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.

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.

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.

MoneyVille.ie

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.

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.

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?

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.

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.

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