Login

Money Times - July 25, 2017

Posted by Jill Kerby on July 25 2017 @ 09:00

The Housing Crisis is only going to get worse as the population ages

 

Remember bedsit-land?

Especially the great triangle of shabby Victorian and Edwardian row houses in Rathmines, Ranelagh and Terenure in Dublin’s southside and in the Dorset Street, Fairview and Phibsborough neighbourhoods on the northside?

I remember it well. Nearly every young person I knew who left home or moved to Dublin from rural Ireland back in the early 1980s lived, reluctantly, in grim firetraps for a few years, their only consolation, other than conveniently located neighbourhoods being their affordability. Just about. 

Bedsits, of course, have been banished under recent housing legislation with owners forced to add separate bathrooms and cooking facilities (as opposed to a portable electric hob and grill behind a cupboard door) and a laundry facility.

This are improvements, of course, but last week a well-known Rathmines letting agent advertised three ‘fabulous’ studio and one-bed “apartments” – tiny, souped-up bedsits that now boast a kitchen wall unit literally at the end of the double bed; a bathroom so tiny that the door doesn’t close if the bed is not shoved entirely against a wall and a sofa bumped up against the washing machine. (Whatever happened to dropping off your bag of laundry to the washeteria?)  

In exchange for all this upgrading, but no extra space, the tenant had to cough up €1,550 a month, or €18,600 per annum.

The abolishment of bedsits and the surge in rents for ‘refurbished’ ones is just part of the reason why greater Dublin but also Cork, Galway, Limerick and Waterford are also gripped by the worst housing crisis since the 1930s. Not only are students and single workers crammed into overcrowded flats and houses; there is also an unprecedented rate of working families who’ve become homeless.

The crisis isn’t just due to the aftermath of the 2008 economic collapse, but to  decades-long government mismanagement, especially on the tax relief and planning fronts.

For at least 50 years, developers, buyers and owners have all been incentivised, subsidised (by non-home owners) and protected by laws and regulations that have allowed tax-free land banks to accumulate, vacant properties to be left untaxed, owners to enjoy subsidised grants and allowances, nil or low property taxes and rates, and mortgage tax relief.

Meanwhile, without any capital gains tax on the sale of principal private properties, older property owners whose families have grown and departed enjoy tax-free asset inflation while occupying a disproportionate number of larger family homes.

They have no incentive to sell up or downsize: even the Fair Deal nursing home payment scheme incentivises them to hang onto their large property (the asset contribution to their nursing home care is capped at 23%) in order to leave its remaining value as an inheritance to their heirs.

Labyrinthine planning appeals, meanwhile, make it not only very difficult to introduce ‘density’ into residential city neighbourhoods but also to convert large, city homes into high-quality multi-dwelling ones that would attract other down-sizing home owners.

I mention all of this because last week the CSO announced that between 2011 and 2016 another 100,000 people in Ireland turned 65 and the Department of Social Protection, in its 2016 annual report, stated that in the past 20 years, state pension payments have increased by two thirds.

The ‘Ireland has an ageing population’ story you might have read about is no longer just a warning of things to come. It has arrived.

All the usual suspects in government, academia (including TCD’s excellent Tilda study centre on ageing), the pensions industry, the welfare industry, including the Citizen’s Assembly that met recently to declare that there should be no compulsory retirement the pensions industry – as if this is was an original idea – believe they have identified the issues and that action should be forthcoming.

They haven’t. And it isn’t.

While everyone knows how health resources are already being stretched by our rapidly ageing population, where is the analysis and planning relative to the housing imbalance?

According to a 2016 Tilda paper on the quality of housing that older people occupy, it found that while about half the c640,000 over 65s live in inadequate housing to some degree which impacts on their physical/mental health, nevertheless 92% of older Irish people live in owner-occupied houses, 83% owning their homes outright and only 8% renting.

In other words, the part that isn’t broke, doesn’t merit immediate attention.

But a problem does exist in cities where there is a chronic housing shortage amid growing employment. (Ironically, in Dublin, the size of households has suddenly shot up as children remain in their childhood home, or move back in.)

Housing mismatch, nevertheless, is quietly ticking time bomb.

Ignoring the need for high quality step-down and sheltered properties suitable for retired couples and widows  – the fastest growing population cohort in the state – represents a lack of foresight that we are going to regret in the next few years.

 

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

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

 

 

7 comment(s)

Money Times - July 18, 2017

Posted by Jill Kerby on July 18 2017 @ 09:00

SAVINGS FUND OR PENSION FUND: THERE’S ONLY ONE WINNER

 

Are you a saver or a spender?

In Ireland today, the answer to this question is pretty obvious and it’s based very much on what age you are.

The young – 15-24 year olds, may indeed still have a post office or bank savings account, but this age group are big spenders, often of their parent’s money, as well as their own part time incomes or their first wages once they leave school or college.

Rent and repaying education debt is taking a bigger chunk out of the disposable income of the 24-35 year old age cohort, but while many attempt to save for their first home (especially those who move back in with their parents) their spending pattern is very different from previous generations. They increasingly prefer to spend on lifestyle ‘experiences’ (travel, career change) than what were considered lifestyle ‘essentials’ like car and home ownership. like an expensive motorcar, and starter home full of expensive home electronics. They live increasingly ‘virtual’ lives through new technology.

By the time the mid to late 30s come along, spending turns into serious debt. The 35-50 year olds are now supporting a mortgage, car, childcare costs on flat incomes and higher taxes. While they may aim to have rainy day and education savings fund in place, fewer than half of all Irish employees (outside of mandatory PRSI contributions) continue to an employment based retirement funds. Pension coverage (outside the public sector) continues to fall.

The big savers in Ireland continue to be older people in the over 55 age group who no longer have the high lifestyle costs they did 20 years earlier and are very conscious of their looming retirement.

Yet according to recent research by Irish Life, just under two thirds of Irish adults (64%) say they are actively saving and have some savings, However, of the other third, they claim to have no savings at all, and say they cannot afford to save.

The Irish Life research found that saving levels were higher among women (67%) than men (59%), and people over 55 years were saving the most.

Of those that are saving, 43% of people are saving over €100 a month, and people living in Dublin were found to be saving the most: 18% between €20 and €50 a month, with another 18% saving between €51 and €100 a month.

And while even this level of saving is to be commended, given the rising costs of housing, education and healthcare and many years of stagnant wages and state pension benefits, the return from conventional savings like deposit accounts and post office investments continues to fall. 

Demand deposit account returns, according to the comparison website bonkers.ie  now range from absolutely nothing from Bank of Ireland to 0.05% from KBC Bank.  Internet only demand accounts get a fraction more interest but to achieve even 1% interest you need to commit at least €5,000 for about five years (PTSB).  The irony is that even these puny returns are subject to 39% deposit interest tax (DIRT) unless you are over age 65 and your total income is below the tax-exempt limit for a pensioner, that is, €18,000 for an individual and €36,000 for a married couple.

Finding a safe and profitable place for savings is the great financial dilemma of our times and in a country with a rapidly ageing population and a large debt overhang from the 2008 crash.

Meanwhile, the Irish Life research found that only a third of Irish employees belong to a company pension fund, and only 25% of all Irish workers have a private pension. Generous tax relief means that every €100 saved into a pension costs only €80 for standard rate (20%) taxpayers and just €60 for marginal 40% taxpayers and many companies offer matching contributions “which can mean up to €200 into [the workers’] pension fund, for a cost of €80 or €60 to the employee based on their contribution of €100,” says the insurer.

Pensions are a hard sell, but 42% of the respondents to this Irish Life survey admitted that they could afford to save between €80-€100 a month.  Yet the majority (70%) of 20-something workers decline to join their company pension scheme, a 2014 Mercer report found in 2014.

Convincing young people to forego some spending today in order to secure a comfortable retirement four decades away is probably an even tougher task.

But the message from this research is stark and sound:  your contributions attract tax relief and any growth achieved in your fund is entirely tax-free until retirement. Leaving money in the bank is a long term loss maker.

 

 

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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

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

 

 

 

118 comment(s)

Money Times - July 11, 2017

Posted by Jill Kerby on July 11 2017 @ 09:00

INSURANCE RAIDS UNLIKELY TO PAY OFF ANYTIME SOON

 

Last week’s raids by the EU and Irish competition authority investigators on a number of insurance company offices, brokers and Insurance Ireland, the trade organisation for the industry, may be the first step to uncovering what has been suspected price fixing here.

The sharp rise in motor premiums – 38.8% in the year to June 2016 and by as much as 70% over the past three years - has been a source of considerable anger by consumers, especially those with clean driving records. Advanced price ‘signalling’ – where insurers have allegedly announced, in tandem, that there will be upcoming increases is one of the causes being cited for the surprise inspection.

There have also been questions about the way consumer claims records have been shared within the industry and how this may have closed off access to the market to outside competition, as well as a suggestion that false information was reportedly given to the Central Bank, which regulates the sector.

All of this may have been sufficient cause for the joint action, but the EU Commission quickly noted after the raids that no charges have been laid against any insurer or insurance body and that they have no legal deadline to complete their inquiries. 

In other words, don’t hold your breath. Premiums are not about to fall back to 2013 levels. If you’re a young driver, there is no magic solution at hand if you need affordable cover, and if you are a returned migrant, that clean driving record (and no claims bonuses) that you still have after a few years in Australia or the States is not going to be automatically recognised now that you’re back home.

These are just three common complaints about motor insurance but the headline catching raids are only ‘optics’. The competition authorities have been aware of pricing and competition problems for several years but, frankly, have done very little to address them.

These include agencies like the Competition and Consumer Protection Agency, the EU Competition Directorate, the Central Bank, which oversees the insurance companies and the Insurance Compensation Fund); Injuries Board Ireland, whose presence is supposed to help reduce the costs involved in motor injury claims, and even the Gardai whose job it is to enforce the traffic codes, but too often have insufficient information about the drivers they stop to fully access the risk they may pose.

Until issues like alleged price setting and other cartel-like activities; the compensation scheme (which is being boosted); better use of insurance databases and driver insurance records; tackling fraud and payments of excessive injury settlements, the cost of not having an efficient motor insurance system in place will continue to be passed onto drivers in the form of higher insurance premiums.

Offers of cheap insurance – a door-to-door motor cover scam with flat rate quotes of just €300 has been uncovered recently – should be avoided, and reported to the Gardai.  As always, if something seems to good to be true…that’s because, it is.

So what should you do until then to keep your insurance costs affordable? Whatever you do, ignore offers from door-to-door con artists of flat rate insurance quotations. (If a deal looks too good to be true, it’s because it’s a scam, warn the Gardai.)

Here are some cost saving suggestions, but forewarned is forearmed: driving in Ireland is expensive and will be for some time. 

-       Always shop around when your policy hits its renewal date. Unless you have a trusted, independent broker – a very good idea - then methodically call the insurance companies for best quotes, terms and conditions.

-       Pay by lump sum, not monthly payments. Insurers charge a hefty premium for paying by instalments.

-       Check that you include only the cover you need – comprehensive insurance for an old car is not good value, but it may be worth paying a little more to protect your no-claims bonus. It will prevent your premium jumping sharply the next year if you have a minor or major accident.

-       The larger, newer and more expensive the car, the bigger the insurance premium. (Vintage cars, even a Rolls Royce, carry very low insurance premiums but can cost quite a lot to repair ordinary wear and tear problems.)

-       Consider increasing your excess payment - the amount you will pay if you have a claim. The higher the excess, the lower the premium.

-       Do you have an indoor garage?  Off-street parking? A good car alarm? These will all help reduce your premium.

-       Mature drivers will pay less than younger ones. Some insurers will even charge less if you include another mature, named driver on the policy

-       Don’t forget to disclose previous claims, etc. If you have an accident and a previous claims record that you didn’t disclose the claim will be rejected.

-       Group scheme members (like trade unions, credit unions, sports clubs) should also shop around. Those high commission schemes are not always best value for every driver.

 

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

(The TAB Guide to Money Pensions & Tax 2017 is available in all good bookshop, €9.99. See www.tab.ie for ebook edition.)  

 

54 comment(s)

Money Times - July 4, 2017

Posted by Jill Kerby on July 04 2017 @ 09:00

SUMMER MEANS WEDDING BELLS AND MARRIAGE CONTRACTS…

 

There is much to say in favour of the state of marriage - as opposed to the state of most people’s marriages, which, as any married person knows will occasionally need a little extra work and maintenance over the course of a long union.

What better time to do so from a financial perspective than in the summer, when so many couples are about to take their wedding vows or are celebrating their anniversaries?

Regular readers of this column know that I am not a big proponent of big, expensive white weddings where the funding of the event (which too often is spread over three days) requires bank loans, credit card debt or an appeal for cash from wedding guests instead of a conventional gift.

In the Talking Money Guide (see www.irishlife.ie for free download) which accompanied our RTE Drivetime radio slot, mortgage and financial adviser Karl Deeter and I wrote about how a €25,000 wedding loan over five years at 9.7% interest “translates into a monthly repayment of €528…and a final interest payment of €6,200.”  But we also pointed out that a monthly investment of this amount for five years, assuming a lower 6% return, would produce a gross lump sum of €36,867.

Meanwhile, the couple who opted for a more modest wedding and gave each other an on-going wedding gift of a €265 each into their respective pension funds, earning 6% net of charges and fees, could expect a combined fund worth €1,055,490 after 40 years. Only their pension income would be taxable.

Substituting a lavish wedding for a dull, but worthy pension investment is a lot to ask. But foregoing expensive wedding debt for affordable mortgage debt – and a contribution to a pension fund – may appear plausible if presented in their right light.

Which is why it is so important that every young couple who is planning to marry should be sitting down and discussing their finances in an open and honest way and certainly no later than their engagement party.

It may not be the most romantic discussion, but finding out what financial assets and claims each party will bring to a marriage is a very necessary one.  Too many couples have never had frank and open discussions about their respective and collective finances during the entire married life.  Too many working spouses don’t know exactly what they each earn, how much tax they pay, the size of their savings accounts, the debt they carry. 

Wives (mainly, still) who take career breaks to rear children and are not certain about their joint finances, can be left nearly entirely financially dependent on their spouse for the first time, leading to a great deal of unnecessary stress on their marriage.

At the very least, engaged couples should want to avoid nasty, post-honeymoon surprises like the one that happened to a young husband I once met who mistakenly opened his new wife’s credit card bill after their two weeks on a golden beach.  He discovered she had a stubborn, €10,000 outstanding Visa card balance that was now his problem – quite correctly – as well as hers.  (They were lucky it didn’t cause a serious, early rift; instead it gave them the nudge they needed to sit down and review not just the total cost of their wedding, but their wider finances.)

That young couple was lucky.  But luck isn’t what makes a successful marriage; love and mutual respect, trust and good communications does. So for every blushing bride and groom-to-be and their mums and dads who will be celebrating their own wedding anniversaries this summer, here’s a short checklist of financial issues that every couple should discuss and adopt: 

-       Net worth – our individual and collective income, savings and investments, including pension funds and other assets (like property). How much debt do we have and its service costs?

-       How much tax do we pay? What will our liability be as a married couple? As parents? Should we consult a tax adviser? (Yes!)

-       Should we have a joint current/deposit account or keep separate ones? (How about both!)

-       We need to make wills and take out life insurance on each other’s lives. Our wills will need reviewing as circumstances change, like after having children.

-       The need for an annual budget that identifies household and personal costs and from the outset allocates our income proportionately to our joint costs – the mortgage/rent, utilities, food, insurance, child-care costs, retirement, holidays, etc.

-       We need to discuss spending priorities, our discretionary spending and to agree to always reach a consensus regarding financial purchases, investments, debt, career changes, starting a family and retirement.

Marriage contracts seldom appear in written form…more’s the pity. But good communications can avoid costly disagreements few brides and grooms ever anticipate on their wedding day.

 

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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

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

 

 

20 comment(s)

Money Times - June 27, 2017

Posted by Jill Kerby on June 27 2017 @ 09:00

LETTER TO LEO…

Dear Leo (if I may),

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

 

 

 

 

 

30 comment(s)

Money Times - June 20, 2017

Posted by Jill Kerby on June 20 2017 @ 09:00

 

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

This could be the way to achieve all three.

 

 

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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

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

 

1 comment(s)

Money Times - June 13, 2017

Posted by Jill Kerby on June 13 2017 @ 09:00

 

MORAL DUTY…AN INHERITANCE HAZARD THE STATE INTENDS TO REMOVE

 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

 

 

 

 

0 comment(s)

Money Times - June 6, 2017

Posted by Jill Kerby on June 06 2017 @ 09:00

HIGH COURT MORTGAGE DEBT CASE OPENS A FORBEARANCE CAN OF WORMS

 

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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

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

 

 

 

 

 

0 comment(s)

Money Times - May 30, 2017

Posted by Jill Kerby on May 30 2017 @ 09:00

THERESA MAY TAKES ON PENSIONERS, IRISH ONES TOO

 

With the UK election just a week away, it might be worth examining how the outcome could affect Irish people with UK financial interests.

A very long history of emigration and employment means that tens of thousands of us have on-going financial ties with the UK that could get more complicated in the following months, especially if the Conservatives achieve another majority and if Theresa May’s Brexit team doesn’t achieve the liberal trade concessions they’re seeking during their negotiations with the European Commission.

Over 330,000 Irish citizens live and work in the UK and a few million claim Irish ancestry.  Another 121,200 Britons live here. The respective financial interests of the over 65s include everything from being holders of private pensions, life assurance and property and an entitlement to each other’s state pensions.

What is apparent from the cost saving changes that Mrs May and her Chancellor Philip Hammond intend to introduce after the election are going to have an impact on many of their devoted voters (and Brexit supporters) - older people.

The first change they’ve announced, to considerably dismay, is the end of the triple lock pension increase that was introduced by David Cameron in 2010 and which allowed for the UK old age pension to increase every year by either an automatic 2.5%, by wage inflation or by retail price inflation (their equivalent of our consumer price index, or CPI), whichever proved to be the higher.

Inflation has only recently been pushing 2.5%+, mainly due to the fall in Sterling after the Brexit vote last June, whereas until this year the seven years of the triple lock rise of 2.5% was proving to be extremely expensive, and according to Mrs May, a fiscal conservative, unsustainable in a rapidly ageing population.

Her manifesto has dropped the idea of any guaranteed increase and has been condemned by the opposition and by pensioner support and lobby groups who say that pensioners are among some of the most vulnerable people in the UK.

Their automatic winter fuel allowance will also be means-tested (as it is here in Ireland) if the Conservatives are returned to office.

This pension increase change may, of course, affect UK pensioners who have retired here as well as Irish ones who returned to Ireland with a UK state pension. This cohort will have already seen a drop in the Sterling value of their pensions since last June (and any private pensions) of between 12% and 16%. Unfortunately, the currency exchange volatility is likely to continue as the Brexit negotiations ebb and flow.

The irony of dropping the 2.5% “lock” is that the UK retail price index could go higher and mitigate against the loss of the lock, or average pay rises could exceed that amount (though that is much less likely). If this happens, some commentators are already predicting the pension locks could be thrown away altogether once the election is over and a Tory majority (as expected) is secured.

The other big spending cutback that involves pensioners is how the value of a family home will be calculated for the purposes of determining how much the older person will have to contribute to their long term care. This will also have an impact on inheritance plans.

At the moment, someone who needs social care in most UK local authorities (though this can vary considerably) must fund it with their own resources unless their annual income – from pensions, savings/investments, rents, etc – is worth less than £23,250 (c€26,937). The value of the family home isn’t included.

This means-tested ceiling will be raised if the Conservatives are re-elected, from £23,250 to £100,000 (c€116,000), but this time that cap will include the value of the family home.

 

There’s no question that anyone have to sell up and leave their home if their net worth exceeds £100,000; a partner will be able to continue to live in the home if they remain behind. But the cost of care of one or both partners will be collected from their estate by the local council once the person (or both partners) have died, leaving just £100,000 untouched.

 

The hue and cry in the UK is that even and individual or couple with a very valuable house, who lives many years with expensive care benefits, could end up only leaving an inheritance of £100,000. The cost of care, especially nursing home residence already varies considerably between local authorities in the UK.

 

This proposal is very different from the centralized Fair Deal scheme here which currently includes a higher asset exemption of €36,000 for an individual and €72,000 for a couple and aside from an annual contribution of 80% of annual income, only looks for 7.5% of the value of the person’s assets for just three years, regardless of the market value of your home. That cumulative payment can also be deferred and paid for the deceased person’s estate.

 

A hard Brexit is going to throw up an entirely different set of residence issues for Irish and UK people – young and old - in 2020. These pension income and elder care financial issues need attending to much sooner.  Consult a good adviser.

 

 

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

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

 

 

 

 

 

0 comment(s)

Money Times - May 23, 2017

Posted by Jill Kerby on May 23 2017 @ 09:00

HOW AWARE ARE YOU OF FINANCIAL RISK?  FOREWARNED IS FOREARMED

 

Behavioural economists have argued that for most people, the risk of losing money far outweighs the upside potential from a stock market investment. It’s also one of the reasons why soon after a crash, the stock market is shunned by ordinary savers or investors, despite the low valuations: they are transfixed by the losses that have occurred instead of seeing the terrific bargains that have appeared.

The fear of risking their money  – sometimes only based on what happened to other people’s money, not their own – can cause them to only save their money in a post office, bank or credit union.   They then rejoice that they weren’t caught up in the carnage that resulted from a crash. It’s certainly a common excuse since 2008 for many people to abandon or avoid taking out a private pension plan.

What they don’t take into account is the ‘lost opportunity costs’ of such behaviour.

Markets inevitably rebound from big falls. Over the long term – say, the duration of a pension fund, investing your tax deductible contributions is always better than just leaving your money in a deposit account where the capital is guaranteed to be eroded by DIRT tax, inflation and increasingly, the presence of nil to negative interest rates.  

Not only is this a major financial risk, but so is not taking the time to understand not just the importance of asset selection but also how costs and charges will impact on the value of your investment. The biggest risk of all to your future financial security is to not start investing as early as possible in order to let the magic of time and compound interest do its magic.

But financial risks come in many different guises. And includes lots of smaller events than not just setting up a proper, long-term pension fund.

You put your money and finances at risk if you don’t install proper anti-virus security on your computer but do your banking on-line or use unsecure retail websites. You open yourself up to cyberware blackmail that way too.  If your bank or credit union is hit by a cyber attack or its employees embezzle money from your account, their insurance will cover your loss.)

Still on the banks, anyone who leaves more than €100,000 in any single bank risks being “bailed in” – that is, losing a percentage of your savings over that Bank Guarantee Scheme deposit amount – should an Irish bank ever go bust in the future. (Cypriot depositors with over €100k in their account lost up to 40% of the balance back in 2011.) 

New EU rules mean that the next time a bank goes bust in the Eurozone, their depositors will also have to bail it out, along with shareholders and bondholders.

There are two other extremely commonplace ways that we put our hard-won earnings at serious risk.

The first is not bothering to read a legal contract, whether an insurance policy, a bank loan - both big-ticket items - or even something as commonplace as a utility or mobile/broadband contract, a gym membership or on-line subscription.

The small print of such contracts is where the financial loss may loom, especially around deductions and exclusions, or the consequences of missed repayments.  You could be putting your own or your family’s financial security at risk by not being clear about what you are buying (like a mortgage) or committing to. 

Yet surveys keep showing that people spend less time arranging expensive financial contracts or loans, than they do in buying a new mobile phone or for holiday plans.

The other big financial risk that people take all the time is to spend their future income, today

The widespread use of credit in the form of expensive overdrafts, credit card loans and personal loans to fund lifestyle purchases they could otherwise not afford – that is, stuff they don’t actually need, paid for with money they don’t have -  is still relatively ingrained here, though borrowing rates are (to our credit) much lower than there were in 2007.

The risk we take in living beyond our means is that without substantial savings (ideally 3-6 months of net income) even a minor illness, a temporary job loss, or even the cost of having a new baby can tip a person into a chronic, or even catastrophic financial decline.

The best way to reduce this risk is

-       to know the difference between needs and wants,

-       to save early and regularly in your working career and

-       to aim to borrow only to buy or invest in assets, like a home, education or training and not in liabilities, such as expensive cars, holidays, rooms full of new furniture, etc.)

The financial world is a risky enough place these days and there is more institutional and sovereign debt in play globally than there was back in 2007.

You don’t need to make it worse by taking unnecessary risks with your own hard earned money and income.

 

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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

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

 

 

 

1 comment(s)

 

Subscribe to Blog