Jill Kerby

AS WAITING LISTS FOR CHILDREN GET LONGER MORE PARENTS NEED TO CONSIDER HEALTH INSURANCE

In a reply to a Dail question last week, the HSE stated that 54,789 children were waiting for an outpatient consultation at the end of May.

Of that number, 17,639 have been waiting for the appointment for more than a year and 10,541 for at least 18 months. 2,000 of those children have been waiting for a year to see a heart specialist. The number of “long waiters” – waiting for more than 18 months with conditions that include orthopaedic, heart and vision problems have soared 17-fold since 2016.

In the specific case of eye problems – often quite minor - the HSE admitted in January that over 18,000 children have been waiting for “some period of time” for ophthalmic treatment, with about 10,000 of them waiting longer than 12 months. 

Meanwhile, 235 children with scoliosis are still waiting for orthopaedic surgery. So urgent are their cases that the HSE is transferring some of them to UK hospitals.

The list goes on, caused by a shortage of consultants paediatricians (there are only 382 in Ireland and another 205 registrars and trainee registrars) and hospital beds. The management of the HSE has not kept up with our overall growing population.

So what can parents do to avoid long treatment queues, and serious conditions, let alone minor ones like an eye squint, constant throats infections, worrying posture, hearing or dental problems – becoming much more serious ones?  

The most obvious solution in a country with a two-tiered health system is to buy private health insurance for your children when they are healthy. (Pre-existing conditions are subject to waiting times.) It is not expensive at c€250 a year for a very good policy and even less than €150 for a very basic one.

Which is exactly what I tweeted last week (@JillKerby) in response to these latest worrying waiting lists.

The usual nay-sayers were onto me quickly: not everyone can afford even that amount, one tweeted, (though I had already noted that private health insurance is clearly unaffordable if you are long term unemployed, homeless, or in serious debt.)

But I also added that even where a family cannot afford to insure adults and children (a child must be linked to an adult policy) a grandparent, godparent, other relative or even a friend can add your child to their plan and you then reimburse them the €250, an sum “that everyone can save over the course of a year.”

I also received an interesting response from a GP: “Even having private cover wouldn’t help as there are no private paediatric hospitals. Also, most of my patients only use their private cover for diagnostic tests because they can’t afford consultation fees for consultants.”

This doctor was correct in that there are no private paediatric hospitals. Nor are there private rooms at the children’s hospitals except for isolation cases. But privacy isn’t why parents buy private health insurance; they buy it to get timely access to medical tests and treatment and to avoid the endless, waiting lists and the frighteningly high rates of infection in public hospitals. 

I checked with both health insurers and some of the 19 private hospitals about their paediatric services.  Nearly all of them offer a range of general and specialist paediatric services, mostly outpatient diagnosis and treatments for children usually aged up to 14-16.

Nearly all of the hospitals in the Bonsecours group have paediatric consultants on staff and the Cork hospital even has a paediatric ward. The Mater Private, Blackrock and the Beacon Hospital also offer extensive services, including overnight surgical treatment for children. The bigger hospitals also offer daytime A&E access. The private mental health services hospital, St John of God’s in Dublin, has a dedicated adolescent unit, the Ginesa Suite.

Most paediatric private consultants are also attached to the public children’s hospitals – there are only 10 exclusively private paediatricians operating according to the HSE’s 2017 Review of the Paediatrics and Neonatology Medical Workforce in Ireland.

The sickest children nearly always go to the top of the queue. But the only way you can ever know if your ill child will even be able to avoid the  horrendous waiting list to even be diagnosed, is to ask.

Your insurer or broker can tell you exactly what access and benefits your existing plan pays. The private consultant, hospital or clinic can outline exactly what the charges will be.  As the GP on my tweet-line suggested, you may have to dig a little deeper to cover all medical expenses that are not covered.

But if you have a family and have no health insurance, but think it might be a good idea, your first step should be to contact a good, specialist broker. With c400 different plans on offer only a broker can find you the most affordable and suitable plan (which might even include a cheaper cash health plan like HSF.ie) for the family, or for individual family members.

(The TAB Guide to Money Pensions & Tax 2018 is available in all good bookstores. See www.tab.ie for ebook edition.)  

GOVERNMENT INSURANCE LEVIES: EXPENSIVE, SELECTIVE TAXES

There are two prevailing myths that both the government and its critics persist in repeating:  that taxes are coming down and that Ireland is a low-tax economy.

The latest example to blow another whole in these assertions is the new 2% ‘levy’ that will be added for the next seven years to every motor insurance policy as a result of the bailing out Setanta Insurance, the Malta-registered company that went spectacularly bust in 2014. This brings to 7% the total levies – aka taxes – that motorists will now pay as Setanta joins the PMPA and Quinn Insurance on the plinth of the reckless insurers that our regulators failed to regulate but then bailed out at our collective expense.

As my colleague Charlie Weston, the tenacious personal finance editor of the Irish Independent noted last week, this latest bailout sends a message to every reckless insurer, even those registered in a different country:  don’t worry, ‘pixie Irish consumers’ will pick up your tab.

The 7% motor insurance levy is just the latest member of the ugly Irish Levy family. 

Every buyer of general insurance – of home, travel, personal liability, commercial and even pet insurance already pays the 3% levy cum stamp duty born out of the PMPA collapse in the 1980s plus the 2% levy added to cover the €1.1 billion worth of claims after Quinn Insurance went bust in 2010.

The Setanta levy is expected to add €50 to a €750 annual motor policy on top of the €50 of every premium that the insurance industry says is already allocated to pay for fraudulent insurance claims.

Meanwhile, anyone who pays into a life insurance policy, a savings or investment plan, an income protection or pension plan, also now pays a 1% levy.

The Levy family has other branches too:  private pension fund holders (ie., c800,000 when AVCs that are held by public servants are included) paid a c0.75% levy on the annual value of their pension funds between 2010-16. The Government collected €2.6 billion, ostensibly to bring down the VAT rate for the hospitality industry during the darkest days of the Great Recession. (Tourism is booming again, yet the VAT rate remains at 9% and private pension holders are unlikely to ever see their lost retirement savings.)

Meanwhile, over two million holders of private health insurance pay annual risk equalisation levies of up to €135 for a child’s policy and €399 for an adult policy.  And since 2015 a 2% lifetime premium loading that was described by the then Minister for Health as a “late entry levy” is applied to every policy-holder who waited until age 35 before they bought their first health insurance plan.

Finally, let’s not forget the PSO – Public Service Obligation – a levy of €15.38 that every electricity user pays every two months (€7.69 x 2). The government claims this payment to the green energy sector, “supports the generation of electricity from sustainable, renewable, indigenous sources”. (It has been proposed to reduce this levy to €4.26 per month from next October.)

What the government decrees…we must pay.

With the exception of pensions and health insurance, which both attract tax relief, levies/stamp duty are paid out of after-tax income but the government would still probably argue that with the exception of motor cover and the electricity PSO, no one is forcing you buy travel insurance, or home insurance if you are mortgage free.

Nor is life insurance or private pensions compulsory - yet. But it’s a very foolish parent who declines to buy sufficient life insurance and a very optimistic private sector employee who thinks that the State Pension (itself compulsory) is going to be sufficient in 30 or 40 years time to meet the cost of their retirement.

That said, anyone who doesn’t really need to own a car – single people who can walk or cycle to work; older people who use it seldom and/or who live near good public transport or can use a taxi instead (which even on a daily basis is going to be cheaper than car ownership) can all avoid the 7% car insurance levy.  Being car less means they don’t have to fume anymore about how c€50 of their annual premium goes towards the cost of fraudulent claims.

Better still, if like me, you have a GoCar parked on your city street, you can completely avoid nearly all the equivalent annual costs of not just the insurance and the 7% levy, but the car tax, petrol, maintenance and parking …in exchange for a mere  €8 an hour rental charge.

Levies are blunt force instruments. No matter how temporary, they never seem to disappear. Unless you have substantial means and can self-insure every unexpected outcome, like a huge travel/medical bill in America or can live your life by candlelight, we’re mostly stuck with these annoying, selective taxes.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

INERTIA IS EVERY RETIREMENT WANNABE’S WORST ENEMY

Procrastination and inertia come at a cost. Fewer than 40% of private sector workers belong to a pension scheme or have a private plan of their own.  For many, this is because their employer does not offer an occupational scheme (or a PRSA group scheme to which they are otherwise obliged) and they have decided they either cannot afford a private plan of their own (especially if they are trying to save for a home) or feel they have no need for one.

This coverage figure has been dropping for the last decade and the government claims to be committed to introducing a universal auto-enrolment scheme by 2023. 

It can’t happen soon enough, but our current, complex, multi-type pension system needs serious root and branch reform, all parties – workers, unions, employers and the Oireachtas need to be on board …and time is running out. 

Nearly an entire generation of young, and not so young workers are at risk of depending entirely on the pay-as-you-go State Pension when they retire, just as the older population of Ireland is rapidly increasing. 

Irish Life, the country’s largest private pension provider has recently produced data from 2,000 Defined Contribution pension schemes which they administer for about 60,000 members.

The findings of this “Better Company Pensions’ report are alarming. The average age at which workers are starting a company pension is 37, but annual contributions from the worker and employer only amount to 11.4% of their salary.

As the table below shows, delaying funding a pension can have a hugely significant negative impact on its final gross value (the Irish Life figures do not take account all costs and charges and the net value will be considerable.)

The pension value examples in this table assumed that the worker and company contribute 11.4% of salary each year beginning at ages 25, 35, 45 and 55. Retirement age is 65 in each case. Each worker’s salary grows each year by 2% (starting from a base of €51,250 for the 25 year old, which seems high given that the average industrial wage is c€39,000.) It is assumed that the pension fund itself grows by 4% gross per annum.

The person who only starts their pension at 35 (which is two years younger than the average age Irish Life has noted) will be starting their contributions out of a salary of €62,474, due to the annual wage indexing that has applied. Their final gross pension fund at maturity will be €311,590, about €150,000 less than the pension fund of their 25 year old colleague who, even though on a much lower salary when they started saving, had a 10 year head start.

Using these assumptions, the 35 year old can expect a gross income of €11,780 a year for life, while the 25 year old, can expect an income of €17,490, nearly €6,000 a year more.

The picture is even worse for the 45 and 55 year olds who start their pensions much later with only 20 and 10 years respectively for their funds to grow. Not only do they have far less time for time and compound interest to do its magic, but they will need to be even more careful about the kind of investment risk being taken:  they may not have sufficient time to make up the periodic losses that are inevitable in investment markets.

Costs and charges and commissions will also inevitably eat away thousands of euro every year from their fund; these costs will have a disproportionate effect on pensions that are started later.

The single two most important factors in producing a satisfactory retirement fund and income, independent financial advisers and planners agree, is that you start saving as early as possible, that is, from your first paycheque and that you save enough. 

A 25 year old who puts away at least 10% of their gross income into a well-diversified, tax deductible, low cost investment fund for their entire working life (which could easily end up being 50 years) and who ideally also enjoys a employer contribution, is unlikely to ever have to worry much about a comfortable retirement, no matter how volatile the markets.

*Source: Irish Life, 2018

GARDA INSURANCE FRAUD UNIT WELCOME BUT WON’T BRING PREMIUMS DOWN RIGHT AWAY

Being the victim of someone else’s fraudulent insurance claim is not very pleasant.

Less than a year after I learned how to drive, I unfortunately bumped into the side of another car as we were both moving into (me) and off (him) a wide yellow crossbox one wet, late December afternoon.

Since we were both only inching along at less than 5km an hour, my left – undamaged - front bumper left a small dent in his left back passenger door.  The worse damage we inflicted was further snarling up rush hour traffic until we could both pull over to the side of the road.

I was devastated. We exchanged insurance details; I was clearly in the wrong. But the damage was tiny and if I had known, I would have offered to pay the damage from my own pocket rather than involve my insurance company. Nor did I call the Gardai, or look for witnesses, so minor was the altercation. I did notice however that the other driver’s car was old and rather banged up, with lots of little dents and scratches. I was mistakenly consoled by this.

I filled out the insurance forms but was outraged when I was informed that the claim – for over two thousand pounds - had been approved, seemingly without any second thought by my insurer.  Despite reminding the claims official of my description of the accident, he blithely replied that “small claim” were pretty much just rubber-stamped and disputes weren’t worth pursuing.

That was 34 years ago.

Who was at fault here (aside from me?)  The other driver for hugely exaggerating the damage to his already battered old car, or the insurance company for blithely paying up because the alleged cost of the damage was, in their view, inconsequential?

Last week, the Irish general insurance industry (you and me, again) agreed to fund a new, specialist Garda unit that will cost €1 million a year to investigate insurance fraud. 

The unit will be focussing on the big staged motor accidents (You-Tube is full of recordings) orchestrated by both individual criminals and organised crime gangs that result in exorbitant personal injury claims.

 It isn’t just motor fraud that is contributing to an estimated extra €50 cost per every insurance premium in Ireland:  small businesses are targetted too by customers (and employees) claiming they’ve injured themselves on the premises or at their workplace, usually by falling on wet or greasy surfaces they arranged themselves, by ‘accidentally’ falling down stairs (especially in pubs, nightclubs and restaurants) or by burning or cutting themselves, etc. 

Insurance fraud costs an estimated €200 million a year but the new 12 person insurance fraud unit will be kept so busy that they are unlikely to end up investigating very many of exaggerated claims that ordinary homeowners allegedly make when their home suffers damage or they experience a break-in.  The only thing these people might worry about is a guilty conscience. 

(The addition of no-claims bonuses to household policies – like the kind that apply to motor policies would help reduce exaggerated claims, a broker told me: “Even a small claim is likely to result in a huge premium jump, so people think, ‘I might as well gild the lily’.”)

One industry expert, Jonathan Hehir who operates a number of general on-line insurance brokers including Insuremyshop.ie and Insuremyhouse.ie said the more fraudulent claims, the higher premiums will increase.

“It’s encouraging to see the industry work together to combat this growing epidemic and if the UK system is emulated, as is the intention, then I would be confident that it would have an almost immediate effect of reducing the instances of claims – which will then have the knock-on effect of reducing premiums.”

This isn’t the first effort to reduce dodgy claims. In 2003, at the peak of the Celtic Tiger, Insurance Confidential, an initiative by Insurance Ireland, invited people to report suspected fraud to them.  Its motto was ‘Insurance Fraud is not a victimless crime’. It claims “thanks to the effort of the public it has helped prevent thousands of fraudulent claims to date.”

That may be so, but the situation is worse 15 years later, says Jonathan Hehir: “The scale and resources are simply not enough to deal with the level of fraud the industry now has to contend with, and the involvement of the Gardai on a larger scale is absolutely necessary,” He adds that his staff are all trained to recognise signs of fraud.

The cost of motor insurance had gone up by about 70% over the last 5-6 years. Premiums have fallen back somewhat in the last year but there is no similar evidence for home and shop insurance. Adding another €1 million a year to the industry’s costs – while very necessary – doesn’t augur well for a quick fall in customer premiums. 

This is just another ‘don’t hold your breath’ event.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

ENGAGED COUPLES ARE DISCOVERING THAT SYNTHETIC DIAMONDS REALLY ARE FOREVER

It’s wedding season and the weather couldn’t be nicer for those brides and grooms tying the knot this weekend.

Luckily the only invitations I’ve received so far this summer are for engagement parties.  Long-time readers of this column know that while I delight in sharing the actual wedding service, I’m not a fan of traditional receptions, especially the kind that go on for days and happen in foreign locations.  (Even worse are the ones with invitations that crassly suggest cash gifts instead of presents. Call me old fashioned, but I’m not sure you’re a genuine ‘guest’ when you end up paying towards your meal or the bride’s dress.)

Summer engagement parties, on the other hand, are lots of fun, either hosted in a family back garden, hotel or the local sports club. Only close family and friends usually show up and the food, music and speeches are inevitably more informal. The speeches aren’t usually scripted. Best of all, the anxiety index is a lot lower, and the cost, bearable.

Which leads me to the very welcome recent announcement by the diamond sellers, DeBeers that they are going to start selling lab-grown diamonds that are expected to cost about a tenth of the price of their natural ones.

This is terrific news for newly engaged couples, who will hopefully abandon the absurd but wildly successful (until now) DeBeers marketing myth that diamonds command a huge price tab because they are not only ‘forever’ but rare too. 

Diamonds may be the hardest gemstone, but they are certainly not rare:  jewellery shop windows in every town and city on the globe (not to mention diamond cutting factories and museums) display endless numbers of diamonds of varying degrees of colour, clarity, carat and cut. Millions of women own diamond jewellery and while traditional diamond mines in South Africa are being worked out, new mines – like the DeBeers-owned Gahcho K’ue mine in Canada’s North-West Territories that opened in September 2017, is producing 2.4 kg of diamonds per day.

There is no shortage of jewellery or industrial-grade diamonds in the world. Which is why DeBeers has invested a fortune for the past 80 years of so in creating the myth that convinced generations of newlyweds that buying a diamond engagement ring was the only way to truly express their love and fidelity – as in, if the diamond was forever, so would be the marriage.

DeBeers are coming to the lab-created diamond business late in the day. Russian labs were the first to start manufacturing them several years ago and the South African company (which now only control about a third of world’s diamond production) reacted by saying they would engrave a DeBeers logo onto their diamonds so that retailers and buyers could be certain their diamond was ‘real’ and not synthetic.

Except there’s nothing unreal about synthetic diamonds, which are literally created from a genuine carbon ‘seed’ and put under immense pressure for a few weeks.  The brand new raw diamond is then cut and polished just like the ones formed after millions of years, deep in the earth.

The synthetic De Beers diamonds are expected to go on sale from this September under the brand Lightbox and prices will start at c$200 per quarter carat or $800 a full carat, instead of, typically, $8,000 for a natural carat stone of fine quality. Buyers then have to add the cost of the gold or platinum setting and other sales margins.

Demand for such affordable diamonds is sure to grow as this generation of engaged couples, who have reportedly already been eschewing diamonds for cheaper coloured stones (or no engagement ring at all), become aware of their existence. Instead of feeling pressured into spending two or three months of income on a diamond ring – another successful De Beers marketing ploy -– they can spend a tenth of that outlay and no one will be able to tell the difference.

Irish jewellers might want to start preparing for what will undoubtedly be a gradual shift towards buying manufactured or synthetic diamonds by many existing and potential customers.  Industry commentators predict that the price of real diamonds will inevitably come down.

Anyone who has ever tried to resell a diamond engagement ring knows only too well that they were very lucky to get even half the original price back; only exceptionally fine, rare stones with a sparkling provenance keep their value.

For the rest of us, the ring mounting - depending on how heavy and how pure the gold or platinum – could be worth more once melted down and sold, than the actual diamond.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

YOUNG TRAVELLERS NEED THE RIGHT MEDICAL, TRAVEL INSURANCE

If you thought choosing health insurance was complicated, you’d be right.

With over 400 plans available from the three health insurance companies – VHI, Laya Healthcare and Irish Life Health, it is far better to use the services of a good health insurance broker both when choosing your first policy and at renewal time.

I practice what I preach:  this year, my husband and I will save about €300 by sticking with our same Laya plan (Simple Connect), but this time slightly adjusting the excess amounts we will pay and to the refund we get for outpatient treatments.

Our annual review is the perfect opportunity to not only try and reduce our premium – or at worse, to not pay any more – but to assess the state of our health as we get older. So far, so lucky: we’ve had few claims (especially hospital events) and the extra excess we’re taking on is certainly affordable. (That’s what an emergency savings account is for.)

“The older you get, the more likely you are to make claims,” says the specialist health broker Dermot Goode of Totalhealthcover.ie.  While premiums have finally come down, too many health insurance customers are still not switching. “Anyone who has been with the same provider/plan for more than two years, is paying too much.”

But this is also the time of year when many college students are off on summer student work visas, or are preparing to take time out after their Leaving Cert to work for a year.  At least three of our friend’s children will be working in the US, Canada and Australia for up to two years, and their travel and health insurance needs are a big concern for their families.

“I’m afraid that there’s no simple solution that applies to every young person who goes travelling,” says Dermot Goode.  “It all depends on where they are going, how long they will be gone for and what are they going to be working at.”

According to Goode, the first mistake parents make is to assume that the travel abroad benefits on their private health insurance or their child’s European/EEA health insurance card will be sufficient to meet the cost of any and all emergency health needs. 

This is not the case. Depending on the private insurance plan there may or may not be sufficient overseas cover, he explained.

The EU/EEA (and Switzerland) health insurance card will allow access to public medical treatment if your young person falls ill or has an accident, said Goode, but in some countries they may still be billed for all or part of their treatment and the card it does not include repatriation.  

The other problem with relying on a health insurance plan is that even generous overseas medical benefits “may not be sufficient to meet the astronomical cost of medical treatment in the United States in particular.”

“Also, ordinary health insurance plans only cover up to 45 days of overseas cover. If your son or daughter is away longer than that – as many are if they have J1 visas – their plan is not going to be valid outside that period.

 “The same applies if they decide to take six months or a year travelling or if they have work visas.”  What they need at the very least, he said, is an annual multi-trip policy which will allow for extended travel periods (of up to 180 days) or a back-packer policy that covers medical/travels expenses for up to a year.  He warns, however that these extended benefit policies can be quite expensive if they include dangerous sports or activities.

Even more expensive, said Goode, is medical/travel cover for young people who take up any kind of risk-rated work abroad, including building work.

“What they work at is going to be a complicating factor. If your son or daughter is a waitress, or working at a computer their extended multi-trip or back-pack insurance may be fine. But in more dangerous jobs they need to enhanced cover.  Goode recommends VHI’s international health insurance plan but even such a plan requires pre-approval depending on the work that is done. These policies, he warned, “are both risk-rated for age and activity.”

The other problem that young travellers who are abroad for longer periods face is that once their ordinary health insurance membership has lapsed, reconnecting may be complicated by new waiting times. “If you have been a VHI international policy holder, that won’t apply,” said Goode “and you can rejoin your old company and plan without penalty. People who are over 34 when they return to Ireland, may, however, be subject to age-related loading.

Medical/travel insurance is essential.  Illnesses, accidents can happen. Turning them into financial disasters is avoidable.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

Is €100k the right income ceiling at which to cut off Child Benefit?

It seems that every summer, the government of the day sets off at least one little tax reform bomblet that rattles the windows of middle Ireland, resulting in the inevitable denunciation of whatever ‘reform’ the grim apparatchik in the Department of Finance had suggested to enrich the Exchequer next October on Budget Day

Earlier this month it was the hoary old chestnut of the means testing of Child Benefit; last year it was the more original idea of taxing capital gains on private residences. (I helped set the RTE phone lines on fire after supporting that idea on the Today with Sean O’Rourke programme.)

Needless to say, both these ‘flyers’ sank pretty quickly after being denounced by ‘senior government officials’ – in the case of child benefit, by the Taoiseach himself.

I’ve been in favour of the means-testing of social welfare benefits, well, forever.  And so is the government which has always applied means-testing to some, but not to others, even if they are clearly linked to PRSI contributions.

For example, it means-tests Non-Contributory State Pensions and the Household Benefits Package (the energy allowance, TV licence, etc). The Qualified Adult Dependent Payment is means-tested as is the Carer’s Allowance and Job-Seeker’s Allowance. Access to public housing and housing benefits paid to private sector tenants is means-tested, as is the Working Family Payment and even the Non-Contributory Guardian’s Payment (in this case the child’s assets are means-tested).

The principal behind means-testing is simple enough: people with sufficient assets  - income, savings, capital gains do not need a social welfare payment that would have a better outcome if paid to people and families with much lower incomes or assets.

Difficulty arises in establishing the definition of ‘sufficient’ and what the political impact would be for the government party that dared introduce it

The suggestion that an €100,000 income might be sufficient for the introduction of child benefit means-testing is a case in point. To anyone struggling on minimum wage, or living in emergency accommodation, it’s a fortune.

But as the Taoiseach suggested, ‘Earning €100,000 does not mean you are rich in this country.’  And he’s right.

Imagine an educated, professional married couple in their mid to late 30s, both working full time in the private sector and both earning €50k. Imagine that they have two young children, the youngest of whom is in crèche. The couple own a mortgaged house worth c€300,000, drive one nearly new car (the other partner takes public transport).

Welcome to middle income, middle class, middle Ireland, whose typical, income and city-based expenses I have broken down:

Aside from earning a joint €100,000 income plus a tax-free annual child benefit of €3,360, this couple, like over half of all private sector workers, do not have a private pension fund. But they do pay approximately €31,000 in tax, USC and PRSI and have about €69,000 left over (or €6,030 a month) with which to meet all their monthly costs.

Once they pay typical annual mortgage and related compulsory insurance payments of €21,000 they also pay for groceries and lunches (€10,400); crèche fees and after school care for the primary school aged child (€15,600); travel expenses (€7,200); utilities – energy, mobiles, broadband (€2,760); private health insurance (a Laya healthcare adult plan with the children going free) of €1,728. Christmas and holidays cost €4,000 and clothing, €2,400). They are now left with €7,644 or €637 a month to meet all their other expenses.

That sounds like a lot of money, but note that I haven’t estimated any other debt repayments other than the mortgage and car payment. How realistic is that?

This couple, aside from their PRSI contributions towards the State Pension have no other retirement fund. At their age they should be saving 15%-20% of their gross income if they want to have any kind of comfortable old age.

Nor do they have a contingency or emergency fund if they were hit with a big unexpected bill or illness.  They have no additional life insurance, nor a long term education fund for their kids. (On their income there will be no 3rd level grants.)  I haven’t even included the costs of uniforms and books and school donations or First Communions/Birthdays/Anniversaries.

Realistically, how far can that additional €637 a month stretch.

Should the tax free Child Benefit – and other universal benefits - be means-tested?

Of course they should. But the government needs to take into account the total financial position of the family or individual, how many children they have, their essential financial commitments and reasonable expectations.

Personally, I’d be in favour of income tax reform over a reformed benefit systems. Families with small children to raise (and house, educate, clothe, etc) should be getting generous tax relief per child, not a slice of their taxes back in the form of a welfare payment from the State…

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

YOUR LETTERS: INVESTMENTS, ILLNESS COVER & DEBT

Ms MC writes:  I bought a buy-to-let house in 2005 for €160,000 and sold it in 2015 for €90,000, a loss of €70,000. Clearly, there was no capital gains on that transaction.  However I have another buy-to-let house and if and when I decide to sell it, I am likely to make a profit as I have had it since 2002. I bought it for €152,000 and it is currently valued at about €240,000, so I might make a profit of €88,000. I have spent plenty on repairs and new windows, doors and a new garage roof. Can I offset the loss of the 2015 house sale  against a possible profit of the current house sale?

CGT losses can be carried forward and used against any future capital gain. If you make your expected €88,000 gain on the house you purchased in 2002, the entire €70,000 loss on the 2005 house can be written off.  You will only pay 33% CGT on the €10,000 profit balance, less your personal annual CGT allowance of €1,270.

Mr RH writes: I have a Geared High Yield Fund S9 and a Trilogy II S9 with Bank of Ireland that took a hammering back in the day. Its value has only just recovered to the initial investment. Should I just pull the plug? Really what I'm asking is, can you recommend somewhere that is reliably good and safe and still gives me some growth?

Gearing is an additional risk that many small investors are unfamiliar with and involves the investment manager using borrowed money (as well as your money and everyone else’s in the pooled fund) to boost the volume of assets being purchased.  The great danger is that the servicing cost of that money might go up, and/or that the value of the fund assets in the fund will fall. These funds tend to also incur expensive fees, charges and sales commissions.

You don’t say how much you invested or for how long you’ve held onto this fund, but it clearly has been a loss-maker.  I suggest you consult a good, fee-based financial adviser about other options. Do you have any debt - credit cards, a car loan or mortgage? Paying them off with this money automatically results in a guaranteed ‘return’ in the form of avoided future interest charges. ‘Growth’ of any kind, with effectively zero deposit interest being paid, requires taking investment risk.  A good adviser can take you through it and let you decide if another investment is worth doing, both in terms of the time you will tie up your money, and emotionally.

Ms PC writes: I am a teacher in full-time employment. I’d like to take out income protection insurance and I’ve heard varying opinions on the merits/disadvantages of this type of insurance. Would you recommend it? I am in my early 50’s with one daughter who is still in primary school.

As a full time teacher my understanding is that you are already covered in the event of illness/serious illness, with up to full pay for at least a year (if you fall seriously ill) and then another six months on half pay. Teachers who exhaust their serious sick pay benefit may be able to apply for up to four years worth of Temporary Rehabilitation Remuneration. Check with the Department of Education to confirm this and then see what options exist if you can never return to work. If you are worried that this benefit would be insufficient, you could look into buying a private Serious Illness policy from a life assurance company. These pay tax-free cash lump sums for a selected group of serious illnesses/conditions, but they aren’t cheap:  the older you are, and the longer the duration of the policy, the more expensive they become. Also, pre-existing illnesses or condition could result in a premium ‘loading’ that may make the cost unaffordable. Ideally, you take out a policy like this until retirement age.  They offer some financial peace of mind, but at a price.

Ms MG writes: I am 63 years of age have six children and was unfortunately a stay at home mother with a good credit history until our mortgage fell into arrears. Now I find myself unable to borrow anything but have remaining credit card debt of €12,000. I have a bank account with a small overdraft facility and €8,000 saved in the local credit union. My husband is a gambler and his state pension is paid into my account each week. I earn €350 a month as a cleaner. I need some financial advice and guidance.

I’m so very sorry to read about your difficult financial position. From your (longer) letter it sounds as if you are estranged from your husband and that any other financial assistance is very irregular.  If you haven’t already done so, you need to contact your local MABS office, the free money and budgeting advice service. In association with MABS, the Insolvency Service of Ireland have debt solutions (see www.backontrack.ie) which are designed just for people like you.  Good luck.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

WILL AIRBnB REGULATIONS KILL OFF YOUR GOLDEN GOOSE?

The occasional trundling sound of wheeled suitcases outside my front windows in Kilmainham now competes with all the other traffic noise, especially the ambulance sirens en route to the A&E department at St James Hospital.

As an occasional suitcase trumbler myself, I don’t mind. But then none of my immediate neighbours rent their spare rooms so I’m never inconvenienced by late night arrivals or an entire home being rented out to noisy, visiting hen and stag parties.

Meanwhile, the more distant neighbours who are AirBnB hosts – retirees living on small pensions and young families with big mortgages - certainly appreciate the extra cash. This is a popular neighbourhood with quick public transport routes into the city centre and lots of historic sights.

New proposals on regulating AirBnB are expected to further heat up the debate about private property rights:  how far should the government go in restricting short term letting at a time when over 9,500 people are homeless and the cost of accommodation is soaring?

AirBnB is already complaining that we have a very restrictive regime in Ireland on the numbers of days you can rent, how many people can use the property and the number of rooms you can rent before you must apply for a change of planning, as a corporate AirBnB host with your local authority.

This is only fair, say critics since actual hotels and traditional BnBs are highly regulated in terms of fire and safety laws, must pay rates as well as corporate taxes.  The expected proposal will limit the number of days that the occasional AirBnB host will be able to let out their room (s) in their family home, or the entire home as a short term let. The number will vary from area to area.

AirBnB has certainly contributed to the property shortage in Dublin: the property and letting website Daft.ie shows that more than half of all lettings in Dublin - c5,500 – are now short term AirBnB rentals.  It is a common statistic in many other popular European tourist cities where public housing in particular has not kept up with demand.

Bad planning, the post-2008 debt legacy, inept politicians, mass tourism and the lure of bigger short term returns by property owners have all fed high the rolling property crises across so many cities her and in the EU.

Whether you live in Dublin or Dubrovnik, in the end, the huge potential returns from the AirBnB model – whether you rent a room per occasional night or by the month/year – is more attractive than becoming a registered BnB owner or a fully registered landlord. 

For many, even the tax free, regulation-lite Irish Rent-a-Room scheme in which you can earn €14,000 a year renting a room or rooms in your home, is just not as attractive as the higher yielding (and less personal) AirBnB option.

So alluring is the higher AirBnB yield that I know of student tenants in Dublin who are now advertising on closed, pseudo AirBnB social media sites for replacements as each of their fellow tenants graduate and either return home or find other accommodation closer to new jobs.

New student tenants of, say, a two bedroom, four-bed apartment are, I was told, so desperate for even a shared place to sleep that they are willing to pay by the night a la AirBnB. The other three, whose rent (if it is in a major city) is controlled by Rent Pressure Zone rules keep paying the usual rent to their landlord, but pocket the difference for the fourth bed, tax-free.

Regardless of your personal views of property ownership, governments are convinced that AirBnB is contributing to housing shortages (albeit mostly of their making). The numbers of consecutive days that can be let out have all been restricted in Paris, New York, London, Amsterdam, Barcelona, Berlin and other popular tourist destinations.

If you are already an Irish AirBnB host and are renting your entire property in a Rent Pressure Zone area, you might want to reconsider your profit targets.

Meanwhile, all income from AirBnB lettings is subject to income tax but under Schedule D Class A Trade Income, just like any other business.  Unlike someone who rents a property fulltime, AirBnB hosts cannot claim the same tax reliefs or deductions.  Always get proper advice before you make any tax assumptions.

Anyone who has not registered as an AirBnB host with the Revenue is asking for trouble. They know who you are because the company is obliged to furnish your details to the Revenue. Being unregistered risks not only a back-tax payment but penalties and surcharges and a very chance of being audited.  Renters who sublet a room via AirBnB also have to register with the Revenue, but should seek permission from the owner first.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)  

IS THE MORTGAGE DEBT NIGHTMARE FINALLY COMING TO AN END?

Personal insolvency arrangements or PIA’s are on the rise – and that is a very good thing.

It’s a good thing for the debtors who may have been in financial difficulty for some time and are finally able to achieve closure and get on with their lives. It is also a good thing for their creditors.

Where these creditors are wholly owned by the state, as in the case of AIB and its satellites, the ESB and Haven  – the winding down of long standing non-performing housing debts might mean that the far higher mortgage interest rates that are charged to new customers here may eventually settle at levels conquerable to what home borrowers pay in other EU states that haven’t had a 10 year legacy of property AND bank collapse. (The difference is nearly 2% in some cases.)

According to the latest report from the Insolvency Service of Ireland (ISI) there were 998 new debt solution applications in total for first quarter of this year compared to 946 in Q4 of 2017. The vast majority, 870 of them, were PIA’s, the personal insolvency arrangement which ISI Director Lorcan O’Connor described as “the solution that returns debtors to solvency while keeping them in their homes in 90% of cases.” 

Meanwhile, other debt solutions outside of insolvency – the Debt Resolution Notices (DRN) for smaller amounts of personal debt and Debt Settlement Arrangement (DSA) for non-mortgage debts have gone up (+9%) and down (-10%)respectively, between the two quarters.

There were also 462 Protective Certificates issued in Q1, down from 581 in Q4 2017. These certificates protect debtors from any further action by their creditors. 298 arrangements were approved in the first quarter of this year compared to 310 in Q4 of last year and there were 120 Bankruptcies compared to 163 in the final quarter of last year. 

Since 2014, when the service began, there have been a total of 2,519 bankruptcies, which are now discharged after just one year.

The total value of the debt concerned amounted to €1.164 billion, with buy-to-let mortgages accounting for 51% of that sum, or just over €588 million and private residential property debt nearly 19% of the balance or nearly €219 million. Bankrupticies accounted for €145 million of the debt.

The latest report also confirms what is already pretty well known in every town and city – that the majority of debtors (over 68%) availing of these settlements are in the most production cohort, aged between 35 and 54 and married or in a civil partnership (63.3%). 

Statisticians will certainly relish this latest set of figures.  Debt settlement applications and approvals have been falling off sharply – reflecting the general trend of debt being paid down (or written off), but also how much the economy has recovered.

The rise of engagement with the banks and of PIA applications certainly suggests that the tougher stance taken by the ECB and Central Bank about our ongoing, high volume of arrears may be working.  By the end of last year there were about 28,000 mortgages in arrears, and half of those, it has been reported could be in line for repossession if not other solution is found.

However, the consequences of pursuing this last tranche of debtors, who have either declined to deal with their banks until now, or were stymied by the banks when they did try to negotiate with them suggests, is going to have serious consequences in terms of homelessness, consumer advocates like David Hall of the Irish Mortgage Holders Organisation (IMHO) have warned.

Anticipating more Court actions, Mr Hall set up a not-for-profit housing body, iCare Housing, in September 2017 in association with AIB to facilitate the governments’s mortgage-to-rent scheme that aims to keep owners and families in their homes, this time as tenants. Under this scheme qualifying owners have their outstanding debt written off, get to keep their homes and have an option to buy it back some day at the price iCare purchased it from their bank.

To qualify for iCare you must be in arrears; your house or apartment must be within a certain value (ie less than c€365,000 or €310,000 respectively); you must be eligible for social housing and you will pay an income-related rent, based on local authority rents. Security of tenure is the aim of the scheme and some iCare clients will remain in their now-rented homes for life. (See www.icarehousing.ie for details.)

So are we finally coming to the end of a decade-long saga of mass property related debt and insolvency?

The ISI’s latest report would suggest so. 

But the most important message is that initiatives like iCare, Abhaile (the ISI’s service with mabs.ie for mortgage holders in arrears) and personal insolvency and bankruptcy arrangements (see www.isi.gov.ie) mean there may still be a chance for a ‘better’ outcome. 

And a brand new start.

(The new TAB Guide to Money Pensions & Tax 2018 is now out. See www.tab.ie for ebook edition.)