Monday, December 15, 2008

Savings/Investment/Pension 'Tips' for 2009

The Question : If you had just one 'tip' for the general public on savings/investments/pensions for 2009, what would it be?

The Answers :

"Make the most of your pension entitlements. There's no guarantee they'll remain so generous - especially as the national finances are so stretched. Pension tax breaks are the best "cushion" against volatile investment conditions." Niall Brady - Money Editor The Sunday-Times

"Educate yourself on personal finance issues, so that when it comes to buying a product you have a better understanding of what constitutes good value for money. I would recommend and as good free starting points. If you want to buy a book on the subject, you can't go far wrong with 'Loot' by Eddie Hobbs." Gerard Sheehy

"Property prices have fallen by at least 25% from their 2006/2007 high (based on transactions, not Asking Price!). This brings us back to around 2003 levels. The market is starved of capital. First-time buyers do not have the deposit necessary to secure the limited funding available, so they are continuing to rent. Rental levels in the better provincial towns are being maintained. If you have access to cash, then I see prices for good quality homes in central areas as being cheap. Interest rates are falling, while rental returns are now 4.5-5% in many areas of Clonmel, where a 3-bed semi, bought for €200k incl. legal and stamp, provides annual rental of €9,000 (€750 per month easily achievable)." Pat Quirke - PF Quirke & Co. Ltd.

"If people actually want to have a small punt next year I would personally suggest €5k in each of the following shares: McDonalds, Nestle, France Telecom and Eon. I would avoid financial shares and stick with food, telecoms and energy. These views are personal and anyone investing in shares needs to get the appropriate advice. Shares can go up as well a plummet!!!!!" - Eanna McCloskey - Managing Director Wealth Options Ltd.

"Be a hard saver." Charlie Weston - Personal Finance Editor Irish Independent

"Don’t let your long-term financial plans be altered by short-term events. If you signed up for a medium-risk pension fund three years ago and were comfortable with the fund’s profile and composition, don’t switch to cash just because it has gone down in 2008. You run the risk of missing the recovery, whenever that might be." Liam D. Ferguson - Ferguson & Associates

"First of all, markets are often strong in January not least because of pension flows in the US - do not mistake this for "the turn" you may have been waiting for. Secondly,be willing to look beyond the obvious when you think the worst has passed - corporate bonds could be a better recovery play than equities." Paul McCarville - Partner Clarus Investment Solutions

These are the personal opinions of the respondents. Do not confuse these 'Tips' with Advice.

Thursday, December 11, 2008

Jiangxi Orphanage Assistance‏

Those of you that are familiar with the 'Execution Only' Services that I offer through , and will be aware that there is a 'Donation Feature' available on the sites which allows consumers to make a voluntary donation that goes towards helping the abandoned children in some of the Orphanages in Jiangxi Province, China; if they consider the service being offered through the websites, is good value for money.

Currently, any funds raised,through the websites and by other methods, are paying for a good quality milk formula for infants at Fengcheng Orphanage. Previous funds have been used to buy air conditioners/heaters, an incubator, and rehab equipment for kids with cerebral palsy.

For those of you reading about this for the first time, the following is brief description of how it works. My fundraising efforts are not a 'registered charity'. I thought about it at the outset but I made the decision not to register as it would have eaten into some of the funds raised. I just wanted to find the most cost effective and secure way of getting the money to the orphanages. I set up a specific account with Permanent TSB (Clonmel) in the name of 'Fengcheng Social Welfare Institute Fund' and all money raised (by Cheque and PayPal) is lodged to this account.

Permanent TSB charge me for the transfers but then refund these charges. The money is paid to Amity Foundation in Nanjing and they look after the administration. I receive receipts from them and they insist on receipts from the orphanages. They also do random orphanage visits to make sure that the money is being used for the intended purpose. Amity deduct 7% for administration, but I believe this is fair and reasonable.

The current worldwide economic downturn has led to a decrease in the amounts being donated. When you combine this with the unfavourable (Yuan) exchange rate available at present, this has made it difficult to fund some of the ongoing projects at the orphanages. You can get a good overview of these projects on this website .

If you are interested in helping with a donation, however small, you can do so (via Paypal) through any of my .ie websites listed above. If you would like to donate by another payment method or if you need clarification on any of the above, just let me know.

Tuesday, December 9, 2008

Blogger Interview - Brendan Johnston

What is the best business/investment decision you ever made? Concentrating on pensions business.

What kind of car do you drive? Saab 95.

What is the worst financial advice that you ever received? That individuals can make better returns that professional managers

Do you own property abroad? If a holiday home in Antrim counts.

How does the economic slowdown effect you? It affects our business partners in that total market sales volumes are down. Our sales volumes are solid and we are increasing market share.

Do you contribute to a pension plan? Yes

What's your favourite film of all time? Moulin Rouge

Have you ever won money? Not that I can remember

Do you own your own home? Yes

Do you invest directly in the stock market, through funds or both? Yes

What is your preferred method/system of saving (Deposits, Funds,Shares, Property)? Managed funds

What financial product/s do you consider to be bad value for money? Products where the source of profit is unclear

Do you trust your bank? Yes

Brendan Johnston is Pensions Director at Eagle Star Life (Zurich Ireland)

Monday, December 8, 2008

School Songs Nostalgia

I was thinking back, over the weekend, to my days spent in the Boys National School in Ballyporeen and in particular to the songs that we used to learn in 5th and 6th Class.

Bearing in mind that this was about 34 years ago, I was curious as to whether they were common to all primary schools at that time or whether they were more influenced by the teacher that we had?

The most memorable one was a song about 'Ballyporeen' and this was written by a relative of mine, Fr. Ned Sheehy, who was sent to the US as part of his work. Obviously, this one was specific to the area.

There is a spot that I adore
It lies not far from Galteemore,
It nestles in a valley grand
A beauty spot in Ireland.

They talk about their deep blue skies
Of scenes of beauty and sunrise,
In other lands but have you seen
The country round old Ballyporeen.....
Others would have included the following:

God Save Ireland

High upon the gallows tree swung the noble-hearted three.
By the vengeful tyrant stricken in their bloom;
But they met him face to face, with the courage of their race,
And they went with souls undaunted to their doom.....
Hail, Glorious St. Patrick
Hail, glorious Saint Patrick, dear saint of our Isle,
On us thy poor children bestow a sweet smile;
And now thou art high in the mansions above,
On Erin's green valleys look down in thy love.....
The Rising of The Moon
O then, tell me Sean O'Farrell, tell me why you hurry so?
"Hush a bhuachaill, hush and listen", and his cheeks were all aglow,
"I bear orders from the captain:- get you ready quick and soon
For the pikes must be together at the rising of the moon"...
I must admit that I am struggling with the following one and the words may not be right or spelt correctly. I can't find any reference to this particular 'song'.

An Leipreachán

Ar mo thaisteal dom aon oíche amháin
Ag gabháil liom síos tre gleann
Cé ciafinn úim ach leipreachán
Is é faoi scáth na gcrann....

Does anyone know if the songs were left to the discretion of the teacher?

Thursday, December 4, 2008

Financial Myths

I have life cover through work so I don't need any more - The 'Death-In-Service' benefit through work can be as little as 1 X Basic Salary. If you have dependents, this level of cover would be paltry.

A policy that combines life cover and savings is a good idea - The charging structure on these policies is penal, so it is better to keep your 'protection' and 'savings' products separate.

10%pa of income is enough to save
- It probably might be if a) you achieve a very healthy annual return on your investment b) your lifestyle needs are modest and c) you have a good few years to go before you stop 'earning' an income.

Jewellery is an investment - It is not a good idea to buy jewellery primarily as an investment. The retail margin plus VAT will make it extremely difficult to recover your costs, when selling. The chances of finding a piece of FABERGÉ, at a knock-down price, is very remote.

Property always goes up in value - Recent events will have put paid to that notion but you will still have the die hards that refuse to diversify away from residential property is one location.

Rental property is a great investment - It might be if a) there is the potential for capital growth b) interest rates are low c) you have more than one type of property in more than one country/location d) it is occupied and e) repairs/maintenance/agents fees etc. are kept under control.

I don't need a pension, I have an investment property - Hitching your 'retirement wagon' to a single property in one market would not make financial sense to me, as there would be no diversification of assets.

Saving for the kids education is more important than saving for retirement - Look after your retirement planning first as it is unlikely that your kids will fund it for you. I am au fait with 'Student Loans' but not 'Retirement Loans'.

You cannot lose money in a deposit account - If the rate of interest (less DIRT) is less than the rate of inflation, your money is being devalued.

I need to earn more money before I can start saving - If the SSIA Scheme was available again tomorrow, how many of the people that did not take part because they 'could not afford to' would, in hindsight, now be able to 'afford' the minimum €12.70 per month?

I need a relatively large amount of money to start investing - You can gain access to unit-linked investment funds for as little as €50 per month.

Tracker Bonds are equity investments with no risk - While you may have capital 'security', there may be a limit to the return you receive from the investment.

Fund performance is THE deciding factor on which pension/investment to choose - What's gone before has no bearing on what may happen in the future. The charging structure of the product is a more beneficial starting point: the leaner it is the better.

I am too young to start a pension - The earlier you start in your working life, the more likely it will be that you will have an adequate pension 'pot' at retirement.

You can time the market to get a better return - If your are reading this statement and you agree with it, please post your future predictions below.

By dealing directly with an investment company, I will get better value for money - You will get better terms from a Discount-Broker.

Life Insurance does not cover suicide - It covers this event once the policy has been in force for a period of 12/13 months.

I can only have one pension - Depending on your employment status, it is possible to have more than one pension. For example; i) a company director or sole trader can take out different pensions with as many product providers as they like ii) a person with more than one source of earned income can have a pension for each source iii) an employee can make their AVC contributions to a product provider of their own choice.

I am sure that there are may others that could be added to the list, so feel free to add them.

Tuesday, December 2, 2008

Blogger Interview - Paul McCarville

What is the best business/investment decision you ever made? Decision to put 40% of pension fund into cash in May 07

What kind of car do you drive? Volvo S40

What is the worst financial advice that you ever received? To borrow as much as I could and invest in Equitable Life's With Profit fund (I ignored!)

Do you own property abroad? No

How does the economic slowdown effect you? Clients are less willing to commit to spending and slower to pay.

Do you contribute to a pension plan? Yes.

What's your favourite film of all time? Cinema Paradiso

Have you ever won money? An Ante Post double on Burrough Hill Lad & Dawn Run in 1984 is still remembered fondly.

Do you own your own home? Yes.

Do you invest directly in the stock market, through funds or both? Both

What is your preferred method/system of saving (Deposits, Funds,Shares, Property)?Funds & Shares.

What financial product/s do you consider to be bad value for money? Tracker Bonds.

Do you trust your bank? Don't trust any financial institution much.

Paul McCarville is one of the principals with Clarus Investment Solutions.

Friday, November 28, 2008

Best Pension (PRSA)

The question often arises as to "What is the 'Best' Pension/PRSA available on the market?"

The answer to this lies in the context to which the question is being asked. For example, does the person posing the question mean 'best' in terms of cost, flexibility, performance, or suitability in terms of their employment status? If we look at these factors in isolation it may shed some light in determining an appropriate response.


The lowest cost Pension/PRSA product is the one that has a competitive charging structure attaching to it. These tend to be the products that have a single charge ie. an annual fund charge only.

It should be noted that these products will probably be available on an 'Execution Only' Service basis. This means that there will be no advice sought by the consumer or given by the product provider/intermediary. You need to have a good understanding of what product suits you best and how to reconcile your attitude to risk with the funds available for investment.


You should look at the product in terms of how adaptable it is to suit your specific circumstances. Can you increase, decrease or stop contributions at will? Can you switch funds at little on no cost at any stage? If you need to transfer your Pension/PRSA to another product provider, can you do so without penalty? Is there a 'Default' or 'Phased' Investment Strategy available on the product?


Consumers tend to focus on historical performance figures when deciding on which product provider is 'best'. The point to remember here is that historical performance is just that; 'historical'. It bears no relationship whatsoever to what may happen in the future. Fund managers have good years and bad years. You should also remember that the Fund Managers don't stay with the same product providers indefinitely, they can, and do, work for different companies in their careers. If you have to consider 'performance' as a key factor in selecting a product provider, then you should probably look at the ones that are in the 'Semi-Finals' on a regular basis.


If you have a choice on which Pension/PRSA is most suitable to your employment status, you should probably pay an Advisor a Fee to help you decide on which product type is 'best' for you. There is no single product available that can be described as the best for a Sole Trader, Employee, Director or Public Servant. It will all depend on your employment status at any particular time and you may have to settle for the product that offers you the greatest flexibility, should you ever switch jobs.

Friday, November 21, 2008

Exit Tax - FAQs

What is Exit Tax? It is a tax on the gain/profit you earn on life assurance savings, investment bonds (Tracker/Guaranteed or Unit-Linked) and protection policies that have a unit-linked element.

What rate is it charged at? From 01/01/2014 the rate will be 41% 

When is it paid/due? It is paid/due when a 'chargeable event' takes place.

What is a 'chargeable event'? A claim, partial/full surrender, maturity or every 8th policy anniversary.

Who has responsibility for paying it? The Life Assurance Company pay the tax directly to Revenue. The company will write to you and notify you of the tax paid and quote the investment's current value.

I took out my investment policy before 01/01/2001, am I liable for Exit Tax? No. It only applies to policies taken out after this date. Prior to this date, the tax was deducted on an annual basis and paid by the life assurance company to Revenue.

My policy is worth less that amount invested on the 8th anniversary, is there any tax due? No.

Does my policy 'mature' on the 8th anniversary? No. Your policy will continue as before.

Can Exit Tax be offset against other tax liabilities in at the end of a tax year? No. However, where Exit Tax is paid as a result of a death claim it may be offset against an Inheritance Tax liability in the hands of the beneficiary.

Whats is the 'deemed encashment' date? The 8th Anniversary of the policy.

Is a 'deemed encashment' Exit Tax taken into consideration in calculating future exit tax liabilities on a policy? Yes.

Is the Exit Tax paid on a partial surrender before the 8th anniversary taken into consideration in calculating future tax liabilities on the policy? No. It is only taken into consideration for partial surrenders after the 8th anniversary.

Is anyone eligible to claim Exit Tax back from Revenue? Yes. The following people can reclaim Exit Tax a) a permanently incapacitated person who has invested a compensation payment from a personal injuries claim b) the trustees of a qualifying trust where the investment gains/profits are the sole or main income of the incapacitated person c) a thalidomide victim investing a compensation payment made by the Minister for Health.

If a client invested €10,000 on 01/01/2001 and then added €5,000 to the same policy on 01/01/2006, is the exit tax payable on the growth (if any) on €10,000 payable in January 2009 and on the €5,000 in January 2014? No. The tax is policy based so the allowable premiums (total premiums paid before the chargeable event) will be €15,000 in January 2009 for the purpose of calculating the Exit Tax due.

Thursday, November 13, 2008

Blogger Interview - Richard Bruton

What is the best business/investment decision you ever made? To buy my own home.

What kind of car do you drive? Toyota Corolla

What is the worst financial advice that you ever received? To buy CLF Yeoman

Do you own property abroad?

How does the economic slowdown effect you? 5% pay sacrifice

Do you contribute to a pension plan? Covered by Public Policy Scheme in Dail

What's your favourite film of all time? 'Being There' with Peter Sellers

Have you ever won money? Yes - Liverpool in Champions League

Do you own your own home? Yes

Do you invest directly in the stock market, through funds or both? Have invested directly.

What is your preferred method/system of saving (Deposits, Funds,Shares, Property)? Shares had been!

What financial product/s do you consider to be bad value for money? Endowment mortgages and other high commission products.

Do you trust your bank?
Yes, within their own area of competence, not necessarily as investment advisers.

Richard Bruton is Deputy Leader of Fine Gael and Spokesperson on Finance.

Tuesday, November 11, 2008

Employers and 'Execution Only' PRSAs

As the benefits of setting up 'Execution Only' PRSAs are gradually filtering through to employees and employers, it is worthwhile to consider some of the issues that come up on a regular basis.

Where the employer has appointed a PRSA Provider and an Intermediary for a PRSA Scheme by salary deduction, there is no obligation on the employer to add another Provider or Intermediary to facilitate an 'Execution Only' service.

If an employee wants to set up a PRSA with a provider, other than the one appointed by the employer, it will be up to the employer to decide if they want to add a new provider. If the employer does not agree, then the only option open to the employee is to set it up by Direct Debit and claim the reliefs 'manually' from Revenue.

If an employee would prefer to deal through a different intermediary, other than the one appointed to the scheme, it will again be up to the employer if they are willing to add the intermediary to the scheme. If they refuse to add an alternative intermediary then the options available to the employee are; to deal with the existing intermediary or set the PRSA up by Direct Debit.

The requirement of seeking approval for an intermediary to be appointed to a PRSA Scheme is one that is imposed by the Product Provider. Because there is a requirement to allow the employee time to set up a PRSA and allow the intermediary access to potential members, a situation could arise where multiple intermediaries were canvassing employees for their business. This could be very time consuming for all concerned.

It is my opinion that this requirement was not fully thought through, especially in relation to those that do not need advice on their PRSA and prefer to transact their business on a low cost 'Execution Only' basis.

You could have a situation where the existing intermediary is not willing to facilitate a PRSA without some contribution charge. This means that the employee could end up paying this charge, even though they have done all the research and would prefer to just pay the 1% Annual Management Charge only; if they want the contributions to be deducted at source through salary deduction.

What employers should bear in mind in this situation is that there is no cost involved in adding an alternative intermediary to a PRSA Scheme. Some PRSA Providers do not have to set up a separate payment method as all contributions from employees can be collected on the one direct debit mandate. In addition, an 'execution only' service precludes an intermediary from contacting other employees. It may also be beneficial to add an alternative intermediary, from a competitive point of view.

If employees want to transact their PRSA on a low cost 'execution only' basis, the employer should also consider the fact that there will be no need to accommodate meetings between the employee and the intermediary, thus saving valuable employer time. If the employer is contributing to the 'execution only' PRSA, there will be no contribution charge on their payment so, the employee will benefit from having additional money being invested in their PRSA.

The ideal solution, for employer and employee, is to have a facility whereby the appointed intermediary will accommodate both an 'advisory' and 'execution only' service. The DIY consumer benefits from more money being invested in the PRSA and the 'advisory' consumer gets valuable direction from the intermediary for the contribution charge or other payment method.

If this perfect solution does not exist and the employer does not contribute to the PRSA, then it is worth the employees time and effort in claiming the reliefs manually by setting it up on Direct Debit, away from the scheme.

If the employer does contribute, then the employee will have to decide whether the benefits of the employer contribution, plus the facility of having the payments deducted through salary, outweigh the savings to be made on the contribution charge.

Thursday, November 6, 2008

Elevator Pitch

I have been trying to come up with a suitable 'elevator pitch' for

This website offers low-cost pension products to those that are have a good understanding of their pension needs and are comfortable choosing products and investment funds.

An 'elevator pitch' is a general overview of of a service, that you could 'pitch' to someone else, during the course of a short 'elevator' ride.

This is what I have come up with so far.

Imagine, for a moment, that you just about to retire. You've saved hard for most of your working life so that you can relax from now on. You are dreaming of white sandy beaches and endless days of sunshine.

All of a sudden, your dream is smashed by the realisation that it is your pension advisor that is lying on the beach, in the place where you should be. How do you feel?

You can prevent this nightmare. By taking a more proactive role in your retirement planning, you can reduce charges and enhance your retirement fund. For details, visit


I would be grateful for any comments on how you think I could improve this.

Changes to third paragraph.

First Attempt
: You can prevent this.

How? By taking a more proactive role in how you save for your retirement. Spend Time and Save Money.

That is what is all about.

Second Attempt : can help you prevent this nightmare, by taking a more proactive role in your retirement planning; thus reducing charges and enhancing your pension fund.

Sunday, November 2, 2008

Blogger Interview - Niall Brady

What is the best business/investment decision you ever made?
Investing in an SSIA - free money from the government with not too many strings attached.

What kind of car do you drive?I don't own a car - I prefer to cycle - my wife drives a Volvo V40.

What is the worst financial advice that you ever received?
That an endowment mortgage would be the best way to pay for my first home, which I bought in 1992, because of the possibility of an endowment surplus at the end of the mortgage.

Do you own property abroad?

How does the economic slowdown effect you?
It's sure to put downward pressure on pay.

Do you contribute to a pension plan?
I belong to an occupational pension scheme and top up my entitlements by making additional voluntary contributions (AVCs) to a PRSA.

What's your favourite film of all time?
Annie Hall.

Have you ever won money?
I won €1,000 in the Business Journalists' Awards 2007.

Do you own your own home?

Do you invest directly in the stock market, through funds or both?I have windfall shares in Standard Life, but most of my stock market exposure is through pensions.

What is your preferred method/system of saving (Deposits, Funds, Shares, Property)?
Deposits and especially pensions because of the tax breaks.

What financial product/s do you consider to be bad value for money?
Insurance cover for day-to-day medical bills. Why bother, when these expenses can be claimed against income tax at your marginal rate?

Do you trust your bank?
Yes, but that doesn't stop me keeping a close eye on my account.

Niall Brady is Money Editor with The Sunday-Times and can be contacted on 01 4792435 or niall.brady(at)

Thursday, October 30, 2008

Green Resources Fund

This fund has recently become available under the Matrix Range of Funds from Eagle Star Life. If you are of the opinion that economic development and global population growth will drive demand for clean water supplies and alternative energy sources, then it may be financially prudent to take a closer look at what it has to offer.

It is a unit-linked fund that tracks the performance of the PowerShares WilderHill Clean Energy and iShares S&P Global Water ETFs. The current asset split on the fund is 75% Alternative Energy and 25% Water. This exposure is not expected to deviate much from 70%-80% Alternative Energy and 20%-30% Water.

These ETFs invest in renewable energy, power delivery, cleaner fuel, water utility and water equipment industries. As with any fund that invests in companies outside the EuroZone, a currency risk arises. When you add this to the limited sector that it operates in, it would be considered a Higher Risk investment fund and may be more suited to an investor as part of an overall portfolio.

The Fund is available to Pension, Savings and Investment clients of Eagle Star Life but excludes PRSA contracts. The Annual Management Charge is 1%pa of funds invested but do bear in mind that this does not include any transaction charges that are made within the ETF.

Friday, October 24, 2008

Celebration Bond

If you are the holder of one of these With-Profit Bonds through Norwich Union/Hibernian, it may be a good idea to put a note in your diary regarding the 10th anniversary of your investment.

The products that were sold during the period 1999 to 2002 have an underlying guarantee on the 10th Anniversary of the start date - and every subsequent 5th anniversary - that the company cannot impose a 'Market Value Adjustment' (MVA) on these dates. Unfortunately, the company are under no obligation to notify you that these important dates are coming up.

Under the terms of the contract, the price of the units held in this with-profit fund are guaranteed not to drop. This means that you are guaranteed your original investment plus attaching bonuses on the 10th/15th/20th etc. anniversary.

The current 'nominal' value of your investment could potentially be much higher than the 'surrender' value, as MVAs are applied outside of the guaranteed dates. If you are thinking about cashing in this bond at present, it may be prudent to wait until the 10th anniversary. It will put the policy holder 'in the driving seat' as the company cannot reduce the price of the units in the with-profit fund on the guaranteed dates.

Should market conditions continue in the same direction in the short to medium term, then this 'guarantee', on these significant dates, may become very valuable indeed. This may have prompted the company to place 80% of the fund in Fixed Interest Assets in recent days and the product is now closed to new business.

If your Celebration Bond had a commencement date outside of the 1999-2002 dates, then your guarantee applies to your capital only on 10th/15th/20th etc anniversary.

You should definitely review this investment, especially if you may need access to your capital between the 10th and 15th anniversary dates. Do remember that the 'window' that you can apply the guaranteed periods to, is limited to 14 days either side of these important dates.

Thursday, October 16, 2008

Blogger Interview - Charlie Weston

What is the best business/investment decision you ever made?
As a poorly paid PAYE worker I do not have a lot of investments, but I did make some profits on techie shares during the technology bubble in 2000.
Unlike most people, I actually made a few bob on the Eircom flotation. I sold soon after the IPO when the shares had risen by 25pc from their initial offer price.

What kind of car do you drive?
A very boring 2005 Ford Focus. I take the train to work and use a bike.

What is the worst financial advice that you ever received?
I have, over the years, been advised to put money into Anglo Irish Bank, to invest in overseas property, and to take out an Equitable Life policy. Thankfully, I ignored most of this daft advice

Do you own property abroad?No.

How does the economic slowdown effect you?
My pension, which is a defined benefit one, has a funding hole in it the size of a large crater. I and my colleagues are paying more into the scheme, while my employer, Independent Newspapers, has increased its contributions. A funding proposal has been agreed with the Pensions Board, but the scheme is still way behind target.
As a newspaper employee the downturn will affect advertising, so I expect my employer to seek staff-related cost cuts. This will mean more work for less money. Real incomes are set to drop for everyone next year because of the global downturn which has resulted from the credit crisis.

Do you contribute to a pension plan?
I contribute 9.6pc of my salary to a defined benefit scheme and €100 a month in AVCs (additional voluntary contributions). I am 44 and so expect to be increasing my AVC contributions in the years ahead.

What's your favourite film of all time?
'Cool Hand Luke' starring recently deceased Paul Newman - one of the greatest actors of our time.

Have you ever won money?
No. I have had Prize Bonds since I was born, and have been given more as presents over the years, but have never won.

Do you own your own home?
Yes. I have LTV tracker mortgage with National Irish Bank - ECB plus 50 basis points.

Do you invest directly in the stock market, through funds or both?I have an Exchange Traded Fund, which I contribute to monthly, based on the Irish Market. The fund is losing buckets of money at the moment.

What is your preferred method/system of saving (Deposits, Funds,Shares, Property)?
I save monthly in a regular saver deposit account.

What financial product/s do you consider to be bad value for money?
Payment protection insurance policies are bad value, as are the renewal premiums offered by motor insurers. Why is it that if you accept the renewal offer you will end up paying up to €300 more for motor insurance than you can get by scouring the market? Tracker bonds are also poor value, as the guarantee acts as a drag on the performance of the fund.

Do you trust your bank?
I have my mortgage with a Danish bank, my current account with an Irish bank and a lump sum savings account with a Dutch bank. No, I do not trust any of them. Irish banks have yet to come clean about the valuations of the land/properties used as security for the property-related lending they splurged on in recent years.

Charlie Weston is Personal Finance Editor with The Irish Independent

Wednesday, October 15, 2008

Absolute Return Fund (GARS Fund)

There's a new 'breed' of investment fund in town and it may be worthwhile to have a more in-depth look at the mechanics of it. The investment strategy that it adopts is akin to a hybrid of a Diversified Asset and Hedge Fund. The current offering from Standard Life has effectively made this type of fund available to the regular investor, without the stipulation of an excessive minimum investment.

The fund holds a broader range of asset classes, insofar as it includes your typical (equities,bonds and property) assets but also uses Derivatives to implement alternative investment strategies in a variety of market conditions.

The success of this type of strategy is broadly dependent on the skills of the fund managers in getting the mix of asset selection and investment strategies correct over time. It is anticipated that the Volatility Rating of this type of fund will be much lower than equity based funds, such as Managed or Consensus.

The relative performance of your typical Actively Managed Fund is measured by linking it to a benchmark Index or Consensus type Fund. The Absolute Return Fund has a Targeted Positive Return. The current, ambitious, target is the 6 month Euribor (currently 5.36%) + 5% (over a rolling 3 year period), Gross of fees (AMC 1.35%pa). Do bear in mind that the Euribor is 'inflated' under current market conditions.

Unlike the typical Hedge Fund, there are no out-performance fees but there are no 'penalties' imposed on the managers for not achieving the target either. Also, it does not borrow cash to invest in the fund.

It is my opinion that this type of fund would be a welcome addition to most investor portfolios. Given the relatively low volatility rating, this may be especially true for Trustees of Pension Schemes. As the fund is priced on a daily basis, it is more liquid than a managed fund that would have exposure to real property. This is important, as the fund manager should not impose waiting periods on redemptions. All things considered, the annual management charge is competitive @ 1.35%pa.

See Glossary for definition of terms.

Monday, October 13, 2008

Partnership Insurance

The sudden death/incapacity of a partner in a business can be a traumatic time for all concerned. Notwithstanding the emotional damage that will be caused to the family and work colleagues, it can also have very serious consequences for the future of the business.

The financial burden of dealing with such an event will fall mainly on the remaining partner/s to resolve, so it may be prudent to agree on a compensation package, to limit the potential damage to the business, prior to an untimely event, such as the death or incapacity of a partner.

It is possible for business partners to put a monetary agreement in place, whereby the value of each partners share in the business can be 'insured'. This has the effect of protecting the family of the deceased/incapacitated partner, by having funds available to the business. These funds will be used to buy the deceased/incapacitated partner's share of the business, so that the existing partnership will not have to be dissolved; and ensures that the remaining partner/s retain control of the firm.

There are a number of different ways in which a 'Partnership Insurance' can be structured and it is important to discuss these, along with agreed valuations of the business, with your financial advisor and legal representative before the 'compensation agreement' is set up. There are also strict Revenue and Tax Guidelines that must be adhered to, so it is equally important that these are given due consideration.

This type of insurance is worth exploring if you are in business with someone else. The consequences of not having it can jeopardise the future of a thriving business or lead to financial hardship for a partner's family.

Wednesday, October 8, 2008

Blogger Interview - Brendan Burgess

What is the best business/investment decision you ever made?
Setting up my current business 21 years ago is the best business decision. As a recruitment agency, it has done very well in the booming economy of recent years.

What kind of car do you drive?
My preferred mode of transport is a bicycle. I think the brand name is Trek. But I don't really follow brands.

What is the worst financial decision that you ever made?
I had an investment in a sports betting syndicate last year. It had done well, but I was uneasy about some aspects of its management. I cashed out and invested the proceeds in AIB shares. The sports betting syndicate has increased in value by 50% since…

Do you own property abroad?

How does the economic slowdown effect you?It keeps me very busy answering questions on from people who are in trouble.

Do you contribute to a pension plan?Yes. I have a self managed fund which is fully invested in shares.

Have you ever won money?Yes. I won the Business & Finance Investment competition around 20 years ago. I won around £1500 and a painting.

Do you own your own home?

Do you invest directly in the stock market, through funds or both?Directly mainly, but I also have an ISEQ eTf.

What is your preferred method/system of saving and investing (Deposits, Funds, Shares, Property)?Shares, Shares, Shares – especially now.

What financial product/s do you consider to be bad value for money?Worst of all is community rated health insurance for young healthy people who pay the same premium as old sick people. For old and sick people, it is the best value product.

Do you trust your bank?
Yes. And the feeling is mutual.

Brendan Burgess is the founder of

Monday, October 6, 2008

'Winding Up' of Pension Schemes

It is my opinion that there will be a major shift from 'Occupational Pensions Schemes' to 'PRSA Schemes' over the coming months and years. The reason for this movement of pension assets will be because, the obligations on 'Trustees' of Occupational Pensions will become too onerous in terms of what they will have to do to satisfy new legislation. The PRSA Scheme will offer the 'Trustees' the chance to relieve themselves of administrative and training obligations, that were absent up to this point.


Within 12 weeks of the decision to wind up an existing scheme, the trustees will have to notify the Pensions Board and and members of its intentions. If you are an 'active' (currently in the scheme) members, you should receive notification that existing funds and future contributions will be invested in a PRSA with XYZ Co.

If you are a 'deferred' (former employee) member, with pension assets still within the company scheme, you will be notified of the name of the company that the fund will be transferred to and what 'default' investment strategy has been selected for you. It will be up to you to change this strategy if the 'default' one does not suit your risk profile.

If there are employees that were excluded from the main Occupational Pension, for what ever reason, they should be notified that the PRSA Scheme will be available to them also.

It will be up to the employer to notify the existing pension company if the assets are to be transferred to another company. They will also alter the payroll to accommodate employer and employee contributions to the new PRSA Scheme.

There can be no charge on the value of the pension assets that are being transferred to the PRSA Scheme. The only charge that will be attributed to these funds will be the 1% Annual Management Charge. The regular contributions that will now be directed to the PRSA company, may have up to 5% of each contribution deducted, depending on the remuneration structure agreed between the employer and pension advisor.


i) The ownership of the PRSA will be in your own name. This differs from an occupational scheme where the pension benefits were held in trust on your behalf.
ii) Once an employer contribution is made to your PRSA it becomes part of your PRSA account and cannot be refunded to the employer.
iii) PRSAs provide you with a wider range of options at retirement
iv) Depending on the PRSA provider, you may have secure Internet access to your PRSA account to monitor values whenever you wish.
v) Contributions by employer and employee will continue at their current levels (not for deferred members).
vi) You should also be given contact details of the pension advisor to the PRSA Scheme and when they will be available for consultation

Friday, September 26, 2008

Exit Tax

If you are the holder of a unit-linked savings or investment product (non-pension) you will be liable to pay Exit Tax when a 'Deemed Chargeable Event' takes place. A 'chargeable event' can be a full or partial encashment, a maturity or claim, an income draw-down facility or every 8th policy anniversary. This Exit tax is charged on the 'gain/investment profit' element of your policy.

Exit Tax was introduced on 1st January 2001 as the taxation system for all policies issued on or after this date. The current rate of tax is 41%. Prior to its introduction, the tax on the funds was paid, to Revenue, on an annual basis by the life assurance company. If you ever see the fund prices in the media, you will notice that there are 'Net' and 'Gross' prices quoted. The 'Net' prices are for policies issued before 01/01/2001 and the 'Gross' prices refer to policies issued after that date.

As far as the individual investor is concerned, there is no obligation on you to do anything about the tax, as it will be deducted by the life assurance company and they, in turn, pay it to Revenue. A non-resident is exempt from Exit Tax but they must complete a specific Revenue Declaration and provide the life company with proof of non-resident status, at the inception of the policy.

It may be possible to reclaim Exit Tax from Revenue, in certain circumstances. These specific circumstances relate to certain compensation payments invested i) from personal injury claims (assumes permanent incapacity) or ii) from awards made to thalidomide victims by the Minister for Health. It may also be possible to offset Exit Tax against Inheritance Tax (if applicable) on the death of the policyholder.

Case 1.

You invested €10,000 on a date after 01/01/2007. The investment is now worth €12,000 and you wish to take €1,000 as a partial encashment on 01/01/2014.

The 'chargeable amount' is calculated as follows:

€1,000 - [€10,000 x €1,000/€12,000] = €166.67

Exit Tax @ 41% (current) = €166.67 x 41% = €68.33

The €68.33 is paid to Revenue by the life company.

Case 2.

You invested €10,000 on a date after 01/01/2006. The policy is now worth €14,000 on the 8th Anniversary (01/01/2014).

As the 8th anniversary is deemed a 'chargeable event' , the gain of €4,000 is taxed @ 41% = €1,640

This €1,640 is paid to Revenue and the value of your investment is now €12,360.

This is written as a very basic guide. There are various subsequent scenarios on chargeable events for partial and full surrenders. It will up to the life company to calculate and pay the correct taxes due.

Sunday, September 21, 2008

Paying for Financial Advice

If you need to get financial advice in respect a pension or investment product then it is worth bearing in mind that there are a few options open to you. It is probably best to explain these by way of a few practical examples.

Case 1.

You want to buy a low-cost product, that you have researched, on an 'Execution Only' basis (no advice) but you do need some help with selecting funds, general information on the risks involved or the tax implications of the transaction.

It would be prudent to contact a few advisors and ask them how much they will charge, per hour, for their advice. I am not aware that your local bank or building society will be able to provide you with this service so you should seek a recommendation on an advisor, from a friend or family member. You should make it clear at the outset that you are not in the market for a product recommendation. Expect to pay in the region of €150 - €250 per hour for this service.

Case 2.

You know you need to start a pension or want to invest some money. You need someone to guide you through the process and make a recommendation on a suitable product.

If you go to a Bank or other Tied Agent, they will be able to offer you this service. However, they will be restricted to offering you a product from the one company that they are 'tied' to. The remuneration for this service, in the vast majority of cases, will be paid for out of the commission generated on the sale of the product. There may also be more suitable products on the market that do not have to be brought to your attention.

If you elect to go to a 'Multi Agency Intermediary' or 'Authorised Advisor', you will get broader advice on suitable products and you should also be able to negotiate whether you want to pay for the advice/product recommendation by paying a fee, having the advisor paid from the commission generated on the product, or a combination of both of these.

Case 3.

You just need some general advice on financial planning but you do not want to buy a product from the advisor.

It is possible to get a vast amount of information, for free, on various financial discussion forums on-line. If you cannot find what you are looking for there, you might be able to avail of a 'free' consultation from an advisor. 'Free' consultations do not generate any income for the advisor so be aware that a product recommendation may be forthcoming, at some stage. Alternatively, you should be able to negotiate a fixed fee, for the advice.

It is important that you define what type of service that you are looking for, from an advisor. This should determine the method of remuneration that both you and the advisor are agreeable on. You should read the advisors 'Terms of Business', as this will give you details on the 'Remuneration Policy' that they operate.

Don't be afraid to negotiate on fees or commissions.

Thursday, September 18, 2008

The 'Hunger' for Money!

I was reminded recently of an episode that took place in my life when I was about 11 years of age. I'm a bit fuzzy on the exact details but I put a 10p coin in my mouth and I accidentally swallowed it.

I can't remember the dimensions of the coin but it was no mean feat to swallow one of these, without choking. For some strange reason I decided no to tell anyone. After a few hours had passed my mother became a tad suspicious as she could obviously see that there was something bothering me. Later in the evening I eventually cracked and told my parents what had happened.

I was brought to the local GP and he advised that I should go to the hospital and get an X-ray done. This we did, and they decided that they should keep me in for a few days. They wanted to see if I would 'pass' the coin through the digestive system but they were also concerned about the possibility of the coin getting stuck somewhere along the way.

After a week in hospital there was no sign of the coin. The nurses had a good laugh at my expense, as they used to come in every day and ask if there was "Any change?". Another X-ray was done and they confirmed that the coin was stuck. They then decided to operate as they were fearful of the internal damage that the acid in the stomach would do to the coin if it was left in there any longer.

The surgeon duly operated to recover the coin. I did wonder, later, why he had to make the hole so big, as the scar is about five inches in length. It is not something that would enter your mind at that age but the coin could have been no more than an inch in diameter.

Following another week recovering in the hospital I was allowed to go home. Before I left the hospital the surgeon came in with the coin, black from the acid, and asked if I wanted it. I said "Yes" and his reply was "I think I should keep it because I found it". The last thing I needed was to start laughing with a belly full of stitches.

Sunday, September 14, 2008

This new initiative from National Irish Bank is aimed at giving children a basic understanding of money issues. It is aimed at children between the ages of 5 and 7. The website consists of an online virtual space where the kids can pick up some basic knowledge of personal finance and have a bit of fun.

After logging in the kids can choose a personal character, a house and a room that they can call their own. It does not matter if the child is unable to read, as 'The Mayor' of Moneyville is on hand to prompt the child on what they could/should be doing.

Currently, the child can 'earn' some money by helping with painting the city gate, gathering apples or sorting packages in the Post Office. The 'currency' is silver and gold coins and there are 10 silver coins in one gold coin. There is also a shop where items can be purchased, provided you have enough cash. These items are then transferred to the child's virtual room.

Once the child has visited all the areas of Moneyville they are then given the opportunity to meet with a Sorcerer. If they can answer some basic money questions, he reveals the location of his treasure. This boosts the bank balance substantially.

The fun element of the site is enhanced by the 'Time Machine' area, where the child can visit an exotic location, for a fee, and partake in more interactive games.

Any progress that you make in accumulating cash or in purchases made are saved on the system, if you exit and revisit at another time.

I would be very interested in hearing any comments that you might have on this initiative.

Friday, September 12, 2008

Buying an 'Annuity'

As you approach retirement age, many of you will be given the option to buy an Annuity (pension) from the company that have been managing your money. This option is referred to as an 'Open Market Option' and this basically means that you can move your retirement fund to the company that will offer you the best annuity rate available in the open market.

This type of Annuity is also referred to as a 'Compulsory Purchase Annuity', where the money being used to purchase the annuity/pension is coming from a pension fund. An 'Immediate Annuity' refers to where the money is coming from your own resources.

The standard quote that is issued with your retirement papers will normally be based on a 'Single Life Pension', with no indexation, with a guaranteed minimum payment term of 5 years.

There are, however, many more options that should be considered and the following is a brief description of what these mean.

Guaranteed Period - You can choose a guaranteed period of between 0 and 10 years. If, for instance, you choose 5 years then the annuity/pension would be paid for a minimum of 5 years, or for your lifetime. If the person receiving the annuity died after year 2, the annuity would be paid for another 3 years after death. A longer guaranteed period may be a consideration where the person might be in ill health.

Escalation - You have the option of increasing the level of annuity/pension you will receive in future years. You might exercise this option if you wanted your pension to try and keep pace with inflation. It is possible to have the increases on a simple or compounded basis. It can also be included for a first and second life.

Single(First) or Joint (Second) Life - You can elect to have the annuity/pension payable to just one person or you can arrange for it to be paid to your spouse, following you death.

Reversion Rate - This refers to the percentage of the annuity/pension that the second life would receive in the event of the death of the first life. For example, this could be 50% or 66.67% of the first life annuity/pension.

With Overlap - If the first life died within the guaranteed period and there was a second life annuity/pension to be paid, the second life would receive the pension of the first life (up to the end of the guaranteed period) plus their own annuity would also be paid (in the guaranteed period) and for life thereafter . The two pensions would 'overlap'.

Without Overlap - If the first life died within the guaranteed period and there was a second life annuity/pension to be paid, the second life would receive the pension of the first life (up to the end of the guaranteed period). After this date the agreed second life annuity/pension would become payable.

Frequency - The annuity/pension can be paid monthly, quarterly, half-yearly or annually.

Payment In Advance/Arrears - Payment in advance refers to where the annuity/pension becomes payable on the commencement date of the policy. In arrears, refers to deferring the payment to a future date within the first 12 months.

Impaired Life Annuity - Some companies may offer a higher annuity/pension rate if the person is in bad health. The rate agreed would be subject to the company receiving some medical evidence.

With the exception of the Impaired Life Annuity, all of the options cost money and have the effect of reducing the amount of annuity/pension that would be payable.

I hope that these brief descriptions are relatively easy to follow. If not, you can post here and I will do my best to elaborate on them.

Wednesday, September 10, 2008

Wake Up Call

It is hard to go through the day without being hit with another economic bad news story. No matter where we turn someone, somewhere is telling us about the latest misfortune to hit consumers and product producers. The negatives are relentless. The question that is on my mind is "When this passes, will we have learnt anything from it.?"

I am very confident that consumers, in general, will begin to sit up and take note of what is actually going on around them. Let's face it, the earn and spend cycle that had captured the nation, has to come to a halt. It is now time to wean ourselves off this 'bottle' and start facing up to some hard realities.

You don't have to read a newspaper, or listen to the bulletins, on a daily basis to figure out that everyday life has changed. The 'costs' of our daily consumption items are on every ones lips, no one is immune from the effects. In my opinion, this concentrates the mind and is positive.

I can't recall a time, in the recent past, where our thoughts were so completely focused on prices. Our natural financial skills are rising to the surface and we are questioning what we are being charged for everyday items. This can't be a bad thing and it sends a strong message that we are becoming more cost conscious.

We are also watching the way all political parties are dealing with the situation. Are we getting value for our money from them or are they wasting tax receipts on pet projects that are not in our nations future interest?. Are their priorities in the correct order?

They have to lead by example. It is not enough for political parties to posture about how they will/would deal with the business of the country, in a reactionary sense, to stop the rot. They need to be more proactive in the way things are managed so that we do not end up in the same situation again.

Do you have any confidence in the way the situation will be handled?

Thursday, September 4, 2008

Life Insurance Underwriting

The first step in applying for a life insurance policy is when you complete a proposal form. When this proposal form is received by the Insurance Company it is then 'Underwritten'.

The insurance company need to establish if you can be accepted at normal rates, based on the answers given to all the medical questions on the proposal form. It is very important that you answer these questions truthfully as the company can refuse to pay out on a claim if it transpires that the client did not tell them about a pre-existing medical condition.

If a client suffers from something like Asthma, it will be necessary to complete an additional Questionnaire specifically on this ailment. This reduces the possibility of the insurance company requesting the information from your GP; and cuts down on time and the costs for the insurer.

Where further medical evidence is required, the insurance company may request a Private Medical Attendants Report (PMAR) from your own GP and may also request a Medical Examination (ME). The latter can be done with your own GP or with a GP appointed by the insurer, it depends on the company. Both of these reports, if required, are paid for by the insurance company.

All insurance companies have 'Underwriting Limits' up to which no/limited medical evidence is required. These are based on the age of the client and the level of cover that they a looking for. For example, a person under 35 years of age can propose for up to €900,000 life insurance without the requirement of a PMAR or ME, subject to what's referred to as a 'clean' proposal. This refers to where there are no adverse medical conditions raised on the proposal. These limits vary between companies.

Depending on the level of cover, age of client, existing medical conditions and the purpose for which the life insurance is required; the insurance company may also request a Personal Finance Questionnaire, Loan Offer Agreement, HIV Test, Fasting Blood Test or an ECG (heart test).

The insurance company reserve the right to 'load' the normal premium that would be required, for someone who is in bad health. They do this by calculating a percentage increase on the standard rate, based on the severity of the ailment. They can also postpone offering terms to a client until a future date or they can decline to offer any terms at all.

It is important to remember to submit the proposal/s to the insurance company/s as early as possible where the life insurance is required in connection with a mortgage or other credit transaction. It does take a reasonable amount of time for the insurer to gather all the medical evidence that may be required and it is very frustrating when your money is ready for collection but there is a delay on the life insurance requirement.

Wednesday, September 3, 2008

Exit Strategy

One of the most important factors to consider when making any type of medium/long term investment is deciding on what your exit strategy is going to be.

This applies to any investment in a unit-linked fund, as the main asset classes, your money is invested in, are considered medium to long term plays.

It is all very well doing vast amounts of research on the level of risk you are willing to take, the time frame involved and deciding on which product/s are most suitable to your requirements; but you also have to consider the fact that at some stage you are going to need to call on the funds invested.

The best time to formulate an exit strategy is before you invest. Decide on some ground rules based on a few ‘What If?’ scenarios. For example, what if the investment is at break-even, at a loss, on target or ahead of target, after your initial target term for the investment has expired?

We all set out with the intention of making money, but sometimes things just don’t go to plan. The current unfavourable market conditions for property and equities can be a cruel reminder of what happens when your plan takes a set back.

Once you have a clearly thought out exit strategy for your investment, it lessens the likelihood that you are going to panic when/if things start going pear shaped. In other words, you had a plan B and you can now fall back to this, if circumstances dictate. This scenario emphasises the need for having short term cash deposits available to you.

On the other hand, you should also consider what you are going to do if your investment achieves or exceeds its intended target. Do you capitalise on the gains and exit or do you stay invested and review your position at regular intervals, having due regard for any tax implications?

It does not matter if you are investing directly or indirectly in property or equities, you have to decide, at outset, how you are going to exit. This may be at some distant point in the future but a consideration nonetheless.

Monday, September 1, 2008

Quotes I Read

Since January 2006 I have been putting quotes that I have read in the organiser part of my mobile phone. Here are a selected few. Have a read through them and see if there are any that have any meaning for you.

"When you are arguing with a fool, make sure he/she isn't doing the same thing."

"We make a living by what we get. We make a life by what we give." - W.Churchill

"In three words I can sum up everything I have learned about life : It Goes On".

"You cannot plough a field by turning it over in your mind."

"The best way to develop self esteem (in kids) is to teach them how to think."

"The only way we can measure the significance of our own lives is by the value we put on others."

"People use the word Guru only because the word charlatan is too long." - P.Drucker

"The devil rides the back of those who are certain."

"The strongest predicator of life expectancy in a man - greater than diet, lifestyle or income - is whether he likes his job."

"A premium customer is willing to spend money in order to save time, while a discount customer is willing to spend time in order to save money."

"You can't force things to happen. You just have to figure out what's going to happen and be standing there when it does."

"Women avoid anger or confrontation like men avoid an emotion."

"You can only be as happy as your saddest child."

I cannot recall the authors of each one, but most of them are somewhere in the books - 'Manhood' by Steve Biddulph, 'The Female Brain' by Louannn Brizendine and 'The Long Tail' by Chris Anderson

Thursday, August 28, 2008

Mortgage Protection (Which Policy?)

When someone is taking out a mortgage and there is a requirement by the lending institution to have Mortgage Protection, the question often arises as to whether it is better to put in place a basic ‘decreasing term’ policy, with life cover only, or whether it is more advantageous to go for a policy that provides more cover than is legally required.

Up to recently, all lending institutions took an assignment over the policy so that, in the event of the early demise of the life insured, the policy benefits were paid to the bank or building society. In other words, the lending institution received the sum insured and the mortgage was cleared.

If there was any excess of cover, over and above the amount that was owed, this was then paid to the estate of the deceased person. If you missed a premium on the policy, the lender would have been notified and they in turn would have taken steps to ensure that the premium was paid and the policy kept in force.

The current requirement is that the policy must be in force at the date the mortgage is being draw down. Some lenders are no longer taking an assignment on the policy and it is totally up to you to ensure the premiums are paid and policy is current. However, it would be foolish not to keep the cover in place. It may be even irresponsible, if there is more than one person named on the mortgage and there are dependents.

Going back to the original question; it is my opinion that, in general, a policy that is needed as a requirement to a particular credit transaction should be on a stand-alone basis. If the requirement specifies Mortgage Protection Life Insurance, then this is what you should give the lending institution.

Before you apply for a mortgage, you should do your research on the different types of policies that are available. Too many people leave it till the last minute to fulfil this requirement. They end up buying a product that may not be suitable to their circumstances and pay too much for it. They do have the option of replacing the cover with something more suitable at any stage; and there is no requirement to buy the product from the bank or building society that is lending the money.

If you decide that you need (and can afford) additional cover, be it life insurance or specified illness cover, then you should factor in other cover that you may have in place already and any cover that may form part of your contract of employment e.g. death-in-service or salary protection.

I don’t like ‘bundling’ products together with the one product provider as the costs for each of the individual component parts may not be competitive in the overall picture. Others may disagree.

Friday, August 22, 2008

Taking The Plunge !

You have decided that you want to invest a lump sum and you are happy that you will not need to call on these funds for a good number of years to come. You understand that the value of these unit-linked funds can fall as well as rise. You are aware that you should diversify your investment so that all your eggs are not in the one basket, just in case one particular asset class takes a nose dive.

The problem you are faced with is in deciding which product to invest in as there is a multitude to choose from. The following are some of the factors that you should consider, before you take the plunge.

Investment Style

You can choose ‘Active’ or ‘Passive’ management for your investment. Some companies will allow you to combine both styles under the same product. ’Active’ refers to the involvement of a fund manager in the selection of assets that make up the fund. With a ‘Passive’ fund, your investment tracks the performance of an ‘Index’.

Much has been written about these two investment styles. The determining factor is in whether you believe a fund manager can add value to your investment through his or her decisions. Active management tends to be more expensive so also bear that in mind.


Does the product allow you to spread your investment by region, sector, and asset class or investment style?


Does your investment permit you to redirect or switch funds easily? Does it allow you to add to your existing investment, if needs be? Can you make partial withdrawals without penalty and where can you get the value of your investment at any particular moment in time? Are there any restrictions on how much money must remain in the investment to keep it ‘live’?


How much of your money is invested in the product from day one? What are the management charges for each of the funds you are interested in? How much commission is paid and can this be negotiated? Are there early encashment charges that would penalise you in the event of a partial or full withdrawal of your funds? What charges apply to switching or redirecting funds? Are there any incentives for you, in the form of extra allocations, for large investments?

If you have all the answers to these questions and you are happy that the product offers good value and is suitable for its intended purpose then you should be able to take the plunge, with the parachute.

Wednesday, August 20, 2008

Education Fees

With all the talk about the re-introduction of Third Level Education Fees, perhaps it is time to give some consideration to designing an appropriate savings product that would give some incentive to those that wanted to fund for a childs future education.

I do not think that it would be too difficult to get all relevant parties to sit down and thrash out an agreed structure. All the 'dots' are in place, so it would just be a matter of joining them all up with straight lines, right?

Here is my 'proposal' for a 'DESSie', Designated Educational Savings Scheme.

The Designated Educational Savings Scheme would allow Donors to fund for the future educational expenses of a named Beneficiary.

Anyone could contribute on behalf of a named beneficiary to a 'Designated' Deposit Account or Unit-Linked Fund. The Deposit type account would be similar to those offered under the SSIA Scheme and Banks/Building Societies would compete on interest rates.

The Unit-Linked funds could be either an Index Tracker or Managed type fund with a maximum annual management charge of 1.25% and no other charge.

The accounts that the funds are invested in would accumulate tax free and would be distributed tax fee for qualified educational expenses. These expenses would include tuition fees, books, supplies, equipment and accommodation for Secondary or Third Level Education.

A ‘non-qualifying’ expense could be taxed at 41%(?). The only exception to this penalty would be on disability, death or where the beneficiary attained a scholarship. That is, no tax on the funds if any of these events arises.

The current system allows for gross roll up on these funds where the tax is payable on the 8th Anniversary of the plan at the rate of 41%. Deposit type accounts are liable to D.I.R.T. These should not apply to a DESSie

An account would have a lifetime contribution limit of €20,000(?) and the funds must be used by the 25th (?) birthday of the beneficiary. The payment can be a single payment, regular payment, or combination of both.

It would also be a requirement that these plans are transferable to other family members for qualified educational expenses as the named beneficiary may not, for instance, go on to third level education.

The accounts would have a minimum term of 5(?) years before any distributions are made from them. Distributions before this date would be taxed @ 41% (?).Life Offices and Banks responsible for collection.

Please add your comments and ideas.


Friday, August 15, 2008

Brendan Investments (The Voyage)

Twenty three years ago, I got my first introduction to the world of boats and yachts through the Atkins family that own the Fred J Dion Yacht Yard in Salem, MA. The whole experience was fascinating for someone that was just out of college.

When winter approaches, the yacht owners can either take the boats out of the water to protect them from the elements or set sail for somewhere like Florida. These boats are precious to their owners so careful consideration has to be given as to what the best course of action should be.

When I started to read the latest newsletter from Brendan Investments, I was anxious to read about how far out to sea they were and how the voyage was progressing to date. I was preparing myself for some spin on how much less water was in the bilge of 'The Brendan' as opposed to some of the similar product offerings that set sail at the same time. That's what happens when you set sail in a tempest, you start taking on lots of water.

I was pleasantly surprised to read that 'The Brendan' was still at the pier, in the harbour. The water is just gently lapping against the hull and the crew are waiting for the right moment so that they can hoist the sails without fear from the elements.

As an investor I am happy about this, as I have confidence in the crew. It also reinforces my belief in how important it is to carefully select an investment opportunity, and not jump in to the first proposition that comes along.

Anxious investors will probably question, why the crew are taking their time in actually buying property, but sometimes it pays to be patient as this presents greater opportunities that may appear on the market.

The stated time frame for the original investment was between 7 and 10 years and if a better opportunity arises because we have to delay getting our feet wet, then so be it. It is my opinion that the decision not to invest in real property, to this point, with the funds available is the correct one.

The tide has not gone out, and I would expect that the 'owners' and crew of 'The Brendan' will be suitably rewarded, with the correct navigation equipment.

PRSA (Bashing)

It is rare these days to find a positive piece of press about the humble PRSA. Indeed, I cannot recall that many laudatory articles since they were introduced, back in 2003.

This has got me wondering as to why some sectors of the media are constantly portraying the relative success of the PRSA, as less than impressive. A recent article used such words as 'PRSA debacle' and 'abject failure' to reinforce their arguments against the relative success of the product.

Let's be clear on one thing, I do not think that anyone, who understands pensions, is deluded enough to think that the introduction of a new pensions product, in isolation, would be a panacea in increasing pensions coverage.

There has always been a problem with getting people to put away money for their retirement, as the soft option is to rely on the State to sort that out for us. Survey after survey tells us that, we are aware that there is a need to make some private pension provision. Alas, this was not likely to happen, when the country was caught in the euphoria of an earn and spend cycle for the last number of years.

'Pension Coverage' is an issue for everyone, and not just one for the Pensions Board or pensions industry to sort out, we all have to play our part. The critical issues, as I see them, are education on pensions , creating an ‘awareness of need’ through publicity and introducing tax-relief equality measures for the lower paid.

There has never been a better time to push the 'pension coverage' issue to top of the agenda, as there is nothing like a mini-recession to focus the mind on the future. The Pensions Green Paper has to look at the inequities of the tax-relief regime. If there is any intention by the relevant Department to defer actions on coverage due to the current economic climate, it is my opinion that this would be a monumental error of judgement on their part.

As an industry practitioner, I welcome any effort, from any source, to increase coverage. The introduction of the PRSA, five years ago, has been a revelation for consumers. There is no doubt that pensions coverage has increased, albeit in a manner that is probably too slow for those who are critical of PRSAs. There has also been a massive indirect benefit to consumers in the form of downward pressure on charges on pension products.

Between June 2005 and June 2008 there was an increase of 136% in the number of PRSAs taken out. This increase was achieved despite the fact that there was only ONE PRSA Product Provider who actively marketed their offering. There are, probably, still product producers that are willing the humble PRSA to fail as they don’t like products that they haven’t wholly designed themselves.

The PRSA naysayers are critical of the way the product has ‘missed’ its intended market. They cite the self-employed as being buyers as opposed to the lower paid. Any increase in coverage, however serendipitous, is to be welcomed, especially if it means that the consumer is getting a more competitively priced product. It could also be that those that are price sensitive and more au fait with the products see the merits of the PRSA.

In summary, to describe PRSAs, in isolation, as an ‘abject failure’ at this stage of the process is a bit premature. It is not helpful to those that may be considering putting one in place, as it makes it easier for the consumer to defer the decision on pension to a later date.

As I said at the start of this article, we all have our part to play on this issue. A change of focus, to assisting others who do not have the knowledge or awareness on pensions may go some way towards achieving the intended targets for coverage.

NB : Do bear in mind that I have a vested interest in the subject matter of this article.

Thursday, August 14, 2008

Kids & Money (WebKinz)

My 7 year old daughter recently received a ‘Webkinz’ toy as a birthday gift. I had never heard of this product up until then. When she started asking me about getting access to the ‘Webkinz World’ website, with her ‘secret code’, naturally, my curiosity was aroused.

So, we logged on to the site and we went through the process of registering. This included naming and ‘adopting’ the virtual equivalent of her stuffed toy. Once this procedure was finalised, she now had access to a whole new virtual world that had its own economy and currency.

Her virtual pet is given its own empty room and she is also allocated a small budget of ‘KinzCash’. The first thing she did with the money was going shopping for food, clothes and furniture.

She did not have enough money to buy all that she wanted so she had to ‘earn’ some more by partaking in daily work activities, answering general knowledge questions or playing on-line games. The work activities generate the most cash but, if you can’t do them correctly you don’t get paid and you have to wait 8 hours before you can have another go at them.

I left her log on for a few days on her own and when I revisited the site with her she had ‘earned’ more money and bought some additional items for the pet. There are three ‘barometers’ relating to the way the pet is feeling which are viewable when you log on. If the pet is hungry or unhappy, the barometer tells her this and she decides then what she must do about it, ie. buy food and feed the pet .

Her next step was to find out about adding a yard so that the virtual pet could play outside. She found out that it would cost ‘KC’1,000 to add the yard so now that is her target for the money she is earning and saving. We also had a look at what she had bought already and decided that there was no need for multiple clothing and footwear items. She decided to sell some of these and the money was credited to her account.

This is where we are, to date. She nearly has the 1,000 for the yard but I am not sure that she realises that she will have to fit it out with a pool etc. and that this will require a lot more money.

I like the idea that she is learning about responsibility for her virtual pet (keeping the pet happy and fed) and earning money to pay for things that she needs. I particularly like the concept of ‘selling’ the excess clothing and footwear because, she realised that it was not needed and the refunded money was more important for the yard project.

I am sure that we have a lot more to learn about this virtual world and that there may be some concerns about usage. For the time being it’s supervised fun and as soon as I have an update on our progress I will let you know.

Saturday, August 9, 2008

Early Learning (Money)

Personal Finance can be a pretty boring subject. With the best will in the world we try to get a handle on the subject but all of a sudden it becomes all to much. We abandon our research in favour of the issues that are more immediate, and once again our financial 'plan' is put on the long finger.

I do not know where my own interest in this subject came from, it was a career path that I stumbled into. I had some luck along the way, the support of a few individuals who put their faith in me and gave me some direction.

I can't recall any distinctive episodes from my childhood that would lead me to believe that the area of finance was a high priority in the Sheehy household. My father and mother both worked very hard in their respective roles. If there was something that the family needed to make our lives more comfortable, I am sure that the pros and cons were weighed up by both of them and a final decision was arrived at.

That said, I am almost certain that my attitude towards money, in particular not wasting it, was formed in those early years from watching and listening to what was going on around me. It probably made no sense to me at the time but the principles of economising and saving were firmly set in my mind to be drawn on at a later date. I can also see that my siblings were influenced by the same principles, as thrift wins the battle over extravagance.

These basic financial 'skills' are not just particular to my early years. I am sure that they were there for many of you and that it is only a matter of time before they come to the surface, hopefully it does not hit you too late. You can always force the issue by applying yourself and gaining more knowledge on the subject.

For those of you that are parents, be aware that your kids' adoring eyes and ears are open to how you are dealing with money issues. I am not for a minute suggesting that 'Loot!' forms part of their bedtime reading, but rather that you try and offer some example in how to deal with money. Simply talking about it will make them realise that it's normal for them to ask questions about money.

I believe that there are steps being put in place to try and introduce the subject of personal finance at curricular level. We can't just leave it to someone else though, we have to take some responsibility and educate ourselves and our children.

Monday, August 4, 2008

Asset Building

Successful asset building is based on building up diversified investments over a prolonged and gradual period of time. Putting all your money into one asset class, in one market (think Irish Property), is not the foundation on which to build your investment portfolio.

It is very difficult to convince someone early in their working life that what they need are investments that include diversified, lifelong strategies that cover domestic and international money markets. It is my opinion that this is the correct course to take.

If you understand the message that Aesop's fable of 'The Hare and the Tortoise’ conjures, then you will have a distinct advantage over those that bite off more than they can chew. That message is 'Slow but Steady Wins the Race'.

Everyone should give themselves time to build their assets and not be looking for the 'quick buck' or the immediate gratification that a risky proposition might bring.

Consumers should try and build up short-term savings and/or invest in low-cost medium to long term funds. It gives them more options, when and if, they decide to purchase a property and allows them the scope to handle the uncertainty that unexpected financial events may bring.

100% mortgages are no longer available. Hopefully the banking fraternity and their regulatory masters will learn from the errors of this lending policy.

If house purchase is a financial goal you are going to have to get the deposit from somewhere. A mortgage applicant with a history of saving/investing on a regular basis will stand a better chance of gaining approval, in my opinion.

Friday, August 1, 2008

Pension Survey (Part 2)

These are the estimated fund sizes for each of the products available based on what the consumer could buy from each provider by having the maximum allowable charges applied to the policy.

Again, there were 131 contributions of €500 per month and the assumed growth rate was 6%.

Product Source - Fund - € 84,246

Quinn Life - € 83,905

AIB - € 81,792

BOI Life - € 81,687

Eagle Star - € 77,537

Friends First - € 76,795

Irish Life - € 76,485

New Ireland - € 76,450

Canada Life - € 75,565

Standard Life - € 74,262

Hibernian Life -€ 73,793

Acorn Life - Not Available

These are the most expensive versions of the products, so the higher the estimated fund the better the product is, in value for money terms.

Please refer to Part 1 of the survey so that you can compare the execution-only results.

Wednesday, July 30, 2008

Fund Managers (Asset Allocations)

At the beginning of July, I decided that it would be a good idea to approach investment managers with a view to establishing what their own personal asset allocations looked like at the moment. The initial approaches were limited to the companies that I hold a written letter of appointment from and who also have an active management investment team.

I wanted to establish whether these people, that are responsible for managing our cash, actually lived by the strategies that they adopt for other peoples money and whether they reflected the typical managed funds that they promote.

As of today, only two of the original nine companies that were approached, have supplied a meaningful response, in terms of the original request. Take a bow, Standard Life and Merrion Capital.

Even though assurances were given to the remainder regarding the way the information would be presented and that no individual ‘names’ would be used, they still declined to participate. I was very disappointed with this.

Hibernian refused point blank, without any coherent explanation whatsoever. Eagle Star also refused but they cited ‘privacy’ and fear of the information being interpreted as advice. Irish Life declined, as did Canada Life. There was no response from Friends First or Caledonian Life and Scottish Provident/Resolutions have indicated that they will be back to me shortly.

In an effort to understand the muted responses, I contacted an acquaintance at Clarus Investment Solutions to see if he would be willing to divulge this information. He had no problem in doing this as he considered it straightforward, non-sensitive and relevant to what they do as investment managers.

I was hoping that we could derive some meaningful interpretation of the information, even when we allowed for the fact that the individual managers would have varying risk profiles and objectives for their investments. I would have expected that the majority would have common allocations in equities, property and cash and that over the next few months their cash holdings would be fed into the other asset classes.

I can only speculate that some of the managers may have been embarrassed by their current asset holdings. It may well be that some are over-invested in equities and did not adjust their allocations in line with what was happening in the market. It may also be the case that others have adopted a more defensive strategy with their own money but are happy to hold 75/80% in equities on their managed funds.

So what can we establish from the information that was received from our three respondents? The allocations to property/equities and cash are similar at the moment. There would be a higher than normal percentage in cash but this is consistent with the uncertainty of current market conditions.

The cash content of their mix will be fed into other asset classes on a gradual basis, once the managers deem that the time is right for them, and that the asset splits will be consistent with their risk profiles and age and mirror a managed fund when things stabilize.

You can make your own call on those that did not respond.