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Money Times - November 15, 2016

Posted by Jill Kerby on November 25 2016 @ 15:48

PART ONE:  WE’RE NOT IN KANSAS ANYMORE, TOTO.

 

A fortnight ago I wrote that gold is a form of financial insurance, despite its price being variable and susceptible to market uncertainty. In euro, an ounce would cost €1,160 that day.  As I write, it is €1,173; five days earlier (just as Hillary Clinton’s emails were thought to be under FBI investigation again), it was €1,180.

This kind of volatility over just a few days was played out in the stock markets just before and after the US presidential election. Watching prices go up and down is the stuff of madness and sleepless nights. Accurate, specific price  predictions are impossible.

Trump’s election was a shock, but not surprising, given how it reflected the widespread mood of discontent among voters everywhere, including here in Ireland.

Ordinary folk in America, busy with their own lives, may not be able to put their finger on the exact causes, but they are a lot more aware than ever that things are not right, and haven’t been for some time. They increasingly see how the political class, shareholders and especially bosses in favoured industries (like financial and technology) and to a degree the public service, have managed to somehow avoid the job insecurity and losses, the wage stagnation that plagues people working in the less sheltered private sector businesses.

The hollowing out of the ‘middle class” – and Ireland is a country happily aspire to be middle class over the last four decades - and the descent into the credit and debt economy has come at a shocking price.

In the United States, where this great debt monster was conceived, nurtured and exported, measured by the same standard that applied even 20 years ago, employment, manufacture and production indicators, individual and corporate earnings, the movement of goods, price inflation are also lower or falling.  The US national debt has tipped over €20 trillion (if was just over €5 trillion when Bush took over the presidency from Clinton) and the Federal Reserve’s own “asset” balance is $4.5+ trillion, up from $500 million in 2008, made up of US Treasury bonds (debt) and mortgage and bank debts it bought to provide more liquidity to financial markets.)

And let’s not forget the estimated c$57 trillion of unfunded future liabilities the US government has promised to pay in the form of Social Security pensions Medicare and Medicaid.

Student debt and even motor vehicle debt is now measured in trillions in the US; the long wars in the Middle East are estimated to have cost about $6 trillion. (That’s 6,000 billion dollars.)

Hillary Clinton intended to raise corporate, capital gains and estate taxes and extend the national debt in order to fund her social spending programmes and the notorious “military/industrial complex” that President Eisenhower warned about when he left office in 1961. Trump has promised to spend trillions to rebuild America’s crumbling infrastructure and boost the military industrial complex but he said he’d pay for it by getting US foreign companies to repatriate their cash to America (from Ireland, among other countries) and by lowering personal and corporate taxes, thus creating more ‘trickle down’ wealth and income.

Bill Bonner, who publishes a network of financial newsletters, a few of which I’ve subscribed for more than a decade (I highly recommend MoneyWeek magazine) says that people ultimately vote with their wallets, whatever about their public claims of altruism. He frequently quotes the journalist and satirist HL Mencken (1880 -1956) who said, “Every election is a sort of advance auction sale of stolen goods.”

None of the candidates in this election (except perhaps the hapless Gary Johnson) addressed the cause of the economic debt, credit, boom and bust crisis in America (and here.) They didn’t propose a return to ‘sound money’ in order to limits unsustainable spending programmes, wars and vanity projects.

Like pretty much every other modern politician, including every single member of Dail Eireann, no one made the connection between the notion of living within one’s means – (yes, this includes prudent borrowing to build/own valuable assets) and long-term financial health and prosperity. They didn’t even agree on who to blame (previous Democrat/Republican administrations, Wall Street, the rich, the poor, the Chinese/Russians/the EU/Gulf Arabs…)

This unhealthy, catastrophic credit driven, debt burdened system and its mismanaged solutions  (more credit and debt) will only last…until it doesn’t.

So where do you and I fit in?  Bailing out our bankrupt banks has quadrupled our national debt from €50 to €200 billion since 2008. We’ll borrow €10 billion next year to roll over and service this debt. Personal debt rates are coming down, but we’re spending (and borrowing) very cautiously. Our ‘recovery’ is being funded by the extra foreign based corporate tax, tax that a negative Brexit effect and a Trump administration could eat into.

Will “things” get better or worse, now that Trump and his brand of populism has prevailed in the spluttering economic engine room of the world?  Probably.

The only question you can answer with any certainty is whether you’re prepared for both outcomes.

 

Next week: Part 2: A Financial Ark and How to Build One (again)

 

 

 

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Money Times - November 22, 2016

Posted by Jill Kerby on November 22 2016 @ 09:00

STILL HAVEN’T BUILT A FINANCIAL ARK?  HERE’S WHY YOU SHOULD

The hysteria over the Trump election and the Brexit chaos is going to settle down – at least for a while. Then expect it to ramp up again in the New Year with the inauguration of the new President on January 20 and as the end of March triggering of the Section 50 Brexit deadline.

Trump’s policies may or may not revitalise the US economy, but the biggest fear for us is a negative jobs and tax revenue fallout in the US dominated high tech, pharma, medical devices sector and the banking they do in the IFSC. A hard Brexit meanwhile could also have a detrimental effect on Irish export sectors and the cost of living here when UK imports start costing a lot more.

“Ignore the noise,” my financial adviser, Marc Westlake keeps saying, meaning, “stop reading the headlines. Stop paying attention to the short-term ups and downs of reactionary markets and currencies. Ignore the dire ‘predictions’ – the pundits are only guessing. They don’t have crystal balls.”

He’s been giving me this advice for years and has stopped hasty, expensive reactions at every market downturn (or Brexit-like event.)

It’s not so easy to ignore the noise, when you write about personal finance for a living. But the theory is sound, especially when it’s accompanied by evidence-based market and financial analysis that shows that widely diversified, low cost, regularly balanced portfolios, held over a long term consistently outperform actively managed and traded, limited assets or funds, stuffed full of excessively high administration and management fees and commissions.  

Few fund managers, no matter how lucky they are in picking winners when markets are booming, do so consistently. A highly diversified, mostly passively managed, low cost fund of assets (we’re talking of thousands of shares, bonds, properties, commodities, fixed income assets) is more likely to weather volatility and meet realistic customer expectations.

But is following sound investment advice all your need to protect your wealth and financial security?

I don’t think so.

For the last eight years, far outside your adviser’s good sense and control, panicked central bankers have been artificially depressing the cost of money to save insolvent banks, prevent mass debt default by countries and corporations and to ‘stimulate’ more borrowing and spending to kickstart economic growth.

Their low to zero rate monetary (via QE) policies have further enriched the rich, but widened the gulf between them and the ‘not-the-1%’ who’ve been saddled with the bill for bailing out of the insolvent financial sector. Global debt – hastened by leverage derivatives like sub-prime loans which Warren Buffett ominously described as “financial weapons of mass destruction” back in 2008 – has doubled since 2008.

About a quarter of all Irish economic activity is generated by foreign owned companies, most of those, American. Donald Trump wants them to reconsider where they make their goods, their R&D and their back-room administration.

If Trump’s protectionism and a hard border-laden Brexit reduces future trade, profits, jobs, then it will also reduce the €600 million plus corporate tax bonanza we’ve enjoyed – unexpectedly – in 2016. What happens if that money – a higher corporate and private sector income tax take dries up? (Exchequer borrowing for 2017 will be c€1.2 billion, but €10bn will be allocated to pay interest on the €200 billion national debt.)

Back in 2010 I started writing about a concept I called, Build an Ark. It’s time to dust it off.

You build a financial Ark in order to weather – just in case – the economic fallout, like the job tightening or higher prices that could come with higher interest rates and trade protectionism. 

Building the Ark involves not just carefully assessing your current financial position – your income, outgoings, tax, debt, savings, investments, insurance (protection measures) – but taking steps to improve it.  That means controlling your spending, reducing and avoiding debt, paying only the tax you must…essentially, living within your means. If you’re in the private sector and want to retire some day, the Ark will also prioritise your savings and investments. 

Building a really strong Ark needs lots of willing hands. Involve your immediate and wider family and loved ones. Thinks about building one big enough to make sure no one gets left behind if it starts raining heavily again; that means tough, honest and hugely challenging discussions between the generations about individual incomes, assets, debts…and dreams. (Like home ownership, third level education, entrepreneurship, retirement and long term care for elders.)

The 2008 crisis never ended. It was plastered over and put off. The debt overhang could never support a genuine, global, sustainable recovery. 

By building your Ark, you can avoid a repeat of what came after 2008. 

Every parent and grandparent who Skype’s Christmas greetings to their young ones this year in America, Australia, Canada knows exactly what I mean.

(If your community group or organisation wants to book my How to Build An Ark seminar please contact me at jill@jillkerby.ie )

 

 

 

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Money Times - November 8, 2016

Posted by Jill Kerby on November 08 2016 @ 09:00

 

ARE YOU THINKING OF CHRISTMAS SHOPPING IN THE NORTH?

Is it disloyal or unpatriotic to do your Christmas shopping in the North this year?

Judging by the debate on the various radio programmes I listened to last week, you’d think this was the most pressing issue of our times – worse even than giving into a demand for immediate public sector pay restoration, which is going to cost billions more than the country can afford right now.

The cause of this urge to shop in Newry, Belfast or Derry is the nearly 30% fall in the value of sterling against the euro. The prices of a lot of goods, especially alcohol, tobacco and non-perishable foods, was already cheaper in the UK than here. Northern Ireland shares the economy of scale that comes with a big marketplace. Wages and service costs are also lower, due in part to lower income, VAT and certain excise taxes in the UK.

Before the Brexit vote and subsequent fall in the UK currency, the 30% differential just didn’t make it worth the price of a tank of petrol and currency exchange fees to drive across the border from Dublin, Waterford, Cork, Limerick or Galway for an even modest shopping spree in the North.

Not so if you were making a big purchase like friend of mine here in Dublin who saved over €2,000 renovating their bathroom units, appliances, electrical and plumbing fittings, tiles, etc at a DIY bathroom specialist in Newry. The well known bathroom providers even offered a team of fitters who were on their approved panel.

That was nearly €7,000 worth of spending that has already gone North from just one Irish household. 

Last year we spent an estimated €4 billion in the run-up to Christmas. About 20% of us spent some of that money in the UK and Europe, including on-line. Even if only 20% of that total goes abroad this year, it could amount to €800 million that will not be spent with Irish retailers.

But this all needs to be kept in proportion. A huge volume of our spending is already spent in foreign-owned stores and services, from the likes of the British and German grocery suppliers Tesco, Marks and Spencer, Lidl and Aldi to the familiar high street and retail park shop where we buy clothes and shoes, DIY and garden equipment and even many big insurance companies. (Think Zurich, RSA, Aviva, Axa, even Irish Life, which is Canadian owned.) 

We grow and produce a certain amount of locally sourced foodstuff that is sourced locally - especially meat, dairy and bread products – but we are mainly a country of foods importers.  The ‘shop local’ campaign mostly refers to the support of Irish retail jobs, not the sources of production. Once wages and overheads are paid (which indeed circulate in the Irish economy) the bulk of profits earned on the Irish high street goes abroad.

So it is wrong, during periodic currency swings like today’s, to abandon the Tesco or Marks and Spencer or Woodies in your town for the one across the border and save 20% even after you take your transport and banking charges into account?

If you plan on spending €1,000 on presents, food and alcohol this Christmas, is it so bad to save €200 that could go on panto tickets, a movie, a train ticket to Granny in Cork or Sligo or even an extra tank of petrol (c€46 of every €75 goes straight to the State in excise/VAT) to drive there?

Brexit is already starting to push up prices in the North, though it will be next year before most people there see a substantial rise in prices as goods in the shop have already had their prices locked many months ago. The real bargains, a friend of mine who works for M&S here told me, will be had in the (still duty free) January sales in the North. Some currency analysts think Sterling could take another dip downwards before the year end, just based on historic patterns and drop from their current levels of €1.22 to buy one pound to a low of between €1.125 to €1.075 to the pound settling at c€1.10 to the pound.

Timing currency markets is always hazardous and even the professionals don’t always get it right. Meanwhile, shoppers have always crossed convenient borders – Canada and the US; Norway and Sweden, Germany and Poland -  depending on which way their currencies ebbed and flowed.

If you want a clear conscience this shopping season, stay away from the UK equivalent websites of your favourite UK retailers, in my case Amazon and M&S.

I had my eye on a thick cashmere sweater for €165 here that is selling for £120 in M&S Newry. At today’s exchange rate it shouldn’t cost more than €135 in Dublin.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.

 

 

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Money Times - November 1, 2016

Posted by Jill Kerby on November 01 2016 @ 09:00

GOLD vs PAPER MONEY: IT’S A MATTER OF TRUST

“The price of gold is the running straw poll of the world's confidence in paper money.” - James Grant, July 2008

I recently had a chance to hold a kilo bar of gold, which is only about six inches by four inches wide and about a half an inch thick.

For such a small object, it was incredibly heavy. It wasn’t buffed to a high sheen like the gold bars that are stacked in central bank vaults (which weigh 400 troy ounces or 12.4 kilos) but was slightly matt in texture and all the more lustrous.

Readers of this column know that I believe that precious metals have a small place – 5% to 10% worth - in a person’s net worth of wealth assets, typically the value of your paid off home, cash savings and pension fund. Occupational pension schemes, for example, are increasingly likely to include precious metals (silver and perhaps platinum) as part of a diversified investment fund. They see gold rare, precious and immutable, as do I, as a form of insurance I hope I’ll never have to use.

According to Aristotle, who advised Alexander the Great about these things as he set about creating a vast empire, ‘good’ money needs to be durable; it must not fade, corrode or change over time. It must be portable, and be easy to carry and move, with a high value relative to its weight. It must be divisible or ‘fungible’ and be able to divide into smaller units of value. It must have intrinsic value, that is, contain its own worth and lastly, it has to be ‘acceptable’, that is, be accepted to another party to complete a transaction.

Precious metals, especially in coin form, tick each box. The paper version of money we use originated as goldsmiths ‘receipts’ for the large amounts of physical gold and silver that Renaissance merchants owned, but didn’t want to risk travelling with. (Goldsmiths became the first bankers.) It was only in the last century that paper money bills stopped representing an equivalent amount of gold or silver. 

Today, there is no equivalent value of gold or silver in any currency issued by central bank to back up the number and face value of dollars, euro, pounds, yen, rubles and renminbi in circulation.  The intrinsic value of the money we use is literally only worth the cost of the paper, ink and base metals (in the case of coins).

In our increasingly ‘cashless’ world, tens of trillions worth of new money has been printed since the 2008 financial crash alone – mainly digitalised on the central banks’ currency computers. It is stored on on-line accounts and transacted via computers, debit, credit and pre-pay cash cards and smart phone wallets. 

Which brings me back to why I was on TV3 the other day with Mark O’Byrne of Goldcore.com, the Dublin gold bullion dealers, discussing gold.

There have been several significant Millennial financial crises ranging from the 1999-2000 NasDaq crash; 9/11; the 2008-2012 Great Recession and Greek crisis and now Brexit. The so-called War on Terror and subsequent migrant/refugee crisis has had massive financial repercussions.

The price of gold always reacts in uncertain and fraught geopolitical and economic times. Back in 1999 an ounce of gold was worth the equivalent of c €350 an ounce and at time of writing, €1,164. By the end of 2007 it was c€500.It peaked in late September 2012 at €1,365 in tandem with the Greek/Euro crisis.

The price of gold goes up and down as UK holders know: gold is up nearly 44% in the past year. Nevertheless it has a remarkable ability to maintain its intrinsic value, especially when every effort is made to artificially create price inflation by devaluing currencies or embarking on endless campaigns of QE – quantitative easing that causes savings and bond yields to collapse.

The banking sector is fragile. The debt crisis continues. Gold is dismissed by Keynesian economists as “the barbarous relic” that pays no interest. But they also hate cash which they say we are saving too much, to the detriment of “economic recovery”.

The cashless society is nearly here. Nil to negative interest rates are becoming  reality, but with no cash, there is no opportunity to take your money out of the bank and stick under a mattress. It is entirely at the mercy of the manipulators to tax with negative interest rates or confiscate in the event of a failed bank ‘bail-in’.

The depreciation of the money we use continues relentlessly. Gold has consistently held its value as this small reminiscence shows:

In the summer of 1982 the owner of the small newspaper where I worked set up a good VHI adult plan for the staff. It cost about Ir£360 old punts, which I couldn’t afford. Meanwhile an ounce of gold back then was worth about Ir£355.

Last summer, 34 years later, my Laya Healthcare Simple Connect Plus adult plan cost me €1,160. As I write this, the price of an ounce of gold in euro is c€1,164. 

Aristotle was right. And I bet Laya would take an ounce of gold as payment too.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.

 

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Money Times - October 25, 2016

Posted by Jill Kerby on October 25 2016 @ 09:00

FUNERAL COSTS ARE A SHOCK GRIEVING FAMILY CAN BE SPARED

Funerals are not something most of give too much thought to, at least not until you reach more advanced age (than I am now, for instance) or unless you’ve suffered a recent, close bereavement.

Recently the father of a close friend, who happens to be Brazilian, died. He was quite a young man but in keeping with their funeral traditions, he was buried within 24 hours, without a formal funeral.  Family and friends gathered a week later for a memorial service.

This is quite foreign to the way we bury our dead in Ireland.  Our ritual of holding a wake at a funeral home or in the person’s residence, then the removal church ceremony and finally the church service and a gathering for tea or lunch with close family and friends is, for us, at least, a tried and tested way to deal with loss and grief.  When mourners have to travel any distance, as so many of our immigrant family do, the funeral process can be protracted.

It can also amount to quite an expense, as a new survey from Post Insurance (www.postinsurance.ie) a subsidiary of An Post revealed.

The Post Insurance Funeral Price Index shows that while the standard funeral cost in Ireland is €4,052 plus the cost of a burial plot or cremation. The cost of a “standard coffin” can range from a high of € 2,000 in Kerry and Laois to a low of €1,177 in Waterford. A standard coffin in Dublin will cost an average of €1,750.

The burial plot, depending on what part of the country you live in, can add many thousand more euro to the bill, depending on where you live. It explains how cremation has grown in popularity.

Also, while the €4,052 accounts for the cost of Removal and Care of the Deceased, Embalming, Removal to Church / Cemetery, Hearse, Funeral Directors Fee and Coffin, it does not include what are known as ‘disbursements’ – the Church Offering, Priest, Music, Obituary Notice. The three most expensive counties for disbursement costs are Laois  (€1,440), Galway (€1,242) and Dublin (€1,177), while Kerry, (€470) and Limerick (€573) were the least expensive.

The highest quote for a ‘standard’ funeral is in Co Tipperary at €6,310 (which might surprise those of us living in greater Dublin where everything is usually more expensive) and the highest average cost was €5,000 in Co’s Sligo and Clare.  The least expensive standard funeral is available (€3,408) in Co Wexford.

A double sized grave plot can cost €32,000 in Deansgrange Dublin, while the same double plot in Shanganagh, Dublin was quoted at €5,600.

There are three ways to pay for a funeral and all its costs - €10,000 or more is not an atypical price, readers tell me (especially if a grave plot has to be bought or even opened.) You can:

-       Plan ahead and take out an insurance policy (Post Insurance offers one worth up to €30,000 in benefits), use an existing one, or consider a funeral package during your lifetime. Many funeral homes sell the latter and take instalment payments.

-       Your family can pay for it out of their own pockets and reclaim it from your estate, if you have so designated, or from their own bequest left in your will.

-       Or the money can be borrowed from a bank or credit union. Some funeral homes will accept instalment payments.

Today many more Irish people are choosing simpler, ‘humanist’ funeral services, often held in the funeral home or crematorium ‘chapel’. These can also include comparatively eco-friendly cardboard or willow coffins and cremation, cutting out a number of the biggest expenses that Post Insurance itemised.

It certainly makes good sense to either assign apportion of your long-term savings (perhaps in the Post Office) or from a small life insurance policy to pay for the kind of funeral you would like to have. It isn’t an easy subject to face, or to discuss with loved ones, but it does alleviate some of the stress that comes with bereavement, especially the financial concern of how the funeral related expenses will be paid.

Leaving a written instruction – sometimes known as a Letter of Intent – with your closest loved one (a spouse, adult child, best friend or family solicitor) will be an important guide for them (even if it isn’t a legally binding document, like a Will).

If you are going to go to be considerate enough to pre-fund and provide a funeral plan, then you should also write a legal will and make sure your executor knows where to find it too. Older people – and retiring is as good a time as any to do this – should also draw up an Enduring Power of Attorney. This document sets out your care wishes in the event you become mentally unfit to deal with your own affairs prior to your death. As your solicitor will explain, It will prevent you becoming a ward of court.

 

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.

 

 

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Money Times - October 18, 2016

Posted by Jill Kerby on October 18 2016 @ 09:00

 

RETIREMENT PLANNING NEEDS A PROPER FINANCIAL PLANNER

Last week’s Budget may have raised the State pension by €5 a week starting next March, but it did nothing to encourage workers to save more into their existing private pensions or AVCs (Additional Voluntary Contribution top up plans that many public servants have) or to start one. 

The Minister for Finance could have reinstated the 4% PRSI tax relief on pension contributions that was removed in 2011 or declared that the USC refunds he was announcing would have to be directed into funding private pensions. Instead he took the politically expedient route of keeping older voters onside with the extra €5 and the 85% reinstatement of their Christmas bonus.

But that’s going to cut no ice with the fact that today’s younger workers are never going to get the same State pension benefit as their elders. Their PRSI contributions are still not invested; the amount collected right now via taxation is not enough to meet current pension benefits, let alone a bill that is going to double in size by the time they’re ready to retire (unless they start having very large families again.)

It’s a ticking can full of explosives, that is so bent out of shape from all the kicking down the proverbial road, that it would have gone off in 2010 if we hadn’t been saved by the Troika bail-out. 

I doubt if any politician, from any party, will ever be brave enough to push through the tough changes needed to stop it blowing up: later retirement; higher income contributions and lower, means-tested benefits and the phasing out of the tax-based, pay-as-you-go system for a universal, transparent, invested one that includes all public and private workers.

Even if a miracle happened and there was political commitment to reform the doomed state pension (at it’s current benefit level), the private pension system isn’t much better. The system is too complicated, costly and not transparent enough. Worker and employer contributions need to be sizeable and compulsory; costs need to be lower and subject to ongoing review.

The only good thing to say is that younger you are, the better chance you have even now of putting enough money together to avoiding having to work forever, or becoming dependent on family, friends or charity in your retirement.

I may be deeply cynical of politicians and senior civil servants ever addressing the pension system, but the Pay & File deadline coincidentally falls in October, Budget month and may help to raise awarness.

You can reduce your annual tax bill by making contributions into a personal pension or AVC by October 31 (mid-November if you file online.) You can claim a 20% or 40% income tax deduction on the pension contribution, depending on whether you pay standard or marginal rates of income tax.

However, buying a pension fund for the tax break, is a poor substitute for having a proper retirement plan that aims to produce the kind of income you want to live on in your old age.

There is a vast difference in the quality of pension/ retirement advice in this country.  It comes down to partiality and remuneration: pension product salespersons earn their living from the commission they receive from the pension manufacturer. A fee-remunerated financial planner is paid by the client for their advice, whether they buy a ‘product’ or not.

For the most part, commission-paid brokers only sell pension products supplied by popular life and pensions companies. They undergo rudimentary training. Financial planners who are members of the Society of Financial Planners of Ireland undergo a advanced financial and investment training to an international standard. (See www.sfpi.ie)

That said, not all SPFI members are fee-based and some experienced, impartial, fee-based advisers are not members of the SFPI.

But proper financial planning starts, not with a retail pension plan recommended by a manufacturer and their agent, but with your financial expectations. A  financial planner pulls together as much information as they can about your entire financial position, your risk profile and retirement expectations and then, where possible, comes up with a plan to achieve those expectations.

Funding a financially “comfortable” retirement is getting more expensive, not less in a world of zero yield bonds and deposits, the so-called safe assets for pension funds. It’s why dependence on the State pension is growing, not diminishing and why widespread pension reform is so important.

You have a deadline: October 31. Top up your existing pension and claim the tax relief. If you’re a young worker, join the company scheme if there is one, or buy your own.

But don’t just buy an old pension.

Find a proper financial planner/adviser with lots of pension experience and ask them to help you take the first right steps in shaping a long-term affordable, dependable retirement plan.

 

 

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Money Times - October 11, 2016

Posted by Jill Kerby on October 17 2016 @ 19:00

 

BE YOUR OWN FINMIN:  CLAIM PERSONAL TAX REFUNDS BEFORE THE PAY & FILE DEADLINE

 

Budget Day giveaways and clawbacks will be forensically reviewed this week to see who benefits …and who will pick up the tab.

Whatever little shocks may have emerged from the Budget (and it tends to be well leaked) the most shocking thing is how many people fail to avoid overpaying their taxes every year: it is reckoned that perhaps as much as a billion euro lays unclaimed as taxpayers are unaware of, or too indifferent to the fact that they

The annual Revenue October 31 Pay & File deadline for self-assessed taxpayers is just 20 days away (you will get a fortnight extension if you file on-line) is the date when the self-employed and anyone with non-PAYE income must file their preliminary tax return for the year. But it is also the date on which PAYE workers can claim back tax credits, relief and allowances for the past year. 

So what are the common tax credits and reliefs that you might reclaim for the past four previous years?  They include:

- Pension contributions, for which top rate tax of 41% can be claimed, if you pay this higher marginal rate. For every €100 you contribute to your personal pension, you’ll be able to reduce your annual income tax bill by €41. Standard rate taxpayers will reduce their tax bill by €20 for every €100 pension contribution.  A €5,000 contribution will reduce your 41% income tax bill by €2,050.

- Medical and dental expenses for the entire family. (These can be claimed anytime during the year under PAYE Anytime service at www.revenue.ie You can’t collect for expenses covered by private medical insurance or routine dental or opthalmic care.)

Doctors and consultants fees are covered, as are prescribed drugs and medicines and medical/surgical appliances including prescribed exercise bikes, wheelchairs, wigs, false eye, etc; prescribed physio-type treatments; specialised dental treatment; specialised speech and language treatment; in vitro fertilisation treatment; ambulance transportation, prescribed special food for diabetics, coeliacs, etc. Ancillary costs for home dialysis (a portion of electricity, laundry, telephone costs) and longer travel expenses associated with prescribed/required medical treatments, such as weekly dialysis or cancer treatments.  Nearly all tax relief is at the standard rate of 20%.

- Guide Dog flat rate relief of €825.

- Nursing home expenditure at top tax rate of 41%. This is available to either the patient or anyone paying all or part of their nursing home costs.

-  Rent tax credit. The credit is only available to people who have been renting a property since December 7, 2010 and will be phased out by 2017. Different credit rates apply to over 55s who are Single, Widowed or Surviving Civil Partner, Married or in a Civil Partnership and under 55s in these categories. Single people, under or over age 55, for example will only receive a tax credit of €80 this year, but if they have no claimed the credit for the previous four years, they could also collect €120 for 2015, €160 for 2014, €200 for 2013 and €240 for 2012. (Double the amount for married couples/widowers.)

- Private Health Insurance tax relief at 20%: This relief is usually credited to individual holders of health insurance at source, but not if your employer pays the premium, which is also liable to Benefit in Kind tax. In the case of a top family plan, worth c€3,000, the total tax relief for four previous unclaimed years could be worth €2,400 according to Dermot Goode, of www.TotalHealthCare.ie, a specialist broker.

- Home Renovation Tax Relief of 13.5% VAT over two tax years. To claim this relief you need to ensure that your builder is both registered as tax compliant with Revenue and has completed their submission.

It isn’t as complicated as you might think to file your own tax return, if you have non PAYE income to report. Check out the Revenue On-line Services site, www.ros.ie  and follow the registration and filing instructions. It takes a couple of days for passwords to be issued, so don’t leave it to the last minute.

If you are uncertain or nervous about filing your return by yourself – or, if, say, you have a rental property but are not sure what deductions you can claim – then make an appointment to see a good tax adviser or accountant.  Establish their fee or charges from the start. 

If you want to set up a pension, or top up an existing one consult a pension expert or, ideally, a trained, experienced, fee-based financial planner. The former usually involves a sales process that rewards the manufacturer and sales intermediary first; the former is a holistic process that takes into consideration your wider financial position in the effort to find a cost-effective, appropriate and realistic retirement solution.

 

 

 

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Money Times - October 4, 2016

Posted by Jill Kerby on October 04 2016 @ 09:00

 

INCOME TAX FAIRNESS FOR ALL SHOULD BE BUDGET GOAL

 

Tax policy in this country just gets more bizarre by the day.

With the Budget approaching, every private and public agency, charity, opposition party and, it would seem junior minister, has been busy preparing and submitting their budget claims to whatever surplus amount – about €1 billion is the latest reckoning – that the Minister for Finance has to dish out for 2016-17.

So long as their group of constituents, beneficiaries or clients come away with something these interest groups will declare victory. The long picture…is Michael Noonan’s problem.

That said, the most bizarre tax ‘reform’ proposal, from the Minister’s own colleagues, Richard Bruton (back in October 2015) and Mary Mitchell O’Connor (last week) is for a separate 30% flat income tax rate that will also include PRSI and USC, aimed at highly skilled Irish workers earning more than €75,000, who have been away for at least five years.  It would last five years.

The 2015 proposal, with a salary floor of €60,000 was described prior to the 2016 Budget, “as likely to infuriate Irish workers”. It never saw the light of day.

But junior minister Mitchell O’Connor clearly saw some merit in it, and while it looks pretty dead in the water this week, was lauded by employers in the high tech sector in particular who claim they are involved in an ‘international war of talent’ which has been hindered by Ireland’s highly progressive and punitive personal tax rate that claims 51% of tax, PRSI and USC on every euro earned over €33,800.  (52& on earning over €70,045.)

If native Irish talent is reluctant to come back to Ireland after five years of emigration, the income tax situation is certainly one reason. But let’s not overlook all the other less overt taxes that contribute to their trepidation, as well as the acute shortage of affordable housing (especially in the capital) and huge child-care costs.

In addition to a 41% top rate income tax, 4% PRSI (on all income), c6% USC (and an additional 3% on all income over €100,000) Ireland has amongst the highest VAT (23%) in the world, high rates of excise and VRT on cars, alcohol, tobacco; a compulsory annual €399 levy (€135 for children) on health insurance plans; annual 5% levies on general insurance policy premiums and 1% on all life insurance, investment and pension policies. We also pay separate property tax, car tax, bin charges and a suspended water charge. CGT rates are comparatively high at 33% given how low the individual annual CGT free allowance of just €1,270. (It is over £11,000 in the UK.)

Would a two tier flat tax rate of 30% foster a tax revolt by the PAYE workers paying that higher rate of 51%? It could, if the home-based worker earning that €75,000 discovers that the returnee next door – doing exactly the same job as he/she - now pays several thousand euro less tax than they do.

The Irish Taxation Institute reckons that a single, Irish PAYE earner on €75,000 will pay €26,482 in tax here, compared to €18,482 in the United States and €21,920 in the UK. The disparity between countries exists, but in those places, everyone on the same tax level pays the same tax. One group of workers on the same pay is not favoured over another.

High taxes encourage the creation of loopholes and tax avoidance opportunities to those who can afford professional advice.So perhaps a better way, tax-wise, to attract home wary émigrés, is to improve the tax situation for everyone, starting  by setting a higher income entry point (from the existing €33,800) on the tax bands.  Even in France, one of the highest taxed economies in Europe, you only pay their marginal rate of 55% when you earn €152,000. In Portugal it is €80,000.

Shifting tax from labour to capital assets (like property) would also take some pressure off the high income tax burden in this country. But this is highly unlikely as it also requires the phasing out of tax reliefs, special capital allowances and other tax avoidance measures.

Not all tax reliefs are a bad thing in the absence of a fairer tax system.

One that bears watching, pre-Budget, is the proposal that first time buyers receive tax relief worth €10,000 to assist in the purchase of new homes. The only way this can be considered ‘fair’ is if hard-pressed renters in private accommodation see the re-introduction of rent tax relief.

A long standing personal tax break, with the over 55 married couple tenant tax credit worth as much as €1,600 a year (€800 aged under 55) and as much as €400 for a single person aged under 55 it has been phased out since 2011 for and will disappear entirely by 2017. It can only be claimed by those renting privately since December 7, 2010.

This year – and you have until the October 31 Pay & File deadline to claim up to four years of the backdated relief - tax credit is only worth €80 this year for a single person under age 55; €80 for over single over 55s; €160 for a married person under age 55 (or a widow/er) and €320 for partners (widow/ers) aged over 55.

Solve the housing crisis (and child-care) in Budget 2017 and the income tax burden might just get a great deal lighter by itself.

 

 

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Money Times - September 27, 2016

Posted by Jill Kerby on September 27 2016 @ 09:00

CAN A TIGHTER HEALTH INSURANCE MARKET DELIVER PRODUCT AND PRICE?

You’ve probably heard or seen the radio and television ads for the newest health insurer in the market – Irish Life Health, which has been created from the merger of Aviva Health and GloHealth.

Together they now insure 425,000 individual and corporate customers; the VHI remains the biggest, with c1.1million members and Laya Healthcare with 550,000.

The new company’s managing director, Jim Dowdall, the former CEO of both the merged companies (at different times), insists the merger will enhance, not restrict competition, despite reducing the number of players in the market to just three. It certainly convinced the Competition and Consumer Protection Commission that this would be the case though it’s hard to imagine the CCPC or the EU ever tolerating just three motor or home insurers. 

Nevertheless, the arrival of Vivas back in 2004 certainly forced VHI and BUPA (which preceded QuinnHealth and Laya) to raise their games as they scrambled to match the new types of plans, benefits and innovation that Vivas introduced – especially for the lucrative and demanding corporate market. Dowdall stepped up that pressure when Aviva Insurance took over Vivas a few years later, and he remained as the MD of the new Aviva Health operation.

In 2012, having left Aviva, Dowdall set up the fourth and smallest of the health insurance providers, GloHealth. It moved even further in offering innovative, focused plans that suited both individual healthcare needs and budgets.

Active sports players who joined GloHealth for example, could opt for more sports injury coverage than was offered by more standard policies. Families could load up on out-patient cover and benefits more suitable to their needs while older people could pick and choose higher value treatment cover or accommodation packages. Both GloHealth and Aviva were also at the forefront of ways to access diagnostic consultations with nurses and GPs by phone or on-line.

“This is a market where scale is particularly important,” Jim Dowdall explains. He diplomatically describes it as “unusual”, “highly politicised”, and with state operating rules that “keep changing”, referring to the health insurance levy that can account for 65% of the price of lower value entry plans, and the hospital bed charge of over €800 a night for insured patients, “even if they end up on a trolley or recliner”.

He concedes that this is probably why there haven’t been more Irish or foreign operators here since BUPA first arrived to challenge the VHI’s monopoly in 1996.

But he also warns that health-care costs are likely to keep going up for as long as there are “non-negotiable charges” imposed by the state.

“The population is ageing. We may think the cost of health care is high today. But wait and see how expensive it becomes in the future, with better medical outcomes and diagnosis. More cancer and heart cases will be treated and will put higher demands on the public system. But that’s why it’s even more important to tackle the artificial drivers of our health insurance cost increases.”

The government, he said, needs to recognise that people with insurance are “alleviating the pressure on the public system and should be rewarded for this, not discriminated against.” Last year alone he says the HSE collected €150m from the public hospital bed charge.  With the levy, this is driving up the cost of insurance and preventing people from buying levels of cover that will keep them from accessing private hospital service.

He also believes that innovations like the GP video consultations that Irish Life Health customers now enjoy is a way to take pressure off the public system, and deliver value to customers.

 “For example, a parent who opts for it doesn’t have to take time off work to physically bring a sick child to the doctor. A prescription can be issued to your local pharmacist. And you don’t have to pay the €50 or €60 charge. We pay the GP directly.”  He promises more of these kind of the community based, primary care services.

I asked the specialist health insurance broker Dermot Goode of TotalHealthCare.ie what he thought of the merger:

“I think more competition, more players would be better. But Irish Life Health is going to shake up the corporate market, no question. They will leverage the Irish Life brand and its existing corporate life and pensions business.

“And that isn’t a bad thing for the individual consumer because under our Community Rating system, everyone has access to every plan on the market, including the corporate ones. I expect there will be some very good new plans coming out at very competitive prices.”

Finally, a welcome concession to bewildered health insurance customers everywhere: Dowdall also promises that Irishlifehealth.ie will streamline their product selection to make it simpler to comparison shop. “There really has been too much product out there”.

VHI and Laya, please take note.

 

 

 

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Money Times - September 20, 2016

Posted by Jill Kerby on September 20 2016 @ 09:00

CARTEL OR NOT, YOU NEED TO GET THOSE MOTOR PREMIUMS DOWN

 

Good luck to the Competition and Consumer Protection Commission in trying to establish whether the motor insurers and brokers have set up a cartel to rig insurance premiums.

This is a small place. And the number of motor insurers is smaller than it used to be. And it hasn’t been unusual in the past for financial players to announce a rise, say, in their interest rates - in the case of banks – or their premiums, in the case of health insurers, around the same time.

But when it’s happened in the past it was mostly a case of them opportunistically and very publicly following the leader, sheep-like, rather than a secretly conspiring to do so. In the case of the banks, the sheep leader is often the ECB after they’ve upped their rate.  Motor, home and health insurers take every opportunity to react to the latest statistical reports on weather events, accident rates or further expensive policy measures (in the case of health insurance) taken by the government for all their premiums to rise.

And while motor premiums are up c38% on average over the past year, not every driver has seen the same percentage increase and it is that kind of evidence that the CCPC will probably need to find to prove their case.

Even if they do, price-fixing, while a criminal offense, is more likely to result in fines than jail-time, so don’t expect to see any insurance bosses or brokers doing ‘the perp walk’ anytime soon.

The insurers are correct, however, in stating that the higher premiums we’ve seen are due to the higher cost of claims. But they are disingenuous in suggesting that it’s mainly been due to the high settlements the courts award in injury cases or the big fees that the legal profession continue to rake in from these cases.

In a major survey conducted by The AA in early 2015, both of these factors feature, but are only two pieces in a much bigger picture that includes

-       a relatively high number of uninsured drivers;

-       a high level of fraud that the industry is not dealing with effectively enough, particularly in the use of software technology used in other jurisdictions.

-       not enough Even more significant, claimed the AA is that premiums were set at far too low a level and for too long after the economic collapse occurred in order for the insurers to maintain their market share and compete for new or transfer business.

And a factor that is completely underestimated is that the insurance industry is not achieving the kind of investment returns that it once enjoyed, and on which it not only meets it’s claims and reserves but also its own overheads and the dividends it pays its shareholders.

In this, they share the dilemma also facing the pensions industry – where safe bond yields and fixed interest returns are at historic lows and therefore cannot meet defined benefit pension scheme promises to workers, and anyone who has come to rely upon a bank deposit yield. The culprits in this case are central banks and their nearly decade long, retrograde low-to-zero rate interest policies that have clearly failed to “stimulate” moribund, debt-bound economies.

Unfortunately, blaming central bank policy on top of everything else doesn’t offer much consolation if your motor insurance has become affordable. For that you need to take some action of your own to try and bring that bill down.

Here are few suggestions:

-       Always challenge a higher premium. Speak to your broker and instruct them to seek a better deal. Or call your (direct) insurer and ask how you can find some savings. Remind them, if this is the case, that you have no penalty points/ that the car has an alarm/is parked inside a garage/includes your spouse as a second driver, etc.  Tell them you will move your business if they don’t reduce the premium.

-       Use a broker. Or switch to a new one. They should be able to find you a better premium if you have a clean insurance record and often will offer a minimum 10% “savings” on your renewal quote by sharing their commission with you in year one.

-       Agree to a higher “excess” payment to bring down the premium.

-       If you have an old car that is not particularly valuable, consider only carrying third party, fire/theft coverage.

-       Drive an older car – they cost less to insurer (but can cost more to tax, maintain.)

-       Drive a vintage car. Insurance can be very low on cars that are 30 years plus.

The road haulage industry wants to be able to tap into the wider EU insurance market for much cheaper cover. So should the rest of us.

It wouldn’t solve the high awards problem or the number of uninsured drivers here, but it couldn’t hurt.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.

 

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