Pensions & Investments

Improved Charging Structure from InvestAndSave.ie

2011-11-24T12:55:00.007Z

With immediate effect, there will be no 1% Levy on contributions to the InvestAndSave product, for the duration of the contract, provided that the minimum Single and Regular payments are made. This applies to business transacted from 24th November 2011, or business that is currently in the pipeline but has not yet been issued.

So, if you invest €5,000 (or more) as a Single contribution and €100 (or more) per month as a Regular contribution you will avoid the Government Levy of 1% on all contributions.

If you invest a Single contribution only, the levy will apply to this payment.

There are no entry or exit charges on this product. You can choose to invest in any of the 17 Actively Managed and 13 Passive Funds available. The annual management charge on these funds is 1%pa.

Pension Anomaly - Tax-Free-Cash and Guaranteed Annuity Rates

2011-08-08T16:32:00.002+01:00

Under current pensions rules a person with a mix of multiple Personal Pensions (RACs) and PRSAs, that elects to draw down the 25% tax-free cash, must take this percentage from each individual policy.

If none of the policies had a guaranteed annuity rate (GAR), this would not make any difference to the policyholder.

However, if a GAR applied to one (or more) of the policies then you could be put at a financial disadvantage if your preference is to take the maximum tax-free cash (TFC) and buy an annuity with the balance.

The best way to illustrate this is by way of an example:

€300,000 in a GAR product with annuity rate of 11.11%
€100,000 in a non-GAR product

1. Current rules dictate that you take €75K from GAR product and €25K from non-GAR product, giving you total tax-free cash of €100K. You would then get a pension of €24,997 from GAR product and €4,218 from non-GAR product (buy annuity on open market) Total = €29,215 per annum

2. If you were allowed to take 25% of the total aggregate fund (€100K) from the non-GAR product alone, you would get a pension of €33,330 per annum

Option 1. would put you at a financial disadvantage to the tune of €4,115 per annum

If this anomaly applies to your pension contracts, you (or your advisor) should write to the retirement benefits section of Revenue and ask for a ‘concession’ by outlining the full details of the policies to show how you might be put in a disadvantageous position by being forced to take 25% of each individual policy.

If you (or your advisor) don’t ask, you shall not receive.

Life Insurance Managers should 'put a sock in it' about retention & profitability.

2011-07-04T12:27:00.006+01:00

Those that are in the space of product providers of Life Insurance are a funny old bunch.

Life Insurance Companies are moaning about how difficult it is to retain business, as clients cancel policies and advisors re-write policies every few years. This means that life offices are not making money on these products.

I have approached a number of them over the last 12 months with a view to altering the structure of the products so that the client gets a better deal and the policies stay with the Life Insurance Companies for longer periods, thus making them more profitable.

Result : The only appetite providers have is to increase commission payments to intermediaries and not to change the product structures. The consumer is forgotten again.

Prediction : When the shareholders start copping on as to what is happening, they will change the structures but it may take a few more years.

In the meantime, I’d appreciate it if the Life Insurance Managers would 'put a sock in it' about retention & profitability.

Blogger Interview - Brian Lucey

2011-06-23T13:56:00.006+01:00

What is the best business/investment decision you ever made?

The best business decision I ever made was to leave the Central Bank of Ireland and to take the subsequent pay cuts and move to my present position as an academic. The most important asset most people have is their human capital, and I felt that doing this was quick to enable me to maximise my return, in a holistic sense, on this.

What kind of car do you drive?

I mostly take the train, but I have a 12-year-old Saab 93 convertible for the infrequent days that you can actually take the top down :-)

What is the worst financial advice that you ever received?

I'm glad I didn't take it, but I was offered an opportunity to get involved in a partnership for oil exploration shares. These did not work out…

Do you own property abroad?

No, I don't.

Should basic finance be included on primary school curriculum?

It actually is, in the sense at least of using money as a learning aid. I think it would be much more useful for all University students to be required to take a mandatory course on life skills, or perhaps even have this at the second level. When I was in school in the 70's we had classes in Civics, and I think this might be the place to put these issues into the curriculum. Most people in their late teens or early twenties don’t have the financial maturity or the financial capacity to really benefit from financial literacy classes. Maybe we should however have something at University.

Do you contribute to a pension plan?

No, I don't, I'm Lucky enough to be one of those people that has a defined benefits package through the public sector.

What's your favourite film of all time?

Aliens…

Have you ever won money?

Not any significant amounts, I don't really gamble. I have won some cash in a few table quizzes.

Do you own your own home?

Yes we do.

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

Not really, I'm quite risk averse.

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

Right now I think having access to cash is important, so the most useful savings method therefore would now be deposits.

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

I'm not sure that there is any such thing as bad value for money, I think people need to decide what their risk profile is and then make a decision. That said, it does strike me as quite extraordinary the fees charged by some fund management institutions, particularly for anything as basic as a tracking or index funds.

Do you trust your bank?

For a given value of trust yes… I trust that when I want to withdraw my money, it is going to be there. I think given the experiences of the last couple of years we can't really trust the Irish financial institutions to behave themselves when left to their own devices. Hopefully this will have been a lesson learnt, and the financial institutions including banks will be able to proceed in the future to do what they should do, just provide the vital infrastructure and credit channel that modern economy needs.

Brian Lucey is Associate Professor in Finance at the School of Business, Trinity College Dublin

Victims, Spectacle Makers or Whiners in the Workplace

2011-06-02T12:21:00.004+01:00

I like this analogy in ‘What They Teach You at Harvard Business School’ on how important it is for business owners to identify “victims”/ “whiners” / “spectacle makers” in the workplace, before the pollute or contaminate your business and turn customers away.

“..if I had my favourite bowl of ice cream over here and a bowl of shit over here, if I took one speck of shit and put it in the ice cream, would you eat the ice cream?”

Beat The 0.6% Pension Levy

2011-05-27T11:23:00.004+01:00

The following are some ideas on how to avoid or reduce the impact of the new levy on pension schemes.

1) Reducing the contribution charge or annual management charge on your existing pension would offset some/all of the new levy

2) If you are the holder of a Personal Pension or PRSA and you have reached the age of 60, it is possible to avoid the new 0.6% levy by ‘maturing’ your pension, taking your tax-free-cash and transferring the balance in to a ‘Vested’ PRSA or multiple vested PRSAs.

With a Vested PRSA you do not have to take the taxable imputed distribution (5%) that is normal under an Approved Retirement Fund (ARF). The vested PRSA can run to age 75 without the need to buy an ARF or Annuity.

3) If you can afford to increase your payments to your pension (subject to Revenue limits) this increase could negate some/all of the levy in the form of tax relief on the higher contribution.

4) If you have a Pension Retirement Bond (Buy-Out-Bond) and you have reached the age of 50 you should be able to ‘mature’ this, take as much tax-free-cash as you can and use the balance in accordance with the rules of the original scheme.

Low Cost Pension Products

The 0.6% Pension Levy

2011-05-16T10:06:00.004+01:00

There has been much negative comment on the introduction of an annual levy on the pension scheme assets of private pension savers. While no one likes paying additional taxes, there has been little or no commentary in the media on providing constructive information on minimising the damage the levy can do to your pension fund.

This levy was flagged in the Fine Gaels ‘Perspectives on Budget 2011 and the 4‐Year Plan’ published last December so it should not come as a great surprise that it would be implemented at some stage. The previous Government had an annual ‘bill’ of €700m for the pensions industry and it was up to them to argue/lobby which method of payment would suit them best.

The levy will apply to the ‘private’ pension assets of Defined Benefit and Defined Contribution Pension Schemes, Personal Pensions (RACs), Pension Retirement Bonds and PRSAs. Currently, it will not impact on the Defined Benefit Schemes of Civil and Public Servants.

The pension industry is pretty stagnant at the moment with many pension savers reducing or stopping their contributions. Those that were considering starting a pension have put it on the long finger. They have more urgent uses for their money and find it difficult to rationalise putting away funds that they cannot access for years to come. The foregoing of tax relief on their contributions is already saving the exchequer money but their current financial needs are more immediate, an indirect benefit to the exchequer.

Some, within the industry will decry the levy as ‘the’ catalyst for the decline in pension savings that will force financial advisors out of business and redundancies within the pension companies: the ebb of pension savings started well before now.

So, rather than describe the water when folk are drowning in a sea of increased costs/charges, why not throw them a lifeline? It’s time for a serious review of your pension.

It is unlikely that the pension providers are going to voluntarily reduce their contribution or annual management charges to offset the cost of the new levy. One of the biggest impediments to the ‘performance’ of a pension fund is the level of charges that are on the contract.

It may be possible to reduce your existing charges by rolling up your sleeves and taking a more proactive role in the choice of pension product and its charging structure. The two main charges on a pension product are a Contribution Charge and the Annual Management Charge. The contribution charge is a percentage of each payment that you (and/or employer) make to your pension: this can be up to 5%. The annual management charge is a percentage of the value of your pension fund that is deducted each year : this can be up to 2%pa.

If you can reduce either of these these two charges you will benefit from an increase in the value of your pension fund and offset some/all of the levy imposed by Government.

Let’s assume that you have €100K accumulated in your pension fund and that you are contributing €500 a month for the next 4 years.

If the Annual Management Charge (inclusive of 0.6% levy) was 1.5% and the contribution charge was 0%, then the estimated value on your fund at the end of 4 years would be €135,632.50*

If the Annual Management Charge was 1.75% (inclusive of 0.6% levy) and there was a contribution charge of 3% on each €500 paid in over the next 4 years, the estimated value at end of year 4 would be €133,413.95*

€2,218.55 in potential savings over 4 years by focusing on charges.

*Assumes 4% Growth Rate

It is possible that some of the media commentary will deter folk from making contributions to their private pensions. However, it could be argued that now is a good time to increase contributions up to the maximum allowed by Revenue because i) tax relief at the highest marginal rate (41%) may be reduced at a later date and ii) increasing the contribution would negate some/all of the levy in the form of tax relief on the higher contribution.

The new levy will only work if the revenue stream raised can be measured against specific employment generated in the broader economy. If the revenue is pooled in the general exchequer fund, like the National Solidarity Bond, there will be no measure ability or accountability in respect of ‘job creation’. On the plus side, we will get the opportunity to sack the instigators if it's not removed or does not fulfill its intended purpose in 4 years time.

Featured Website www.prsa.ie

Harvard Business School & The (Irish) Department of Social Protection

2011-05-09T14:53:00.006+01:00

I recently read how students that were accepted to Harvard Business School emptied out their bank accounts, by either transferring the money to their parents or by buying luxury cars. They legitimately did so to qualify for financial aid.

I then got to thinking about a proposal by the Irish Department of Social Protection that would require motor tax applicants (car buyers) to provide their PPS number so that they could cross-reference this number against those that are in receipt of social welfare payments.

Is there a major scam going on whereby those applying for State benefits empty out savings accounts or transfer assets to family members in order to qualify for State financial assistance here in Ireland? Could it explain some of the upsurge in new car registrations?

Think about it. You have €30,000 in savings but you wont ‘qualify’ for full/partial State Benefits because you hold this asset. If you blow it on a luxury car (not deemed an asset) you could get the State to fund, or partly fund, your penchant for a nice car.

How sweet is that? Your taxes paying for your neighbours new car.

PRSA (Personal Retirement Savings Account) Anomaly

2011-04-20T11:55:00.002+01:00

Seriously, does anyone know of any other Country in the World where a employee would be put at a financial disadvantage (via legislation) in choosing one pension product over another?

There is currently an anomaly for PRSA (Personal Retirement Savings Account) policy holders where the employer is contributing to the employee’s PRSA.

If an employer is contributing €100 to an employee’s PRSA, the employee is €11 worse off than an employee whose employer in contributing the same amount to an OPS (Occupational Pension Scheme).

Although Fine Gael have committed to putting the PRSA & OPS on an equal footing in respect of this anomaly, it probably will not happen before the next budget.

So, what’s happening in the meantime? Well, PRSA policy holders (where employer is contributing) are being advised to switch to OPS’s and I am aware of one PRSA Provider that has written to the employers suggesting that they change their PRSA Schemes to OP Schemes.

To me, this seems a tad extreme. i) There is no cap on charges on an OPS - Initial commission is way more generous and providers can increase the annual management charge if they see fit and ii) The OPS route will involve some form of Trustee Training for the employer or failing this, they will be charged for complying with the legislation.

If I may make a suggestion, while this anomaly is ‘put on an equal footing’. It would make a hell of a lot of sense for Revenue/Department of Finance to allow those that are disadvantaged to claim back the 11% via the PRSI Refund Section of Revenue in Limerick.

This might stop a mass exodus from PRSAs before the legislative changes can be made.

Featured Website : www.prsa.ie

Life Insurance 'Model' Implosion

2011-04-18T15:07:00.002+01:00

I’m finding the Life Insurance Industry response to ‘business retention (profitability)’ a little bit bizarre; to say the least.

You see, there’s a problem with the length of time that Term Life Insurance business is staying on the books because the product is being re-written every two or three years.

In the majority of situations the policy is moved to a different insurer by an intermediary and justified on the basis that the ‘new’ insurer is cheaper ; fair enough. As Insurers keep tweaking/reducing their Term Insurance rates, it is probably no harm for the consumer to benefit from the reductions, so long as the terms and conditions of the policy are identical.

Those consumers that avail of the commission rebates on first years premiums via discounted life insurance websites can save money by moving around this market on a regular basis also, provided they are in good health.

So, who’s ‘benefiting’ from the current model? The Consumer - because they are getting a cheaper premium. The Intermediary - because the commission structure is such that it is lucrative to re-write the policy every few years.

If the break-even for an Insurer is 7 years on a Term Insurance Policy, how are they ever going to make it profitable for themselves; and when will the current model implode?

To acquire this type of business, Insurers have resorted to i) Price matching i.e. our ‘real’ premium is €100pm but if another insurer is quoting cheaper, we’ll match it ii) Increase initial commission and override to Intermediaries & iii) Spreading higher commission out over longer periods of time.

God forbid that the Insurers ‘offend’ the Intermediary market by putting the Consumer at the top of the priority list but, in my humble opinion, these actions are not going to solve the problem.

Insurers (and Re-Insurers) need to get their act together and come up with a different business model for these products.

I’m sure that they are worried about the extent of how much re-writing will take place when the latest European Court of Justice ruling on gender equality on insurance premiums. Good for some consumers, an income bonanza for intermediaries and another nail in the coffin for Insurers.

Government 'Policy' in Savings/Investment Market

2011-01-11T11:06:00.004Z

It would appear, to me, that the Irish Government is systematically distorting the savings market. It seems to be a case of ‘We’ve blown ours and now, we need yours’. They are running out of road in terms of the options they have, to deal with the Exchequer Deficit ie raise taxes, cut spending, growth, default/restructure and now enforced buying of Government Debt.

You may have been prudent enough to save for your family’s future but the last two budgets have provided us with an insight into how desperate the Government have become in trying to relieve you of your hard saved cash.

It’s being dressed up as a sense of ‘civic duty’ so that you don’t feel too bad about helping them out of a sticky situation.

Increases in DIRT & Exit Tax, introduction of a 1% Tax on Unit Linked Savings/Investments, Inflated Deposit Rates from Government controlled banks and building societies, Solidarity Bond MK 1 (with MK 2 on the way), and Sovereign Annuities.

These are all designed to force companies and individuals to buy Government Debt via savings/investment and pension products. It seems that the Government savings policy is that you should bet the house on Ireland Inc., with a total disregard for any sort of diversification.

The Solidarity Bond is being flogged on the basis that your investment will help with “stimulating economic recovery and assisting in the maintenance and creation of employment”. Of course there is no disclosure requirement, or annual update, on how the punters money is being spent. How many jobs were created from the €350m invested in 2010?

The Government also tell us, in relation to Sovereign Annuities, that “This type of investment in ourselves is vital to our national recovery” Not a ‘Wealth Warning’ in sight, it’s all good stuff because “...there is absolutely no risk of Ireland defaulting on its sovereign debt”.

Perhaps, if the Solidarity Bond and Sovereign Annuity products were regulated by the Central Bank, the Government would not be so bullish in their comments regarding security/guarantees and how fit these products are for purpose and how they distort competition.

‘Errors’ at AVIVA Life & Pensions

2010-12-22T10:59:00.002Z

It would appear that there is no end to ‘errors’ being uncovered at AVIVA Life & Pensions. The following is a list the type of ‘errors’ that have surfaced in the last 6 months :

29th June 2010 -

We have identified an error in relation to how tax provisions for net funds were accounted for...The number of units on your policy was calculated incorrectly. As a result, your unit holding was understated.

29th October 2010 -

We have undertaken a review of claimed pension policies and have identified an error...The policy was eligible for a bonus, which was not included in the calculation of the policy value. The claim amount was understated as a result of this error.

20th December 2010 -

We have identified an error where the Guaranteed benefit and/or Guaranteed bonus were incorrect on your pension policy, following an alteration. As a result, the benefits and/or bonus were understated.

What is truly remarkable about these errors is that they are not specific to any single company that went to make up the AVIVA company. The June ‘error’ was in respect of a Hibernian Life policy, October was a CGNU policy and December was a Norwich Union policy.

The ‘understatements’ / ‘errors’ for the above policies have had a monetary value of between €9 and €6,400. I haven’t been informed as to whether any ‘errors’ identified by AVIVA Life & Pensions were overstated, in favour of the clients.

'Funds' For Thought

2010-11-12T17:00:00.008Z

Global Absolute Return Strategies (GARS) Fund - Standard Life

Risk Profile : Low-Medium

This fund has similar volatility rating to a cautious managed fund but it invests in a broader range of assets. It aims to provide positive investment returns in a variety of market conditions over the medium term by providing access to a range of different assets and strategies.

The Annual Management Charge is 1.35% and there are no entry or exit charges if you invest though www.bond.ie on an ‘Execution Only’ (no advice) basis.

SuperCAPP Fund - Zurich Life

Risk Profile : Moderate

A unitised with-profits fund that aims to deliver a regular return, consistent with prevailing long-term interest rates while maintaining the potential for higher growth than a bank deposit account. The fund will have exposure to bonds, equities and cash.

Returns are distributed through Annual and Special Dividends. Dividend distributions aim to provide policyholders with a smoothed accumulation of returns over time.

It has an indicative equity range of 20% – 40%. The fund’s exposure to equity volatility is normally controlled by limiting maximum losses and gains for the majority of the equity portfolio.

The Annual Management Charge is 1%. Zurich Life also retain 1/20th of earnings, distributable as policy dividends. This latter charge is taken before the dividends are declared. For Non-Standard PRSAs only, the charge for this fund is 1.25%.

Brendan Johnston, Pensions Director, and David Kavanagh, ALM Actuary, Zurich Life, talk about the SuperCAPP Fund in a Z-Cast.

Diversified Assets Fund - Zurich Life

Risk Profile : Medium

A unit-linked fund that gives exposure to four asset classes: equities, bonds, property and commodities. The following Zurich Life investment funds are currently used to gain access to these asset classes: the International Equity Fund, the Active Fixed Income Fund, the European (Ex-UK) Property Fund (via ETF) , the Australasia Property Fund (via ETF), the Global Commodities Fund (via ETF).

Indicative Equity Exposure is 70% to 80%. The Annual Management Charge is 1%

Cautiously Managed Fund - Zurich Life

Risk Profile : Moderate

A unit-linked fund offering a well-diversified portfolio of bonds, equities and cash. It has an indicative equity exposure of 20% – 50%. The Annual Management Charge is 1%

These Zurich Life Funds can be accessed for Savings/Investment via www.investandsave.ie and for some Pension Products via www.prsa.ie. There are no entry or exit charges on the products available through these websites and they are on an ‘Execution Only’ (no advice) basis.

Some Caveats

* If you do not understand why you should save/invest in these products or what investment funds are appropriate to your risk profile, then an ‘Execution Only’ service may not be suitable for you. If you need advice, pay a fee for it and then purchase the products online.
* The above funds are not to be interpreted as a generic recommendation as each person will have a different investment profile based on their attitude to risk, term of investment and current investment portfolio.
* Some or all of the assets in the different funds are invested outside the Eurozone, so currency fluctuations may impact on the funds performance.
* The 1% Annual Management Charge on the funds that invest via ETFs does not include any charges that may accrue within the ETF.

Warning: Past performance is not a reliable guide to the future performance. The value of your investment may go down as well as up.

Pension Companies and Business Retention

2010-09-23T11:28:00.002+01:00

Even though I am short on the full technical details of Irish Life’s ‘New Deal In Pensions’; it looks like they are moving in the right direction with regard to addressing business ‘retention’.

The ‘retention’ issue has become a major problem for pension providers. Business that was ‘new’ to the a pension company 5 years ago (approx) is not staying on their books long enough for them to make money on the transaction. Instead, the business is being moved to a different pension company, who then register this a ‘new’ business to them. And so the cycle continued....

The major reason why this is happening is a symptom of the way in which pension companies remunerate advisors. A large chunk of commission is paid up-front which is normally conditional on the business staying with the pension company for 5 years, otherwise some/all of this payment would be clawed back by the pension company.

It has taken a while for pension providers to fess up to this. The move by Irish Life, which spreads and increases remuneration, is an attempt to stem the flow of business away from them so as to build a sustainable business model.

The bar has been set fairly high by Irish Life and it will be interesting to see how their competitors react to this strategic move. A rough estimate, on the figures to hand, would indicate that the break-even for Irish Life on the new structure has been pushed out to year 10+. A competitor would need fairly deep pockets to top that.

Don’t bank on getting the best pension terms from your bank!

2010-09-06T11:02:00.010+01:00

PRSA: Meeting financial expectations

Discount pension services provide cost effective retirement planning for you and your employees, writes Gerard Sheehy

As business owners we are always on the lookout for ways in which we can save money. If we can find a more cost effective way of doing something we tend to jump at the opportunity to add value to the bottom line, even if this means taking on some extra responsibility ourselves.

Recent economic events have made us question what we are paying for goods and services and what value is being added by third parties. Some areas for making savings are obvious, others less so. Take pension provision for example. The charging structures on pension products have become more competitive. It may be in your and your employees’ interest to do an audit of your pension costs.

It is now possible to reduce the charges on PRSAs, AVC PRSAs, personal pensions, executive pensions; approved retirement funds (ARFs) or personal retirement bonds by buying these products without the costs associated with financial advice.

The trade-off is simple - it involves spending time in order to save money. This necessitates taking a more proactive role in the selection of pension product and investment funds which gives you greater control of your product costs.

You should consider this type of service if:

(i) You have a good understanding of what type of pension product is suitable for you.

(ii) You are comfortable with selecting investment funds appropriate to your risk profile.

(iii) You want to buy a low-cost product.

(iv) You do not require financial advice.

If you feel that you satisfy these criteria you will be able to limit your costs to a single charge on the pension product of your choice. This should be no greater than a 1% annual charge on the value of your pension fund. As there is no contribution charge, 100% of any employer/employee payments are invested in the pension.

This service is not restricted to employers/employees that are affecting “new” pensions, it can also be used by those who already have a private pension and wish to transfer their existing pension funds or redirect future contributions.

You should not expect your bank to offer you this type of service on PRSA schemes, as they more-than-likely put a premium on their advice. The employee and employer could be paying (up to) a 5% charge on each payment that is remitted but they may be getting very little in the form of advice for this cost.

Even if the employer has an existing PRSA scheme in place, they should consider offering a low-cost option to those employees that have a good understanding of their financial needs.

Gerard Sheehy is a financial advisor for PRSAS. For more information log on to www.prsa.ie

The above article is in the Pension & Investment Supplement of the Septmeber 2010 Issue of Business & Finance

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Education Fees and Investment Policies. Banks? No Thanks!

2010-09-03T08:04:00.002+01:00

Just when you thought your bank couldn’t make you feel any worse via increases in mortgage rates, account charges, and the stifling of credit; they have the gall to start delivering sermons on the need to start saving for your children’s education with one of their investment policies.

It’s all designed to scare the bejaysus out of you: motivation to save through fear. They give the impression that they are doing you a favour by highlighting the issue of education costs and prompt you to start saving as soon as possible.

There’s nothing wrong with saving for education via an investment policy, but it only makes sense to do so if you are not going to get screwed on charges. Do you want to save for your own child’s education or for the education of the child of the person that’s selling the product? If you are going to start saving for education fees you have to get the product right from the outset, otherwise you will end up with something that is not fit for purpose.

It would not be unusual for a bank to charge you 5% of every payment you make to an investment plan, plus an annual management charge of 1.5% pa of the value of your fund. Or, to put it another way; if your fund had a growth rate of 6% pa over the term of the policy the charges would reduce the growth to about 4% pa. This ‘beast’ of a product is woefully bad value for money.

In addition, your ‘make-it-up-as-we-go-along’ Government have increased the tax on growth of these investment policies to 28% AND introduced an idiotic 1% Tax on all contributions that you make to the plan.

Seriously folks, you have got to put the time into researching what is on offer in this market. You can’t really do anything about the Government Tax, except giving your local TD a piece of your mind. What you can do is focus on the product charges. It is possible to save/invest in these products without the 5% charge on each payment and reduce the annual management charge to about 1% pa. Your bank will not be able to provide you with a competitive product.

Example: If you saved €150pm for 18 years in what the bank are offering you would end up with a fund of €43,088. This would be increased to €45,867 if there was a single charge of 1% pa on the value of the fund. A potential €2,779 more in your pocket, as opposed to the banks. Both funds assume a growth rate of 6%.

Blogger Interview - @seanie_fitz

2010-08-10T08:40:00.003+01:00

What is the best business/investment decision you ever made?

Selling a heap of my Anglo shares in 2006 and investing in an oil rig in Africa

What kind of car do you drive?

Have 3 – sporty 2 seater Merc (that was a mid life crisis thing), gas guzzling 3.5lt Range Rover (perfect for nipping down to the club for a quick 18) and of course my club car in Greystones G.C.

What is the worst financial advice that you ever received?

Being begged by the board to take the position of Chairman at Anglo, only for that I’d have had a clean pair of heels away from the place

Do you own property abroad?

Of course I do, who of us in this country doesn’t

How does the economic slowdown effect you?

Well where can we start on that one, I could talk all day on that very subject. Lets just say the I’m lucky to be married to a woman who is a millionaire in her own right (none of it of my doing)

Do you contribute to a pension plan?

Not anymore, am now a pensioner

What's your favourite film of all time?

Wall Street

Have you ever won money?

Silly question that – mainly a winner in my casino in Macau! Never won anything at the Galway races funnily enough, being in that tent always cost me a few bob

Do you own your own home?

Sadly not, my half has passed into state ownership, but the good taxpayers of Ireland allow me to stay there free of charge.

Do you invest directly in the stock market, through funds or both?
Unfortunately I’m now precluded from making any financial decisions without the sayso of a pen pusher in the High Court

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

Anything that’s not protected from the State getting its hands on it under bankruptcy law

Do you trust your bank?

When I ran my own bank I trusted it 110%, but that’s dropped to about 100% now.

You can follow the musings of this ready dupe and charlatan of a demagogue on Twitter @seanie_fitz

Fixing the "Broken" Business Model

2010-07-22T09:59:00.004+01:00

It would appear that the penny is finally beginning to drop with the management of Life Insurance Companies, that all is not well with the way they sell their products. In the past 10 days we have seen Irish Life attempt to undo the unprofitable practice of changing Term Insurance product providers every so often, and the Sales & Marketing Director of Friends First calling for reform of the ‘sales model’, under Government supervision.

To be honest, the Irish Life action does not go far enough and the comments from Friends First smack of desperation. Why would a Life Insurer need Government input on changing the way it sells its products? If the sales model is messed up, surely it is up to the product providers to reform the model that they are complicit in facilitating; unless, of course, there is a fear of offending a certain distribution channel and they want to be able to put the onus of change on Government.

If Life & Pension Companies are serious about reforming their industry then they need to consider the following :

● The interest of the consumer should be put to the top of their agenda
● Accept that Financial Advisors should work in the interest of their clients, not product providers
● Different pricing/remuneration for different distribution channels does not add up
● Products with 20 to 30 different commission options are not designed with the end consumer in mind
● Simplifying product charging structures so that there are [at most] two types of charges on a product
● Charging 1%pa to ‘manage’ a Cash/Deposit Fund is a rip-off
● Create an external fund, with input from the NCA and Financial Regulator, to pay for the Education of consumers on financial products/issues so that the public perception of bad value is negated
● Stop telling the market that Term Insurance is not profitable and then keep reducing your rates
● If you continue to deny reform you are leaving the door open for niche players to chip away at your book of business.There’s obviously enough 'fat' on the product for others to offer same products (more efficiently) and profitably
● Measuring the company’s success, and rewarding management and sales staff, by dubious ‘new’ business figures is all going to end in tears
● The notion that chasing the large corporate broker to fulfill your hunger for‘new’ business is folly. Treat every intermediary the same ie no special treatment.
● Devising a business plan that extends beyond 1 year
● Be more flexible in their approach to intermediaries who want to offer low-cost versions of their products and stop hiding behind the 'fear of offending your supporting brokers' line. If I want to sell it at a lower cost, by reducing my margin, so bloody what?
● Ban rebates on Term Insurance as it does nothing for retention of business. Instead,allow the intermediary to offset saving so that cost of product is reduced to consumer
● You would love for someone else to ‘impose’ fee based advice only but it’s not the solution to your woes
● Have a serious look at service issues to lower your costs as the amount of duplication is remarkable.

These issues should have been attended to before now. It is ironic that Life & Pension Companies are now ‘forcing’ the issue because it’s not working out the way they planned it. If I were a shareholder of any of these companies I would be very disappointed that they have let it go this far.

Criminal Justice (Money Laundering and Terrorist Financing) Act 2010

2010-07-15T12:40:00.001+01:00

The above act comes into effect on the 15th July 2010. Life Assurance Companies and Financial Advisors are deemed to be ‘designated persons’ under the Act, so that means that they have procedural obligations to comply with. The bulk of the new changes that apply will be in relation to Single Premium Investments (Bonds).

Up to now ‘Customer Due Diligence’ was carried out by the Financial Advisor in the form of a Certificate of Identification. He/She held this documentation for identifying the client on file, but there was no requirement to send it to the Life Assurance Company unless it was requested by them.

From today, certified copies the identification documents will have to be sent to the Life Assurer and they will also have to satisfy themselves under the headings of ‘Sources of Wealth and Funds’. These should be incorporated into the proposal form along the basis of ‘how the money was acquired’ and ‘what is the combined income of the applicants’. Details of your ‘Occupation’ were not a requirement prior to today but this has also been included at proposal stage.

A World Cup of Economics

2010-06-26T18:13:00.002+01:00

Guest Blog Post by Ronan Lyons

We all know the 2010 World Cup is on and at this stage we're down to the last sixteen. But what would a World Cup of economics look like? How would the sixteen countries that are left fare, if they were competing on economic factors, not football ones? Below is the Last 16 with a twist... each match is decided by a country's economic defence, midfield and attack.

Defence is getting the basics right, the platform for the rest of the performance. In economic terms, that's inflation. A quick review of economic history will show that in a world with fiat currencies, getting inflation down to a steady 2% or thereabouts is the equivalent of having a world-class defence. Too far above that and you're essentially giving things away for free. Too much below that and you start stifle yourself.

Midfield is the engine and a good economy, like a good football team, needs balance: enough both going forward and getting back. In economics, that means looking at a country's current account balance. This is essentially a measure of how much a country is in balance and living within its means. A large current account deficit is a big warning sign that an economy is unbalanced.

Attack is all about going forward. Economically, going forward means looking at a country's growth prospects. The higher GDP growth, the greater a sense of opportunity and adventure an economy has. To measure the strength of a country's attack, IMF estimates of GDP growth over the period 2008-2015 have been used. For the inflation rate and the current account balance, the same source and time period are used. And with that out of the way, let the games begin...

1. Uruguay vs. South Korea
In defence, this is no contest really. The Uruguayans still suffer from relatively high inflation (averaging 6% over coming years), while the Koreans at 3.2% are much closer to the "dream rate" of 2%. In midfield, While the Uruguayans are quite close to having a balanced account, the South Koreans have a very desirable current account balance, the average balance for 2008-2015 being just over 2%.

It's only up front where the Uruguayans start to shine. From 2000 to 2007, the Koreans grew three times as fast, but out to 2015 the Uruguayan economy is expected to grow by 4.6% on average, compared to a still very respectable 3.5% average growth in Korea.

Result: A strong attack is not enough for Uruguay. 3-1 to Korea.

2. USA vs. Ghana
The Americans have a strong advantage in defence, with Ghana still grappling with double-digit inflation while the US is expected to have the dream rate 2% on average. Neither midfield is up to much, to be honest. Both countries have large current account deficits - an average of 3.6% in the US and 8.8% in Ghana, so the edge goes to the US.

Up front, however, Ghana have by far the best attack in the competition. Average growth in Ghana is expected to top 7% over 2008-2015, compared to less than 2% in the US.

Result: Weak at the back, delightful up front, Ghana go out in style. USA win 3-2.

3. Argentina vs. Mexico
At the back, perhaps it's Mexico's membership of NAFTA but it looks to be in a different league. Inflation rates in Mexico of 4% are far better than the 9% or more predicted for Argentina.

In the middle of the park, Argentina have the edge, though, with a surplus of 2% compared to a small deficit in Mexico. Up front, things are tighter but again Argentina has the slight edge. It is expected to grow by an average of 3.3%, compared to 2.8% for Mexico.

Result: A very tight game, with Argentina's midfield and attack eventually unlocking Mexico's defence. 2-1 after extra time to Argentina.

4. Germany vs. England
Two teams that give practically nothing away at the back. England, with inflation at just 2.2%, are top drawer, but Germany, averaging 1.4%, take it to a different level. With defence like that, it's probably not a surprise that neither sets the world alight with their attack. England have the slight edge, with growth prospects of 1.3%, a little bit above Germany's 0.8%.

Therefore, this is a match that's decided by the midfield battle - and, in the middle of the park, it's not really much of a contest. England have a small deficit, 1.5%, which just can't match Germany's huge surplus of 5%.

Result: Not particular exciting. 0-0, with Germany winning on penalties.

5. Netherlands vs. Slovakia
Netherlands are almost a carbon copy of Germany, with a very tight defence (inflation of just 1.4%), world-beating midfield (surplus of 5.2%) and a relatively dull attack (growth of just 1%).

All this makes it tough for a Slovakian side with a solid defence (2.4%) and great attack (growth of 3.4%) but a soft middle (deficit of 2.8%). Nonetheless, the rate at which Slovakia is improving, plus the paucity of the Dutch going forward, means a shock may just be on the cards.

Result: One for the underdog - 1-1 after 90 minutes, and in extra time the Slovaks sneak a winner.

6. Brazil vs. Chile
Easily the most entertaining for the neutral. Here are two sides with cavalier defences (average inflation of 4.8% and 3.4%) and very potent attacks (both are expecting growth to average 3.9%), meaning lots of goals. This is probably helped in the middle of park by relatively weak midfields, with both countries facing a current account deficit (2.8% for Brazil, 1.6% for Chile).

In each of the three areas, though, Chile has the slight advantage, while add up to prove decisive.

Result: Great fun to watch, and Chile just about have the edge. 4-3 after extra time.

7. Paraguay vs. Japan
Two very different teams again. At the back, Japan are so tight as to be stifling themselves, let alone the opposition (0% inflation). As a result, they don't have much up front (growth of 0.6%), even if they're solid enough in the middle (surplus of 2.4%).

Facing them are Paraguay, a typically Latin American side with weak defence (inflation of 4.1%) but a very strong attack (3.9%) and a midfield that's not too shabby (a 1% deficit).

Result: Against a team happy to pass to themselves at the back for 90 minutes, Paraguay have to take their chances - but once they take their lead, Japan can't recover. 1-0.

8. Portugal vs. Spain
The Iberian clash features two very similar economies. Both with defences that are getting better - inflation of 1.3% and 1.5% respectively - and attacks that are getting worse (growth set to slow to 0.4% and 0.6%). Both also with hopeless midfields, thanks to large current account deficits.

Nonetheless, that said, Spain has the edge in all three departments.

Result: Probably the dullest of the fixtures. 1-0 to Spain.

Which leaves the quarter-final line-up looking like:
Slovakia vs. Chile, the winners of whom play the winners of...
S. Korea vs. USA

Germany vs. Argentina, the winners of whom play the winners of...
Paraguay vs. Spain

Guest Blog Post by Ronan Lyons

AIB Bank Charges

2010-05-28T11:17:00.001+01:00

I received two letters from AIB on the 18th of March (both dated 30th April) informing me that the 'agreed fee arrangement' on the accounts expired on the 28th May. They went on to inform me that their 'Standard Rate of Fees and Charges' would apply from the 28th of May. A copy of their 'Business Fees and Charges' booklet was supposed to be enclosed, it wasn't.

I rang the local branch on the 18th to speak with my 'Relationship Manager' and got to talk with the person that had signed the letter on their behalf. I asked for a copy of the original agreed fee arrangement and the charges booklet. There was no sign of these a week later, so I called again. The guy that was supposed to send out the information would ring me back 'in a few minutes' - he didn't. I got to speak with the 'Relationship Manager' on the 27th, after another call to the branch. He was not aware of the previous calls.

To cut a long story short, I'm none too happy about the bank increasing the charges on my accounts. Under the existing agreement - I managed to find my copy - I pay 25% of the standard charges and, to me, this represents a fair arrangement as I'm not in and out of the branch every day. In fact, I have been in it just 7 times this year.

What's really bugging me about this effort by the bank to squeeze account holders for the errors of the banks ways, is that the letters I received were written without even bothering to look at the original agreement. They have assumed that I do not have a copy and are reluctant to furnish me with theirs.

The old agreement, dating back to 2006 and signed by the same 'Relationship Manager', states that it 'is for a specific period of time' but the expiry date is down as 'Ongoing'. It also states that I will be 'advised by letter of the expiry of the agreement one month prior to the expiry date'.

So, it seem that the expiry date of the agreement has been made up by the bank. It is also underhand to date a letter that implies that it was issued a month before a fictitious expiry date when it received by me 10 days before said expiry date.

What would you do?

The Life & Pension Industry's Vicious Circle

2010-05-06T12:47:00.011+01:00

The Life and Pension Industry is starved of 'new' business. Economic woes have led to folk reducing or stopping their contributions for Life Insurance, Pensions and long-term Savings and Investments plans. Others have simply put off their decision to buy these products because of all the uncertainty. The Government decision to slap a 1% Levy on Life Insurance and Savings and Investment Policies has not helped matters either.

One would assume that this would lead to Life & Pension Companies introducing innovative consumer friendly ways of enticing punters to buy their products. Instead of bending-over-backwards to acquire 'new' business, it would appear that they have resigned themselves to a policy of 'rob your competitor'. I am defining 'new' business, as transactions that are not set up with another provider already and have not reached their maturity/end date.

The industry standard at the moment is to offer incentives to advisors to move their book of business from one provider to another. I cannot, for the life of me, understand why the companies are even entertaining this zero-sum game. The exercise is fraught with danger, in particular, from a consumer perspective.

In my humble opinion it is a disaster waiting to happen. The company that receives the transfer of business gets to report magical and illusory 'new' (to them at least) business figures at the end of the year. If you're a manager and you are rewarded on 'gains' in market share, then you are going to be quids in at the start of next year. If you are an advisor, you will also have received some incentive payment. Let's face it, you are not doing it for no reward. However, if you are a consumer, you are going to be caught in the cross-fire.

There may be genuine cases where transferring a transaction from one product provider to another is in the best interest of the policyholder but I would argue that, in the majority of situations the reasons for the transfers are spurious and incentive driven.

Something needs to be done. The Life & Pension Companies need to cop themselves on and stop encouraging the transfers of business from one provider to another. Otherwise, they will be mired in a mis-selling scandal and the business models that they currently employ will implode, as the same transactions are passed around from Billy to Jack every few years. They have to acknowledge that the consumer is the most important person to the survival of their business.

To the consumer, I say : 'If a proposal is presented to you to transfer from one product provider to another, make sure that the reasons for the transaction are in your best interest. Get a second opinion. Ask for confirmation, in writing, that there will be no entry or exit penalties/charges on the 'new' transaction and that you receiving a more favourable annual management charge. Ask for written confirmation from the company that the business is being transferred to that the advisor has no 'deal' with them that stipulates a required minimum level of business.'

It's very disheartening to be watching this from within the industry.

Caveat Emptor.

Surveys - What's the point?

2010-05-05T11:24:00.004+01:00

I'm sick to death of being asked the same questions, year in year out, by the same companies. The main thrust of these surveys is to establish who 'I' consider to be the 'best' Life & Pension product provider; under a myriad of headings.

I have come to the conclusion that their sole purpose is to satisfy the egos of senior management, because the outcomes would appear to be ignored. Perhaps there is some 'bonus' payment for moving up the industry 'ranking' or maybe they want me to adapt to their corporate belief system? Then, and only then, will they "value my opinion".

You don't need an annual survey to find out what companies are in favour, it is reflected in the volumes of business they are transacting. The dogs in the street know why they are successful.

Two years ago I completed a survey for a company and raised a servicing issue. The following year I refused to complete it, as the original issue had not been resolved. Rather than implement any change to resolve the matter raised in the survey, the company choose to ignore my protest. So, what's the point?

I presume that there is an annual budget for these surveys that 'must' be spent. The inaction on the results just shows that it is a waste of marketing money. Rather than ask 'the market' what you are doing wrong, why not just ask your customer service/account managers? They are the ones that are getting the abuse on a daily basis and are closest to the coal face.

Re-Balancing of Portfolio

2010-04-20T15:37:00.004+01:00

When you have decided on an investment strategy for your Pension or Investment Product, you will no doubt have given due consideration to as to what percentage of your money will be allocated to each asset class (Cash,Equities, Bonds and Property). This will probably be based on your attitude to risk and any existing assets that you may have.

At the end of a certain period you may decide to 're-balance' your portfolio so that you have the same percentage of your investment is each asset class, that your started out with. The changes in your investment occur because the values of the different assets will have performed/underperformed over a period of time. This is like a mini-audit of your portfolio so that you can reassess how much risk you are exposed to on a given day.

The following is provided as a practical example, using historical data, of how this works in practice and is not to be taken as advice. The assumptions used are that the Annual Management Charge is 1% and that 100% of your money was invested from day one.

€10,000 invested on 01/01/2001 into the Zurich Life's 5*5 Global, Balanced and Active Fixed Income Funds (1/3, 1/3, 1/3 respectively). The end values are calculated as at 31/12/2009.

With No Re-Balancing (no changes to initial allocation for 9 years): The value of the investment at the end of December 2009 would have been €13,291.37

If the client had re-balanced (making sure the 1/3 ratio in each Fund) on the 1st of January every year : The value of the investment at the end of December 2009 would have been €13,887.92

Again, this historical information is provided purely for illustrative purposes only and should not be construed as advice.

Compensation Schemes for Investors (Life Insurance Products)

2010-04-14T12:03:00.006+01:00

In uncertain times, investors get worried about the security of the monies that they may have invested with the different product providers.

The scheme that operates in the Republic of Ireland (Investor Compensation Scheme) pays compensation where a firm, authorised by the Financial Regulator, is unable to return investment monies owed to an eligible client due to its financial circumstances.

There is a limit to the amount that the Investor Compensation Scheme may pay in compensation. They can only pay 90% of the amount lost, subject to a maximum of €20,000, to each investor.

Companies like Standard Life operate in Ireland as a branch of their UK parent. Therefore, their policyholders are covered by the UK's Financial Services Compensation Scheme (FSCS).

The level of cover provided by the FSC Scheme (for policies issued after 01/12/2001) is 100% of the value of the policy up to £2,000 plus 90% of the balance without limit.

Featured Product : Standard Life Portfolio Invesment Bond

Is this a concern for you?

'Cheapest' Life Insurance

2010-04-12T10:29:00.002+01:00

In the business section of the Sunday Independent there is a regular feature which analyses various financial products. It then offers a 'Best' and 'Avoid' recommendation. Yesterdays paper included the following :

Life cover

Increasing cover of €800,000 over 35 years for a 30-year-old non-smoking chap.

Best: Irish Life €77.13 per month

Avoid: Caledonian €103.89

Saving: €321.12 per year

Contact irishlife.ie or local branch

This recommendation is way off the mark for two reasons :

1. The correct initial premium for Irish Life is €93.17 per month. The premium quoted above is for AVIVA.

2. The €77.13 is increased by 8% per annum. The €103.89 is increased by 5% per annum. If you elected for the cheaper initial premium, you would end up paying around €48,000 more over the term, than if you had chosen to pay the higher initial premium.

So, what appears as a 'Saving' initially will actually cost you dearly in the long run. Someone has not compared these products on a like-for-like basis and the outcome is a misleading recommendation.

If you are in Business and haven't read this book: You probably should.

2010-04-08T12:02:00.004+01:00

The Innovator's Dilemma - Clayton M. Christensen

I had to share this with you. Rarely do I get excited about a book: but when one comes to your attention that is a reflection of your own thoughts and business principles, you tend to enjoy it all the more. This one fits nicely for me, as the position it adopts has a strong relevance to part of my business model.

As I read through the opening chapter, where there were strong references to the disc drive industry, I though I was going to be bored to death. What had not hit me at that stage was that, if I substituted the words 'product or service' for 'technology', the underlying message of the book would blossom.

The following are the areas of the book that I thought were relevant to the Industry that I operate in :

* Your customers/distributors may not be the best market indicators if the whole structure of the market changes.
* You can do everything right in your business and still fail, because of changes in 'product/service' and market structure.
* If you focus solely on profitable products that are currently in high demand, someone else can come into your market, from below, and bite you on the backside.
* No demand at the moment does not mean that this will always be the case.
* It is not a management priority to allocate funding to low margin products that are not in demand, until the demand arrives. By then, the company are left sitting on their hands.
* Product providers leave the door of opportunity open for more flexible low-cost competitors that eat into your market share.
* It's a marketing challenge to create a market for a product that distributors will not sell because their customers are not demanding that particular version of a product: Yet.
* Product providers can't get their heads around the notion that just because there is no hard data available to work with, for research purposes, does not mean that there will not be a demand for an innovative service or product at a future date.
* Sometimes it is important not to listen to distributors (or customers)
* Some business models evolve so slowly that product producers and distributors are not interested until the demand takes off. By then they are left with a bucket of crap and can take a few years to catch up: If they are lucky.
* Companies should chase small markets [create them even] when everyone else is focused on the gravy train

This is just a summary of what I got from the content. If there are any Life & Pension Company managers reading this, all is not lost. The author provides you with a set of rules that you should adopt so that you are not the one that ends up with egg (or something worse) on your face. It's time to make up your mind whether you are an Innovator or just an Imitator.

Some Things Just Don't Add Up

2010-03-15T16:37:00.003Z

Let's say you are a 44 year old male and a non-smoker. You want to buy €100,000 worth of life cover and you are unsure as to whether you should but a Term Insurance or Guaranteed Whole of Life product.

The current cost of a Term Insurance policy to age 89 with Aviva Life and Pensions is €61.31 per month.

The current cost of a Guaranteed Whole of Life policy with Aviva Life and Pensions is €142.01 per month.

If you bought the Term Insurance and had the discipline to save the difference in premium of €80.70 per month over the 45 years,you would end up with a fund of over €160,000 (assumes growth rate of 5%pa net).

So why would you buy the Guaranteed Whole of Life product from Aviva?

Answer : You wouldn't.

1% Levy on Unit-Linked Savings and Investments

2010-02-22T12:10:00.003Z

I'm a bit piqued by the 'not for turning' attitude on the Government on this Levy; as introduced in the Finance Bill.

Let's call a spade a spade; this Levy will have a negative affect my business but it also affects me as a consumer as I have a preference for saving/investing through these products. I don't fancy handing over 1% of every payment I make, to save for my family's future, to subsidise a Government that can't think beyond tomorrow.

In 1985 the Government introduced a 'temporary' insurance levy of 2% on General Insurance (house, motor etc.) premiums to assist with the bailing out of the Insurance Corporation of Ireland. 25 years later, it's still there and it was increased by 50% in 2009.

Now, the Governments attention is focused on Life Insurance Protection type policies (mortgage protection, term insurance etc.) as well as Unit-Linked Savings and Investments. They had initially planned to apply the 1% Levy to private Pension policies but did a u-turn on the wisdom of that between the publication of the Budget and Finance Bill. The 'great minds' that had the temerity to even think about slapping a levy on these pension policies should be the ones that are emigrating.

Anyway, back to the title of this post. I understand that Government need to raise revenue to bail out the reckless spending and lending that has landed us in the mess we are in, but I don't understand the train of thought that goes along with some of the areas they are hitting.

Here is a summary of why I think that the 1% Levy on Unit-Linked Savings and Investments is a bad fecking idea :

# It's Anti-Competitive - It does not apply to all similar type products in this sector.
# It's a deterrent to save/invest - Folk should be encouraged to save so that they have something to fall back on when their Country goes bust, just to keep the show on the road.
# I would have serious doubts about the anticipated revenue it will raise - Do they (DoF) even know?
# The Government take tax at 28% of the growth on these funds already.
# Consumer groups have been campaigning for a long time to reduce the costs of these products - not increase them.
# There seems to have been no thought given to the costs of administering the collection of the levy.
# It punishes those that are being prudent with their money by saving for the long-term - Unlike you-know-who.
# It will drive savers/investors to the doors of the Banks and Post Office - Think about that one!
# There is no 'plan' as to how long this levy will apply - "Shur they'll get used to it like the Insurance Levy".
# It comes at a time when the Government are introducing their own medium to long-term savings scheme via the National Solidarity Bond - No levy on that then. Ahem!!!

Folks, would there be any appetite out there to get the Government to reverse this levy on Unit-Linked Savings and Investments? They haven't listened to the Industry heads. Do you think that they might listen to the consumers?

UPDATED 30/12/2011

The 1% Levy on the Savings & Investment product available at www.InvestAndSave.ie will not apply for the term of the contract.

The F.U. File

2010-02-01T16:01:00.002Z

I keep a file in my office, simply titled F.U. It's littered with F**k Ups by Life and Pension Companies over the past 3 years. F.U's that cost my business money. There are also letters from these companies offering 'sincere' apologies for their incompetence and assuring me that the 'problems' have been rectified. To be honest; these letters are as empty as the heads that wrote them.

It was my hope that 2010 would bring some change to the way Life & Pension companies do business. Alas, it has begun the way that 2009 ended; same story, different year. I don't think that I would have higher expectations of customer service than other Financial Advisors. From talking with a few others before Christmas, it would appear that they are also experiencing servicing difficulties with some of the players in the market.

It really is baffling that the very companies that are losing business and market share cannot up their game to win new business by providing a superior service to customers. It seems that 'buying' business is where it's at in management circles but this method of business growth is not good news for the end consumer.

What I would like to ask the readers of this Blog is this : 'Do you think that I should post i) details of servicing issues that I am having with companies here ii) the names of the companies involved and iii) the name/s of the individual/s responsible for the F**k Ups?'

In your opinion would it hinder or help with customer service?

Have Bank Mangagers merely become 'fluffers' for their Financial Planning Consultants?

2010-01-08T15:31:00.002Z

A client of mine lodged a six figure sum in her AIB current account just before Christmas. Within 48 hours the bank manager was on to her acknowledging the lodgement and asking if she had any 'plans' for the money. The client is savvy enough to recognise what she would consider to be a genuine interest in her finances and what was a sales pitch. The client told the manager that she had 'plans' for the money and the telephone conversation ended. The client subsequently received a letter from the bank manager listing '..some Deposit Options for consideration.'

As I understand it, AIB are under pressure to take in as much deposit money as possible as it is their principal source of funding at the moment. The bank says that they are continuing to "target a progressive reduction in their loan to deposit ratios" and that they are selling some assets as part of an ongoing strategy to successfully unlock "shareholder equity for its core business activities". Last time I checked, 'core activities' meant 'Deposit Taking' and 'Lending' not 'Holistic' Financial Planning.

I'm finding it difficult to reconcile what they are saying and what they are doing. If they are so anxious to take money in via Deposits, why are they continuing to use their deposit base as a gravy train for the investment products that they offer through AVIVA?

The letter that I mentioned above, titled "Deposit Options", also contained the following paragraph : "Ideally we recommend you to meet with Financial Planning Consultant who will cover off all the options available including some long term funds with potential to outperform Deposits."

Seriously; have the Bank Managers merely become 'fluffers' for their Financial Planning Consultants?

The use of the words "all the options available" suggests that the Financial Planning Consultant might recommend a Deposit Account, perhaps with another institution, that is offering a higher rate of interest. It also implies that the Consultant may recommend an investment product from all the options available on the market. Nothing could be further from the truth. The Consultant would either recommend an AIB Deposit Account, an AVIVA Investment Product or a combination of both. They don't recommend the more competitive products available elsewhere on the market.

I think that it's about time that someone took them to task on the way that they present themselves to their customers. It is about time that they were banned from the 'sharing' of Deposit Account holder information with their Investment Salesmen/women. It is also a pity that the Department of Finance did not make some reference to the movement of Deposits with Banks to Investments with linked companies, when they decided to Recapitalise the Banks last February.

'Personal' Financial Review of 2009

2010-01-05T10:10:00.004Z

Highs

* Brendan Investments - Pan-European Property Plc. Fund - Small investment in December 2007 - Very happy with it's progress, relative to its peers, and the management are doing a very good job. It is a fund that I would expect to do very well.
* Switched an under-performing pension fund from one provider to another as part of a re-balancing of asset allocation. Increase in value of 35% since February 2009 through a combination of investments in Earth Resources, European Equity, Asia Pacific Equity and Gold Funds.
* Took a 50% stake in 3 small commercial property units in 2006, near Helsinki Airport, and all units continue to be occupied, so I am happy about that.
* Had no exposure to Irish Banks Shares.

Lows

* A fairly hefty reduction in my income level, but this was expected due to the changes in my business model and recessionary factors.
* Nominal value of 50% share in apartment in Tenerife (purchased in 2000) is obviously down but I have no intention of putting it on the market anytime soon, as family and friends make good use of it.
* Had to dip into savings but was fortunate enough to put something by for the 'rainy days/years'. "Without savings, there is no future."
* The amount of judgements against Banks etc., highlighted in the Financial Services Ombudsman's Reports, for misselling financial products.
* The 'fall off a cliff' service levels from some Life & Pension providers.

Outlook 2010

* Clients will continue to regularly invest in a well diversified portfolios of low-cost unit linked funds, both managed and index-tracking. Personally, will not be making any investments in property but I would not deter clients from investing in some sort of diversified 'liquid' global property funds.
* Continue to offer value to my customers by relying on a fraction of income that other need to operate profitably.
* Funds I like - GARS and Global REIT from Standard Life. Diversified Asset, Earth Resources and Cautiously Managed from Zurich. But, you should buy these from a Discount Broker, so as to reduce costs.

www.investandsave.ie

www.bond.ie

www.prsa.ie

I Don't Follow You (on Twitter because....)

2009-12-17T16:00:00.002Z

Your Name and Location are not provided

You are too lazy to include a unique Avatar (unless you're a client)

Your Bio tells me nothing about you

Your Following and Followers are not balanced (unless you're really important or interesting to me)

You Tweet too much (10 per day is enough, ignoring replies and RT's)

You include your website in every Tweet

Your Tweets are 'Protected'

You Tweet the same Tweet multiple times

You #FF me but don't Follow me yourself

You are a Spammer

Your Tweets are not interesting to me

Your Tweets are aggressive

Your Tweets refer to 'Making Money with Twitter'

Your Tweets are similar to those provided by someone else that I Follow

You expect me to read your Tweets but don't read mine

Your Tweets are not diverse

You make no attempt to engage with your Followers

You are 'into' Direct Marketing (big time!)

You don't Follow Back after 2/3 weeks

You ask a question but don't acknowledge an answer

I think that 500 (maybe less) 'Friends' is enough for anyone to cope with

Of course there are exceptions, but not that many. If you have any to add to the list, please feel free to do so.

CGNU Policy Change (Ireland)

2009-12-15T11:13:00.002Z

Anyone that has a CGNU (GA Life) Investment Bond, that is 10 years old, will recently have got a communication from Hibernian Aviva. This letter is basically telling you that, because it is the 10th anniversary of the policy, you can currently exit from the Bond without a Market Value Adjustment (MVA).

You can exit/surrender/encash a CGNU Investment Bond without an MVA (currently 14%) applying on the 10th anniversary and on each subsequent 5th anniversary. This condition would have formed part of the original policy document.

The letter from Hibernian Aviva goes on to say that '...if you decide to leave your money invested, you can reduce any MVA that may apply when you subsequently withdraw from the fund by up to a maximum of 14%'. This is very important. But, Hibernian Aviva have not communicated the mechanics of it to the very advisors you will rely on to direct you on what the correct course of action is right for you.

What this additional condition means is that, if you want to cash in your policy at any future date, and the MVA on this tranche of business stays at 14%, you can do so without penalty. The only situation that could arise that would mitigate against you would be where the MVA were increased. If this happened, and say it was increased to 20%, you would only pay 6% of an MVA on your future encashment value.

If you cash in your CGNU Investment Bond before the 1st of January you will not be eligible for the final installment of the Special Bonus that is due for 2010. The Reattribution Bonus will, however, be paid in any event.

I honestly do not know why this new 'condition' has been applied to these particular policies. Perhaps it has something to do with the whole Reattribution process?. Maybe, the company have decided that it is not cost effective to administer these policies from the UK any more and that they would prefer that this tranche of business left them for good?

Zurich Life (Eagle Star) Balanced Fund

2009-12-04T14:04:00.001Z

The 1st of November this year marked the 20th anniversary of the Zurich Life (Eagle Star) Balanced Fund. This fund would have an indicative Global Equity exposure of between 50% - 75%, with the balance being held in Bonds and Cash. It's general categorization in terms of Risk/Reward would be aimed at those who are 'Medium' risk takers.

The Balanced Fund did pretty well over this period: so rather that just say that the total gross performance was 632%, I wanted to provide a pension example using a monetary value.

If you invested €5,000 on 01/11/1989 and then paid €100 per month up until 31/10/2009, your total contributions would have amounted to €29,000. The value of your pension fund at 31/10/2009 would have been €84,028*. For an initial contribution of €10,000 and a regular monthly contribution of €250, the final fund value would have been €193,651*.

These figure represent a net annual compound return of approximately 8%.

Disclaimer: My only motive in doing this exercise is to 'translate' the gross 632% into an indicative annual net return.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. Benefits may be affected by changes in currency exchange rates.

* Assumes a single charge of 1% per annum on the value of the fund ie. that no other charges apply to the product.

www.prsa.ie

An Industry on a 'Collision Course' with itself

2009-11-27T11:44:00.002Z

In July 2008 I wrote an 'Industry Overview' blog post in which I stated that the Life & Pension Companies in Ireland needed to turn their business model on its head to ensure their future viability. So what has changed in the last 16 months that has given me hope for optimism?

The short answer is: nothing!!

It would appear that the management of these financial institution are running around like headless chickens as they struggle to cope with the reductions in new business and the exodus of existing business.

The main focus of their current business efforts is in 'buying' business. This is predominately directed at the larger corporate broker sector so the 'small' guys, like me, have become surplus to requirements as far as they are concerned. The management line is all about 'developing partnerships' with brokers but they fail to mention that it only applies to the 'big' guys. Needless to say, I have no time for managers that talk-the-talk but don't walk-the-walk.

What I would really like to see happen with these companies is that they seriously look at the following issues :

i) Service - The general level of service to customers is atrocious. Service cannot be defined as processing 'new' business effectively. You have to start looking after existing customers. Customers should be for 'Life not just for Christmas'.

ii) Factory Gate Pricing - Companies have to introduce this immediately. The current model based on full allocation with exit penalties is dead, and you know it.

iii) Simplify Products - There should be a maximum of only two types of charges that can apply to a product.

iv) Embrace Technology - All companies should give their clients full access to their products online. They should also embrace Social Media. There is only one life & pension office on Twitter and the last time they tweeted was 13th August.

v) Acorns - The future viability of your business does not revolve around 'High Net Worth' individuals. It rests with the the folks that want to start something 'small' and build it up in the future.

vi) Moral - You've got to look at boosting the moral of your staff. Your management are severely damaging your employees motivation.

If you continue to do nothing; you will win the race to the bottom of the Life Insurance & Pension market.

Switching or Changing Pension Provider

2009-10-20T10:24:00.004+01:00

If you are thinking of switching/changing your pension provider because you are none too happy about the level of charges on your product, consider the following:

If a person saved €1,000 per month (index linked at 3%) from the age of 30 to 65, the estimated retirement fund at 65 would be €1,472,823. This assumes that there is a 5% contribution charge on each payment made, the annual management charge is 1.5% and the fund grows at 6%pa.

Using the same details for contribution,term and growth rate, but having an annual management charge of 1% and no contribution charge, the estimated fund would be €1,673,568.

That's over €200,000 in potential savings. Is that a good enough reason to change?

Convertible Term Insurance

2009-09-28T15:27:00.003+01:00

One would be forgiven for thinking that a product like Term Insurance should be pretty easy to understand. Normally, you pay a fixed premium for a fixed sum insured for a fixed term, end of story.

However, throw the word 'Convertible' in front of Term Insurance and a myriad of terms and conditions appear that are not standard throughout the Life Insurance Industry. 'Convertible' refers to the option of converting the existing policy to another type of policy, at some date in the future, without medical evidence.

The notion that price is the only deciding factor for a Convertible Term Insurance policy is a nonsense. Flexibility of the conversion option, in my opinion, carries much more weight.

In a recent e-mail survey of the Life offices offering Convertible Term policies in Ireland I asked a number of questions regarding the flexibility of the policy and what, exactly, were the policyholders options on the 'conversion' date.

Aviva/Hibernian Life - You cannot convert to a Pension Term Insurance. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

Caledonian Life - You can convert to a Pension Term Insurance. Client would get non-smoker rates at date of conversion and existing policy can be altered (premium reduction) to take into account non-smoker status after qualifying period.

Canada Life - If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term. You cannot convert to a Pension Term Insurance.

Eagle Star/Zurich Life - You can only convert the policy at the end of the original term (not during). If you were a smoker when you took the policy out but qualify as a non-smoker now, full underwriting is required to change the policy. You cannot convert to a Pension Term Insurance.

Friends First - Non-smoker rates can be availed of at the end of the policy term if you are converting to a new policy, without full underwriting. Smoking status cannot be altered during the original term of the policy.

Irish Life - Converting to Pension Term Insurance is not an option. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

New Ireland - No Response (yet!).

It is likely that the majority of the above companies will have to review their product offerings. The profitability of this type of product is dependent on the term that it stays in force. It makes no sense whatsoever to 'force' the policyholder to jump through hoops (ie. new application with full underwriting) if they need to make an alteration to an existing policy. It is hard to reconcile how a product provider can make money on these products when an alteration will, more than likely, drive their client to another product provider.

At the moment, the Caledonian Life policy offers the greatest flexibility, at a competitive price; but this is based on current underwriting practice.

Best Pension Fund

2009-09-22T11:02:00.003+01:00

Reluctant as I am to do a post on the past performance of pension funds, it is probably better to do one where it can be put in its correct context, rather than relying on it as an indicator as to what might happen in the future.

I would like to start by saying, what has gone before has no relevance as to what may happen in the future. Having said that, it would appear that many pension policyholders ( or potential pension policyholders) continue to study the past performance of pension funds with a view to factoring it in to their overall evaluation of how their pension is doing or indeed how it might do in the future.

If you need to study past performance, then I would suggest that you select 3 or 4 random documents from this page. The reason that I would take random documents is because fund managers can produce at least one period where they may be Number 1 on a specific single fund.

The information included in these monthly investment reviews are for the last five years from one product provider, but include the relevant data for all pension providers. There are, up to 13 categories of funds included and the data is broken down over 1, 3, 5, 10, and 15 year annualised returns.

In summary, you should take past performance with a pinch of salt and don't rely on it as a deciding factor on which pension provider is best for you. It is better to focus on the costs/charges, suitablity, flexibility and service available on the product.

Featured website www.prsa.ie

Warning: The income you get from an investment may go down as well as up. The value of your investment may go down as well as up. Benefits may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance.

Pension Plans with Guaranteed Annuity Rates

2009-09-18T12:15:00.003+01:00

Even though it is not now possible to buy a pension plan with a guaranteed annuity rate attaching to it, there are people that may have old policies with this feature.

If you have one of these policies, the provider may allow you to invest additional contributions in it to avail of the underlying guarantee on the original contract. But, because the policies are probably 20+ years old, the charging structures on them will be higher than what are currently available on the market. It is, however, possible to negotiate on the commission basis and you should do this to ensure more favourable terms for yourself.

It is often the case that a policyholder may have a number of different Personal Pensions (RACs) with various providers. When it comes to retirement, the policyholder is entitled to take 25% of their fund/s tax-free. Usually, the 25% is taken from each individual policy and the balance is used to buy an annuity, invest in an Approved Retirement Fund/s or a combination of both.

If you are fortunate enough to have one of your pensions maturing with a guaranteed annuity rate attaching to it, the annuity rate will be a couple of percentage points higher than what is currently available on the open market.

So, if you have i) a number of different policies ii) a guaranteed annuity rate applies to one of them iii) you want to avail of the guaranteed rate to buy an annuity and iv) you want to take your tax-free cash of 25%. What should you do?

Instead of taking the 25% from the policy that has the guaranteed annuity rate, you should take the equivalent amount from one of the other pension plans. It is not compulsory that the tax-free cash is taken from each individual policy, provided you can show that this amount does not exceed 25% of the total aggregate funds that are available.

If you were forced to take 25% of the policy that had a guaranteed annuity rate on it, this would put you in a disadvantageous position with regard to the benefits accruing, so Revenue will allow the aggregation of total funds available to overcome this predicament. It is essential that the 25% tax-free cash does not exceed the Revenue limits.

Inglorious Banksters

2009-09-14T17:17:00.003+01:00

It never ceases to amaze me why investors continue to buy the shares of Irish Banks, when I stop to consider the prolonged list of (not so kosher) activities that they have had a hand or part in over the last 20 odd years.

In my eyes, the whole 'Institution' of Banking is supposed to be based on Trust, Honesty, Integrity and a bunch of other characteristics that typify good moral fibre.

Pause for a moment to consider the following Banking 'issues' :

Bogus Non-Resident Accounts, Overcharging (everything from foreign exchange to mortgages), Rogue Trading, Tax Evasion, Misselling of financial products to elderly, 'Exceptional Support' of another Bank, 100% Mortgages, Concealment of Personal Loans, Failure to ensure the accuracy of Regulatory Reports and, of course, the 'big' one that has given rise to NAMA.

I am sure there is probably a bunch of other issues that I may have failed to include, but investors continue to buy shares in these companies even though they are aware of these matters of contention.

I do business with companies and individuals because I trust them.

Why would I buy shares in these Banks? Or, why would I hold on to the shares if I was holding them?

What's In The News

2009-09-09T15:06:00.001+01:00

Another Aphorism from Warren Buffett

"If it's going to keep me awake at night, I am not going to go there."..... in reply to the question whether anything (in his own financial decisions) was keeping him awake at night.

Economic 'Double Dip'

Professor Joseph Stiglitz has warned that the global economy could be heading for another dip. Savings rates are increasing so there are not that may people spending money to drive demand for products and services. I think that this reinforces our own precarious position here in Ireland. Looking at my own credit card statement for last month, the only 'Irish' transaction on it was a purchase at Shannon Duty Free.

Reports Galore

The Reports of the 'Special Group on Public Service Numbers and Expenditure Programmes' and 'Commission on Taxation' have been issued and the findings/recommendations will be debated for some time to come. Of course the 'real' debates will only commence once someone actually decides to implement any of the recommendations. Until such time as that occurs, I don't think that there is too much point dwelling on them.

I was however, disappointed that I could not find a recommendation from the 'Commission on Taxation' on allowing Gains/Losses to be offset against each other on Unit-Linked Saving/Investment type products.

The upshot of all these reports is that we need to save and spend at the same time, to keep the show on the road. A delicate balancing act for any Government in difficult times.

The Search for Value

More and more, consumers are seeking out better value on products and services. 'Mediocre' is just not acceptable with the thrift campaign that the Nation has embraced. To paraphrase Colm McCarthy, product and service providers "need to do more with less". Forced competitiveness, if you will.

PS :

Animated Films

For those of you with kids who like good animated films, you should check out some of the ones by Hayao Miyazaki and Isao Takahata at Studio Ghibli (if you have not already done so). This market does not begin and end with Disney/Pixar.

My Top 10 Personal Finance Tips

2009-08-29T10:56:00.003+01:00

Rule No. 1 - Never take Financial Advice from a Bank.

Rule No. 2 - Never, ever, forget Rule No. 1.

Rule No. 3 - Inertia is not your friend. It is the bedfellow of Financial Services Companies. Always look for cheaper alternatives.

Rule No. 4 - Be wary of the 'Past Performance' of Fund Managers as a reason to buy a product. It's irrelevant to what lies ahead.

Rule No. 5 - Educate yourself on investment and pension products so that you can eliminate the cost of financial advice.

Rule No. 6 - 'Free' Financial Review or 'Free' Impartial Advice - Where advertised; just steer clear.

Rule No.7 - Interview your Financial Advisor like you would a prospective key employee. Ask for references & recommendations.

Rule No. 8 -The average investor should not buy shares directly in companies. Low-Cost Index Tracking Funds is the way to go.

Rule No.9 - If you have to invest in a structured 'Tracker Bond'; only do so on a day that does not end with a 'y'.

Rule No. 10 - Diversify, Diversify, Diversify (your investments)- Over Asset Class, Sector and Region.

Eagle Star (Zurich) Gold Fund

2009-08-05T11:38:00.002+01:00

Eagle Star Zurich have launched a unit-linked Gold Fund as part of its Matrix Range of Funds. The Gold Fund is aimed at those who (i)would like to gain exposure to movements in the price of gold (ii) want to diversify a portfolio of existing assets and (iii) have a higher risk preference.

The fund tracks the spot price of gold by investing in an Exchange Traded Commodity(ETC), which is backed by physical gold. A currency risk arises here for the Irish Investor, as the spot price is denominated in US Dollars.

You can access this fund through the products available on the www.InvestAndSave.ie and www.prsa.ie websites. There are no entry or exit charges through these websites. 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 ETC.

NB: While the fund is available to pension and investment/savings clients: unfortunately, it is not available under a PRSA type product.

Warning: The value of your investment may go down as well as up. Some products/funds may be affected by changes in currency exchange rates.

1% Levy on Life Assurance & Pension Products (Update)

2009-07-30T10:58:00.015+01:00

The following is a summary of the positions taken by each of the Life Offices in respect of the 'new' 1% Levy on Protection/Pension/Investment/Savings policies, as at 30/07/2009.

Standard Life

The levy will be deducted from any premiums invested into Standard Life savings and investments policies on or after 1 April 2010.

Standard Life will continue to absorb the cost of the levy on premiums paid on protection policies. Updated 30/03/2010

Eagle Star Zurich

Will be collecting the 1% premium levy from 1st August 2009 on all protection and group risk policies.

For new ( Self-employed Pensions(RACs),PRSAs, ARFs, Annuities, Personal Buy-Out-Bonds, Investment and Savings contracts) business transacted after 1st of August, they will meet the cost of the 1% premium levy for premiums paid in August on any new business (including single premium top-ups) that are introduced before 1st September. They will not make any retrospective charge for such payments regardless of how the IIF proposals are received. They will review the situation in the coming weeks and will advise if this interim approach is to continue for September.

The 1% Levy applies to regular contributions to savings plans with effect from 01/07/2010. Levy applies to Single Premium Investments from 01/09/2010. Updated 13/09/2010

For existing ( Self-employed Pensions, PRSAs and Savings) business they intend to defer applying the 1% premium levy on these contracts pending the conclusion of discussions with the Department of Finance. Given the uncertainty as to what changes to the levy might be made as a result of these discussions, they reserve the right to deduct outstanding levies from the contracts when and if it is appropriate to do so.

Quinn Life

As part of Quinn Life's 10th anniversary celebrations, Quinn Life will cover the cost the levy for new and existing investments and savings business for their customers in 2010. Updated 02/03/2010

Caledonian Life

If a client has a Regular Premium protection policy (for example payable monthly or annually) their payment will increase by 1% from 1st August. If a client makes their payment by direct debit their payment will increase automatically. If a client makes their payment by other methods, Caledonian Life we will notify them of the increased payment in their next renewal notice.

The levy does not apply to existing Single Premium Investments. However, the levy will apply to all top-ups to existing policies and all new policies taken out from 1st August. 1% of any single premium received by us from 1st August will be deducted for the levy and paid to Revenue.

Irish Life

Irish Life implemented the Government levy for protection plans on the 01 August 2009.Protection plans include life cover, mortgage protection plans and plans which pay an amount on disability or the diagnosis of a specified illness.

This levy will also be introduced on Savings plans from the 01 February and on new investment plans from 01 March 2010. Updated 30/03/2010

Hibernian Aviva

Hibernian Aviva will apply the levy on all protection policies from August 1.

Pending the outcome of industry discussions with the Department of Finance, Hibernian Aviva will not apply the 1% levy to pension and investment products while the discussions with the Department continue. Hibernian Aviva will review this position when they have greater clarity.

Hibernian Aviva will not apply the 1% levy retrospectively to premiums for pension and investment business received during this period. Therefore, we will not be going back to customers to apply the levy to pension or investment premiums already paid.

Friends First

For Executive Pension, Group Defined Benefit and Defined Contribution Schemes no levy will apply.

For Individual Protection, Group Protection and PRSA type contracts; pending outcome from Revenue, the Levy will only be collected from 1st January 2010

For Single Premium Pensions, Investments, ARFs and Buy-Out-Bonds; pending outcome from Revenue, the Levy will only be collected from clarification date. There will be no retrospective collection.

For Regular Premium Pensions, Savings and Life Insurance; pending the outcome from Revenue the Levy will be collected retrospectively to 1st August 2009.

New Ireland

Will collect the additional 1% of the premium from customers on the following policies with effect from 1st of August: life cover policies,mortgage protection policies and policies which pay an amount on a specified illness or on disability.

They are deferring collecting the levy for investment and pension customers pending the outcome of discussions with the Department of Finance.

Canada Life

Protection Business - The levy will be applied with effect from 1st August 2009

Existing Pension & Investment Business - Since August 2009 Canada Life has been applying the levy in arrears on existing savings and investment policies. However, from April 2010 Canada Life will collect the new 1% levy as part of a policyholder's existing payment method by adding it to their premium. In addition, Canada Life will begin to apply the levy on certain policies which it has exempted from the levy up until now.

Letters informing savings and investment policyholders of the changes to their policies, as well as a list of frequently asked questions, have been posted this week. Meanwhile, all new and existing pension clients will receive a letter later in the month to inform them that the 1% levy no longer applies to pensions (as per the Finance Act 2010) and that the levy is no longer being applied to their policies. Updated 09/03/2010

NB : Some types of group pension schemes are exempt from the
Levy.

Update 17/02/2010

The 1% Levy is being collected by all Life Offices for Protection Policies(Mortgage Protection, Term Insurance, PHI etc.)

The 1% Levy will not apply to Pension Policies.

Some Life Offices are collecting the 1% Levy on Savings & Investment Policies and others are planning to do so shortly.

If you are currently planning to Invest a Lump Sum in a Unit-Linked Investment Bond you should check with the product provider as to whether the levy will apply to you.

As of 30/03/2010, the 1% Levy on the product available through www.InvestAndSave.ie is being absorbed by the Life Offices and we will not make any retrospective charge to you for such payments.

1% Levy on Life Assurance & Pension Products

2009-07-20T12:01:00.005+01:00

The 1st of August is almost upon us and the introduction of the new 1% Levy on payments to Life Insurance & Pension products is still in a bit of disarray. What is certain, is that from that date the 1% (of each new premium) will apply to individual life insurance 'protection' policies (Mortgage Protection, Term Insurance, PHI etc.). However, the 1% Levy on all new contributions to Pension/PRSA and Investment/Savings products remains a bit of a mystery.

On Friday I received confirmation from Irish Life that they are proposing to 'absorb' the cost of the 1%, to consumers, on Pension/PRSA & Investment/Savings contributions until further notice. It would appear that they, and other members of the Insurance Industry Federation, are in negotiations with the Department of Finance to try and come up with a better solution to this additional 'tax' on savings.

It is my understanding that all Life Offices acknowledge that the Government needs to raise additional revenue; but the levy on savings type products, in its current form, is not workable.

I would hope that the rest of the Life Offices operating in Ireland will adopt a similar approach to Irish Life, as I do not see the Levy as being a major revenue spinner for the Government in the immediate future. Indeed, judging by the levels of contributions to these type policies year to date, I doubt that it would be a hefty burden to bear by any well managed Life Office, from now until December.

A more practical, and probably easier to administer, approach would be to take a nominal tax on the funds under management of each Life Office. Whether this 'tax' would be passed on to the consumer, in the form of an increase in Annual Management Charges, remains to be seen.

As an industry practitioner, I don't go along with these additional taxes on savings. Without savings; there is no future. The Government should be abundantly aware of this predicament.

Update 17/02/2010

The 1% Levy is being collected by all Life Offices for Protection Policies(Mortgage Protection, Term Insurance, PHI etc.)

The 1% Levy will not apply to Pension Policies.

Some Life Offices are collecting the 1% Levy on Savings & Investment Policies and others are planning to do so shortly.

If you are currently planning to Invest a Lump Sum in a Unit-Linked Investment Bond you should check with the product provider as to whether the levy will apply to you.

As of today, the 1% Levy on the products available through www.InvestAndSave.ie and www.Bond.ie is being absorbed by the Life Offices and we will not make any retrospective charge to you for such payments.

Changes In Tenerife

2009-07-07T16:04:00.002+01:00

For the past seven years I have been travelling to Los Cristianos, on a regular basis, for family holidays and weekly breaks. In that time, much had changed on the Island; but the climate is still the number one attraction as far as I am concerned.

The airline service to Tenerife has improved dramatically and you no longer have to rely on purchasing a 'seat-only' from one of the tour operators. Ryanair have a regular service from Dublin and Shannon and Aer Lingus fly from Dublin; and from Cork for 5/6 months of the Island's 'peak season'. I would consider a 4 hour return flight, at a cost of €125, to be pretty good value for money. Of course, this is probably at the lower end of the cost scale and at times it can rise to about double that, depending on timing.

I was there last week and the Island is very quiet. Even allowing for the fact that the Summer months would not be considered the busiest time of the year, there was a genuine lack of buzz around the place. As the kids in the UK have not got their school holidays yet, this may have contributed to the scarcity of people. On average there are usually about 25 beds out around the pool area where I stay; 12/14 was the most that were there this time.

Some other negatives would be : UK retirees that had their pensions paid to them while living in Tenerife are finding that the money is not stretching as far as it used to due to the current exchange rate (some have even returned to the UK). The young people that worked in the clubs and bars are returning to the UK as many have been let go and I believe that they are entitled to little or nothing in the form of social welfare in Tenerife. Taxi fares have increased, what I used to pay €2.75 for two years ago has now gone up to €3.75. There are lots more of Se Alquila and Se Vende (for rent/ sale) signs up around the place for shops and apartments; and it is very difficult to sell a property at the moment. My local Chinese restaurant manager told me that he was doing very little take-away business.

On the positive side : It's still Duty Free, even though it is in the EU. Medication and Prescription Drugs are a fraction of the cost that we have to pay here. Finnish has been added to some of the menus in the restaurants that I frequent (more holiday makers from Finland, I presume). The Local Police are now patrolling the promenade on their 'electric' motor cycles. There is little or no new development of accommodation complexes in Los Cristianos.

So, if you like the climate there; can arrange your flight for around €125; don't mind that there are less people around; are fond of walking; want to buy a reasonably priced apartment; are a smoker and/or a spirit drinker or are on some form of medication, it's not a bad stomping ground at the current moment in time.

Blogger Interview - Miriam Ahern

2009-06-18T09:41:00.004+01:00

What is the best business/investment decision you ever made? Setting up my own organisation development and human resources consultancy practice, Align Management Solutions, in 2001.

What kind of car do you drive? Jaguar XJ8

What is the worst financial advice that you ever received? To take out an endowment mortgage in 1987 – Thankfully I didn’t!

Do you own property abroad? Yes

How does the economic slowdown effect you? Like any other industry, in professional services it’s now harder to get new business and harder to get paid.

Do you contribute to a pension plan? Yes

What's your favourite film of all time? Billy Elliott because it shows what can be done against the odds when you have an unshakable vision and the passion to back it up.

Have you ever won money? Not yet but I’m ever hopeful!

Do you own your own home? Yes

Do you invest directly in the stock market, through funds or both? I had fantastic share options at one point during the dot com frenzy but they lost their value before I could exercise them. That reality check put me off the stock market somewhat.

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

What financial product/s do you consider to be bad value for money? Car loans, some credit cards, critical illness insurance (sounds good in principal but very tricky when you try to make a claim)

Do you trust your bank? I trust them but it really annoys me that having had personal and business accounts with them for twenty years, they still don’t know me when I visit.

Miriam Ahern is Managing Partner of Align Management Solutions

Pension & Investment Calculators

2009-06-16T14:10:00.004+01:00

I have been flirting with the idea of providing Pension & Investment Calculators on my websites for a while and I have come to the conclusion that they may not be as reliable as some may believe them to be.

The natural tendency for an individual would be to rely on the information generated as absolute. However, I feel that the following points are worth bearing in mind should you decide to use them.

# The information generated can be based on multiple assumptions. The results are therefore obsolete when one of these assumptions changes and you need to recalculate on a regular basis.
# The assumptions used vary; depending on the calculator provider.
# The 'result' generated may deter an individual from making savings/pension provisions as they may deem the result to be impractical or unaffordable.
# Not all investment calculators are equal. The assumptions and results can vary depending on what Country the investment company is Regulated in.
# Variables, such as Taxation, are constantly changing.
# Calculators do not pay too much attention to Investment Strategy.
# Estimators of levels of Life Insurance cover are generic. Every ones circumstances and requirements are not the same.
# Calculators are generally provided by product providers that can weigh the premium/contribution in their favour ie. quoting an unrealistically high level of benefit.

In isolation, calculators/quotes/estimators are no better than the general rules of thumb that are put forward by product providers or intermediaries. They may be a required starting point for some, but I would not bet the house on them fulfilling reasonable lifetime expectations for the average saver/investor. They are not a substitute for specific advice; that incorporates a common sense approach, from Financial Advisors.

'Two Ideas of Government'

2009-06-10T10:11:00.005+01:00

There was alot of talk about 'Democracy' in the Dáil Éireann yesterday. It reminded me of part of a speech made by US Presidential Candidate William Jennings Bryan on the 9th of July 1896 :

"Mr. Carlisle {Secretary of the Treasury} said in 1878 that this was a struggle between the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country; and my friends, it is simply a question that we shall decide upon which side shall the Democratic Party fight. Upon the side of the idle holders of idle capital, or upon the side of the struggling masses? That is the question that the party must answer first; and then it must be answered by each individual hereafter. The sympathies of the Democratic Party, as described by the platform, are on the side of the struggling masses, who have ever been the foundation of the Democratic Party.

There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it."

Which 'idea' are you weighted in favour of?

Direct Investment in Stockmarket V's Unit Linked Funds

2009-06-02T11:01:00.004+01:00

Individual investors who are between two minds as to whether they would be better off investing in a diversified portfolio of individual stocks or unit linked managed/index tracking funds may find this article of interest.

The author is of the opinion that :

....the decision to go with stocks or funds comes down to a realistic assessment of how much you want to make your own investing decisions and your ability to handle that responsibility. Walter Updegrave

If you allow for the Regional differences in terminology, resources and taxation the principles are basically the same. The 3 questions posed are very relevant.

Featured websites InvestAndSave.ie Bond.ie

Twitter - Two Months On

2009-05-27T10:08:00.002+01:00

I would consider myself to be on the lower end of the Twitter knowledge curve having created an account just two months ago. The following are some of the observations that I have made to date.

...for personal use

* Twitter is a great 'leveler'; like Texas Hold'em. You sit down with strangers and you can't predict an outcome.
* Twitter helps you mix with communicators that are better than you. This helps to lift you up a notch or two.
* It brings out the willingness in people to be helpful.
* If you are an information junkie, you're made.
* If you have addictive tendencies; you might be in trouble using Twitter.
* Fear of what to update focuses the mind, but may inhibit the content.
* Strong personalities shine through.
* Selecting people to follow, at random, is not a good idea.

...for business use

* Twitter for business should be like subliminal self-promotion. The 'in-your-face' repetitive promotion is a no-no.
* The greater the number of people that know you exist; and what business you are in, can't be a bad thing.
* The Development of a Twitter business 'relationship' has to be gradual.
* The personality behind the business usually comes to the fore.
* Twitter provides you with an opportunity to be 'busy being busy' as opposed to 'busy being productive'.

If you are also a novice to Twitter, I would be interested in your own thoughts on it. Or, if you disagree with any of the above, leave a comment.

Save for Retirement or Kids Education

2009-05-20T18:44:00.004+01:00

Those of you who have kids have probably given some thought to putting aside a few bob that will go towards helping with their education. You may even have set up a specific savings or investment account for them, where children's allowance or other money gifts are put away until they are needed.

More often than not, it is likely that the accumulated value of these educational funds will be insufficient to cover the full costs that will be incurred. But, at least you have made a start and you have a plan.

It is difficult to balance your 'here-and-now' family overheads, from the limited income resources available to you, with your potential long term liabilities in terms of educational costs. You may even be tempted to elevate savings for college as a primary objective; and bury retirement planning in the back of your mind. It's only natural; as you want to what's right for your kids and it is one of those selfless acts that comes with the territory.

The decision to prioritise your kids education over a comfortable standard of living in retirement is a personal choice. However, it may be worth considering some common sense financial issues, if you are beating yourself up over one or the other.

* If you have the opportunity to contribute to a PRSA or Occupational Pension Scheme, where the employer will match some or all of what you will contribute, it's a no-brainer; take the money.

* Any tax reliefs foregone cannot be recovered in future years. If you pay tax at the highest marginal rate, it makes perfect sense to contribute to a pension. This may change in the future as the divide, between the lower and higher rate of tax relief system, may be put on a more equitable footing. It is also possible that access to limited amounts of pension funds may be available, prior to normal retirement age, at some stage.

* If you have credit card debt, or other high interest loans, pay them off before you start making any long term savings plans.

* Make your kids aware of the fact that education is not free and that compromises will have to be made in the years ahead. As they get older, try to formulate a plan with them on managing their educational funding. If a limited amount of student debt is part of the plan, so be it. It's part of life and they can learn from it. It is easier to borrow for education than it is for retirement.

* If you have the resources to start funding for educational costs in addition to retirement planning, you should begin as early as possible. It's difficult to make up for lost ground if you leave it too late, and it may influence you into making investment decisions that would not normally be within your risk profile.

* If you are a home owner and you have not re-mortgaged on a regular basis you will have equity in your property which could be freed up if the need arises.

* Protect your family by having an adequate amount of life insurance in the event of the untimely death of a parent.

* If you are a business owner, try and add some value to that business so that it will enhance your future earning capacity and make your financial situation better. We tend to forget that more lucrative job opportunities may also happen for us in the future.

* Although there may be uncertainty about Government assistance for educational purposes, it is probably fair to say that there will be some form of grant or scholarship system available in the future. Weekend or part-time jobs for the students would also help with costs.

In summary, do not sacrifice funding for your retirement over your kids education. Look after number one, first. Always remember that you will be able to offer some financial assistance and guidance to your kids but it may not be in the form that you now aspire to. Financial goals of deferred retirement, reduced standards of living or taking on second jobs in retirement should not be on your radar.

Relevant/Featured Website/s www.prsa.ie www.InvestAndSave.ie

Competitive Business Environment

2009-05-14T14:38:00.000+01:00

Forgive my ignorance of economics, but I just don't understand how the current reform of taxation/spending is going to get us out of predicament that we are in.

Much has been written about the economic crisis in Finland in the 1990's and how this compares with what we are going through. Okay; the stock market and property market crashed, with drops of approximately 70% and 50% respectively, but they had their own currency at that time and had the 'luxury' of devaluing it to assist with a recovery.

As a small business owner I am acutely aware of the need to be competitive. The current crisis is having the effect of weeding out uncompetitive businesses but is also pushing some viable future businesses over the edge. There are internal costs that I can control, but the majority of the larger costs are outside my control. It's basically down to survival of the fittest at the moment, if you can get through this period unscathed then you will come out the other end in a far stronger position.

The private sector is being reformed by market force and the future is bright for businesses that can develop by gradual growth. A sustainable business will be possible, but the worry is in controlling those external costs. More worrying still, is the apparent irresponsible nature of the political establishment in managing these costs.

There is little point in having an environment where competitive and sustainable businesses can thrive, if the rewards of their labour are swallowed up in carrying the burden of an uncompetitive public sector. Both public and private sectors have to work in unison and we can't have a competitive 'one', without a competitive 'other' . It is about time that employee representatives in both sectors realised this. I would consider Finland to be a competitive and fair economy. They have made it so, without a minimum wage agreement.

In the short-term, consumers will benefit from the knock on effect of the surviving competitive businesses. Incentives have to be given to entrepreneurs and possibly investors, in creating and supporting businesses that actually 'make' something. Importing 'services' businesses that can be easily relocated to up-and-coming competitively priced countries is a stop-gap measure in a country's development.

Until such time as the hard economic decisions are made on whether we want the country as a whole to be competitive, not just sections of it, the problem will not go away. Or rather, it may go for a while but it will resurface again and again and again. I am sure that, given the choice between sinking and swimming, many more business owners would prefer to try rising above the surface without an anchor tied to their leg.

Active Fund Management V's Consensus Fund

2009-05-11T14:19:00.004+01:00

Are there any Consensus Fund lovers out there that would like to rebut the points made by the Pensions Director of Eagle Star/Zurich in favour of Active Fund Management?

The Z-Cast is available here

In short, he argues that:

a)'Consensus' (follow the herd) has had its day
b) The out performance of some active managers could be the difference between having a solvent and insolvent pension scheme
c) The 'rear view' investment approach does not capture investment opportunities due to a time lag
d) Trustees of pension schemes should reconsider their 'safe' investment decisions
e) Some Actively Managed Funds are not necessarily more volatile than Consensus Funds.

Would be very interested in any views that you may have on this debate.

PS: It's specifically to do with Consensus Funds V' Active Fund Management. Not to be confused with the Active V's Index Tracking debate.

Relevant/Featured Website www.investandsave.ie

'Sitting in a well, looking at the sky'

2009-05-07T15:58:00.002+01:00

The title of of this post refers to a Chinese Proverb, which basically means that you need to get out of the well to see the big 'picture'.The reason that this comes to mind is in the decision by George Lee to stand in the Dublin South by-election.

To me, the political party that he runs for is irrelevant as long as he does not get swamped by the status quo . What is important, is that he would have the ability to see the big 'macro' picture, and this would be very refreshing indeed. We need to take a step back from where we're at and change way things are done in the country. Very few 'local' political decisions are made in the national interest.

When the news of his candidacy was announced I did a quick search on what would be deemed the characteristics of a 'good' politician. The following would appear to be what is expected : Be Intelligent, Reasonable, Humble, Honest & Patriotic. Have Fiscal Experience and Clear/Achievable Goals. Have the ability to Think Strategically and Listen to others. Earn Respect and Know when to Quit.

I don't know about you, but I would settle for someone that is not of the 'typical politician' persuasion. Only time will tell but I think he should be given a fair chance.

If he can bring something new to the table, it has to be welcomed.

An Insurance Product of Last Resort

2009-05-01T08:11:00.001+01:00

Every now and again an insurance product is introduced to the market that causes me to scratch my head and ask, "Why bother?". One such product is the new '50+ Easy Life Cover' from Irish Life.

This product is aimed at the age 50+ market and is designed to provide a limited amount of 'Life Insurance' for a fixed regular premium. There are no medical questions so you are guaranteed to be issued with a policy irrespective of your state of health. The premium is payable until a claim arises or age 90, whichever is the earliest. Smokers and Non-Smokers are charged the same premium.

Sounds great, as long as the premiums charged offer good value for money. Right?

If you die in the first two years of the policy, the sum insured would not be paid out unless it's as the result of an 'accidental' death. If you die from anything other than an accident in the first two years, your estate would receive a refund of the premiums paid.

A typical example of the cost of this product would be as follows. A Female aged 60 would pay €30 per month for a Sum Insured of €7,343. At first glance that looks okay, but when you consider that the average life expectancy of an Irish Female is 81.6 years, I'm not sure where the value lies ie. €30 X 12 X 21.6 = €7,776

In my opinion it would be more prudent to apply for a 'Guaranteed Whole-Of Life Insurance' policy by completing a full proposal form. If further medical evidence is required by the insurer it is not going to cost you anything for a Medical Attendants Report or Full Medical Report. The insurance company pay for these.

A relatively healthy, non-smoking female aged 60 would expect to pay a premium of about €18 per month for a sum insured of €7,343 with this alternative type of policy. The cover would apply from the date the policy is issued.

In summary, if you have to buy the '50+ Easy Life Cover', buy it as a last resort and pay particular attention to the exclusions that go with it.

Blogger Interview - Killian Nolan

2009-04-22T11:37:00.005+01:00

What is the best business/investment decision you ever made?

Investing in an Equity SSIA. I'm still amazed at the amount of people that did not take up the offer.

What kind of car do you drive?

A very old BMW 520

What is the worst financial advice that you ever received?

Buy AIB shares at €18. Great Company and with a dividend of 5% you can't loose !!

Do you own property abroad?

No

How does the economic slowdown effect you?

From a business point of view we continue to do well and the current environment has probably helped us a little as we are the only triple A rated bank in Ireland. On a personnel basis money is a little tighter and I'm more comfortable to hold onto any cash I have as opposed to making any big purchases.

Do you contribute to a pension plan?

Yes

What's your favourite film of all time?

Life of Brian

Have you ever won money?

Won some money on the Grand National as a student but still waiting for the prize bonds to pay out !

Do you own your own home?

Yes (but still have a decent mortgage)

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)?

Regular investing into equity funds. Smoothes out the peaks and the troughs.

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

Annuities - you invest in a pension for 30 years, retire, buy an annuity and then you get hit by a bus. Money gone.

ARF's and ARMF's are a better deal.

Do you trust your bank?

Yes, but I do keep an eye on things.

Killian Nolan is Investment Manager with RaboDirect

'Supermarket' Banks - Conflict of Interest

2009-04-10T09:30:00.001+01:00

The last 25 years has seen much change in the services offered by Banks. The traditional role of Banks, as 'Deposit Takers', 'Risk Managers' and 'Prudent Lenders', has been morphed into something akin to 'Supermarkets' of Financial Services.

The ambition for greater profits and meteoric rises in business growth has led to a situation where the taxpayer/consumer is now picking up the tab for these misguided ambitions; and trust in the banking system has been severely damaged.

It would appear that the general consensus within banking was that they should offer their customers as many financial products as possible and pass the marketing of this business plan off as a convenient; 'One-Stop-Shop' .

The theory behind this plan is that you should be able to cross-sell as many products as possible to customers so that they are not tempted to buy from another service provider, thus maximising the revenue stream from an individual client. The problem with this targeting of 'Consumer Inertia' is that, the customer will always loose out.

Perhaps it is time to have an in-depth review of how banks market their non-core products to their client base. When the two main Irish banks launched their own Life & Pension Companies, it was commonplace that they would watch out for direct debits coming in from other Life & Pension providers so that they would then contact the client and offer them their own products. They got their knuckles rapped for this practice, but it still does not excuse their abuse of the information they had to hand.

Where one institution has a financial interest in another, there will always be the potential for a conflict of interest. This is heightened where information may be shared between the financial institutions or where recommended investment funds contain large shareholdings of their own stocks. It could also be argued, that the 'conversion' (cannibalization might be more appropriate) of deposit money to cost heavy investment products by some financial institutions may not be in the best interest of the consumer. Given the current need for capital in the banking sector, I am sure that there is no pressure on the branch network to 'advise' their clients to move their deposit money to investment products, as it is not in the banks best interest at the moment.

I think that it is about time that the core product offerings of banks are decoupled from their pension and investment arms and that they are operated in total isolation of each other. The banks should focus on deposit taking, risk management and lending. Targets for generating life and pension business should not be imposed on their staff/managers. In my opinion, the traditional role of the banks is not in line with the long term goals of consumers in respect of pension and investment products. They both have their parts to play in financial planning but you have to eliminate any risks of conflict.

When your business model is based on being a 'jack of all trades' you invariably become 'a master on none'.

'Execution-Only' Pension Products - www.prsa.ie

2009-04-08T13:56:00.001+01:00

Who should use this service?

You should consider this type of service if :

(i) You have a good understanding of what type of pension product is suitable to your circumstances
(ii) You are comfortable with selecting investment funds appropriate to your risk profile
(iii) You want to buy a low-cost product
(iv) You do not require financial advice

Products Available

(i) Standard PRSA
(ii) Non-Standard PRSA
(iii) AVC PRSA
(iv) Personal Pension (RAC)
(v) Executive (Directors) Pension
(vi) AMRF
(vii) ARF
(viii) Retirement Bond

'Lazy and Misleading' reporting of unemployment rate

2009-04-05T13:25:00.010+01:00

I must say, that I had not given much thought to the way the figures were being interpreted by the media until I read the following on Saturday.

It's probably a negative perception that we could do without, if we want to attract foreign direct investment here.

PS: Can anyone persuade the media to abandon the lazy and misleading tendency to treat our Live Register figures as a measure of unemployment – despite the fact that every month the data includes the statement that: “The Live Register is not designed to measure unemployment”.

Last December the media was brandishing Live Register data to claim that unemployment then exceeded 275,000 – at a time when the internationally recognised unemployment figure was 170,000. The difference between these figures is accounted for by part-time seasonal and casual workers.

Garret Fitzgerald - Irish Times - 4th April 2009

Has the Recession changed the 'General Principles' of Financial Planning?

2009-03-23T11:27:00.002Z

We are living in very different times at present. The whole Financial Services Industry is in turmoil. Many investment companies are hemorrhaging money, as investors call on their savings to meet current financial commitments. Early Exit Penalties, Market Value Adjustments and Loss of Capital don't seem to matter to consumers. They want their money back, and they need it now. Some of those that have direct debits for savings, income protection, pension, and in some cases life insurance, are cancelling what they deem 'unnecessary' in the current climate.

I think that some of the 'Rules of Thumb' that apply to Financial Planning may have to be tweaked, so that our personal finances can be more 'sustainable' in the future.

DEBT

Long-Term

It is inevitable that we will have to borrow to finance some assets, such as our homes or investment properties. The problem arises when we borrow too much money (relative to value) over mega terms for properties that are too big for our basic requirements. 100% mortgages over 35 years that gobble up 35%+ of our income are a step too far.

The bar needs to be reset at 75/80% of Loan to Value over 20/25 years. The size of the house is a personal matter, but stretching yourself to buy a 'bigger' house also carries with it higher maintenance costs, which will be ongoing. Common sense should prevail.

Short-Term

If you need to buy a car and have to borrow to finance it, you should probably only do so once you have 20% of the purchase price saved. The longest term for a car loan should be 5 years and the repayments should cost you no more than 7/8% of your income.

Do bear in mind that the monthly cost of running the car could add about 75% to the cost of your actual loan. Be cautious with what you deem to be affordable, buy second hand and keep the car for 7+ years. Using the words 'car' and 'investment' in the same sentence can be a bit of a contradiction.

Credit Cards

Simple. If you can't afford to pay the full amount off every month, you probably shouldn't have a credit card.

Taxes

Keep your affairs up to date with Revenue and claim for all reliefs/allowances to which you are entitled. There is no point in putting tax issues on the back burner in the hope that they will go away. The last thing you need is getting a demand for taxes owing, with possible penalties and fines, when you can least afford to pay it back.

Financial Advice

Never, ever, take financial advice from a Bank on an investment or pension product where the Investment Company is an integral part of the Bank.

Savings

You should probably target to have enough money in a high yield deposit account to cover your living expenses + mortgage/debt payments for a period of 9 months. Some say that you should save 10% of your income in non-pension savings products. I say, that it depends on your individual circumstances as every ones commitments are different. The 'savings' deposit account should be your first priority. Once you have achieved that milestone, it is then a good idea to start looking at 'investing' in low-cost index tracking unit linked funds.

Family Protection

We have an uncanny habit of going into denial when it comes to taking out life insurance or other protection products that would give security to our dependents. Simply brushing the requirement aside by saying that 'I have a policy' or 'I am covered though work' is not good enough. It is the level of cover, relative to your needs and affordability, that is important. Most 'death-in-service' work related life cover policies insure the employee for 2 or 3 times salary. For someone with dependents, this can be a paltry amount of money. Think 8 to 10 times; and buy convertible term assurance. You will be surprised at how inexpensive it is. Always insure the stay at home spouse, not just the bread-winner.

When it comes to Specified Illness Cover, you should always keep this separate from any life cover you may have for mortgage related debt. It is expensive, so be realistic about what level of cover you might need so that it is affordable.

Pension

If your employer has a facility whereby they will pay into a pension scheme subject to you making a personal contribution, always take this option. If you want to make additional contributions to the pension you should start early. You are not signing a commitment to retirement age so you can reduce or stop payments at a later date.

The general consensus in the market would imply that you will need a fund of 20 times your annual income when you retire. That's fine, if your only retirement asset will be your pension policy but do bear in mind that you will have equity in your home (if you need to downsize) and you will still have an earning potential at 65. If you are a business owner, you should be able to realize a value from the transfer or sale of your business. If you can afford to buy diversified property (commercial/foreign), you should add this to your pension assets.

Summary

It is my opinion that the 'general principals' of financial planning remain intact. The only caveat that I would add is that we will have to be a tad more cautious about taking on too much risk. Asset building should be done slowly and we have to diversify our pot of savings/investments as much as possible.

If you are of the opinion that, on a scale of 1 - 10 (where 1 is 'no' risk and 10 is very high risk), you can stomach a '7' you should probably deem yourself a '5' on the scale. I have yet to come across a case where an investor takes a case against an advisor or product provider for not recommending a higher risk investment.

Claiming Tax/PRSI Relief on Pension or PRSA

2009-03-17T11:51:00.005Z

If you are an employee who does not contribute to a PRSA / AVC PRSA through salary deduction, you will need to 'manually' apply for Tax and PRSI Reliefs from Revenue. You are entitled, subject to certain limits, to have the amount that you contribute to a PRSA/Pension deducted from your gross income before that income becomes liable to tax.

If a contribution exceeds the age or income related Revenue limits in any one year, it can be carried forward for relief in subsequent years. If a contribution is paid after the end of the year, but before the following 31 October, relief may be allowed in the earlier year provided you elect (notify Revenue) to do so on or before the 31 October. Taxpayers filing returns under ROS may avail of the extended filing date (mid November) to make an election and pay a contribution to a PRSA/Pension.

The normal procedure is as follows. You will have to write to your local tax office and send them the PRSA1 Certificate that will accompany the PRSA policy document (RAC if it is a Personal Pension), quoting your PPS Number. They will then adjust your tax credits etc.

Once this is done, you can then complete a form called CGPRSI 1 (search for 'PRSI REFUND' on Revenue.ie website) to Limerick to claim PRSI Relief on the contributions. A copy of a P45/P60 should accompany this document for each of the years that you are applying for a refund. Refunds will only be made where you have been granted income tax relief on the contributions. PRSI Relief is not allowed for Schedule D self-employed pension contributors.

If you are applying for pension reliefs for previous years, Section 17 of The Finance Act 2003 amends the time limits to 4 years as set out in Section 865 of the Taxes Consolidation Act 1997. Do remember that a claim for relief for 2005 must be submitted to your Tax District before 31st December 2009.

Completing a PRSA Application

2009-03-16T16:57:00.000Z

The following are some of the common questions that are asked, in respect of the information required, on an Eagle Star/Zurich Life Individual Application Form through www.prsa.ie.

Section A.

Q - Do I need to send a copy of evidence of my date of birth with the application form?
A - Only if your contribution is greater than 15% of Net Relevant Earnings.

Q - Do I need to send a copy of a P60, or other tax document, with the application form?
A - Yes. (The only exception to this is where the contribution is a transfer from another pension arrangement.)

Section C. 1

Q - Can the 'Contract Start Date' be any date in a particular month?
A - No. The 'Contract Start Date' has to be the 1st of a month.

Q - When will the contribution be taken from my bank account?
A - You can choose the 1st, 7th or 15th of the month. You can make a note of your preference on the application.

Section C. 2

Q - My employer has a salary deduction facility with Eagle Star Life through another Intermediary/Broker. Can this 'Execution Only' application be processed on the same Direct Debiting mandate?
A - Yes, if the employer confirms that it is order to do so.

Q - Do I need to sign this Section if I am paying by Direct Debit from my own account?
A - No.

Section E.

Q - Can I choose different funds for my regular and single contribution to my PRSA?
A - Yes.

Standalone PRSA-AVC

Sections D & E

Q - Is all the information required in these sections?
A - Yes.

Section G.

Q - Can I choose different funds for my regular and single contribution to my PRSA?
A - Yes.

Self-Investing

2009-03-09T15:11:00.002Z

When we think about investments, we normally think about them in terms of property,equities or bonds. The current economic climate dictates that the market for these investment assets is very weak at present. When you couple this with negative consumer sentiment and the continuing uncertainty, immediate new opportunities for these products looks bleak.

That said, it is probably a good time to review your existing investments. If you were running your own business, you would certainly be scrutinizing your cost-base at present and be looking for more cost effective solutions to reduce overheads.

The 'easiest' investment opportunity is the one where the least amount of effort is required. We tend to pass our hard earned cash on to someone who will advise us on where we should be putting our money for future growth. In the current environment, it may be a good idea to consider investing more of that money, in yourself.

If you ask yourself the question "How can I add value to my business/career for the long term?", you will probably come up with an answer that incorporates some sort of immediate sacrifice and hard work. The trouble with this is that the results may not be tangible or easily measured any time soon, but if you have a plan and put the effort in the long term pay-off will be worth it.

If you are a business owner you may need to sit down and write a 5 year plan. Running your business on a year to year basis is not a good place to be at. In boom times this may work out fine but when things start to head south, it is hard to adjust to the circumstances with any degree of pace. It may even be necessary to alter or change the current business model that you adopt.

So, what can you invest in? Perhaps it is a good time to (i) promote staff development (ii) invest in new technology or equipment (iii) get to know your customers better (iv) advertise or (v) diversify into a totally new uncorrelated business. Any one of these has the potential to add to the value of your business assets.

If you are an employee, you could just as easily substitute the word 'career' for business and diversify your skills to include things like (i) an additional language (ii) computer literacy (iii) personal finance education or (iv) work on any perceived weakness that you may have.

Irrespective of your trade or profession, now is a good time to take stock of your life and invest in something that will add value to your earning potential in the years ahead. Others will be just marking time/trying to survive at present so the opportunity is there to try and steal a march on the competition by being proactive in your approach to your business/career.

'Excessive Debt' Disorder

2009-02-18T15:36:00.002Z

As if we needed reminding at this stage of the game, the EU Commission has come out today and told us that we are suffering from an 'Excessive Debt' Disorder. Unfortunately, our political masters are struggling to to come up with a remedy; a cure that will be unpalatable.

I often wonder if it ever occurs to those that control the State purse strings that you have to save for a 'rainy day' or does this euphemism only apply to the 'little people'?. Without savings, the future is bleak.

Does it ever occur to these people that a prevention is better than a cure or that, instead of leading us down an undignified road to penury, they could (and should) have done something about it. Was anybody keeping watch?

As we cling to wit and comedy while trying to dodge the recessionary bullets, it is disheartening to listen to the mitigated words of all parties to the debacle. It seems that the culture of the vulture will be ingrained in our corporate legacy for some time to come. Unless of course, it is acknowledged by those concerned, NOW.

Then, and only then, can they start putting in place a system that does not feed the greedy and unscrupulous. You can't right a wrong until you admit that it was morally inappropriate in the first place.

Eating Out (with Kids)

2009-02-11T14:10:00.001Z

As a regular visitor to Tenerife I find it refreshing to experience the welcome that is afforded to children once they enter the door of a restaurant. Shy and all as they pretend to be, they do like the attention; so long as the staff don't start rubbing their hair or gently pinch their cheeks.

The majority of these restaurants carry a 'Kids Menu' which is predominately intended to suit the demand of the sausage and chip aficionado, but more often that not, will include a pasta dish or two. In some cases they even go to the bother of naming a dish after something that the kids can relate to. For example, the 'Mickey Mouse Steak'.

It is also reasonable to ask for a kids/half portion from the Á La Carte menu, and receive it without any 'tut-tutting' or having to fret about it costing much more than half the cost of the adult portion. The whole experience is relaxing, consistent and it makes you want to come back for more.

So why do I find it difficult to find a similar experience here, without it costing an arm and a leg. Surely there has to be a fairly constant demand for this type of service with good food? Is there some fundamental cultural difference that needs to be addressed so that I am not made to feel like a skinflint when I have to ask for an adult portion, with two plates?

Are there restaurants out there that offer a relatively healthy, reasonably priced, 3 course set menu for kids of the non-chip/nugget/sausage variety?

'Top Gear' and the Honda FCX Clarity

2009-02-03T11:58:00.001Z

I was watching a re-run of 'Top Gear' on Sunday evening and I was taken aback by the positive comments that were made about this car on the show. What was remarkable was that the presenters regarded it as the most significant car development in a 100 years.

Don't get me wrong, I agreed with what they were saying but I thought that it was momentous to hear confirmed petrol/diesel 'heads' extolling the virtues of an electric car. A car, where you fill your tank with Hydrogen and the only emission, is water.

I am not sure about how far off Honda are in making this vehicle a commercial proposition for the mass market as it would appear that it is only available for lease, to 'select' Californians, at a cost of $21,600 over 3 years and there is no purchase option.

I think that Jay Leno really hit the nail on the head when he spoke about the market for this type of car being, individuals and families that would use a car like this during the week and probably take the petrol/diesel motor out at the weekend. This, in my opinion, would be a realistic compromise as I can't see it as a permanent substitute.

New Pension Product and Enhancements to Existing Products

2009-02-03T11:56:00.003Z

www.prsa.ie

Personal Retirement Bond (also referred to as a Buy-out-Bond or Pension Transfer Plan). This is a single contribution retirement investment product designed for those who are leaving employment, moving from one employer to another or transferring between pension schemes.

The minimum transfer amount is €2,500. There are no entry/exit charges, so 100% of your money is invested. The only charge is an annual charge of 0.85% on the value of your investment fund. There are 26 funds to choose from and you will have the option of having on-line access to your account.

www.InvestAndSave.ie

The minimum single contribution on the product has been reduced from €7,500 to €5,000.

www.bond.ie

The Global Absolute Return Strategies Fund (GARS) has been added as an investment option.

PRSAs and Transfers

2009-02-02T09:45:00.000Z

The following is a summary of the transfer options available to individuals who may want to transfer their existing pension fund, to and from PRSAs.

PRSA to PRSA - As all PRSA contracts must allow the transfer of assets from one PRSA to another.

Personal Pension to PRSA - Fund assets can be transferred with the mutual agreement of the Personal Pension Provider and PRSA Provider.

PRSA to Personal Pension - Not currently allowed.

Occupational AVC to PRSA - AVCs can be transferred to a PRSA if the pension scheme member is leaving service or the AVC Scheme is being wound up.

PRSA to Occupational AVC - Not currently allowed.

PRSA to Occupational Pension Scheme - Can be transferred if the company pension scheme Trustees agree.

Buy-Out-Bond to PRSA - Not currently allowed.

PRSA to Buy-Out-Bond - Not currently allowed.

Company Pension Scheme to PRSA - If any of the following are satisfied, the transfer can take place without a disclosure requirement (see note*) (i) you have less than 15 years service (ii) the transfer is less than €10,000 (iii) the employee has less than 2 years qualifying service (iv) the Pensions Board have been notified that the scheme is being wound up.

PRSA to Overseas - This is allowed provided the PRSA Provider and/or Pensions Board are satisfied that the overseas arrangement is suitable.

Overseas to PRSA - This is also allowed if the Irish Revenue, Overseas Revenue and Overseas Pension Provider agree.

*Disclosure Requirement - The scheme member must be provided with (i) a certificate of comparison of benefits (ii) a written statement as to why the transfer is in their interest.

As this is intended as a brief summary, it may be prudent to seek independent financial advice on your specific circumstances.

Company Pension Scheme being Discontinued ('Wind-up')

2009-01-12T17:05:00.001Z

In a previous article I wrote about the procedure involved, where the company you work for is 'winding-up' the existing pension scheme and replacing it with an alternative arrangement within the same employment.

Unfortunately, it is looking increasingly likely that more and more companies will be going out of business and that the employees will have to transfer their pension assets elsewhere.

What normally happens in this situation is that the Company resolves to 'wind-up' the pension scheme and stops making contributions to it. They will then advise the scheme 'Trustees' of their intent and appoint a Pensions Consultant to manage the process.

The Consultants will then write to each individual member (active and deferred) and i) advise them of the procedures involved ii) outline the benefits (values of funds) and iii) provide the members with information on the various options available.

The 'Benefits' Statement should include a) the value of your fund in the main scheme b) the value of an AVCs you made while in employment and c) the value of any transfers in to the scheme from previous employment.

The 'Options' available to you for the transfer of these 'Benefits' should include :

1. Transfer your benefit to a new Employer's Pension Scheme
2. Transfer to a Personal Retirement Bond (also referred to as Buy-out-Bonds and Pension Transfer Plans)
3. Transfer to a PRSA
4. Early Retirement Option or
5. Take your benefit as a 'Trivial Cash' payment.

The Consultants will advise you which of these options are open to you and they will probably also include what is referred to as a 'Default Option'. A default option is exercised by the Trustees where they have not received confirmation from a member as to what they wish to do with their benefits.

Buying Investment Products from a Bank

2009-01-08T13:00:00.004Z

The following is a comprehensive list of reasons why you should purchase an investment/pension/life insurance product, or expect unbiased financial advice, from a Bank that is a 'Tied Agent' of a Life Assurance Company.

1.

I am struggling to find one. Any Help?

'The Ascent of Money'

2009-01-06T16:38:00.001Z

If you feel that you need to take a step back from the current financial abyss and want to read a broad history on how the financial world has evolved, I would recommend that you get your hands on a copy of this book by Niall Ferguson.

The main appeal of the book is in its educational content. If you have the desire to learn more about the components of finance, in terms of how credit, insurance, banking, property and bonds have 'developed' over the years, this will probably whet your apetite for further information.

It is aimed at those who have a basic knowledge of how 'money' works and I found it entertaining from the point of view of its combination of History & Finance. There was also a TV Series of the same name but I have not seen it.

PRSA - Wealth Warning

2009-01-05T11:52:00.001Z

Where an employer makes contributions on behalf of an employee to a PRSA, the employer's contributions are treated as a benefit-in-kind in the employee's hands. This benefit-in-kind charge would only apply where the combined contributions (employer's and employee's) exceed the relevant Revenue limits.

Following the introduction of the Income Levy in the recent Budget, combined with the tax treatment of employer PRSA contributions, it is imperative that these Revenue limits are not breached.

If the relevant contribution limits are breached, the full contribution would be subject to benefit-in-kind and would also get hit for the new Income Levy.

NB: This rule does not apply to 'Occupational Pensions', just PRSAs.

Savings/Investment/Pension 'Tips' for 2009

2008-12-15T13:20:00.005Z

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 ItsYourMoney.ie and AskAboutMoney.com 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.

Jiangxi Orphanage Assistance‏

2008-12-11T15:23:00.002Z

Those of you that are familiar with the 'Execution Only' Services that I offer through www.prsa.ie , www.investandsave.ie and www.bond.ie 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 www.altrusa.ws .

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.

Blogger Interview - Brendan Johnston

2008-12-09T10:39:00.001Z

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)

School Songs Nostalgia

2008-12-08T11:39:00.008Z

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?

Financial Myths

2008-12-04T18:04:00.007Z

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.

Blogger Interview - Paul McCarville

2008-12-02T11:56:00.003Z

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.

Best Pension (PRSA)

2008-11-28T14:42:00.004Z

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.

Cost

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.

Flexibility

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?

Performance

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.

Suitability

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.

Exit Tax - FAQs

2008-11-21T15:16:00.002Z

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 01/01/2009 the rate will be Standard Rate of Income Tax + 6% (26%).

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.

Blogger Interview - Richard Bruton

2008-11-13T15:22:00.001Z

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? No

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.

Employers and 'Execution Only' PRSAs

2008-11-11T18:15:00.001Z

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.

Elevator Pitch

2008-11-06T22:14:00.007Z

I have been trying to come up with a suitable 'elevator pitch' for www.prsa.ie.

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 www.prsa.ie.

.

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 www.prsa.ie is all about.

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

Blogger Interview - Niall Brady

2008-11-02T17:57:00.001Z

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?
No.

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?
Yes.

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)sunday-times.ie

Green Resources Fund

2008-10-30T11:57:00.003Z

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.

Celebration Bond

2008-10-24T21:38:00.005+01:00

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.

Blogger Interview - Charlie Weston

2008-10-16T19:12:00.000+01:00

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

Absolute Return Fund (GARS Fund)

2008-10-15T16:18:00.001+01:00

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.

Partnership Insurance

2008-10-13T09:56:00.002+01:00

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.

Blogger Interview - Brendan Burgess

2008-10-08T09:41:00.006+01:00

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?
No.

How does the economic slowdown effect you?It keeps me very busy answering questions on Askaboutmoney.com 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?
Yes.

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 AskAboutMoney.com

'Winding Up' of Pension Schemes

2008-10-06T01:00:00.001+01:00

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.

THE PROCEDURE

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.

HOW WILL THESE CHANGES EFFECT YOU?

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

Exit Tax

2008-09-26T10:08:00.003+01:00

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 specified as the 'Standard Rate of Income Tax + 3%'. 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 01/01/2001. The investment is now worth €12,000 and you wish to take €1,000 as a partial encashment on 01/09/2008.

The 'chargeable amount' is calculated as follows:

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

Exit Tax @ 23% (current) = €166.67 x 23% = €38.33

The €38.33 is paid to Revenue by the life company.

Case 2.

You invested €10,000 on a date after 01/01/2001. The policy is now worth €14,000 on the 8th Anniversary (01/01/2009).

As the 8th anniversary is deemed a 'chargeable event' , the gain of €4,000 is taxed @ 23% = €920

This €920 is paid to Revenue and the value of your investment is now €13,080.

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

2008-09-21T12:58:00.001+01:00

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!

2008-09-18T12:05:00.002+01:00

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

2008-09-14T18:50:00.004+01:00

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'

2008-09-12T20:12:00.000+01:00

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

2008-09-10T10:50:00.001+01:00

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

2008-09-04T13:49:00.003+01:00

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.