Jill Kerby

Will You Be Topping Up Your Pension in 2009?

Every year at this time, many self-employed people, company directors, workers whose employers don’t offer them membership of an occupational pension scheme, and anyone who wants to top up their pension with an AVC – an additional voluntary contribution - starts working out how much they can and should spend on their pension in order to take advantage of the October 31st pay and file deadline for tax relief on their contributions.

What a difference a year makes.  Financial advisors and pension consultants are all reporting that pension contributions have dropped off – and perhaps for good reason:  Irish pension funds fell off a cliff in the year to March ’09 and while they have rebounded since then, are still down over the year by an average of -11.5% to August ‘09 and by -8% over three years. For the year to date to August 2009, pension funds are strongly back in the black at +14.5%. 

With performance figures up, those same advisors and the pension companies are hoping that the tax relief that is still available for pension contributions – but perhaps not for much longer – will be enough to get savers to make their contributions by the end of October (or mid-November if you file on-line) in order that they collect that tax relief.  Worth between 46% to 49% for higher rate taxpayers when you take into account income tax, PRSI and the health levy
and 28% for standard rate tax payers, pension contributions are one of the last generous tax relief’s available, especially for people on the higher rate of tax. 

If the government implements the recommendations of the Commission on Taxation, which also includes a SSIA type pension savings scheme for lower earners and a reduced, single tax relief rate - probably about 38.5% - this should be quite a good incentive for lower earners to start pensions.  However, for those people on higher tax rates, it could stop many from making contributions in the future as they will end up paying far more than 38.5% tax on their pensions when they retire. 

The other change being recommended is that the one and a half time salary that employees can take tax free from their pension fund or 25% of the fund if you are self-employed, should be subject to a €200,000 maximum sum. 

These changes haven’t been implemented yet, so your AVC top up or other contributions will remain as they were for this year at least. However, there have been a few changes that you should know about – such as the fact that the income limit for making contributions has been reduced to €150,000. And of course if you are a civil or public servant, you will already be paying the pension levy which, on average amounts to a gross salary deduction of 7.5% but closer to 4.5% after tax relief.  

Many civil and public servants have stopped their AVCs because of the new pension levy, but this is, perhaps, a false economy given that the levy does not improve your final pension return – it is just an additional contribution to your existing benefits.  Speak to a pension advisor about this, but be extra conscious of any commissions and charges attached to AVCs;  teachers and nurses in particular have been paying extremely high charges for their AVCs schemes.

If you do decide to continue to make contributions to an existing private pension or AVC or intend to take out a retirement contract or even a PRSA (the flexible Personal Retirement Savings Accounts) the extra difficulty this year is which fund to choose. 

The massive losses that older pension contributors in particular suffered last year (now partly recovered) is as good a warning as anyone can get that they were taking too much risk with their retirement portfolios.  This year, given how irrationally overbought stock markets have been since March, new contributions should be invested in ‘safer’ assets and sectors like cash, index-linked bonds, defensive shares, precious metals and for savers who still have many years before retirement, higher risk asset classes like energy, water, alternative energy, emerging markets in the Far East and commodities. 

Ideally, you should speak an experienced, fee-based advisor before making a lump sum contribution this year, if only for him or her to also review your existing pension funds to see how well diversified it is.  The tax-breaks are important and given how few tax reliefs are still available, should be taken advantage of while they last,  but the tax deadline shouldn’t override the inherent risks involved with any stock-market based investment this year.  

If the markets should take another dive – and many commentators believe they will – you want to make sure that the shares or funds you’ve chosen won’t plunge with them. 

TURN THE TABLE ON WATER AND CARBON CHARGES

Two of the four headline tax changes recommended in the recently published Taxation on Commission report – the introduction of a carbon tax and water charges – have a more likely chance of being introduced in the next Budget than, say, the flat rate property tax and perhaps even the taxing of child benefit. (On the latter, even the Commission couldn’t seem to agree whether it should be taxed or means-tested.)

The reason for this is that these are stealth taxes – they get added to existing bills for electricity or oil or gas or briquettes and in the case of water they can get tacked onto existing local authority bills for bin charges or other services. 

If the Commissions recommendations are heeded, it will mean that the taxes and charge will probably be phased in over a five-year period in the case of the water charge, based on a flat rate charge but moving to a charge per use as meters are put in place.  The carbon taxes will most likely be put in place much sooner, with the tax amounting to about eight cent per litre of petrol and diesel and  - which works out at about €20 per tonne.  Since their recommendation is very similar to the 2007 report on carbon fuels by the Department of Finance it means we could expect the cost of motor fuels to go up 7.4%, the price of a bale of briquettes to rise by 52% and a €2.38 rise in the cost of a 40 kilo bag of coal.

The cost of installing the water meters is horrific – between €400m and €450m over five years, a cost that “can be passed onto the consumer” says the Commission and they also note that we are amongst the most wasteful water users – by more than 30% the EU average -  and carbon emitters in Europe.

Some people would counter that we use more water because we have proportionately greater access to water, but a large part of out “wastefulness” is due to the fact that local authorities have no direct responsibility to provide services to their communities; an antiquated, leaking water delivery system and a general lack of awareness about the need to conserve finite resources (like water, even here.) 

That said, there are ways to cut down and carbon emissions and conserve water and ways to actually make some money on foot of both these developments. 

First – conservation: until a meter is installed in your home, start preserving water by

putting a brick in the toilet cistern; 

banish baths for all but the smallest members of the family;  

limit showers to no more than four or five minutes; 

buy a good water filter jug and keep it filled with water in the fridge and encourage everyone to drink this water rather than let the taps run to fill a glass when thirsty;

only boil the necessary amount of water for coffee or tea (this also saves electricity); 

don’t use more water than you need for dishwashers, washing machines or for car washing;  Keep a water butt in the garden to catch rainwater for plants and gardens. 

On the carbon front, you need to try and get your home as energy efficient as possible by lagging water heaters; laying down insulation in roofs and attics; draught proofing windows and door and then reconsidering even the kind of fuel you use as heat.  Sustainable Energy Ireland – www.sei.ie - is the place to go for guidance and to apply for grants for as long as they last. 

And while the introduction of these charges and taxes is going to be unpalatable for people who are struggling to make ends meet, the focus on energy sustainability and water conservation is also an investment opportunity – albeit one considered in the higher risk category - for anyone who is looking for a longer term investment opportunity. 

Sustainable investment funds that target new ‘green’ energy options (like wind, solar, biofuels, geothermal, etc) are available from most fund managers and also in the form of low cost Exchange Traded Funds. RaboDirect.ie has just launched three very interesting “Sustainable” funds – water, energy and climate change -that have outperformed similar funds in the sector and have produced excellent returns this year. There are no entry costs and the funds carry a 1.5% annual management fee and 0.75% exit fee. KBCAM fund managers ‘Innovator’ energy and water fund, which was launched a few years ago is also worth checking out. 

If you have money to invest, especially for the long term and are interested in these new sectors, do your own research and carefully read the different fund manager’s syllabus’; speak to an independent advisor and be very careful about the size of fees and charges. With markets rallying for seven months, some commentators believe a correction is due soon.  Make haste slowly and be sure to check out equivalent shares and sectors in a low cost ETF equivalent. 

BORD SNIP TARGETS US ALL…ARE YOU READY?

The nation was presented with a potential new haircut last week, one of those really close buzz cuts that young US Marines endure that reduces the lower two thirds of their heads to the smoothness of a baby’s bum and the top third to the equivalent of beard shadow.  

The question now is whether the government barber has the stomach to wield their scissors in quite the same way An Bord Snip thinks they should.  Even if half the suggested cuts were delivered – and frankly that’s a big ‘if’ in a country where all politics is local and the unions have way more influence than is justified by the size of their membership outside the public service – one way or another we’re all going to feel a chill wind at our necks this winter. 

Yet it is the public service than controls the nation’s access to hospital beds, classrooms (not that closing them down temporarily would bother the nation’s children as much as their parents), light switches, the safety of our communities, the roads we travel, the running of towns and villages, the delivery of unemployment and other social welfare benefits, etc.  

And if they don’t like what’s in this report – especially the bit about the abolishment of 17,300 jobs – between themselves and the many public interest groups who champion the elderly, the poor, families, young children, local communities – implementation will be a fraught process. 

That said, Ireland Inc is going broke.  We have just 1.95 million (and falling) earners, collapsing tax revenue, rising unemployment, rising public service costs and higher debt servicing on the additional €400 million that must be borrowed each week in the international debt markets. 

We sit between a rock and a hard place. 

Much time has already been lost in sorting out our terrible financial problems.  Spending cuts suggested in the report, headed by economist Colm McCarthy, should have really begun last October. 

What we all need to be contemplating – if we haven’t done so already – is how we and our families and communities will be able to cope if some or all of the biggest value recommendations (apart from the job cuts) in social welfare, health and education are implemented. 

For example, the McCarthy report recommends a general reduction of social welfare rates of 5% but goes further with a new, standard monthly child benefit payment of €136 for every child.  This would be a reduction of €30 a month for the first and second child who currently receive €166, and a €67 reduction a month for the third and subsequent children who currently receive €203 a month.   A family with three children would see its monthly payment fall from €535 to €408 or from €6,420 to €4,896 annually. This new rate is a few euro less than parents received for their first two children in 2004. 

In the case of pensioners, a 5% cut in their weekly state pension would reduce the amount a pensioner under 80 receives from €230.30 a week to €218.79, €4.51 a week less than their 2008 weekly payment.  The taxing of the Household Benefits Package (which at one time was estimated to be worth as much as 13% of the pension benefit or about €30 a week today or another c€1,560 a year) would cost pensioners earning over the income tax threshold of €20,000 for an individual or €40,000 for a couple and on the standard tax rate of 20%, about €312 a year if implemented at today’s payment rates. 

So if you are a pensioner, how would you cope if your income was cut by €1,560? Or as a parent of three young children, with a €1,524 cut?  If you are currently getting €339.90 Jobseeker’s Benefit (if you have a dependent spouse) could you manage if it was cut by 5%, or €17 a week?

But of course it isn’t just social welfare recipients who will have to dig deeper once the government eventually gets the scissors out.  If the McCarthy report is implemented, anyone making a claim on the drug payment scheme will have to pay the first €125 instead of €100 and medical card users will have to stump up €5 for every prescription they get filled.  A & E users will pay €125 instead of €100 if they don’t arrive with a GP’s letter. 

Meanwhile, the country’s two million private health insurance members will see their premiums soar:  the report recommends that the government raise the access cost of private facilities in public hospitals by another 20%. That recommendation alone, if fully passed onto customers, would increase the most popular private health care plans for a family of four by up to €500 a year.

This report is the biggest shot across the state’s bows regarding our perilous public finances.  The unions and other vested interests may yet oppose them all and demand (with menaces) that higher earners and businesses be taxed more to make up a substantial part of the minimum €20 billion shortfall. No failing economy has ever been super-taxed back to health.

Or the nation can swallow the bitter pill of cutbacks and lower public benefits, services and entitlements.  And hope that even that will be enough to stop national bankruptcy. 

Time is running out. By October some action is likely.  Prepare yourself now by doing as in-depth an audit of your own personal finances as An Bord Snip has done of the nations’.   It’s a process this column will be addressing too between now and then.  

JED writes from Limerick. Along with a number of siblings I inherited my mother’s house last year. Since then the house has been on the market, but we have been lucky to have a tenant for the past eight months. Will the estate be liable for this new property tax? Some of the family members have their own family homes, others are in rented accommodation. 

There is increasing speculation that the government will not risk introducing the property tax while the economy is in such a poor condition and unemployment rates are so high.  It looks like we might all ‘dodge that bullet’ for now.  Meanwhile, however, you and your siblings have until the end of the month to pay your local authority the €200 second home tax if you have not already paid since this house is not occupied as anyone’s principal private residence and you are all co-owners.   An interest penalty of €20 per month will apply if you miss the deadline.  Check here for more details:  www.nppr.ie .

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DN writes from Dublin: I bought a significant amount of gold about 18 months ago indirectly from the Perth Mint and transacted at whatever the euro/dollar price was at the time. I bought it mainly to protect me from the financial chaos I thought was coming down the line and also because I believed the dollar would weaken considerably. History usually tells that when the dollar goes down the price of gold tends to go up. However, what I didn't fully appreciate at the time was that the gold I have is priced in dollars and that I have a currency equation to my investment: if the dollar goes down I might win if the price of gold goes up, but I also lose because my gold is priced in dollars. My question is, does this make sense to you and what are the options, if any, to negate the dollar downside equation?

First, I think you are quite correct to have bought gold as a hedge against the risk of future inflation as a result of the weakening dollar and other fiat currencies including our own. Gold is always a safeguard of value when the money supply is being inflated and there is a real threat of future price inflation. You are also right that when the value of the US dollar, the world’s reserve fiat currency weakens, the price of gold (and oil) usually goes up.  And while the price of gold is typically quoted in dollars, it is sold in many other currencies, including the euro. That’s the price you should be watching.  Gold priced in euro has not gone up as much as it has priced in dollars or especially in sterling, because the euro is currentluy a stronger currency, says Mark O’Byrne of Goldcore.com the Dublin gold dealers who sell the Perth Mint certificates. “However, if your reader bought €10,000 worth of gold 18 months ago it would be worth nearly €10,900 today, a 9% rise. Anyone buying their gold with sterling is looking at an even better return of about €12,460 or 24.6%.”  He adds that “Irish, Spanish and UK investors are not buying gold simply because of the dollar risk – they are buying because of the risk they perceive in their homes, homes, stock market investments and their savings in banks that are ‘guaranteed’ by near insolvent governments.”  Unlike the pieces of paper that represent the euro, gold has a tangible, intrinsic value all its own that doesn’t need to be ‘guaranteed’ by anyone.

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MB writes from Dublin: I am a British subject living and employed in Ireland since the 1970s. Is it possible for me to open a bank account in the UK without residing there?

Yet it is. Like anyone else residing here in Ireland, you are free to open an account in the UK, or other EU countries, but as a number of readers have discovered in the last few years, not all UK banks are very willing to allow for the opening of such accounts.  I’ve been told by a few of them that this is because of the controversy over the bogus non-resident accounts.  The Irish based UK banks, like AIB and Bank of Ireland and Ulster Bank have been more helpful, especially if you already have an account with them here in the Republic but you must satisfy all their money laundering conditions. The advantage of a UK (Northern Ireland) bank account may be that interest rates will be higher and of course, that any interest is paid DIRT free. However, you must still declare your account to the Irish authorities and pay income tax on your UK interest income.  If you pay tax at the higher marginal rate, there’s hardly much point in holding the UK account, unless the interest is very attractive. 

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AP writes from Dublin: I am 59, single and a retired teacher. I receive a pension from the Department of Education and Science. If I move to Spain on a temporary basis will my pension be affected?  Secondly, I have paid 520 stamps towards a contributory old age pension. I am now signing for credits. How will this pan out if I move? Will I lose out? 

A spokesperson for the Department of Education told me that your existing teacher's pension can be sent to you in Spain. All you need to do is advise the department of your new address “in sufficient time to enable payroll to effect the change”. Likewise, the Department of Social Welfare says that there is no problem having your contributory state pension delivered to you in Spain, on condition that you have the sufficient number of PRSI contributions/credits by the time you turn 65. 

IS TIME RUNNING OUT FOR TAX RELIEF?

No one yet knows – and that includes the Cabinet – which of the Commission on Taxation’s 200 plus recommended tax changes will be endorsed or adopted in the December (and subsequent) budgets.

It’s beginning to look like the controversial – and frankly unworkable – property tax will be long-fingered, but the carbon tax, water charges, downward adjustment to child benefit and some adjustment to pension tax relief are likely to be introduced, (along with a myriad of smaller disjointed reliefs and allowances that simply accumulated, piece meal over the years.  

The reality is that with over 400,000 people unemployed (and growing), any tax increases that are not offset with sharp income tax reductions, including the abolishment of the income and health levies – is impossible. Very simply, this report is five years too late and cannot be implemented until the €20 billion budget deficit is tackled and unemployment figures reversed. 

With no one holding out any great hope that sufficient expenditure will be cut out to stop the rot, over the next couple of weeks, I’m going to look at a few practical ways to try and get around the inevitable assault on your income and savings, specifically how to reduce your carbon tax liabilities and how to minimise the possible assault on retirement savings and income if you earn at the higher, marginal rate of tax or are a pensioner.  This is important because of the looming October 31st preliminary tax deadline for those who top up their retirement contributions. 

But first it’s important to remind readers – again – of the importance of doing a careful review of your existing income and expenditure and to take advantage now of any tax breaks that still exist and that may be abolished or reduced in the next Budget: 

Medical and dental expenses not covered by private health insurance.  You can claim up to four years in arrears for these expenses. The refund is based on the 20% standard rate tax (it had been available at the 41% rate) but the individual and family ‘excess’ – the amount you had to pay first – has been abolished. If over the last four years you spend, say, €1,000 on qualifying medical and dental treatments, you will be entitled to a €250 refund after filling out a Med 1 and Dental 1 form and submitting it to the Revenue Commissioners. 

Rent allowances should be claimed by anyone renting in the private sector as this is one property-related tax relief that the government may decide to scrap, even if they don’t introduced a property tax because of how rents are falling. Worth up to €400/€800 a year for individuals or married couples and twice this for over 55s, this relief could be the equivalent of a month’s rent. 

Service charges, union membership subscriptions, uniform allowances for certain workers like health professionals should be claimed as these have also attracted the attention of the Commission which has recommended they be abolished.  The amount that can be claimed is relatively small – just €80 in the case of the bin charge -– it’s definitely worth claiming if you haven’t done so for three or four years. 

To make any of these claims, contact your local Revenue Commissioners office or go online at www.revenue.ie . Click on the link to ‘Personal Tax’ where you will then see the links to medical expenses relief, rent relief and mortgage interest relief (though this and private health insurance relief is now applied at source). It also lets you apply for a PAYE balancing statement review if you think you may have overpaid your tax.  This is an important review for anyone who has been made redundant and is probably entitled to a PAYE/PRSI tax refund. 

Another relief that the Commission recommends being abolished is the Rent-a-Room relief, worth €10,000 tax-free per year.  Many first time buyers and older people avail of this scheme and financial advisors suggest that anyone who has been thinking about it, might want to move quickly and join it before the Budget:  the scheme may be abolished, but chances are existing landlords and tenants will be able to see through their tenancy.

 Retirement Relief

The higher rate retirement contribution relief of 41% plus 6% PRSI contributions is a political hot potato:  it’s being described as a fat cat perk, when in fact the vast majority of recipients earn between €36,000 and €70,000 a year.  However, this might be the last year of full relief, so take advantage of it if you are still in a position to make contributions. (I will be writing a full column on what to do about your pension in the next fortnight.)

Meanwhile, the Commission also recommended that tax relief on private insurance policies should be reduced from the existing 20% relief (at source). This won’t be very good news for individuals and families already desperately worried about being able to afford their private cover. 

You should certainly be shopping around for best value motor and home insurance - www.123.ie and www.chill.ie  are a good place to check out quotes on-line – but there are also now specialist fee-based health insurance brokers – see www.insurancesavings.ie - who can help you shop around for an affordable health insurance contract. 

VHI, the largest of the three private insurers has made a number of changes and adjustments to mainly its range of popular Plan B’s – not all of them for the better.  New family plans have been introduced and child rates have fallen, but some families may have switched too soon, or into the wrong plans to get the full benefit, says health insurance advisor Dermot Goode. They have also introduced a new product that is limiting how much they pay certain treatments like hip and other joint surgery and eye surgery, including for cataracts to just 35% of the cost. The 65% balance must be paid by the member.  

The concern of health plan advisors is that VHI members or others, especially older ones, will switch into this plan because it is cheaper but not realise the implications if they make a claim.

Next week:  the cost of your carbon footprint and water useage.

The first thing that struck me after reading great chunks of the Commission on Taxation report is how out of date it is; the country the report refers to doesn’t seem anything like the 2009 one in which so many Irish people are now struggling to live decent, productive lives.  

You certainly wouldn’t get the impression from this report that the Commissioners were aware that the Irish economy had a massive stroke a year ago and has been on life support ever since, hooked up to a permanent drip of foreign borrowings. 

Much as there is merit in the idea of taxing capital assets instead of labour or financial transactions (like stamp duty on property) and in cutting out the great clutter of reliefs and allowances that were introduced piece-meal over several decades, exactly who do they think will be paying these new capital or consumption taxes, like the carbon tax or water charges?  

By upholding the extreme ‘progressive’ nature of taxation in this country, until the cadaver on the table shows some real signs of life, there are probably going to be more householders, for example, who will be exempt from the proposed €1.23 billion annual property tax:  the poor, the elderly poor, first time buyers who’ve already paid a mountain of stamp duty and the unemployment. 

The same sense of the unreal pervades their suggestion that hundreds of millions will be raised by taxing child benefit payments or with the introduction of the carbon tax.  Didn’t anyone, even a year into their task, observe how the patient they were commanded to treat was already a goner?  Clearly it didn’t dawn on any of them that they’d have been doing us all a greater service by putting a pillow over its face that to continue to proceed with such an irrelevant course of treatment.  It certainly would have been a cheaper outcome than the irrelevant 600 page diagnosis they delivered last week. 

Tax reform is going to be crucial if we are to get out of this economic depression it is the recommendations of the McCarthy, An Bord Snip report on which minds should be concentrating.  Unlike that one, this report is 

wishy-washy and non-committal. They suggest we return to a more complicated three layer income tax rate system, but don’t suggest what is the new rate or rates.  I found it hugely annoying that the actual tax rates we are paying – well in excess of 25% and 51% when the income and health levies and higher PRSI rates and ceiling change is taken into account – are not really acknowledged in the report. They kept using the 20% and 41% standard and marginal tax rates as their benchmarks. If only. 

Regarding the detested health levies, which have been doubled, the Commission notes that they “should be abolished and integrated into the income tax system when fiscal conditions improve sufficiently to allow a transition to the new structure.”  Surely you either abolish them, or you integrate them, but not both? And with fiscal conditions still dis-improving, surely now is the time to remove these anti-labour levies, not when condition improve…whenever that is. 

Even the Commission’s key pension recommendations – to lower tax relief on contributions and to bring in an SSIA type pension funding scheme might, someday, boost coverage among the lower paid.  But it also probably means lower pension incomes for middle and higher earners and a longer term lower tax take for the exchequer. 

Until the €23 billion spending deficit is tackled and 440,000 unemployed people get back to work, this report is a non-runner.  Ordinary working people – especially those with dependent children, grossly inflated mortgages and falling incomes - simply don’t have an additional €3,000 or €4,000 a year to hand over to this wasteful government. 

I wonder how much this report has cost us.  Too much I’d suggest in terms of its relevance to an economy that is unrecognizable from 18 months ago. 

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Last Saturday, I bought a car, a nice, shiny ’07 Nissan Almera that looks brand new and has very low mileage.  I keep buying Nissans for the same reason that I shop at Lidl:  good quality, reasonable prices and I don’t have to mull over endless other choices of cars (or tinned tomatoes). 

But that isn’t why I bought a ‘new’ car right now.  Like most people reading this, I have sharply curtailed my discretionary spending this year.  We dine out less; I buy fewer clothes and shoes (alas) on a whim and my credit card mostly stays in my wallet. 

I bought this car because the old one was nearly nine years old and while the engine would have kept running for a few more years, it was beginning to have minor ailments that were going to start costing me money. Body-wise, rather like its driver, the Almera had certainly seen better days. 

With such amazing bargains in the forecourts, it is a good time to replace the car.  And since I tend to drive my cars pretty much into the ground, I’m counting on this one to run for at least another six or seven years as well.  

“Why didn’t you wait for a scrappage scheme,” a friend asked.  Well, mainly because like the roll-out of electric cars as the flip side of the abolishment of vehicle registration tax, as outlined in the Commission on Taxation report, car scrappage is aspirational, not realisable.   

The biggest gainer from any car scrappage scheme here is going to be the foreign motor manufacturers, not Irish workers or the environment, and frankly, electric cars will only happen here when cheap plentiful electricity becomes available in this country along with indestructible, curb-side plug in stations on every street in every village, town and city. 

Nah, I can’t see that happening anytime soon either; in any it’s just an aspiritional It’s all very environmentally correct to think that we’ll all be driving VRT-free electric cars in the near future – even the Taxation Commissioners noted it as an aspiration, along with a car scrappage scheme to encourage such purchases – I really didn’t feel like waiting until both the car and I are ready for retirement before we generate enough cheap electricity for that to happen.  

MM writes from Dublin: I purchased a house in January 2006 as first time buyer exempt from stamp duty. I rented it out first in March 2008. What is the clawback in stamp duty? 

According to the Revenue, prior to December 5th, 2007, there was a five year period from the date of purchase in which you could not rent your home or you would face the clawback of a portion of the stamp duty, unless the rental period occurred in the third, fourth or fifth year of ownership. Clearly in your case, the property was rented out in the second year. In this case, you are liable to pay back the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date that rent is first received from the property. In 2006 the first €317,500 of the property’s value was exempt and the balance, assuming it cost you more than €317,500, is subject to stamp duty clawback at 3% up to €381,000 or 6% up to €635,000 or 9% over €935,000. You don’t say how much you paid, but as a first time buyer, hopefully if will not have been much above the €317,500 threshold. For more information about stamp duty clawbacks see http://www.revenue.ie/en/tax/stamp-duty/leaflets/section-92b.html 

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AR writes from Dublin:  I was wondering whether I should either save €30,000 I have in an Anglo Irish fixed account at 3.8% interest for one year, or as I read in a recent Sunday Times Money page, An Post’s tax free three year fixed rate bonds at 10% or 3.25% a year?  The reason I am asking is that the interest rate might go up during next three years but my money would be already tied in for three years in the post office.    I would be grateful for your opinion. 

The Anglo Irish account is subject to an automatic annual DIRT deduction of 25%, reducing the net rate of interest to 2.85% after 12 months. Your €30,000 deposit will therefore be worth €30,855 after tax.  The post office savings bond after three years will be worth €33,000, but as you say, you must tie up your capital for three years. If you do not foresee a need to dip into your lump sum, the post office bonds are clearly better value, especially now that we are experiencing a deflationary period – your money is not being whittled away by price inflation. Both An Post and Anglo Irish Bank are state owned entities. Both An Post and Anglo Irish Bank are state owned entities, and therefore enjoy a permanent state backed guarantee but I think it fair to say that An Post has a far better reputation for trust than the disgraced Anglo Irish Bank.

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TB writes: I am (or was) a Waterford Wedgwood shareholder – the shares are now delisted. I assume that these shares can now be counted as a loss for CGT purposes for the tax year 200 but in the process of moving house I seem to have mislaid the documents. I contacted the share registrars (Capita) who told me I must contact the receiver.  I contacted the receiver who told me that they cannot provide details of shareholdings. I am now at a loss as how to proceed so as to determine the exact loss and get documentary proof for Revenue purposes. If you could provide assistance with this it would be much appreciated.

The Receiver, Deloitte & Touche, was extremely unhelpful initially, despite the fact that Capita, the share investor service in Dublin where the details of your shareholding were kept – confirmed that the Waterford share account material had all been turned over to the receiver.  Eventually Deloitte finally issued a terse statement:  “The Receiver was appointed over the assets and undertaking of the Company.  He has no authority over the shares of the Company.  It is a matter for the Company’s Directors.”  What this means, said a spokesman for the Director of Corporate Enforcement who I also spoke to on your behalf, is that you must contact that Waterford Wedgwood plc directors – in administration - directly and appeal to them to intercede on your behalf to get the replacement certificate.  Their office is at Hill House, Little New Street, London, EC4 A3TR, telephone 0044205 8427.  (I tried that number several times and was unable to make contact.) If that does not produce the certificate, your last option, said the Corporate Enforcement spokesman is to go to the High Court to enforce the articles of association under the 1963 Companies Act 1963 which states that you are legally entitled to a replacement share certificate.  The cost of this would be prohibitive so hopefully you can resolve this through the administrator’s office in London. 

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WP writes from Dublin: My wife and I are soon moving permanently to Spain where we have been semi-retired for a few years.  We were lucky enough to sell our house in Dublin last year for a very fair price.  We have three grandchildren, two of whom will be doing their leaving certificates next year and the other one in two years, who are already named as the beneficiaries of our will.  We have told their parents that we will pay for their third level fees if they are re-introduced, but someone told me that if we give them this kind of money before we die (we anticipate spending at least €10,000 a year on the first two grandchildren) it could affect how much tax they would have to pay when we are gone. Is this correct?  Is there any way we can get around this? 

What generous grandparents you are!  The tax-free inheritance threshold between a grandparent and grandchild was reduced from €54,254 to €43,400 in the April mini-budget and the capital acquisition tax on amounts over this sum is now 25%. However, you can give each child €3,000 every year without triggering any tax or even any need for them to declare the gift under Capital Acquisition Tax rules.  If you start making these gifts now, especially to the younger child, it should meet some, or all, of the annual college fee. If it is not sufficient, you could always give the balance to your son or daughter for the child’s use under the same €3,000 rule. The grandchildren can then still inherit from you and not face any extra tax liability than that which will apply at the time on a bequest from a grandparent to grandchild. 

WHAT DOES NAMA MEAN?

Good bank, bad bank.  Nationalised bank. NAMA-bank.  Take your pick – it all ends up as a great big, monstrous pile of debt that has to be paid off or written off. 

The ideal way for this c€90 billion worth of toxic property debt to be cleared would be if some even bigger fools than the builders and bankers, believing all the recent headlines that the Great Recession if finally ending, came along and bought all these pretty useless tracts of land, unfinished office blocks, shopping malls and ghost estates.  I even think, from everything I read and hear about NAMA, that this is what the Minister for Finance is counting on, not to mention the rest of the government. 

Unfortunately, none of us should expect Irish property markets to return to 2007 prices until all the ingredients of another property bubble have been created:  cheap, plentiful mortgage credit; high, rising incomes, low taxes and a great swell of madness personified by vast numbers of people thinking that borrowing huge sums of money to buy property – that is, by consuming wealth - is a sure fire way to generate wealth. 

Do you see any of those ingredients?  No, me neither. 

Instead, we see (and not just here), falling incomes, rising unemployment, higher taxes and a soaring national debt, fuelled here by borrowings of €400 million a week just to meet day-to-day government spending and the dole payments for 440,000 unemployed workers. 

As I write, our national debt is now nearly €68.3 billion– up from a mere €24 billion at the end of 2007 and €43 billion at the end of 2008 according to the National Treasury Management Agency. (You can watch it grow here: www.financedublin.com/debtclock )

There is no ‘genuine’ recovery yet. The rise of stock-markets since March has been inspired by government debt stimulus packages around the world, by massive cost cutting by corporations and to a degree by economic activity in China in particular, where the central planners have pumped up the money supply and rolled out trillions or yuan in cheap loans. Some commentators are as worried about the Chinese bubble economy as they are about the collapsing American one.

Nor is there sustainable, consumer demand. There are far more people around the world still losing their jobs than finding new ones.  Profits have collapsed.  Inventories are still huge.  

Recently I read an article, written in 1955 by the respected free market Austrian School economist and author Percy Greaves titled, Does Government Spending Bring Prosperity? You can read it yourself here: http://mises.org/story/3637 . In clear and precise prose, he shows how our government’s NAMA intervention and all the other borrowing and taxing they’ve done is unlikely to ‘solve’ our terrible economic crisis, or facilitate an economic recovery: 

“When the government raises the money it spends by borrowing savings or taxing its citizens,” writes Greaves, “it merely transfers spending power from private owners and earners of the money to the political spenders in power. This creates no new wealth. It reduces the amount private citizens can spend while increasing the amount government can spend.

“With less money in their pockets and bank accounts, private individuals and corporations must reduce the amounts they spend or invest… Money spent by governments cannot create any more jobs or produce any more wealth than it can when spent by private persons. In fact, it creates less, because both the tax collectors and tax spenders must be paid a commission. Their labors add nothing to the wealth of society. The shift of the money from private citizens to political spenders must result in fewer productive jobs...”

He might have had the Irish bail-out of the banks and builders in mind when he wrote this: “Political spending also changes the whole pattern of the nation's productive forces. If the government spends its money by giving out subsidies to one privileged group, the productive facilities of the country are then partially directed toward satisfying the desires of that group instead of the desires of those who originally earned the money.”

If anyone asks you what NAMA means, you should quote Percy Greaves. NAMA, you can tell them, is just another manifestation of how we have allowed the government to misspend our earnings, our savings and the future earnings and savings of our children and grandchildren, “to add nothing to the wealth of society.”

We should have had the courage to demand that the insolvent banks be allowed to go bust a year ago.  Then they, and we the people, as well as the government would have had to face, head on, the consequences of the foolish mistakes and the mal-investments and excesses of the Celtic Tiger bubble era. 

Instead, the government, in collusion with the ECB has decided to use NAMA to postpone the day of reckoning.  A day that I reckon could last at least a generation.  

That’s what NAMA really means. 

The Sunday Times 

MoneyQs – Sept 6

By Jill Kerby 

OO’S writes from Dublin: I will be made redundant shortly and the company pays VHI for me and my husband, Plan B Excess. The company will immediately cease paying the VHI, so that leaves me with a decision to make as to what health insurance company is best for us. I am in my mid fifties and my husband is in his late fifties. What company and health plan do you think is most suitable for us?

I passed your query onto Dermot Goode, a fee-based broker who specialises in health insurance (see healthinsurancesavings.ie). He suggests that the Quinn Health Care equivalent to your Plan B Excess, which costs €752 per adult is Essential Plus Excess, which costs €642 per annum. Given that your family income has been drastically reduced, you might also consider Quinn’s Essential Plus Starter at €499 p/a “which covers all public and most private hospitals,  andwhich might be suitable if your reader wants to reduce her cover temporarily until she finds alternative employment.”  Switching back up to a higher benefits plan later may result in restricted benefits if either of you develop a medical condition that would then be subject to an exemption period under a higher plan.  Make sure you understand all the possible consequences before you sign up to any new plan. 

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TC writes fromDublin:  Several people have told me that as a British subject living in Ireland for many years, both before and since my retirement, though I never worked here, that I can transfer my UK state pension to Ireland and be paid Irish state pension rates, which are a lot more generous! My Irish wife has a UK pension from her marriage to me, but it seems she can apply for a non-contributory Irish pension when she is 66. She has too few PRSI contributions to qualify otherwise. I am not sure it can happen but no harm in asking and trying to get a bit more to live on!

As the UK is covered by EU Bilateral Social Security Agreements, your UK state pension rights are protected when you move to Ireland and your pension can be paid to you in Ireland by the UK Department for Work and Pensions (DWP). If you have not already physically transferred your pension you can do so by consulting the DWPs International Pensions Centre at the Department for Work and Pensions, Tyneview Park, Newcastle Upon Tyne, NE98 1BA, England or call 0044 191 218 7777. They also have a website you can consult: www.thepensionservice.gov.uk . As for just switching benefits from the UK to Irish state pension system, I’m afraid you have been misinformed. There is a provision for people who have made social security contributions during their working lives in more than one country to qualify for a combined pension from these countries, which could be paid to them by the Irish Department of Social and Family Affairs if they end up residing here. To qualify for such a pension you would have to be employed in Ireland for some time throughout your working life; since you were never employed here, this arrangement would not apply to you. However, a spokesperson for the Department told me that both you and your spouse can apply for an Irish State Pension (Non-Contributory) which is a means tested scheme payable at age 66 to residents of Ireland. Your UK pension and any other income or savings, and that of your spouse will be taken into account, but if your UK state pension in your only income, because it is of lower value than the Irish non-contributory pension which is a maximum of €219 per week, you may have some entitlement to a payment.

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EAM writes from Dublin: I recently made a loan to my son who is living in the UK. The arrangement is that he will repay £250 per month. He is with Nat West and my account is with AIB. Can you tell me the simplest and most cost effective method for him to arrange repayments?

Your son should first consult his UK bank as to the cost – for both the transfer and the exchange rate conversion (if it is done at that end) and the time it would take to do an electronic transfer to your AIB account. You would think this would be the simplest thing to do since all you need are the respective banks’ addresses, account numbers, IBAN codes, BIC/ SWIFT codes (which your banks can furnish), and it is, but such a transfer is not necessarily the cheapest. The smaller the sum, often the bigger the charge, and your son should check out the cost of the transfer from other money transfer agents, such as Western Union or some of the othersthat advertise on the internet.  Check them out carefully – aside from the security issue, some only transfer sums of at least £1,000 or more. Finally, do either of you have a PayPal account, which is very easy to set up (see www.paypal.com)?  Anyone who uses e-Bay, for example, is recommended to set up such an account from which secure payments are made via credit cards but I’ve used my PayPal account for many other transactions. This might be the simple and cheap solution you are both seeking. 

As usual, the people of Ireland, at least those of us lucky enough to be still working, continue to do the right thing as the Great Recession deepens.   

According to the latest Central Bank monthly statistics, we are now paying off our credit cards faster than we are spending on them. We’re also doing our bit to recapitalize the banks with real money and not with borrowings from the ECB. Last July, overnight or demand deposits rose by another €555 million while three month notice accounts rose by €633 million. 

We’re just as wary about taking on mortgage debt as the banks are to lend it to us in this falling housing market. The annual rate of increase in outstanding residential mortgages in July was just +1.3%, says the bank; by the end of this year it expects we will be actually paying off the nation’s collective mortgage bill, not adding to it. 

This is bad, bad news for the property developers and builders, architects and lawyers, estate agents and granite topped kitchen fitters who relied on a steady stream of mortgage borrowers for their livelihoods during the bubble years, but it’s a perfect reflection of how depressed is the real economy. 

It’s also a point that is being overlooked in the endless debate over the merits of Nama or the other good bank/bad bank ‘solutions’. 

The argument seems to be – but who really knows - that the banks must be recapitalized, no matter what the cost, in order that businesses and individuals can return to the old formula of borrowing and spending, so that our economy can ‘recover’, and grow again. 

They’re the experts, of course, but it seems to me that this is just more bubble blather.  

Our current enthusiasm to repay of our personal debts and rebuild our savings funds proves that a lot of us now realise that all that foolish borrowing and spending has actually left us a lot poorer, not richer, than we were before those mad, boom years. 

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‘Buyer Beware’ should be stamped all over one of the VHIs newest products, First Plan Extra. 

For the first time, say private health insurance brokers, a health insurer is putting restrictions on where certain common surgical procedures – like hip replacements or cataract surgery, can be undertaken and how much they will pay towards the cost.  The fear is that customers who buy this plan, because it is cheaper, may not realise that it comes with unusual restrictions that could result in them waiting longer for treatment and paying far more too. 

First Plan Extra costs €690 a year, at least €200 cheaper than other popular VHI plans in the same range, such as Plan B Options, Plan B, and Plan B Excess.  It generally advertises the same access to public and private hospital accommodation as these other plans, except for certain surgery - any joint replacement surgery, such as common hip replacements and any eye surgery, including for cataracts will not be performed in public hospitals. For those private hospitals where the surgery is conducted, only 35% of the cost will be covered by VHI.  These are treatments mostly common to older patients and members, of which VHI, the state owned insurer has the greatest number, a throwback to being the only provider until 1996. 

Specialist health insurance brokers say this restriction is a dangerous precedent in a market that is already stuffed full of complicated plans and policies that consumers already find difficult to compare for cost or quality.

They also say this new policy doesn’t clearly define or highlight the ne w restrictions and that buyers may not realise that they could end up both paying for and waiting much longer for specified hip, knee, shoulder joint replacement and major eye procedures if treatment is only available in a restricted number of hospitals. 

By then it could be too late to switch to another plan.

This certainly looks like a matter for the industry regular, the HIA. If VHI, the biggest insurer, owned by the state, thinks it’s acceptable to start targeting ‘loss making’ treatments like hip replacements, what’s to stop them – or any other insurer – from extending these restrictions to other types of surgery or treatment.  

So much - again - for the spirit of community rating which is already being whittled away by the introduction of so many plans in which the benefits are clearly aimed at specific age groups.  

For the moment, the price of this product is still too high for it to attract that many new customers, says Dermot Goode of www.insurancesavings.ie, who offers a fee based comparison service and Aongus Loughlin of Watson Wyatt Health, who advises corporate clients on their health care plans. 

They both site a number of Quinn Healthcare and Hibernian Vivas Health products that are either cheaper, or only a few euro dearer than this one, and which provide the same or better benefits without any restrictions.

The state owned insurer is losing money and members and has again missed its latest EU deadline for complying with solvency reserve requirement: that gap is now reckoned at €100 million.  

Nor is this the first cost cutting measure the VHI has brought in this year – they slashed benefits from their Life Stage plans this past summer and have chopped and changed their family plans and child premiums, amid considerably confusion, say the brokers. 

But what is truly extraordinary is that despite being the sole beneficiary of the new €150 adult and €60 per child insurance levy – a subsidy from every other health insurance member in the country – the VHI still feels compelled to target this vulnerable age group.

Do yourself a favour.  Check out the competition. 

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