company has at Croke Park and other sporting events and the theatre tickets that he gets along with the corporate guests he will bring along.

The firm provides him with a generous pension. He earns annual bonuses for completing, on time and within budget, his work on those state contracts. (In my business, probably just like yours, I don’t get paid at all if I miss deadlines and my article doesn’t appear. I certainly don’t get paid more for just doing what I was hired to do.)

I pointed out that in the non-subsidised domestic economy, if there haven’t already been job cuts in a firm, then wages have been cut slightly or more likely frozen.  Any pay increases are usually directly related to productivity increases or overtime.

I also pointed out that between marginal income tax rates of 41%, 4% PRSI on all pay, the (average) USC levy of 7%, (10% on earnings over €100k) the marginal rate of tax for someone earning a half decent salary is 52% and 55% for only slightly higher earners.

When you toss in a 23% VAT on most goods, excise on fuel and alcohol that accounts for up to half the price of the item, the 1% life insurance product levy, the 2% general insurance product levy (thank you, Quinn Insurance) on top of the 3% stamp duty, the €160 compulsory levy/licence fee to RTE and the €285 and €95 compulsory health insurance levy for every adult and child which goes to subsidise the state owned health insurance provider, the VHI, I rather think the poor old worker pays rather a lot of tax already.

My dinner companion wasn’t referring to the very rich not paying enough tax (though the 10% richest already pay nearly 50% of all income tax.) There may be a case that they should pay more, but most of their wealth is generated capital gains – shares dividends and asset sales, not by their salaries.

No, he was actually saying that Irish workers don’t pay enough tax.

There’s no question that this guy, who genuinely doesn’t see himself as a state insider, pays substantial tax already. But in addition to his income, it is his generous company pension, the volume of expenses, bonuses and other perks he gets (especially the ones not subject to benefit in kind tax) that are enough to cushion the tax and cost of living squeeze that is being deeply felt by workers who don’t enjoy this indirect access to state largesse.

These are ordinary people who are forced to sacrifice paying into their own pensions to the greater good of the defined benefit pensions that state employees are entitled to and that people who work for companies with cosy state contracts also receive by default.

His comments were frivolous. Uninformed. The sort of stuff you hear spouted from a typical panel of academics, left leaning politicians and trade unionists (all beneficiaries of the state) on programmes like Tonight with Vincent Brown. A 60% or 65% marginal tax rate like they have in Denmark or Sweden would, Hey Presto! – cure many of our social woes, they say.

This back garden conversation was one that my husband, for once, didn’t try to scupper with his usual kicks under the table.

Some myths are worth challenging, it seems, even if they break the rules for marital harmony.

jill@jillkerby.ie

GLOHEALTH  TURNS UP THE COMPETITION – A GOOD THING TOO SAY THE EXPERTS

August is the month that you should be looking out for the special ‘sale’ offers from the private health insurance companies, say the brokers who specialise in health insurance products.  

This is because it is one of the key renewal months for corporate customers, but also for individuals (especially now that the providers are insisting that members adhere to one year contracts or face penalties for a premature switch.)

And sure enough – the first such offer landed on July 18 when Laya Healthcare offered up to three months free cover to new members of Aspire, a new plan that offers full, five star cover at two Dublin private hospitals, the Beacon and the Sports Surgery Clinic.

Last May, Aviva offered an early intervention back and neck treatment facility called ‘Back-up’ to its qualifying members, which was endorsed by the Minister for Health and the country’s physiotherapists and on Monday offered six weeks worth of its Level 2 Family Health Plan free to all existing and new customers. This back to school offer runs from August 1-31st and will cut the annual cost by nearly €300.

It’s only a matter of time, the brokers predict, before the VHI announces some special offer, just as they did last August with its one year ‘kids go free’ deal. (Many families will be hoping it gets extended.)

The arrival of GloHealth at the beginning of the year will undoubtedly give the three other insurers an impetus to do more than just keep their renewing members happy as renewal dates (like August) fall due.

“What GloHealth has done is shake up a very small market of players who had gotten used to each other,’ says Dermot Goode of the specialist brokers, Healthinsurancesavings.ie .  “When one brought out a new, short period term plan aimed at a big corporate player, the others matched them,” he says.

This tit for tat marketing “was getting very predictable” and explained how the three-way marketplace ended up with about 240 different corporate, individual and family based plans that were available to everyone, of course, under our Community Rating system of premiums, but many of them targeted and not suitable for everyone.

GloHealth’s arrival, Goode predicts, with its small selection of plans, two of which includes free cover for children up to age 3 and the opportunity for the member to pick three out of a pool of eight personalise extra benefits (like chance for the member (of the Good, Better and Best core plans) to choose two or three out of a pool of eight personalised packages, that suit your needs and leave out the stuff you may never need - like maternity care if you are a man - “will force the others to become more innovative.” 

Goode predicts that GloHealth will enjoy a six month honeymoon in which they will stand out from the other three in the eyes of younger people who are brand new to health insurance and only want to pay for the basic benefits that all health insurance plans must offer and then those that suit their budget and personal lifestyle needs.

From a corporate perspective, Aongus Loughlin of Towers Watson health services says that GloHealth will also appeal to some companies, especially those with a very young workforce who are now saying the novelty of the endless new plans “has worn off” as the costs savings have shrunk. The novelty of buying a core price plan (like Good, Better or Best) and letting their employees choose their own extras will appeal to them.

But Niamh Lyons of Lyons Financial Services, another broker that specialises in health insurances says that GloHealth’s claim that it will always be price competitive doesn’t necessary stack up as strongly when each of their plans is compared with the existing VHI, Laya and Aviva ones.

“Their plans have some real pluses and their Best plan is very competitive but the others are still offering some better prices and more choice,” she says. If value for money is a priority, GloHealth is not going to come out cheapest every time, she says.

I asked Healthinsurancesavings.ie to provide my readers with a chart that compares the price and benefits of the most popular family plans (2 parents and 2 children age 5 and 2 and 2 parents, two students, one age 16 and one between 18-21) from each the four companies. The four plans are Aviva’s Level 2 Hospital; VHI’s Parents & Kids Options; Laya’s Essential Plus with Excess and Glo Health’s Best Plan.

I also asked for similar, but cheaper alternatives and they provided these plans: Aviva Level 2 Health Excess; VHI’s One Plus Plan; Laya’s Health Smart and Glo Health’s Better Plan. These plans include more restrictions and excess payments.

What the chart shows, and because it is so large I am posting on my website www.jillkerby.ie , is the significant difference in price – and of course, benefits in both these categories of popular family plans.

The new provider, GloHealth comes out on well in the first group, with their Better plan, at €2,270 and €2,710 respectively for the family of four beating out Aviva by €858/€604.40;  by €850/€611.12  against VHI and by €689 / €249  against Laya.  Laya is the only provider with no orthopaedic co-payments or restrictions.

GloHealth does pretty well against the competition on the cheaper version of the popular family plans too:  it was €383/ €134 cheaper than Aviva;  €465/ €148.60 cheaper than VHI and €370.56 cheaper than Laya for the family with two young children but €24.44 more expensive for the family with the two students of 16,18-21)

By not charging for children under age 3 GloHealth has the price jump on family plans.  But the small print excesses and co payment requirements can also impact sharply on costs and these need to be considered carefully, and not just headline premium differences.