The Sunday Times - Money Comments 22/03/09

Posted by Jill Kerby on March 22 2009 @ 22:09

Is this the start of a genuine stock market rally or just another false dawn?  Is it a chance to buy world leading shares that are now at bargain basement prices or a signal that you might be able to recover some of the losses of the past year? 



Pension fund holders in particular, who may be about to lose some of the tax incentives associated with their pension when the mini-budget is announced next month, are especially keen for some answers: their retirement is at stake. 



Yet trying to time the stock market correctly is such a mugs game and even the world’s most successful investor, Warren Buffett, admits that he was ‘premature’ in thinking that stock prices had bottomed out last November when he went on a multi-billion dollar buying spree. 



His bearish critics still respectfully suggest that Buffett has underestimated how bad corporate earnings are going to be over the next few quarters and that this rally could end up crushing the investors it lures in, just like those who piled into the markets during the great rally of early1932 were crushed. Only when shares dropped to 90% of their original 1929 peaks in July 1932 was it worth buying again – if you had any money left. 



I’m told every pension advisor in the country is losing sleep over John Maynard Keynes’ famous saying – “The market can remain irrational longer than you can remain solvent”.



What do you tell Mr X, who turns 55 this year – and had every intention of prudently following a plan to start shifting his pension into safer assets -  but missed the boat by a year?  Do you advise him to cash out of what is left of his equity funds now, crystallizing all his losses or do you try and help him time this rally?  Is now the time to tell him to start buying those select number of genuinely blue chip shares that have never been priced so low? Is time on his side?



These are tough calls that the April budget changes could make even harder.



But my sympathy really goes to the tens of thousands of private pension fund holders who bought their contracts directly from the pension provider (or their employer did) and aside from an annual performance statement, have never heard from them again. 



In an ideal world, life and pensions companies would be earning their on-going fees and commissions by contacting fund-holders in the 50s and offering to help them work out a new investment strategy. 



Since there is absolutely no sign of this, and no sign that the Financial Regulator is doing anything about it  -  I think orphaned pension fund holders should be demanding, en-masse, that the ongoing, but unearned fees that they are still being charged be scrapped, or the very least, be refunded. 



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Still don’t have an emergency fund stuffed with three to six months worth of net income?


I’ve already recommended that you extend the term of your mortgage and make interest-only repayments in order to bank the extra cash – an idea that the Financial Regulator subsequently endorsed. 


In America, where savings are a fraction of what they are here and where foreclosures or arrears now affect one in every nine mortgage holders, people are turning to a different source to build their emergency fund: their Visa or Mastercards. Thousands of working Americans who are living from paycheque to paycheque are now drawing down the maximum approved credit line off existing and new credit cards and banking this money.  



The spread between the card interest rate – typically 11% or 12% compared to the 1%- 2% deposit rate – is huge, but the card-holder doesn’t care, reports the Wall Street Journal website, Marketwatch.  So long as they can juggle the minimum monthly re-payment, a la Peter-paying-Paul, the fund can keep building.  Even if the worst happens – bankruptcy – the unsecured credit card debt is usually discharged. 



This is surely a credit line of last resort (especially if legal action can’t be taken for at least 12 months if you fall into mortgage arrears with AIB and Bank of Ireland. 



But desperate times provoke desperate measures, especially when a long-standing family home is at stake.



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I’m all in favour of house prices falling back to their natural pre-bubble levels – and as soon as possible.  I have a young friend, newly married who has a downpayment burning a hole in his pocket and is positively salivating over showhouses that he and his wife keep visiting on weekends.  His parents (and me) keep telling them to wait – prices will keep falling – but they’re pretty fed up with this message. 


The crux of the matter is that the housing market isn’t going to bottom out until house prices revert to about three times earnings – maybe four times in the most desirable locations. But that isn’t going to happen until sellers have thrown in the towel and reduced what are still unrealistic price tags, in spite of the 30%-40% falls that have been recorded since the property bubble burst in late 2006.  And not until the foolish low cost mortgage offers imposed on the likes of AIB and Bank of Ireland by the government in exchange for the €7 billion bail-out are withdrawn by the banks:  artificially cheap mortgage credit is what blew the bubble all out of proportion and it’s still going to keep house prices artificially high. 


In the UK, their Financial Services Agency (FCA) is about to bring in a rule that prevents the banks from lending more than three times income to new borrowers, which might be exactly what we need here too…though I am loathe to endorse any more meddling with the property market by our own government that has done so much harm to it over the past decade.

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The Sunday Times - Money Questions 22/03/09

Posted by Jill Kerby on March 22 2009 @ 22:08

AOS writes from Dublin:  What advantages are there to selling/buying property between family without using an auctioneer? I know the auctioneer’s fee is one – what else?

Since family members are already aware of the selling points – and perhaps the fault of the property – the saved fee and VAT are the only advantages I can think of. Now this has nothing to do with the use of an auctioneer’s services, but an advantage of transferring property between family is that you can presumably share the services of a single solicitor to keep the costs down and as well, if a site (worth less than €500,000 and no larger than one acre) is transferred between a parent and child and it is to be used to build a principal private residence for the child, no stamp duty is payable, which represents a savings of many thousands. Stamp duty is also only chargeable at half the usual rate on property transfers between other blood relatives. 



KO’C writes from Limerick: I purchased an apartment in Bulgaria in 2008. However, I was wondering if I could now "cash in" some of my pension fund and pay off the apartment mortgage and then subsequently add the apartment to the pension fund?


That’s an interesting idea, but I’m afraid it’s not possible to cash in any of your pension unless you have reached the designated retirement age of 60 or 65 (depending on the type of pension contract you hold) or earlier, if you are forced to retire on medical grounds.  Personal retirement savings account (PRSA) holders can access their pension fund from age 50, but after taking the first 25% as a tax free lump sum, you would have to pay higher rate tax on the balance.  What you should have done from the start was set up a pension mortgage:  the purchase of the apartment would have been part-funded by your pension fund (complete with tax relief on the contributions), but the apartment would have had to be sold upon retirement – you would not have been entitled to own or use the apartment for your own use at any time. 




JS writes from Dublin: Having read your recent article on Irish Nationwide, I am concerned about deposits there. I have €200,000 on deposit. Do you think Ireland Inc. is sufficiently robust to reimburse all depositors under the guarantee scheme if a bank or building society fails or would it be more prudent to withdraw funds, incur penalties and find an A rated bank?


I think you are quite right to be security conscious – even with the 100% government guarantee of your deposit.  Ireland Inc is not out of the woods yet regarding the nation’s overall financial position, let alone that of the banks who without the government’s intervention may very well have been deemed insolvent. As other Irish Nationwide depositors have accepted by now, the society is not going to be bought out or privatised – some say it is more likely to be nationalised.  If you are looking for absolute safety for your money you might want to even split it up - into two different institutions, perhaps?  Don’t forget when you are choosing a new deposit institution that RaboDirect is the only triple A-rated bank based in Ireland. Their deposits are covered under the Dutch bank insurance scheme guarantee of €100,000. Meanwhile, if you don’t actually need this money to live on (I’m assuming that your income, pensions, savings, low debt – whatever – mean your finances are in good shape) you might consider buying some precious metals – gold or silver, as the ultimate store of value and a hedge against inflation and economic or geopolitical uncertainty, all possibilities going forward.  Check out the merits of holding a little physical gold in your portfolio at www.gold.ie, the Irish-based gold bullion dealers who have a good information section on their web-site.  






JO’B writes from Clonmel:  I had a managed pension policy and it matured in July 2007. I assumed my pension fund was safe after it matured but when the pension company did not contact me, I contacted them two months later to find out what was happening with my policy. They told me it has lost money the previous months.  I thought in the run up to maturing that the pension company safeguarded all pensions.  What is the law regarding this situation? 


Private pension funds come in various forms, but if this is a typical retirement annuity contract for a self-employed person or for someone whose company had no occupational scheme dating back at least 10 years ago, then it may have been entirely your responsibility to monitor the asset mix and performance of the fund as you approached retirement.  “About 80% of pension providers contact a near-retiree about six to eight weeks before retirement informing them that their maturity retirement date is coming up and asking them for instructions.  But not all of them do,” says Gerard Geraghty of Geraghty & Co financial advisors in Westport.  “There is no obligation the part of the pension company to ‘safeguard’ the fund either, but in the last decade or so all the pension providers offer pensions with a default investment strategy that you can tick, that will, every five years automatically shift some of your fund into safer assets like cash or bonds.  It doesn’t sound as if you reader had such a policy.”  One of the reasons I keep recommending that readers get good, fee-based financial advice before they buy expensive money products is so that this kind of feature will be pointed out, and the pension advisor you engage will keep you abreast of issues like proper asset allocation as you get closer to retirement. 

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The Sunday Times - Money Comment 15/03/09

Posted by Jill Kerby on March 15 2009 @ 22:12

Health insurance cuts for children

Vhi Healthcare reduces 2009 premium for Children on Plan B and Plan B Options 

200,000 children and their families to benefit.


4th March 2009:  Vhi Healthcare today announced the introduction of reduced premiums for children under the age of eighteen on its most popular plans, Plan B and Plan B Options. The company has reduced the 2009 premiums for children on these plans to €200 - a reduction of at least €100 per child with effect from 1st April 2009.  


Commenting on today’s announcement Mr. Jimmy Tolan, CEO, Vhi Healthcare said 

“We have been listening to the issues and concerns that are being raised by parents in conversations with staff in our contact centre. The reality is that families in Ireland are feeling the impacts of the deteriorating global economic environment and are experiencing changed financial circumstances. Despite this, many parents consider it very important to have the highest quality health insurance cover in place for their families.”


“To support these parents we have introduced reduced premiums for children. Almost 200,000 children and their parents will benefit from this measure and we hope that this will go some way to help alleviate the pressures on families. The reduced premiums for children on Plan B and Plan B Options will be funded through expected savings of €20m achieved through a range of cost containment initiatives right across the organisation including negotiations with providers of medical services.”


Vhi Healthcare will write to all members who are renewing their policies in April to advise them of this new rate.  The company will also write to all members who renewed with us in January to March ’09 to advise them of the reduction in their policies (from 1st April).  Members renewing at a later stage of the year will be advised of the revised pricing as their renewal falls due.


Vhi Healthcare is Ireland’s only not for profit specialist health insurer with over fifty years experience.  In 2009, Vhi Healthcare expects that over 90% of its customers premium income will be spent in ensuring that’s its customer’s medical needs are met.



Foreclosures in US and here 

House Repossession Remains at Very Low Level, says IBF 


Data published today by the Irish Banking Federation (IBF) confirms that house repossession remains at a very low level here.  The total number of houses repossessed by all mainstream mortgage lenders in 2008 was 96.  At 0.01%, this represents a fraction of the total number of mortgages issued.  

The level of repossession of residential properties in Ireland is very low by international standards.  For example, for every 10,000 mortgages issued, 1 results in repossession here compared to 35 in the UK – demonstrating a significantly different approach to arrears management between the two markets.

Furthermore, the recent introduction on a statutory basis of the Code of Practice on Mortgage Arrears (which builds on the original IBF voluntary code), and its extension to cover all mortgage lenders, will provide an added measure of reassurance to mortgage borrowers at this time.  Under the Code:

〈        Lenders must adopt flexible procedures for handling mortgage arrears and assist the borrower as far as possible – whereby consideration can be given on a case-by-case basis to deferral of payments, extending term of mortgage, changing type of mortgage, or capitalising arrears and interest

〈        Lenders must wait at least 6 months (12 months for the two recapitalised banks) from the time of arrears first arising before applying to the court to commence legal action for repossession.


“While the number of repossession applications to the courts has increased, this number bears little or no relation to the actual number of properties repossessed”, according to IBF’s Chief Executive, Pat Farrell.  “Increased activity in this area is reflective of the general economic slowdown and we can expect this to continue to be the case.  However, the importance and value of early communication by borrowers with their lenders cannot be emphasised enough.  Where repayment difficulties arise for some borrowers because of changed economic or social circumstances, the borrower should talk to his/her lender at the earliest opportunity”, he stated. 



But not in the USA`: Mortgage delinquencies took their biggest quarterly jump on record in the fourth quarter of 2008, hitting a record 7.88% of loans outstanding, the Mortgage Bankers Association said Thursday. The delinquency rate, which includes loans that are at least one payment past due but not yet in foreclosure, was up from 6.99% in the third quarter and from 5.82% a year earlier. The rate of new foreclosures was up slightly to 1.08%, putting 3.30% of mortgages somewhere in the foreclosure process. The combined percent of loans past due and in foreclosure jumped to a seasonally adjusted 11.18%, the highest since the MBA began keeping records in 1972.


Interesting pension idea – nationalise DB pension funds

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The Sunday Times - Money Questions 15/03/09

Posted by Jill Kerby on March 15 2009 @ 22:11

TO writes from Dublin:  My husband is well over 80 and qualifies for the medical card on income grounds. As I am now over 70 he was told that I also qualify.  The form I must fill in requires not only details of our savings, but evidence and there is no way my husband will write down the numbers of our An Post savings certificates or our post office book. Surely asking for details and evidence of our savings is breaching the bounds of decency? 

Last October’s budget changed the rules by which the medical card is now issued, but the fact that your husband is still receiving the card, and was not required to produce any further statement of income, suggests that the HSE is satisfied that he continued to qualify for the free medical card after the October changes. (In fact the majority of over 70s continued to receive the card.)  The request for income details from you, not that you are over 70, sounds to me like a formality, unless, of course you have separate income to your husband that would push you both over the qualifying income limit of €1,400 per week for a married couple. The HSE has said it will take a sympathetic view of pensioners with existing cards and question marks over their continuing qualification.  Why don’t you contact your local Citizen’s Information Centre and discuss your concerns with them?  They should be able to allay your fears about having to fill out this form. 




RW writes from Youghal: Having worked for almost 50 years in the UK I have received a pension plus our old age pension of about Stg£46,000 per annum. This I receive gross as I am now tax resident in Ireland.  My query is, at what currency conversion rate does the UK Inland Revenue use to convert my pension to euros? I requested that it be paid in euros, but my pension is vastly reduced as a result of the current conversion rate. 


You should contact the UK Pension Service International Pension Centre, Tyneview Park, Benton, Newcastle upon Tyne, England, NE98 1BA to request the conversion exchange rate the UK currently uses when it converts sterling state pensions into euro.  I would have thought the rate is determined by the exchange rate on the particular day of the month that your pension is transferred to your Irish account. The International Pension Centre also provides a telephone service at : 0044 191 218 7777 or you can e-mail them at tvp-ipc-customer-care@thepensionservice.gsi.gov.uk.  Be sure to include your pension file number and other pertinent details in any written correspondance with the centre. is 





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 approximately €14,000 during the last year, I am now 63 and in need of this money now before it has been completely diminished.


The rules of your pension scheme determine when you can access your AVC, and yours clearly do not permit access before age 65, even though you are retired.  You should contact the fund trustees/administrator to see if you can switch your existing AVC assets to an asset fund that will ensure that your remaining capital is secure until age 65.  You should not you’re your money in what appears to have been a high equity-exposed AVC fund – something else you can raise with your trustees, who should have been more pro-active in helping AVC holders at your company to protect their retirement savings at they got closer to retirement. 




PL writes from Dublin:  I am thinking about buying some gold, probably through the Perth Mint certificates that you have written about. However, I want to know what would happen to the value of my gold cert holdings if hyperinflation takes off and the US dollar goes up in value but then collapses, as David McWilliams recently predicted.  If I wanted to cash in my certs would I get the dollars or the gold?  Is there a way to nominate payment in euros or another currency instead?

According to Mark O’Byrne of Gold and Silver Investments, the Dublin bullion dealers, the Perth Mint certificate programme “is very liquid and you can sell your certificate at any time and the client will have their funds wired to them in whichever currency they wish to be paid in.  We deal, quote and have bank accounts in all the major currencies including the Swiss franc. So you can get whichever fiat currency you want to be paid in. Secondly, and most importantly you can also take delivery of your gold or silver at any time by simply converting to allocated gold, paying the fabrication fee for the coins or bars and instructing to ship to an address of your choosing – for safekeeping in one’s home (with home insurance obviously) or to be kept in safety deposit boxes or depositories in Europe.”  O’Byrne adds that if there is hyperinflation in the US “and that does seem quite possible”, it is likely that there would be hyperinflation in the UK and in all debtor nations with exposures to Wall Street and the City of London. “Hopefully the euro would not be as effected due to the German hawks who are aware of the risk of hyperinflation due to their experience at the end of the Weimar Republic in the 1920’s” but all paper currencies are “still likely to fall vis a vis gold”.

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Money Times - 11/03/09

Posted by Jill Kerby on March 11 2009 @ 23:14



The imposing of the pension levy on 370,000 public and civil servants has already resulted in one unintended consequence: life and pensions brokers from one end of the country to the other are being told to cancel Additional Voluntary Contributions (AVCs) that up to half of all these state workers have been making, some for many years, to top up pensions that would otherwise be short maximum service years.  

The ‘law of unintended consequences’ looks as if it might be broken again for another financial product that many people who are losing their income or their jobs are cancelling:  their term life insurance. This is especially unfortunate, because while the AVC can always be re-instated when the economy picks up again, getting rid of life insurance as a cost saving measure could end up causing a catastrophe for your dependents. 

Some people believe carrying mortgage protection insurance and some death-in-service benefit that they have at work is sufficient.  But these days the loss of job also means the loss of the work-based insurance; mortgage protection might cover the outstanding loan in the event of your death, but your dependents may be unable to sell the property for what they believed was even the mortgage value.  It could spell financial disaster – at least in the short term.

The Financial Regular has just published its latest comparison price survey on life insurance (see www.itsyourmoney.ie) which is very timely and helpful for anyone who feels perhaps that it’s an expendable cost.

The survey includes three term life insurance profiles and three mortgage protection insurance profiles and shows the cost of the insurance for male and female separate and joint smokers and non-smokers and for dual coverage for both smokers and non-smokers.  (Joint cover pays out only on the first death; dual cover pays out after both deaths and the latter is better value but only slightly more expensive.)

The Regulator reminds us that the cheapest quotation may not be the best, but straightforward term insurance – is a pretty simple product though in the form of mortgage protection, the cheaper version is inevitably the one in which the cost of the premiums – and cover – reduces in tandem with capital repayments. In other words, the value of the insurance falls in line with the amount of the loan you pay off and the amount outstanding. 

What might also surprise buyers is that term mortgage protection insurance is cheaper - by about 20% -  that ordinary term cover and that smokers can expect to pay anywhere from 30% to 50% more for the same level of insurance.  The lower mortgage protection cover is partly due to the fact that there tends to be greater retention of this insurance because it is compulsory. 

So which company offers the best price for the 30 year olds seeking €320,000 life cover over a 30 year period?  For male non-smokers, the cheapest policy (by just 29 cent a month) is Danica Life at €28.16 followed by Bank of Ireland/New Ireland at €28.47. Danica Life also comes out top at €21.74 per month for women; and male and female smokers can expect to pay Danica just €48.72 and €33.20 per month respectively.  Not all of the 10 companies surveyed offer joint policies, but again, Danica Life comes out on top for these, while Bank of Ireland Life is the cheapest for dual policies which amount to €42.72 and €76.61 per month respectively for non-smokers and smokers. 

Life insurance gets more expensive the older you buy it, as the third profile in the Regulator’s survey shows:  for just €120,000 cover over 10 years this time, a 49 year old male non-smoker will pay Danica about the same amount they charge the 30 year old male non smoker who wants €320,000 worth of cover over 30 years. 

Danica Life, incidentally, is the life assurance arm of the Danish mutual bank, Danske Bank, which is the parent company of National Irish Bank and is one of the more secure European banks, not a small consideration in these uncertain banking times. 

The importance of holding onto your life insurance can’t be stressed enough, even if you do lose your job.  Term cover is not hugely expensive compared to other financial products, but if the policy has been in place a few years and you cancel it, you will have to pay more when a new policy is started. This is because you will be assessed not just at an older age than when you first took out the cover, but also perhaps you health may have deteriorated.  

Keep in mind that any serious illness you suffer, once you cancel the policy, can also impact on the cost of future insurance if you want to buy some again – this is because you many now have a ‘pre-existing medical condition’ which, like your age will be used to calculate the new premium.   

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The Sunday Times - Money Questions 08/03/09

Posted by Jill Kerby on March 08 2009 @ 22:16

PN writes from Dublin: Unwisely my husband and I took out mortgages on our home in the last few years amounting to a total of €900,000 to make some investments for our retirement. We run a small business, and are unsure if, despite our best efforts, it will survive. We have reduced our salaries by half.  Our home has been for sale for the last eight months and the plan is that when it is sold we will pay off the loans and rent. Meanwhile we are checking out any ways we can save money. I am sure your answers to the following questions will be very helpful for others in the same situation. 1) We cannot afford the mortgage protection policies on the loans. What could the bank do if we stopped paying them? The bank is unlikely to have any more luck than we have had at selling our home.  2) Now that interest rates have come down, are these insurance policies overly expensive?


Your longer letter explains that the mortgage protection policies alone are costing you €620 a month; unfortunately, the cost of the premiums are calculated based on the size of the capital value of the loan, its duration, your respective ages and genders and the fact that you are both non-smokers and otherwise in good health.  The cost of servicing the mortgage is irrelevant. As for not paying the premiums this would be a breach of contract; it is also mandatory in this state to have mortgage protection insurance if you hold a mortgage property.  However, lenders have been known to accept a ‘life waiver’ for clients aged over 50, sometimes because the person can provide an existing life assurance policy or other collateral that could be realised and pay off the loan in the event of their death. I suggest you speak to a broker or your lender before you stop paying the premiums. 




JN writes from Dublin: My employer pays €1,000 per year for my and my wife’s Plan B VHI insurance. Additionally we 'flex up' by paying an extra €1,000 ourselves to get up to Plan C Options. This extra €1,000 is taken over the 12 months by payroll deduction and facilitated through the company’s benefit scheme. I have been declaring the employers €1,000 as BIK and claiming relief on my €1,000 contribution. However with BIK being taken at source is this the correct calculation?


Tax advisor Sandra Gannon of TAB Taxation Services in Dublin says that you have been doing the right thing, except that you have been forgetting to also claim tax relief on the employer’s contribution, to which you are entitled because of the BIK you pay.  She says that you can seek up to four years of back tax on your tax claim. 




BI writes from Dublin:  I am getting an extension and thinking of applying for a mortgage. I have €250k in savings in various accounts. Should I take out a mortgage or use my savings to pay for it. I am 50 years old and do not have a pension. What are my best options?


Mortgage interest rates are very cheap again – the best three years fixed rate is currently just 3.4% - and the most attractive lending deals are available to existing owners with plenty of equity already in their homes and good, secure jobs.  It also makes sense to borrow the extension money if you are able to lock in a higher interest rate for the €250,000; it’s when savings are a loss leader that it makes sense to use it to pay off debt or buy outright rather than borrow. That said, if you are the sort of person who looks at the longer term, you might believe, as I do, that interest rates will not remain this low forever.  There is a growing risk of price inflation – the consequence of the inflating of the world’s money supply – and when it spills over into the real economy, prices will go up and interest rates will have to rise to counter it.  The best way for any of us to get through these tough times will be if we have little or no debt, plenty of secure savings and investments and a regular income.  You shouldn’t count on your house to be your pension unless you are willing to sell it and live on the proceeds. That is all the more reason to be careful about mortgaging the property. 





JK writes from Co.Wexford:  In 2007 my wife invested her SSIA in a single premium PRSA with Irish Life for which she received top up tax credit. It has since lost 45% of its value.  As she had no pension she also contributed on a monthly basis to a PRSA standard plan in 2007 which was also invested in a consensus fund and this has lost approximately 30%.  Does she leave them as they are and hope that the value increases or change them to cash and accept the loss or cash in both plans and put the money on deposit in a credit union and use the proceeds as her pension? Her employer does not contribute to the pension plan. 


Unless your wife is 50 your wife cannot cash out of her PRSAs.  She can certainly switch to cash or bond funds to protect her capital or transfer them to a different provider with funds she prefers at no cost.  She will be crystalising her losses by switching to a capital protected fund, but many commentators are now predicting the stock markets have a good way still to fall.  (See Comment.)  PRSAs at least offer some flexibility:  she can stop and start her contributions without penalty, but if she opts to put her savings in the bank, she will lose the tax relief on the contributions and will have to pay annual DIRT tax on any interest. 


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The Sunday Times - Money Comment 08/03/09

Posted by Jill Kerby on March 08 2009 @ 22:15

A pensions consultant told me recently that he’s never been busier; he spends long days ‘firefighting’ – trying to find ways to help trustees and employers to balance their known liabilities with their pension fund’s value. But he admits that with nine out of 10 defined benefit pensions experiencing shortfalls, stock market returns still plunging, and corporate profits also tanking, “it is an impossible task.”


Perhaps it’s just as well that the typical worker only has a vague awareness of all to this and that his fund, if it’s an Irish managed fund, is down 35% over the past year. 


However shocking that figure is, it looks even worse the closer you get to retirement. Ideally, pension fund holders should be shifting their assets out of equities into safer funds like cash and bonds starting at least 10 years before retirement, but pensions were already reporting near-negative returns over the previous decade even before the slaughter began last September.  


You might need longer than that to recover a 35% loss if you happen to be 55. Meanwhile, so many self-employed people I’ve met can’t even remember where they put their pension documents let alone who sold it to them, yet they could be facing a wipe-out if they don’t take some corrective action. 


For those brave souls who have reviewed their retirement nest egg, it’s not a pretty sight. Judging from the letters I get from readers, most say they don’t know what to do:  they thought, like I did, that a well diversified, ‘buy and hold’ pension fund strategy was a prudent course, but that theory has been turned on it’s head.


Our portfolios were filled with ‘blue chips” like banks, big retail giants and strong companies or sectors with good cashflow, profits and markets to sustain long term growth and steady dividends. 


But investing models are as defunct as the financial services and markets they facilitated. 


Forbes.com wrote last week about how Warren Buffet’s ‘buy and hold forever’ strategy has been misinterpreted by an entire generation of investors and fund managers: “Buying and holding stocks can be extremely risky if you wind up holding the wrong stocks. Investors should remember that Buffett has a lot of expensive and very talented help in making investment decisions, so he buys very good stocks at low prices and doesn't often get stuck holding onto big losers.”


Someone else suggested we ask ourselves: “Whatever about continuing to hold onto these ravaged shares or funds, if I had ten grand to spare would I actually buy any more at these prices?”


Some say a rally is due any week after February’s sharp sell off.  Others say the markets will halve again before they hit bottom but the only certainty is that shares will definitely go up…or down. 


Perhaps the safest assumption you should make about your retirement at this stage, is that it might not be for as long as you once anticipated. 

*                               *                                 *

The Credit Union League moved quickly to reassure members of the Mitchelstown Credit Union that their savings were perfectly safe, despite the fact that all business loans have been suspended and strict limits put on all lending.


Seeing as the Mitchelstown CU is probably not unique, this reassurance will only go so far with credit union savers who may have already spent some time queuing nervously in bank lobbies, moving their money to whichever institution they thought was the ‘safest’ at the height of the crisis last October. 


It was the Regulator for the Credit Unions, Brendan Logue, who shut down commercial lending at Mitchelstown, after it was revealed that four of their five biggest such loans have gone pear-shaped.  Last September the Mitchelstown board had to publicly deny that it was in any financial difficulty after rumours prompted many members to close their accounts.  


Back then – before unemployment really took off and markets crashed, it had €200 million in assets, €35 million in outstanding loans and another €65 million under investment.   


Six months later this balance sheet has undoubtedly been weakened, though the League went to great pains to assure its members that Mitchelstown is solvent and that savings up to €100,000 are covered by the Government guarantee and the League’s own protection fund.  


The credit union regulator Mr Logue – one of few in the Financial Regulator’s office – hasn’t pulled any punches in his reports about the amount of work needed in raising the operating standards of individual credit unions, but that his resources have been limited.  


There’s another trouble over the banks without the credit unions adding to it:  and they may not even know it yet, but we’re all going to be relying more on community lenders like the credit union and the post office banks before the great depression of the 21st century is over.  

Whatever Brendan Logue needs, he should get. 

*                         *                     * 

 ‘The rich are different than you and me,” F Scott Fitzgerald is incorrectly quoted saying to Ernest Hemingway. He replied, “Yes, they have more money.”


Well, as it turns out, our blanket assessment of bank directors as fat cats wallowing in huge sums of money that they spend buying up needle thin apartment blocks in Dubai is a shade off-side: according to the report on the disclosure of the 186 bank director’s loans that came out last week, they also needed to borrow for all the same mundane reasons the rest of us do.


No doubt Mary O’Dea, the acting Regulator, and consumer director, will helpfully remind the 32 with outstanding credit card debt that it really pays to set up a monthly direct debit to clears the balance every month. 

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Money Times - 04/03/09

Posted by Jill Kerby on March 04 2009 @ 23:07



Desperate to reduce the number of card holders who can’t pay off their credit card, American Express in the US recently offered a $300 incentive to certain customers to stop using their card and close their account. 


If only some of the Irish card providers would be so inspired:  the number of people here who can’t pay off their card balance is on the rise as thousands of young workers join the Irish dole queues. 


The credit card may be one of the most convenient forms of payment, but it also provides one of the easiest ways to borrow and spend. With an estimated 2.5 million credit cards in circulation here in 2008 and nearly 120 million annual transactions worth about €14 billion, we are keen users of the little plastic cards, though we don’t hold proportionately as many cards as Americans or the British who don’t pay a €30 stamp duty per card. 


We do, however, pay some of the highest interest rates on our cards and these rates are beginning to go up, just as some people are also being told the amount of credit available to them is falling. 


I don’t this is such a bad thing.  The higher the interest rate, the more incentive there is to monitor your spending and clear the balance sooner, though so many people fall into the trap of using up their credit balance quickly and then find themselves struggling to pay off both the interest and some capital. 


The most sure-fire way to never get yourself into credit card debt is to arrange to have your balance cleared every month by direct debit.  Having that deduction in place will control how much you spend. 


For the person who blithely only pays the minimum required payment every month – indicated in that little box at the bottom of your statement – the outcome is disastrous.  For example, if your balance was €5,000 and your interest rate was 16.9% - not an untypical rate for many - and you only paid the 2% of the required balance, it would take you 568 months, or 47 years, to pay off the entire loan.  You would also have paid a whopping €10,780 in interest on those €5,000 worth of purchases! (Key in your own credit card balance on the calculator at www.whatsthecost.com to see how long it would take you to pay off your debt.)


With so many people now struggling to find sufficient cash by the end of the month to pay their bills, you need to lower that credit card balance. Here are my five best tips to remove your flexible friends fingers from around your neck and to regain control of your card: 


1)Find out exactly what credit rate you are paying.  Ask your bank if it has a better rate and how many months free credit they will give you to switch to that card. 

2)If you bank doesn’t cooperate (and you account is in good standing) take advantage of the once-a-year, free stamp duty card switch facility and move to a provider with a free or low interest rate period AND a lower interest rate for when your free period is over.  The likes of Halifax and Bank of Ireland offer 0% for six months and NIB, 0% for five months. MBNA cards offer a 1.9% six month switch period.  The lowest, post-free period rate is Bank of Ireland’s card at 9.5%. 

3)While you are paying off your credit cards balance, don’t use it (even if the bank tells you that there will be no interest on new purchases.) The idea is to clear the debt as much as you can, not increase it.

4)Once your six month period is up, think about switching to yet another zero or low balance card, though try time it so that you don’t get hit with the €30 stamp duty twice.  This is especially good advice if you have a particularly large balance.

5)Still having trouble clearing the card?  It’s time to speak to your lender to arrange a personal loan with a rate that is lower than the card rate. Then arrange a direct debit to It’s also time to get the kitchen scissors out. 


Finally, don’t take out any credit card until you check the credit card cost survey at www.itsyourmoney.ie.  Click on each card to get more details about extra charges and penalties, especially the cost of withdrawing cash with the card, which many of us resort to especially on holidays. (MBNA offers a similar table for their cards only, including their affinity cards at www.mbna.ie/creditcards/directory.html). 

The purchase rate on Irish credit cards hasn’t risen noticeably since the downturn began, but the cost of money withdrawals has soared:  AIB and Bank of Ireland may have two of the lowest purchase rates at 8.5% and 9.5% but they’ll charge you 23.4% and 19.9% from the day of withdrawal.  


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The Sunday Times - Money Comment 01/03/09

Posted by Jill Kerby on March 01 2009 @ 22:18

In a litany of proposals, Mr. Obama called for stricter regulatory reforms of the nation’s financial institutions. He also mentioned creating tax-free universal savings accounts for all Americans, a nod to the Republican desire to create some kind of investment vehicles as they consider overhauling Social Security.


I once wrote in this column about the National Bank of Mum and Dad, in the context of how my husband and I were trying to teach our then 13 year old about the merits of good saving and spending habits and his modest allowance and money gifts. 


Now I’ve discovered that parents of much older children – who have babies of their own – are 


The US – The Great Unravelling – US no more borrowing- old cars, rent vs buy, aspirations lower – people understand this – 3.8% savings vs 9.4% during Reagan years.

14tr in debt; 8tr housing wealth loss; 10tr capital markets loss;  double digit unemployment coming; savings ups; even trading down at grocery store; 




Two Dublin insurance brokers, quickly responded to a query from a reader last week about whether there was any sort of insurance that he, as a landlord, could buy that would compensate him if his tenants just upped and left without paying their rent, or refused to vacate the premises.  


Designed to protect the landlord against up to 12 months of rental loss when a tenants refuses to leave a property, the product is known as ‘Rentassured’ and also provides up to €25,000 “for expert legal advice and representation to deal with any tenancy dispute”, explained John Clear from Stillorgan who is the main distributor for Rentassured, and Tony Collins of JC Collins in Blackrock.

There was a time when landlords may have been satisfied to factor in a month or two of void payments, but as the unemployment numbers continue to soar, this insurance might be in considerable demand going forward.  I will pass on their helpful message to the unlucky landlord. 

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Money Times - 25/02/09

Posted by Jill Kerby on February 25 2009 @ 23:07



There’s a hint of spring in the air, and if the estate agents are to be believed, there is also considerable interest by perspective buyers in the huge inventory of unsold properties that are on the market.

According the Sherry Fitzgerald CEO, Mark Fitzgerald, over 4,000 viewings were recorded by their company on the Valentine’s Day weekend and many first time buyers are simply aching to buy a home, if only they could raise sufficient finance. 

I think we should take what Mr Fitzgerald says with a pinch of salt:  the bursting of the property bubble and the collapse in prices has hurt his business badly, and any glimmer of hope is going to be blown out of proportion. 

But he is right when he says that the property downturn is now entering its third year and that people “can’t put their lives on hold indefinitely”.   What those buyers need however, is to go into any house purchase with their eyes wide open, a firm hold on their wallets, and a total understanding that what they are buying is a home, not an investment, an alternative pension or anyone other than a very expensive consumer item that is going to carry a number of  on-going costs in addition to the monthly mortgage. 

Mr Fitzgerald’s note of optimism last week, was of course, also encouraged by the announcements by the major banks – AIB and Bank of Ireland, Ulster Bank and Halifax of finance packages for first time and trading up buyers. 

The two main banks are offering lower, one year fixed rate interest rates of c3.5%APR for loans up to 95% of the purchase price while the Halifax has one year fixed APR rates of 3.17% and 3.14% until July 2010 and July 2011. Ulster Bank has a slightly different deal on offer of a five year fixed rate of 4.1% if the FTB agrees to buy a house listed amongst the inventory of eight of their property development clients; the bank will guarantee up to a 15% mortgage capital reduction if the house has fallen in value by up to 15% at the end of the five years (as determined by an independent valuer.)  If it has fallen by more than that amount, the loss is yours alone.

Needless to say, none of these deals comes without conditions and the most obvious ones are that you have a sufficient down payment, a secure job and the ability to repay the loan. 

So is it time to get onto the property ladder or not?  

My first instinct is an emphatic “no”:  not only are house prices still falling, but the latest DAFT report showed that rents are falling too – by a whopping 12% last year with 21,000 properties now available to rent, twice the number from the same time last year. This is not the sign of a healthy property market. 

Unemployment is also still soaring under the weight of the on-going global credit crisis, low consumer spending and falling productivity and tax revenue.  The income tax and pensions levy are both going to take yet more spending power out of the economy. 

This deflationary period means that any house you buy is going to keep going down in price until the bottom is reached:  astonishingly, 19 years after Japan’s great property crash, prices there are still 80% less than they were in 1990. 

On the plus side, buyers are firmly in the driving seat and sellers are open to offers and negotiation. If you are interested in a property offered by one of the eight Ulster Bank developers (see Secure Step Mortgage link at www.ulsterbank.com) it might be worth getting that price down at least another 15% (but ideally even more) before taking up the 15% refund insurance offer; call me a cynic, but I expect the developer may have already priced in the refund.

Whatever about the tempting mortgage offers, you should keep the following in mind before buying any property this year, even if you are certain that is the ideal house for your long term needs and the location is perfect: 

A one-year fixed rate may end up resetting at a higher rate in 12 months time, resulting in a higher repayment.  Look into fixed rates as well.

In addition to the monthly mortgage you will have on-going insurance, utility and maintenance bills. Factor in a property tax and local authority rate charge going forward that might be a flat rate (perhaps €1,000) but more likely a percentage of the rateable value of the property. In most countries this is between 0.5% - 1%. 

Price falls could continue:  if you buy now with just 5% down, you could be in negative equity within months of taking on the mortgage.

Don’t count on the lender or mortgage broker to properly stress test the loan. Do it yourself by asking if you could still afford the mortgage if the repayment rose to 5%-6%.

Aim to pay off your mortgage as quickly as possible, especially while interest rates are low.  The more equity you own, the better to command the best mortgage interest rates.

Offer to rent the house for a year or two, with an option to buy. 

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