Jill Kerby

BACK TO COLLEGE COSTS MAY NEED MULTIPLE FUNDING OPTIONS

Putting a youngster through college, especially if they cannot live at home is a serious financial challenge for most parents, and especially for those whose income puts their child outside the student grant scheme.

How to fund a four or five year third level education (that fifth year being an expensive post-graduate degree) is something that parents need to consider from their children’s early years. It’s why it makes sense to commit your annual child benefit payment, to a good savings account and to also consider investing accumulated lump sums.

Saving the €140 a month (€1,680 pa) child benefit payment in a tax-free State Savings scheme and assuming even just a 1.5% average return over 18 years will return nearly €34,700. Investing the money in a longer term, low cost investment fund should beat deposit returns, but the current 41% exit tax on investment returns is a major disincentive and should be abolished. At the very least, the government should be introducing an ISA, and Junior-ISA - the tax-free individual savings accounts that exist in the UK - that are widely used there to fund third-level education.

With the cost of the 2017-2018 university education year expected to hit €12,500         according to the USI (University Students of Ireland), college-goers and their parents with more than one child in the family and with a moderate income and inadequate savings, would have had to apply for their student fee or maintenance grant by the July 13 deadline.

The SUSI.ie website, criticised in the past for being too complicated and unwieldy now provides an easy to use “eligibility reckoner”.  I keyed in the following information: 18 years old; a first year undergraduate doing a level 7-8 degree; one younger sibling and another already in college; parents with joint income of €100,000. The ‘reckoner’ concluded: “Based on the information you have provided, you may be eligible for funding. Please refer to the guidance on making a grant application.”

Clearly, the smaller the family and higher the gross income (from all assets), the lower the chance of qualifying for a SUSI maintenance grant, the maximum of which are in the region of €6,000. For those students who don’t qualify with SUSI, the search for funding will be more precarious.

Gifting

Bank and life assurance surveys regularly show that other family members, like grandparents, are generous contributors to the rising education costs of their grandchildren.

A tax efficient option for grandparents with spare cash who also want to minimise the long term inheritance tax bill of their family heirs is to gift the capital acquisition-free gift provision of €3,000 per annum to either help build up an education fund (via a deposit account or investment fund) for their individual grandchildren, or to meet the actual cost of Irish college registration fees, housing or other expenses listed by the USI.  There is no limit to the number of grandchildren (or anyone for that matter) that you can gift each year. Even the accumulation of the annual €3,000 gifts has no impact on the lifetime tax-free threshold between grandparents and grandchildren, which is currently just €32,500.

Bank Loans

Many third level students and their parents also turn to their banks or credit unions to fund their education costs. 

Depending on the course and income prospects for the student once they graduate, banks will lend some or all of the costs.  A single, €20,000 loan, repayable over four years from AIB, for example, will cost about €500 a month, repayable immediately, at interest of 8.5%. The total capital and interest will be c€23,500. There is still no official student loan scheme here, though it is under consideration with repayments made up to a decade after graduation and the securing of a job. 

It’s worth shopping around for best rates, especially from your local credit union where interest repayments are made on the diminishing balance and not as compound interest and loans repayments are covered by life insurance.

Finally, during the mad Celtic Tiger boom years home-owners with positive equity (at least on paper) were able to draw down equity loans for the purpose of paying secondary, let alone third level education costs.

Today, equity release loans are not available, but your family home still might be able to play a role in paying for your youngster’s expensive third level education if they living away from home.

The Rent-a-Room Scheme allows you to rent out rooms in your house entirely tax, PRSI and USC-free and earn up to €14,000 per annum. Demand has never been higher for student ‘digs’ and many students are happy to rent for five days a week, leaving you with some privacy on weekends (if your own child doesn’t return themselves.)

That €500 a month (or more) renting out your child’s vacant room could go some way to meeting their annual costs. (See www.citizensinformation.ie for details.)

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

WITH RECORD HSE QUEUES YOU NEED YOUR OWN TREATMENT PLAN

If you are over age 75, and have need for the services of a public hospital Emergency Department you may very well be worried.

And if you are one of the 687,000 patients still waiting for treatment in a public hospital anywhere in the country – up nearly 10,000 on July - or know someone who is in the 50% waiting over six months, you might want to do something more than just worry about the length of that delay.

The latest news about HSE waiting lists is only getting worse, and the Minister for Health is now on the verge of appointing a new ‘health Czar’, to try and bring some control to the €15 billion mess that is the public health service here.

Good luck to him. 

Until that stubborn nut is cracked, anyone who doesn’t already have private health insurance or a large bank balance needs to ‘hope for the best and plan for the worst’. And that means coming up with a practical, personal, affordable health plan of your own to ensure that you (or someone you love) doesn’t end up on that ‘patient-in-waiting’, or better still, is able to get off that list by receiving appropriate treatment.

Find a Private Consultant

According to the latest National Treatment Purchase Fund survey, the majority of the 687,000 patients– 493,780 - are waiting to see a consultant.

Since the public consultants’ supply problem will not be sorted out easily or quickly, you need to get your GP to recommend one. Expect to pay the consultant a fee of c€200, which is tax deductible. Use income or savings. If you have neither, sell something on eBay, DoneDeal.ie, Gumtree.ie , at a car boot sale or local market. If that isn’t possible, try borrowing the money from family or friends or the Credit Union. Check out the CU’s ‘It Makes Sense’ microloan scheme for people in receipt of a social welfare payment.

Try to avoid borrowing the money from a moneylender, but frankly, a €250 loan for an important medical consultation is just as worthy as a loan for expensive Christmas toys or elaborate First Communion clothes. On-line begging for expensive private medical treatment/hospitalisation is also perfectly respectable:  it’s called ‘crowd-funding’.

Private Treatment

Once you have a diagnosis from the consultant you can start investigating how to arrange and pay for your treatment.

The reactivation of the National Treatment Purchase Fund in 2017 means that public patients on hospital waiting lists, or on the recommendation of a consultant  are being sent to private hospitals in the EU/EEA under the EU Cross Border Treatment Directive or under the HSE Treatment Abroad Scheme if treatment is not available in Ireland (or is taking longer than it should to occur.) The cost to you, the patient is refunded by the HSE up to the cost of the same treatment in a public hospital in Ireland. (Ironically, the only private hospital treatments the HSE will not refund are those incurred in the 19 private hospitals located here in Ireland.)

The single longest outpatient waiting list -18,660 - is for a gastrointestinal check. The longest in-patient treatment list is for ophthalmology cases, followed by orthopaedic and urology cases.

Shop Around

If you need a hip replacement, for example, and are low on the Irish public hospital waiting list or the Cross Border or Treatment Abroad Scheme you can look for an approach a treatment centre in the EU and EEA and get prior approval from the HSE. See National Contact Points, Cross Border Health Directive on www.citizensinformation.ie

If for some reason HSE approval is not forthcoming, but your doctor still recommends treatment and you can afford to pay for it yourself, either from a private Irish or foreign hospital, you will at least be entitled to claim standard tax relief on your medical costs and expenses, according to Sandra Gannon of the tax consultants TAB Tax Services. (A hip replacement here will cost up to c€16,000 but just c€3,500 in Lithuania.)

Buy Health Insurance

The best way to avoid getting caught up in all the HSE’s legendary waiting lists, is to have a good private health insurance policy with comprehensive outpatient and hospital based cover (c€1,300 plus per annum.)  The greatest benefit of having such insurance is not the better accommodation or food in the private hospitals (however welcome) it is your ability to jump a queue that is now 86,111 long for inpatient or day care treatment in a public hospital.

It won’t do much good to someone with a pre-existing condition (like a dodgy hip) that caused you to join those horrific queues in the first place, says Dermot Goode of www.totalhealthcover.ie but you will be covered sooner for new, unrelated medical events.

Finally, even a good health cash plan (one premium can cover the entire family) from www.hsf.ie  for about €950 a year will pay tax-free benefits for a range of outpatient and in-patient events, including consultants fees and private hospital expenses.

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.)  

RELAX: THE GOVERNMENT WOULD NEVER RISK A PROPERTY CGT

Last week after appearing on the Today with Sean O’Rourke show on RTE 1 to discuss a proposal by the Department of Finance’s tax strategy group about charging capital gains on the profitable sale of the family home, a lot of angry tweets, texts and emails lit up RTE’s switchboard and my in-box.

The tax strategy group must know that the very idea of a tax on the family home would be ripped to shreds. It’s such “political dynamite” that I doubt if it will get anywhere near the Minister’s October Budget speech.

But playing the devil’s advocate, I suggested that such a tax actually makes a lot of sense in our debt-ridden, ageing economy where the demand is only going to get louder to higher pensions, more health care and more expensive long term care for the elderly.

I also argued that decades of misguided pro-property tax policies – which favour home ownership over all other kinds of savings, entrepreneurship, investments and even pension funds– need to be torn up if we are to break Ireland’s recurrent boom and bust property cycles.

Anyone lucky enough to have bought a home at the cheap end of the cycle and sell (or even become mortgage-free) at the top end, have been the biggest beneficiaries of those pro-property policies and tax subsidies over many decades. They also enjoy the ultimate reward:  an entirely capital gains tax-free profit when their property is sold.

I am one of them – an empty nester with a big old house.  If a CGT was about to introduced, I’d take the hint and sell now (and hopefully find a suitable, smaller property, something I wrote about last week.)  I have plenty of friends in the same position.  That drastic tax charge would certainly get the flow family sized properties moving again, and if supply was sufficient, bring down prices too.

A CGT tax might also – if it helped bring down prices and help restore some normality to the market - show that mortar and bricks are NOT a better pension substitute for a well-run, low cost, diversified, long term pension fund (which I also have). Or that it is our god-given right to magically reap a guaranteed, tax-free profit from our subsidised bricks and mortar…at the expense of renters, for example.

Memories are perilously short, but readers may recall how everything from the most ordinary, poky, 3 bed semi-d to a leafy Dublin 4 mansion was “earning” their owners the equivalent of a year’s salary. It was the most obvious sign of all that the property market was on a mad, bad, increasingly dangerous roller coaster.

I’m one of the lucky baby boomers and older retirees who happened to be in the right place and time to benefit the most from the upside of the booms and busts.

My husband and I were recipients of a £5,000 new house buyer grant to purchase our first house in 1986. It was sold in 1994 just as we started a family, but also just as the last great property recession was turning. We bought our current house – a big old decrepit Victorian end-of-terraced for c€125,000.  We doubled our mortgage.

Yet within a year, interest rates began their long deep retreat from double digits and property tax was abolished. The Celtic economy stirred and soon wages and salaries were up and taxes were coming down. Personal debt was puny.

But instead of reigning in the heated-up property market, the government encouraged it with more tax breaks and allowances for builders and developers. Addicted to stamp duty and other property taxes, it encouraged the banks to lend even more recklessly.

The rest is history.

By the summer of 2006 my old money pit of a house was worth €1 million - on paper. But by 2007 house values started falling sharply. The crash brought them all the way back down to c€300,000. Having paid off the mortgage – and not borrowed on the basis of its paper value - we were still “in profit” thanks in a big part to the legacy of favourable tax treatment (and economic growth) we’d enjoyed from the purchase of our first house.

Fast forward to 2017. My old money pit of a house is now “worth” c€700,000 even though it is now 122 years old and surely, a depreciating asset if only because of its age.

Yet if we sold it tomorrow, we’d still “earn” €575,000 tax free over it’s original asking price. (A 33% CGT would amount to €189,750).  Meanwhile young families (like we were once) struggle to pay exorbitant rents …if they can even find somewhere to rent.

So should a CGT tax be introduced to help wean us off this dominant, volatile and unevenly distributed wealth asset?  Maybe. But it won’t happen. You can all relax. We believe unearned, tax-free profit from property is a God-given right.

The next generation can make its own luck.

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.)  

WHEN SELLING DOWN ISN’T POSSIBLE…RENT-A-ROOM TO THE RESCUE

The Irish housing crisis has affected pretty much every age group except one – older, late middle-aged people and retirees, the vast majority of the latter - 92% - who already live in owner-occupied houses.

Not only do the majority of retirees have a place of their own, but 83% own their homes outright, with just 8% renting, according to Tilda, the TCD research group into our ageing population.

And while half of these properties have quality issues that need to be addressed, Tilda, in its 2016 housing report confirm what most of us know already: there is a serious and growing mismatch in housing occupancy in Ireland, with hundreds of thousands of older, single people and couples residing in properties that are more suited to families.

A functioning property market is one that keeps the flow of all types of property moving between the generations. Instead, we have a market in most of our larger cities that is forcing prices relentlessly upwards for people wanting to buy, or who rent. The solution is to start building more appropriate properties for the rapidly ageing – and demanding - cohorts of current retirees and ‘baby boomers’ who are keen to downsize even before they reach 65.

Nearly 24 years ago, my husband and I moved from a small, two-bedroom starter home in Dublin’s city centre to a larger, Victorian terraced property about a mile away.

It has served its purpose. The Child is about to fly the nest (we hope permanently) and the next logical step is to downsize and let a new family upsize into this bigger house. With its proceeds, we would buy (or even rent on a long term lease) something smaller, using any balance to boost our part-time earnings and retirement income.

Unfortunately, this virtuous property circle has broken down. Just like everyone else looking for a home, there’s a chronic lack of suitable and decent value smaller properties in or around this neighbourhood.

I admire people who intend to move to the country in their retirement thus almost guaranteed to maximise their dual goal – a nice, smaller place to live and money in the bank for their old age.

But the countryside isn’t for us. We are privileged to live in a very mixed neighbourhood of Victorian and Edwardian terraces, private semi-d’s built in the 1930s and 40s, privatised council houses from the 1950s and 60s and rather too many dubiously constructed apartment blocks that went up in the boom years, but are lacking any storage for suitcases, let alone boxes of Christmas decorations. Cash investors-cum-landlords are buying a disproportionate number of the properties that are for sale…and I believe its just a matter of time before this latest price bubble meets its pin. 

There’s also no point fighting city hall.

The down-sizing supply roadblock for already privileged older homeowners is not a priority. No one cares that ‘baby boomers’ and home owning retirees can’t find the perfect smaller house or apartment in their neighbourhood.

But that doesn’t mean that there are no options other than cashing in and moving to the country (or to a sunnier country like Spain, or the bargain basement that is Greece…)

Here are three ideas that I’m checking out right now…

1) Turn a larger, older property into a “duplex” with two self-contained units. Live on the bottom floor and sell the top floor. You shouldn’t have trouble selling the upstairs to a singleton, downsizing retired couple who want to stay in the city or even a small family (especially if you have a convertible attic). You get to stay put without all the responsibilities of a large property.

The downside is securing planning permission and refurbishment costs, etc.

2) Convert part of the house to a self-contained rental apartment. You get to downsize and still own the entire asset.

The downside is cost of refurbishment, the inconvenience and costs of being a landlord and big income tax liability: you can only claim 80% tax relief on allowable expenses. About half your rent could disappear in tax.

3) Upgrade the house but rent out that spare floor (once you move downstairs) under the Rent a Room scheme and earn up to €14,000 tax free.

“This certainly appears to be the best option,” says (my) financial adviser and planner Marc Westlake of Global Wealth Management. “Earning €14,000 tax free from renting rooms in your home, or even self-contained flat [in an attic, basement or unused floor] is a no-brainer.”

The Rent-a-Room scheme is, ironically, just another roadblock in helping to release much needed family homes. But until the supply shortage is comprehensively resolved, it may very well become the default option for the growing number of home-owners who want or need to downsize.

Get a good team of advisers together if you decide to downsize, including your financial and tax adviser and solicitor. Check local planning regulations. (See www.citizensinformation.ie then search Rent a Room Scheme.)

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

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.)  

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.

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.)  

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.

LETTER TO LEO…

Dear Leo (if I may),

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This could be the way to achieve all three.

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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.