The Sunday Times - Money Questions 12/04/09

Posted by Jill Kerby on April 12 2009 @ 22:01

RL writes from Dublin:  Our family has a Multi-Trip travel policy with VHI that cost €95 and doesn’t expire until the end of the year.  I was recently made redundant and have lost my VHI cover from work so my husband and I decided to switch all of us to a cheaper provider (Hibernian).  However, when the Hibernian person asked if we wanted travel insurance, I told them we already had it was VHI and they told me that policy was now cancelled. I was never told this when we bought the insurance.  It seems that you can only keep the travel policy if you remain with VHI and there is no refund – in our case for at least seven months worth of payments.  Is this correct?



I’m afraid so.  I checked out the terms and conditions for the multi-trip policy on the VHI website and under ‘Principal Exclusions and Conditions’ it states “All members on a Multi Trip policy must hold relevant Vhi Healthcare Hospital Insurance” and that “Cancellation of your Vhi Healthcare Hospital Plan will result in non-refundable cancellation of your travel policy. There is no refund on any cancelled policies after the 14 day cooling off period” even if you have months to run on the policy. .  According to Dermot Goode, a financial advisor in Dublin who specializes in health and income protection insurance, “None of the insurers will refund your money after the 14 day cooling off notice is over and but VHI is the only health insurer that does not allow the policy to run out if the person switches their cover to Quinn or Hibernian Aviva. Even if your VHI policy expires in 2009 before the travel policy does, and you don’t renew with them, the travel policy will be null and void.”   This unfair condition needs to be amended and you should consider not only formally complaining to VHI, but to the Financial Regulator and your public representatives as well. 







PB writes from Co. Mayo: I have a tracker mortgage with AIB with a balance of €67,000 due to expire in April 2015. My monthly repayments are €578.54 per month based on the tracker rate of 2.1% (margin of .6% over ECB rate). I wanted to reduce the term of my mortgage by exactly five years without reducing my monthly repayments. When I rang the bank less than 12 months ago when the interest rate on my mortgage was at a higher rate than now I was told the it would cost me €21,000. I rang them again last week and was told it would now cost €25,000, but not believing this was an accurate figure, I rang them back the same day and was told it would cost €27,000! I subsequently received a letter confirming the later amount.  In 2006 courtesy of an SSIA, I reduced the term of this mortgage by eight years and it cost me € 32,000!  


I'm afraid these figures don't add up for me. Let’s assume your current tracker rate never changes and you continue to pay the same mortgage repayment for the next six years and four months to April 2015: at €578.54 per month (by 78 months) this is a total repayment of €45,126 – well short of the €67,000 capital balance you say is still outstanding.  I suggest you ask your lender to supply you with a hard copy schedule of payments that shows you how much it will cost you each month to reduce the term of your loan from six years and four months to just one year and four months – that is, over five fewer years – or the size of the lump sum you would need to pay. (Not all tracker loans allow for lump sum payments off the capital, so check that too.)  Reducing the term of a mortgage is commendable, though at these current low interest rates you would be better off reducing more expensive debt like credit cards, overdrafts and personal loans, should you have any. 




JK writes from Dublin: I am interested making an investment in gold.  I have decided not to do business with the agent for Perth Mint, and would prefer to buy into an ETF which tracks the price of gold.  I have contacted my broker (Sharewatch), and they tell me that there are several ETF's that relate to gold prices, and that they can execute trades for those listed on European Stock Exchanges.  I would prefer to avoid the UK stock exchange.  I have found it very difficult to find information about Gold ETF's that might be available on European Stock Exchanges: can you suggest a starting point for me, or better still an ETF that you would consider worthwhile investing in?



ETFs are indeed a cheap way to buy and trade gold and other precious metals with mainly just stockbroking commission and a low annual management fee of usually under 0.5%. But the ETF involves a counterparty risk that you may not wish to take; physical gold that you buy (but must store securely) carries no such risk, nor does buying in certificate form from the likes of The Perth Mint of Western Australia where your gold is kept, assuming of course that it doesn’t shut down or otherwise disappear.  Before you buy a gold ETF or any other kind of gold (the Irish Stock Exchange now sells a gold miner ETF that represents shares in 10 leading gold mining companies) you should do some more research yourself.  There a few recent articles on this site http://goldprice.org/buying-gold/ that will give you a lot of background on the different ways to buy gold ETFs, bars and coins, even buying and selling scrap gold. 


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The Sunday Times - Money Comment 12/04/09

Posted by Jill Kerby on April 12 2009 @ 22:00

It’s easy for the Minister for Finance to say that the tax increases introduced on Wednesday will only bring people back to the tax levels that they were living with two or five or eight years ago, depending on their level of income.


The problem is that these same people went and committed much of the tax reductions they were awarded – and encouraged to spend, remember – on mortgages and car loans and crèche fees that still have to be paid every month. 


Some mortgage holders on variable or tracker rates have been extended a lifeline by the ECB in the form of seven interest rate dropsand these will help to   buffer the impact of the doubled income and health levies levies, though God help the homeowner who locked in their huge mortgage at a 5% fixed rate last year and now can’t get out of it. 


But even that extra €400-€450 interest savings for the typical €250,000 mortgage holder couple won’t offset the budget increases if their incomes exceed €75,000, the tipping point for the 4% levy (and higher PRSI liability) or if they are public servants and are already stunned by the c€4,000 net pension levies introduced last February. 


Include two young children into this scenario, with €1,000 in early childhood payments gone for 2009 and €2,000 next year and the proverbial garda/nurse couple with combined income of about €80,000 will have to scramble around to find about €9,000 over a full year to meet all their tax, pension bills and current child-care bills. (I’ll believe that single year state crèche announcement when it’s up and running.) 


Even these figures don’t take into account the upcoming property tax, the further loss of the child benefit payments (of €3,940 for two children) and the possible loss of all mortgage interest relief. 


More money had to be found to meet the deficit, but it’s come from the wrong source and these are staggering sums in a single year. 


Since housing is the biggest expenditure homeowners have, and interest rates will not remain this low forever as the US and other governments scramble to inflate the money supply with trillions of dollars worth of bail-outs and loans, Irish homeowners might want to lock in their interest rate gains by securing fixed rate of 3% or less. 


If you’ve already seen a drop in income, or a partner has lost their job and you can’t repay your mortgage – but genuinely believe you have a good chance of finding a new one - prepare a budget and refinancing proposal for your lender and tell them you will pay what you can.  If this isn’t a realistic prospect, you should realistically consider a voluntary default arrangement with your bank that involves a rental, buyback option so that you don’t become homeless. 


The second family car may have to go and the overseas holiday.  Middle-income parents that were already struggling to pay private school fees may want to reconsider this hefty expenditure (especially if they have more than one child enrolled) and start planning on how to pay college fees from next year. 


The airwaves have been full of shocked tax-payers in the vulnerable 25 to 50 age group this last week who admitted they were already living paycheque to paycheque. They must now do what the government did not do on Tuesday: cut their expenditure to the bone and face their creditors head on.


*                                 *                                  *

Two recent surveys, from the Financial Regulator and Postbank, were lost in the run-up to the emergency budget but need to be revisited in light of the amount of extra money that is now going to be sucked out of the consumer economy. 


The Regulator’s survey on our financial capability revealed that fewer than half of us (46%) are able to keep track of our finances and nearly six out of ten have made no provision for a drop in income. 


Meanwhile, the latest savings index from Postbank, showed that 60% of savers don’t know what interest rate they are earning on their deposit funds and are probably just as much in the dark about the fact that the Dirt tax of any interest earnings went up from 20% to 23% last October and will now be subject to 25% tax.  That said, a bigger number of people surveyed by Postbank say they are increasingly worried about the safety of their money in those bank accounts, despite the 100% guarantee on all Irish banks and An Post savings, including Postbankaccounts.   


Is this money safe?  Well yes, so long as the government’s original €400 billion guarantee for Irish bank deposits and liabilities up to the end of next year stands up and from this week, the five year guarantee of the specific €80-€90 billion toxic property and construction debt that’s been crushing the Irish banks. 


Personally, I’ve made sure that my savings are mainly outside the Irish banks and in those that are not carrying the same legacy of catastrophic sub-prime or property-related debt as the Irish ones or some of the international banks operating here.  I’m also attracted to the fact that these other non-Irish institutions (and Postbank, where my son is about the open his first solo bank and savings account) never had boards stuffed with overpaid and clearly incompetent directors and executives.  


(For the record, I write a column for the web-magazine of one of these banks, RaboDirect and have another column in the regional press that is now sponsored by Postbank, but I’d also like to say that the interest I’m earning is less than that offered by Anglo Irish, AIB or Bank of Ireland, the three most indebted banks.)  


If this budget doesn’t focus people’s minds on the need to pay attention to their personal finance and their return on their money, I don’t know what will.  


Get your heads out of the sand.  Face up to your debt and your falling standard of living.  There is more bad news to come in six months time.

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Money Times - 08/04/09

Posted by Jill Kerby on April 08 2009 @ 23:02



The debt problems that many readers find themselves in right now will only be sorted out if it is paid off, written off or inflated away. Borrowing more money will be no solution, unless of course you can reduce the overall cost of servicing your debt.  Consolidation may be best answer.

This column had to be written before the much-anticipated mini-Budget on Tuesday, but I don’t think I’m wrong in predicting that the tax increases and spending cuts that have been announced are not going to make it any easier for someone with personal loans, credit card bills and a mortgage to keep up with their payments. 

It has mainly been mortgage holders who benefitted from the seven ECB rate cuts since last October (from 4.25% to 1.25%). Credit card and overdraft rates have actually been going up and not every personal loan borrower has been given the lower interest rates that some lenders have advertised. 



The ECB rate cut is unlikely to have any effect on your personal loans or overdrafts which are typically still in the region of 9%-10% and c12% respectively.   Shop around for the best lending rates and don’t necessarily expect to get the ‘headline’ one:  the lower the sum you want to borrow, the higher the interest and your credit rating will be taken into account. NIB, Halifax and AIB currently offer the lowest loan rates (according to the Financial Regulator’s survey, see http://www.itsyourmoney.ie/personalloancomparison )

Overdrafts should be used sparingly, and ideally only if you have set up a budget plan account with your bank that spreads all your bills over 12 months with the overdraft kicking in only during those months when outgoings exceed your income. 

Credit card rates – which average at about 15% between the 12 providers (see rate survey at http://www.itsyourmoney.ie/creditcardcomparison) - have been going in the opposite direction to the ECB – upwards for cash withdrawals and penalties if you miss payments or go over your agreed credit limit.  

The cheapest cards are currently available from AIB and Bank of Ireland, at 8.5% and 9.5% respectively and the dearest is from Ulster Bank at 17.9%.  You need to check minimum income requirements and other conditions before you apply for one; keep in mind too, if you switch providers, that there are only three 0% card rates available: from Halifax (6 months), B of I (6 months) and NIB (5 months) after which you go onto their higher ordinary rate.



If you are struggling with your debts now, you should move quickly to consolidate them onto your mortgage if your lender can be convinced you are a good risk.  (If all you have are problem personal and credit card loans, check out your local credit union: they are often very sympathetic to people wanting to clear their unwieldy unsecured debt.)  

Nearly all the main lenders (except Ulster Bank and KBC – formerly IIB Bank) have agreed to pass on the latest ECB rate cut to mortgage holders. For some lucky borrowers with long standing and very low tracker premiums, this means their repayment could now be as little as c2% - c2.25%. 

Even those people with ordinary variable rates, now down to just 2.75%-3%, will have seen monthly savings on a €250,000, 30 year, homeloan in the region of €500, or €6,000 a year.  Refinancing personal and credit card debt onto this rate would represent a huge overall monthly savings and a way to stave off the worst of the additional tax burden you will soon be carrying.

Tracker mortgages are no longer available, but if you are in a secure job and have a healthy amount of equity in your home you might consider switching either to a cheaper variable rate provider or even considering a two or three year fixed mortgage rate. 

AIB brought their three year fixed rate of 3.1% and National Irish Bank, a two year rate at 2.83% down with the March ECB rate reduction and may yet bring it down again after last week’s cut. Check with your own lender to see what their fixed rates are and get them to work out the overall monthly savings if you were to add personal loan balances as well. 

The most important thing to do, IF you can refinance your debts is to try and increase the repayment – even by €50 a month – so that the short term car and credit card debt doesn’t end up attracting 20 or 25 years of long term interest.

Most of all, of course, you mustn’t build up any more personal or credit card debt until it is paid off.  Your priority must be to cut your spending and outlay to the bone; and hope that the hair-shirt tactics our government has adopted actually works.

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The Sunday Times - Money Questions 05/04/09

Posted by Jill Kerby on April 05 2009 @ 22:03

AK writes from Dublin: Is there any possibility of changing the rules governing the access to AVC money before reaching the age of 65?  My AVC Balance has decreased by €14,000 during the last year, I am in need of this money now before it has been completely diminished.

Unfortunately, if the rules of your occupational pension scheme require members to reach age 65 (except in the case of ill health or early retirement), then you will not be able to access your AVC early. Depending on how close you are to retirement, and your financial circumstances you could see if there is any provision for early retirement. Speak to your company’s HR manager, financial manager or a pension trustee.  If early retirement can’t be accommodated, you should at least consider shifting your AVC into a safer asset fund. (See my reply to HF below.)






BM from Cappoquin: I believe I am entitled to US citizenship as my father was a US citizen (A returned Yank). I would be taking this out to help my children to either get citizenship or a work visa to the USA. Even though I would have no income from the USA would I be liable to pay tax to the US revenue as a non-resident citizen?

The short answer is yes: if you are a US citizen your world-wide income is subject to US tax. However, if you do not reside in the United States you can apply for foreign income exclusion status which requires that you reside outside the US “for an uninterrupted period that includes an entire tax year, or… for at least 330 full days during any period of 12 consecutive months.”  The US Internal Revenue Service publishes the following explanatory guide. http://www.irs.gov/publications/p54/index.html   Meanwhile, you should know that the laws governing how US citizenship is acquired through a parent have changed at least five times since the 1930s.  You may want to check this out too.  A good guide to US emigration rules is U.S. Immigration Made Easy, by Ilona Bray.




BP writes from Dublin: My parents are retired and living in County Galway. They are automatically exempt from paying the TV licence as they are both OAP's. My father built a small house in his hometown in County Cork in the hope that family would stay there. My sister lived there for a year and the following year the house was rented out for six months and my father paid for the TV licence for the tenant.  The house is no let but there is a satellite dish still attached to the side of the house although there is no TV inside. My father was recently threatened with court if he did not pay for a licence. I am Would they be entitled to an exemption if the utilities were in my mother's name? My parents go to the house about five weekends per annum to cut the grass and do a general tidy. If my mother was deemed to be living there would she be entitled to a free TV licence in her name?

I asked the Department of Social Welfare whether or not the €160 TV licence exemption applies for multiple properties owned by old age pensioners and was told that it applies only to your principal private residence. I’m afraid it wouldn’t make any difference therefore if the second property was put into your mother’s name or not. 




HF writes from Dublin: I read with great interest your recent article on PRSA pensions. I am aged 63 and hope to retire next year.  I lodged a lump sum of €19,000 into a balanced PRSA Eagle Star, now Zurich Pension Fund three years ago. Should I now cut my losses and put same into a secure fund or leave it? Also three years ago I commenced paying €1,000 per month into a PRSA Pension Balanced Fund (Eagle Star) which has also lost heavily but not as much as the above. Should I transfer what is left of same into a secure fund?

Pension advisors usually recommend that within 10 years of retirement you review your investment strategy and your risk profile.  The closer you get the retirement, the further away you will be from making up any market losses.  At age 63 you shouldn’t have much – or any – exposure to riskier stocks and shares, something, unfortunately you have already learned the hard way. I suggest you speak to your own pensions broker or a Zurich advisor and ask them about their secure funds which aim to guarantee the remaining capital value of your fund by replacing the stocks and shares with cash and bond assets.  You are entitled to at least one free switch, so there will be no charge.  You can access your PRSA right now, if you so wish, taking 25% of it tax-free and paying higher rate tax on the balance. It doesn’t sound like there is much left in your PRSA anyway. Since there have been rumours about a tax of some sort (perhaps worth 17.5%) on the tax-free lump sum, if you do encash your PRSA you might want to get the paperwork done before do it before next Wednesday.  


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The Sunday Times - Money Comment 05/04/09

Posted by Jill Kerby on April 05 2009 @ 22:02

There will be no middle ground to flee to after next Tuesday’s mini-budget: either the government will get it right and the economy will be put on the road to recovery, or, to paraphrase the Czech prime minister, we will be on “the road to hell”.

He was referring to the multi-trillion borrow and spend stimulus strategy of the Americans, but it’s just as apt in the Irish context.  Our government has given us plenty of notice that it will borrow, tax, and cut its way to put us on the correct road to recover and on Tuesday we will finally know to what degree. 

This is expected to be the first year of a five year process, but how long are we to wait before we can see that we are on the right road…or that the tarmac is burning up beneath our feet?

I’m worried about the way the government action plan has prioritised borrowing and taxing ahead of the cutting part. As anyone who has been reduced to a three day week or has been handed their P45 knows, when your income has been catastrophically reduced, you cut out all the spending that you could once afford, but now cannot. 

Within government itself, that means that the excessive number of legislators and their overly generous salaries, expenses and pensions has to go; the additional public servants and departmental quangos that were hired during the property boom years and fuelled by the huge tax take also needs to be reduced. 

Before income taxes are hiked and more money sucked out of the economy, the government should consider selling off the ESB, Bord Gais, Bord na Mona, Coillte and the VHI. Perhaps it can be done this time without the mess created during the Telecom Eireann and Aer Lingus privatisations.

 And does a country of 4.4 million people, with no known enemies but a mostly friendly nuclea neighbour really need a highly trained, national police force with 30 years of anti-terrorism experience AND a billion euro a year standing army?  I don’t think so.  (But we should keep the coast guard and helicopter service and if needs be, beef up the Gardai with ex-army recruits.)

Meanwhile, only those parents who cannot afford to feed, clothe or house and properly educate their children out of their own financial resources should receive child benefit payments from next week.   All the hundreds of millions of euro paid out in property tax relief should be abolished too, if only to hasten the fall in our still artificially high property prices. Only when the cost of houses reverts to the mean in this country – no more than three or four times the buyers’ income – will the crucial housing market start to recover. 

Private health insurance subsidies should also go, but only in conjunction with the introduction of universal health insurance for all and a commitment by the government to get out of the health delivery business and to accept the role of supervisor and regulator only (as they do, thank goodness in the delivery of food services.)  This would save the country billions, but it would also force us to accept more personal responsibility for the state of our health and to be honest about the level of personal financial sacrifices we are prepared to make in exchange for a first world health service. 

Should the mini-budget cut the €3 billion tax incentives private sector pension fund holders currently get?  No. Not because the €3 billion is fair – it isn’t, but because this should happen on in the context of a complete overhaul of the pension system – the one that applies to public sector workers, the private sector and to old age pensioners. 

Ironically this is currently underway, but it’s moving at a snails-pace; that process needs to be speeded up, not undermined by the mini-budget. 

The easy route for this panic-stricken government on Tuesday will be to increase and extend income levies and other taxes, rather than drastically cut spending and begin the even more necessary action of widespread tax and government reform.  

Since there is no example anywhere of an economy in the midst of a deflationary prices and earnings downturn getting out of it by imposing higher taxation on an increasingly shallow pool of workers, I’m going to make one more suggestion:  aside from cutting our fiscal spending to the bone, the Minister for Finance should actually cut income and employment taxes and see where that leads us.  

I’m convinced, like the Austrian School economists who recommended these measures at the height of the last Great Depression, that it won’t take us down the road to hell. 

It’s just a pity the Minister for Finance and the cabinet haven’t a clue who they are. 








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Late last Monday evening, because of the taxi strike, I ended up driving myself to the TV3 studio and the Vincent Browne Show where I was appearing.  


Since I always have a radio playing, the first thing I heard after I turned on the ignition was a cheerful, and highly ironic ad for a Dublin taxi company that is currently offering a 20% discount on all their metered fares between now and December. (You can call them at 820 2020).


‘Why pay over the odds?’ was the gist of the message.  Why indeed, with such a multitude of taxis on the streets of the capital (when they are aren’t striking, that is).


I have a lot of sympathy for those full time, professional taxi drivers whose incomes are shrinking due to the recession and the continuing numbers of plates the regulator is giving out to part-time drivers. 


But their protest is misdirected:  it is the regulator, not the public who deserves their abuse. It is she – and not the public  – that has artificially skewed their industry by not just determining how many drivers there will be, but by how much they must charge as well. 


Take away the artificially imposed meter rate, and the market – the drivers and their passengers freely deciding how much to charge and pay – will eventually solve the problem of too many drivers chasing a diminishing amount of business and those excess drivers and plates will disappear

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Money Times - 01/04/09

Posted by Jill Kerby on April 01 2009 @ 22:59



Our historic obsession with property was all that was really needed for the government, the developers and the banks to take full advantage of the tax or money-making opportunities that the great credit bubble that began here in the mid-90s when genuine productive growth increased the supply of money in the economy, but especially by 2001 when interest rates dropped like a stone and slashed the cost of borrowing. 


The tax take was so enormous, the profits from the sale of housing and mortgages so great that all sense of risk control disappeared, and, well, we are where we are. 


So much for history.  


We are now left with a spectacular amount of personal debt amounting to property debt alone that is worth over €120 billion on capital assets that are at least one third, but likely to be worth half what they were in 2007. The exchequer tax shortfall now appears to be rising at a rate of €1 billion a month and in total is down about €21 billion to €34 billion from a high of €55 billion: just as the cost of borrowing on foreign debt markets is rising, the Minister for Finance needs to make sure that we raise €50 million A DAY from overseas lenders just to keep the lights on in the Dail and civil and public service wages paid.  


“We blew the boom”, says Eddie Hobbs in his latest, excellent book, ‘Debt Busters – Managing Your Money Through the Recession’, a theme I’m also addressing in the series of free personal finance seminars I’m conducting in the towns and cities where this column appears in the coming weeks and months. (The first seminar is in Waterford, on April 8th, the day after the mini-budget.) 


Eddie’s new book is certainly an essential read for anyone whose debts are beginning to overwhelm them: at one end of the debt spectrum is the person who is finding that they’re relying more and more on their credit cards to pay for groceries and petrol during the last week or every month, right to the other end and the person who is about to lose their home and business to bankruptcy proceedings. 


This is the first time (that I know of) that an entire guide has been devoted not just to how we’ve gotten ourselves into such a mess, but more importantly, into how to manoeuvre ourselves out of it with a step by step formula that gives the reader the practical information and tools they need to identify all their assets and liabilities, the cost and method of servicing their debts and finally how to negotiate a workable refinancing – or debt write off – package with your lenders and creditors. 


“Whatever the final outcome [of this recession] one thing is absolutely certain” he writes: “you’ll need access to credit in the future whether you are refinancing your debts or looking for fresh funds.”   The single element – credit – that has played such a central role in the near bankruptcy of this country and so many of its citizens, is still going to be the make or break factor in whether or not someone who has been missing their credit card payments is even able to hold onto a single card; or whether the person who lost their job also loses their home.


Next week, this column is going to look at the best and worst loans you could end up with in your effort to clear your credit cards, pay off your car and other personal loans and get control of your mortgage, or use your homeloan, (if you have one) which is still the cheapest form of credit, to refinance the other loans into a single more manageable one that will hopefully, also allow your creditors to accept a new, workable repayment schedule. 


For the moment, at least, the banks – at least most of them - have declared the rates at which they will charge for loans and savings relative to the latest fall in the European Central Bank rate to 1.5%.  Will the ECB bring rates down even further (as the Americans have – to just 0.25%)?  Perhaps. But what the ECB is signalling, is that more saving and hard work and less debt and credit creation is needed before the Euro-economy recovers. 


It’s a recipe for correction that Eddie Hobbs certainly subscribes to. And though I don’t necessarily share his optimistic view that this recession is just another business cycle – events since the book was written last December/January has perhaps overtaken that view - I do agree with him when he writes that the trauma and sacrifices that you may have to make to regain control of your finances “is a phase…that won’t last forever. Once you are through it, even if you are out of work for a time, you can start over again.”

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RaboDirect E-Zine - April 2009

Posted by Jill Kerby on April 01 2009 @ 21:24



You want straight talking?  About your money?   Really?  


Don’t you prefer the curlicued talking (and writing) that fills our airwaves and other media from morning ‘til night about how “everything is now being done to reverse the effects of this recession” on the US or global economy?   (As if an economy is just another machine covered in levers and buttons that, if you follow the manual properly, can be adjusted and pushed and tweaked to get it working again.) 


There isn’t much straight talking going on at the moment because it’s much easier to report  - and believe -  what politicians and central bankers, to whom we have given a mandate to repair the damage that they inflicted in the first place, are spinning at us. 


For this reason you should take what you hear and read with a proverbial grain of salt, and perhaps consider a few economic truths before you run out and buy that first home, or pour all your money back into financial or retail shares, or expect unemployment to reverse anytime soon. 


Surely the time has come to challenge the warped thinking that is being endlessly presented on our morning (and evening) news broadcasts, by Keynesian economists and desperate politicians-in-chief and their Merlin-like central bankers.  So here goes:



The consequences of nearly four decades of cumulative deficit spending by the United States in particular, and pretty much by every other major western economy cannot be halted or reversed.  No matter how much more debt and credit is laid on future generations or cash is printed out of thin air, it will not solve the problem. It will only postpone it.



An insolvent bank, or motor industry, or sub-prime mortgage holder only stops being so when their debt is paid off or written off.  Shifting this debt to the taxpayer and their grandchildren and great-grandchildren will only make them insolvent too.



Governments and politicians do not create wealth. They only redistribute our wealth.  When they do try to run businesses or even public services they don’t usually do it very efficiently.  Aside from the bad resources allocation decisions they make (just think of the health service), they lose track of a lot of the money; they don’t account for it very well; they give it to their friends, and they don’t seem too pushed about the lousy return.  That’s why millions and billions and soon, (maybe even trillions) of dollars, and pounds, yen and euro is going to keep disappearing down dark financial holes. 


A 5% rise in house sales in the United States and a bear rally on Wall Street are not genuine signs of recover in either the property market or financial markets.  In the former case, it is a consequence of massive foreclosure sales and the auctioning off of the inventory of bankrupt property developers.  In the latter, it is a bear rally by traders who do what they always do – take advantage of any upward movement caused by government interference in the price of money or assets.  The same thing happened  in 1932 and it crushed investors who got sucked in. 



I could go on, but I hope you are getting the picture.  


We are not in the throes of an ordinary business-cycle recession in which, after an overheated economy slows down, the politicians and their creatures, the central bankers step in to yet again manipulate interest rates and pump a bit of extra currency and credit back into the flagging financial and consumer spending markets. 


This time the mistakes – the decades of manipulating the money and credit supply to encourage reckless lending, the vast deficit spending on imported goods, the unfunded wars, the uneven tax systems that have favoured the rich and the unfunded social programmes have caught up with the United States and the rest of the world.  


‘Things fall apart; the centre cannot hold’, wrote WB Yeats.  No kidding. 



It is reckoned that about 50 trillion dollars worth of (albeit inflated) private wealth has been lost so far in world-wide property values, pension funds and other assets.  



The Obama mega-bailouts have one goal – to inflate away the debts of  America, which are too great to pay off in any other way.  But it will be at the cost of anyone holding US bonds, dollars, property and other US dollar denominated assets and who believes that the value of these assets will return to pre-2008 prices in their lifetimes. 



Once those billions and trillions of new, devalued dollars trickle out into the wider marketplace, you should expect consumer prices to rise. This is because the early money (that is still worth something) will pour into oil shares, precious metals, arable land, commodities (especially food), water shares and essential consumer durable shares represented by companies with huge positive balance sheets and world class management.  


This is the stuff that we should all be buying. 


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So much for straight talking.  Now you have to do some straight thinking.  



If I had a crystal ball, I would gladly tell you when, or even if, any of this is going to happen.  The only thing I am certain about in my own head, is that whatever he outcome, it’s going to happen sooner than we expect. 



And that’s because the law of exponential growth is now in play. 



This is where an event or an action keeps expanding – like the money supply or credit – at a pace at which it eventually reaches a tipping point, a point of no return.  No matter what you might do to try and stop the expansion, it doesn’t work. 



For example, it took 350 years – to 1973 - for the United States to produce the first trillion dollars in its money stock, that is, all the money in its bank accounts, money market funds, collaterised debts, etc.  Now, a trillion dollars is literally being created overnight at the touch of a computer key. 


The exponentially growing financial system and the economies it corrupted finally hit its immoveable object last year when ordinary consumers were unable to pay off or take on more debt. The hundred of trillions of debt created in the last decade in particular, began to unwind.


The current, unprecedented debt inflation effort is expected to result in price inflation…probably hyper-inflation, that will also run its course, despite the central bankers saying they will be able to turn off the tap in time. 


Can the centre hold?  Will things fall apart?   


I’m not sure WB Yeats knew much about complex recapitalization programmes, but I think I did read somewhere that he led a relatively modest life without much debt hanging over his head.  He owned his house.  Maybe a few decent shares.  He wasn’t a particularly big spender. Mostly, he made do with what he had. 


It’s as good a place to start as any.  Just do it quickly. 

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The Sunday Times - Money Questions 29/03/09

Posted by Jill Kerby on March 29 2009 @ 22:07

LD writes from Dublin: Late last year my mother-in-law discovered that a life assurance policy her husband had taken out in the mid 1980's with Phoenix Life Limited (a UK company) was still valid.   We wrote to the insurance company to see if this policy was still valid – he died in March 2005 - and they confirmed it was and was worth €7,200. However, when they found out he died in 2005 the amount was reduced to €4,800 as the benefit is calculated on the date of death. She finally received the €4,800 which included an ex-gratia payment of €737 due to the delay in settling the claim but they deducted income tax of €184. Is it correct that a death benefit is calculated on the date of death even if the policy was still earning earning interest from March 2005?  Should tax have been deducted, even though my mother-in-law is not a UK resident? Will she have to pay any Irish tax on the payment she has received? 


I learned that it was only after receiving correspondence from Phoenix Insurance in England that you discovered this lump sum policy existed and that it had been put into a ‘fully paid up” status not long after it was purchased. According to John Geraghty, of discount broker, www.labrokers.ie, Phoenix Insurance mainly sold with-profits whole of life policies and this policyprobably had a very low death benefit sum assured.  The payments you were quoted are probably the investment values at those two dates, he says, that may also include a small death benefit. The amounts quoted are “puzzling” as is the tax deduction and should be investigated further, says Geraghty. You have no record of who sold your father-in-law this policy, but he believes it was probably sold through the Scottish Provident here, whose address is Styne House, Upper Hatch St, D2. (Tel 01 6382900).  You should contact them for an explanation about the maturity value. “If your reader does not get a satisfactory explanation, she can progress her complaint to the Office of the Financial Ombudsman.”  Finally, as a spouse, your mother-in-law is exempt from any Irish tax liability. 



NG writes from Co Galway:  When I reached the age of 66 in 2003 I invested that portion of my private pension fund not subject to the 25% tax free lump sum – less than €200,000 - into an Approved Retirement Fund (ARF).  I was very attracted to the ARF as I was in receipt of the state pension and was still doing some consultancy work worth about €44,000 a year. I had been told I was in complete control of my ARF. In September 2007 I was advised that my ARF would now be subject to tax and was given some options. I chose to withdraw 1% of its value in the first year, 2% in the second year and 3% this year and future years, all amounts subject to tax. My combined pension and income means I pay higher rate income tax, but I had always intended to start withdrawing from my ARF after I was fully retired and paying a lower tax rate. I now find my ARF being eroded on two fronts – its value is dropping due to the economic climate and from the tax levy. I believe this disadvantage should be highlighted – it certainly is not the product that I invested in. 


All withdrawals from an ARF are liable to income tax at your highest rate. But it was the Finance Act 2006 that introduced a tax on ‘imputed distributions’ of 2% on the value of the ARF in 2008 and 3% in 2009 and every year thereafter. That said, if you do make a withdrawal, that amount canbe deducted from 3% imputed tax.  This tax was introduced as a way to encourage the withdrawal of some pension income, which the government claims was always the purpose of the ARF; it was not intended as a way to defer tax in retirement. Your concern about your eroding fund is understandable, but I suggest you review the underlying assets in your ARF and try to find a more secure assetsfor some or all of your money.  Unfortunately, converting your ARF into an annuity and pension income – which you can still do - isn’t much of an alternative, given the poor state of bond yields. 




FB writes from Limerick: I have recently been told that my mortgage with EBS has been transferred to a new company - EBS Mortgage Finance. The cover letter states that 'in the ordinary course of business' the society will set the interest rate and administer the loan. Given that my debt is now effectively owned by someone else, can this new subsidiary set a different rate of interest at some point in the future? I know the letter states ordinary course of business, but what if there is an extra-ordinary event? And can EBS just do this without my permission?

My understanding is that the terms of your contract with the EBS has not been changed as a result of this transfer of business to EBS Mortgage Finance company. Unless you have a fixed rate loan or a tracker mortgage contract, the building society can set a new interest rate at any time.  Lenders usually don’t do this (unless the ECB rate changes) but it is within their right to do so, say, if there was a huge loss of lending or deposit business – the extraordinary event to which you refer. If you are unhappy with this new arrangement, you can always try to take your business to a different lender.

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The Sunday Times - Money Comment 29/03/09

Posted by Jill Kerby on March 29 2009 @ 22:04

If Eugene McErlean’s charges against his former employer, AIB, hold up, then it will certainly add more weight to the growing evidence of incompetence, at the very least, on the part of the Financial Regulator. 


Mr McErlean, who was group internal auditor in AIB from 1997 until 2002, claimed last week before the Oireachtas Joint Committee on Economic and Regulatory Affairs that the Regulator failed to properly investigate or report the overcharging and share dealing irregularities that he brought to their notice in 2001. 


Not that anyone in the Joint Committee seems particularly interested in what Sean Citizen thinks about the shortfalls of the nation’s banks or its regulator, but perhaps they should ask one or two such people to their meetings, people who over the years have had money stolen from their accounts in the form of grossly inflated fees or higher than expected foreign exchange commissions. 


Our legislators could even invite the regulator’s own Ombudsman to join in; a person with an impeccable public reputation – and I genuinely mean that – who  could supply them with plenty of cases of ordinary folk who have been devastated by the terrible investment advice they were given by the bank’s life assurers.  Tens of thousands have lost c40% of the value of their managed pension funds over the past year, but to this day are still being charged exorbitant administration and fund management fees that copper-fasten these losses. 


It isn’t just on the banking side that the regulator is losing the plot: last week, the regulator’s consumer office published the finding of a ‘mystery shopping’ exercise it did last November, in order to see how well or badly the banks handle the banks’ own personal bank account switching procedure. 


Of the 51 different branches of the seven banks visited, just 59% of them – less than six out of ten – were doing it right.  The others didn’t have the switching packs at hand; staff were unable to provide any information; they discouraged the switching based on the information provided or actively discouraged the switch. 


Not only does the Regulator not name the offending banks, but it doesn’t even comment on why their mystery shoppers may have received such poor service.  There’s also no suggestion of a scolding, let alone a genuine penalty, like requiring the banks to withdraw the staff concerned and retrain them, or even pay compensation to the inconvenienced customers.  


In case the acting Regulator, Ms O’Dea, is still scratching her head in wonder at this survey result, let me enlighten her: the banks sign up for all sorts of voluntary codes, but that doesn’t mean they like them. Maybe four of the 10 branch officials who failed the test were - quelle surprise! - simply following orders to not facilitate customers moving their business to a competitor. 


Mr McErlean’s allegations of a cover-up have yet to be proved, but consumers know by now that even when Regulators appears to be doing their job, it doesn’t necessarily mean that anything is going to change for the better. 


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It’s ISA season again in the UK – when anyone with some spare cash puts it into their tax-efficient individual saving account that comes in a simple, deposit version or a range of individual shares, bonds and investment funds.  


The amount you can save or invest tax-free is reasonable – the ISA is no millionaire’s tax shelter – but over a period of years if you can afford to divert up to £3,600 in cash or £7,200 a year into a riskier investment fund or shares, you can end up with a substantial nest egg, with which to buy a home, fund higher education for your children or put away for retirement. 


Sounds familiar doesn’t it?  Remember the SSIA scheme when over 1.2 million of us were happy to save up to €3,000 a year (with the 25% top up by the exchequer) for five years?  Thank goodness for that scheme now – it’s paying off debts and paying groceries for people whose incomes have been cut or lost altogether in the last year. 


The only way we – and the rest of the indebted world is going to genuinely recover from the extraordinary spending binge of the past decade is if we own up to our mistakes, pay off or write off our debts and start building and restoring our savings accounts. 


What better way to do this than to set up our own version of the ISA, however modest:  it’s enough that the money going into such a fund will be as heavily taxed as it will be after the mini-budget is finished with our finances next month. A little tax-free savings scheme will at least give some promise that ‘this too will pass’, and that there will be a future worth saving for. 


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This latest trillion dollars worth of quantitative easing – printing money from thin air, to you and me – as part of President Obama’s campaign to bail out toxic mortgage debt held by insolvent banks and insurers in the United States, is expected to have the eventual effect of causing all sorts of corporate and individual debt to be inflated away. 


But, say the plan’s critics, once this money spills over into the wider investment market, it will force consumer prices up too, especially the price of oil as investors and traders pile into this essential commodity which, like gold, is a reservoir of real, intrinsic value (unlike paper money). 


Anyway, if that isn’t enough to convince you that oil prices are sure to rise again, how about the news that the Tata Motor Company of India now expects to attract 500,000 orders of their new Nano, the no-frills, but cheap and cheerful little four seater car that was launched last week for just $2,500.


Highly fuel efficient already, that number of family-friendly Nano’s are still going to need a lot of petrol until a viable alternative fuel can be found.  This is all good news for anyone who is adding Exxon, BP and Royal Dutch Shell to their share and pension portfolios or buying oil ETFs – one is even listed on the Irish Stock Exchange. 

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Money Times - 25/03/09

Posted by Jill Kerby on March 23 2009 @ 23:08

One of the (many) criticisms laid against the majority of government ministers and TDs is that they lack business and finance experience.  Lawyers, teachers and farmers are, shall we say, over-represented in our representative assembly.


The latest publication of Dail Members financial interests (and the Seanad) makes for very interesting reading, and pretty much confirms the above. (You can see for yourself what your local TD or minister has declared by way of directorships, shares and property holdings: http://www.oireachtas.ie/viewdoc.asp?DocID=11429).


Close scrutiny of the shares and property interests that members disclosed (their spouse’s interests do not have to be divulged) shows that many of them have made the same investing mistakes as the rest of us:  they poured too much money into Irish bank shares and other Irish listed companies (which represent a tiny fraction of European or global markets). And way too many of them bought far more than they should have had, both here and in other countries. 


For example, the Taoiseach himself who owns one rental apartment in Leeds and two other rental properties in Dublin 7 and Dublin 8 – which are probably not the best investments he could have made now that prices have crashed and rents are falling. (I live in Dublin 8).


The register doesn’t reveal when the properties (or any shares listed by TDs and Senators who have a separate register) were purchased, but with no other declared shares or investments, the Taoiseach, perhaps even when he was Minister for Finance, was clearly over-invested in a single asset – property sicne these are in addition to his family home back in Offaly.  (The Tanaiste and Minister for Finance list no investments whatsoever.)


He isn’t the only one who may have overstretched his property interests:  the biggest property magnates include Frank Fahy, the Galway West TD who owns outright or is a partner in many residential, commercial and retail properties in 18 different locations that include Galway and Limerick, Leixlip and Athlone, Dublin and Dubai, Boston and Brussels; he also owns properties in France and Portugal as well as a number of publicly quoted shares, including AIB, Grafton, Eircom, Kingspan, Ryanair and Worldspread.  


Alan Shatter, the Dublin TD has 14 different residential and commercial property investments, mainly in Dublin, London and Florida as well as small portfolio of shares. The Dublin North TD, Dr James Reilly is another major property investor with 10 different interests in land, holiday homes, medical facilities, residential lettings, some farm and woodland and an entire commercial building in Lusk with about a dozen different tenants including residential tenants. 


The register is notable for the few women TDs with any outside financial interests: poor Mary O’Rourke, the Westmeath TD and former government minister is now stuck with Bank of Ireland shares, as is health minister Mary Harney who laments that her original stake in Bank of Ireland, which she bought with her husband originally “exceeded €13,000…they do not do so now”.


Only the Cork TB Deirdre Clune stands out amongst her women colleagues for having three residential properties and sites in Dublin and Cork and for a few share investments which include – patriotically - the Barry’s Tea company.


A few of the farmer’s (or farmland owners) like Richard Bruton from Meath, Michael D’Arcy from Wexford, Seymour Crawford of Cavan Monaghan, Frank Feeghan of Sligo/Roscommon, Tom Hayes of Tipperary South and especially Edward O’Keefe of Cork East also happen to have invested – quite sensibly – in various co-op and agri-shares:  farmland and agri-company shares are expected to be among the investment survivors of the global downturn. 


As many people already know, the Dail is pretty top heavy with former teachers, and a pattern emerges here too:  they tend to stick with life assurance investment funds from the likes of AIB, Bank of Ireland, Hibernian, Standard Life and Irish Life and Permanent, all of which have suffered substantial falls in value.   


Quite frankly, there is very little for a constituent to learn from the investing habits of their public representatives, except perhaps not to put all your eggs in either the Irish property or stock exchange baskets.  


However, there are a few who have tried to position themselves with a more balanced and global portfolio: Sean Haughey, the Dublin North Central TD holds global oil and gas shares, European share funds, emerging markets funds (like Asia and China) and investment trusts, big pharmaceutical companies (as well as a tobacco company) and perhaps unfortunately, a number of Irish and foreign bank shares though he starting disposing of a number of his shares in February ’08.


Meanwhile, Michael Noonan, the Limerick TD is clearly a huge fan of low cost ETFs – exchange traded funds – and Dr Rory O’Hanlon of Cavan/Monaghan has one of the most global share portfolios of all – it even includes Chinese real estate interests. 


And should you happen to meet his colleague, Minister Willie O’Dea on a Limerick street, do ask him how his African gold and diamond shares are doing these days:  pretty well, I’d say. 


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