Price Matching - Consumer Obfuscation

You know when you ring your car/house insurance company and tell them that you have secured a cheaper quote, than their renewal, and they tell you that they will match the cheaper quote if you stay with them? Well, that's price matching and consumers are complicit in its growth as a way for insurers to gain and retain business.

It has slowly, but surely, made it way into the Life & Pension sector over the last number of years but regulators, consumer interest groups and advertising standards have ignored it. It's mainly in the term assurance market but is now standard practice, on annuities, for the largest insurer in the Country.

I have maintained that this practice inhibits competition and stifles innovation. It's the lazy mans way of pricing your product and not giving a toss about competing for business on product features.

If you're accepting business at a price lower than your book rate then you're effectively 'buying business'. I mean, why have 'rates' at all if you're just going to do it for the same price as your cheapest competitor?

Recently, Friends First held their hand up and admitted the following:

"We aim to do all we can to meet customers’ needs through offering high quality products at affordable premiums, ensuring transparent communication of charges and fees and providing unambiguous marketing literature. As a consequence, we have removed ‘price matching’ from our protection policies to improve customer transparency while improving the cost of our premiums at the same time.  You will now notice price cuts are across level and decreasing term products."


They've caught the bull by the horns and effectively blown the 'competition' out of the water by "doing all [they] can to meet customers’ needs through offering high quality products at affordable premiums, ensuring transparent communication of charges and fees, providing unambiguous marketing literature and rewarding them for long-term loyalty."


Answer that Caledonian Life, Aviva Life & Pension, Irish Life and New Ireland Assurance. NB : Zurich Life don't 'price pledge' and well done to them for not sinking that low.

Conversion Option & Smoking

In a previous post I reported that : With  Aviva/Hibernian 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. 

I am currently dealing with a case where the person converting is now a non-smoker, for a good number of years, and wants to 'covert' the policy with Aviva.

I've questioned the logic of charging a non-smoker smoker-rates on conversion as it just doesn't make sense, to me, that a healthier person should be penalised i.e. Complete a full new proposal to avail of non-smoker rates or pay the rates of a smoker.

So, I asked for the original policy terms and conditions to establish that it was clear from outset.

This is the relevant page: (click to enlarge)

Frankly, I just don't see how they can make this interpretation. Is it one for the Ombudsman to adjudicate on? 

Curiously, Aviva's current policy conditions state:

The new policy conditions will be issued in accordance with Aviva standard premium rates and policy conditions applicable at the time and the premium will reflect the smoking habits of the Life or Lives Insured advised by the application for the new policy

Rationalisation in the Life & Pensions Industry in Ireland

Last week Zurich Life announced (quietly) that it plans to close the Cork and Galway branches and is looking for about 70 voluntary redundancies. The company cites the continuous decline in the health of the Life & Pensions industry, since it peaked in 2007.

What’s surprising, is that it has taken 5 years to come to this conclusion and that there have not been similar occurrences with some of the other players in the market.

You see, I’d consider Zurich Life to be one of the better players in terms i) the product range they have to offer to the end consumer ii) their service and iii) a unique ability to listen to what type of product I want and try to deliver it.

There are two existing players that have basically single (okay) product offerings and I don’t know if their parents are going to plough money into the small Irish market at this time. Why would they? It’s a mess.

There are two others that I would find it very difficult to place business with based on past experience with service and crappy products. Standard Life wouldn’t be one of these.

The biggest operator is owned by the State and has just swallowed up Quinn Life. There’s a few boutique players flogging deposit based tracker bonds to death. Bank Of Ireland are ‘trying’ to sell New Ireland.

The only speculative conclusion that I can come to is that: now that Zurich Life have made a move some of the others will follow by letting folk go to reduce costs in an attempt to enhance profitability. Life & Pension companies in Ireland don’t like to be ‘first’ with crappy news so I’d expect a few of the others to come forward any day now and tell us how terrible things actually are in the industry.

Specified Illness Cover - Financial Tip

As most of you will know, Specified (Serious) Illness cover pays out a lump sum if you are diagnosed as suffering from one of a number of specified serious illnesses (ie Cancer, Stroke, Heart Attack etc.), as defined in the product providers policy document.

If a ‘Critical Event’ happens (eg diagnosis of specified illness), then the insured must survive 14 days so that they are eligible to claim under the policy.

If you are in the market to buy this product, for a fixed level term, I would recommend that you buy the cover on a 100% ‘Accelerated’ basis.

This means that you insure yourself for Life Cover & Specified Illness Cover under the one policy, where the full sum insured is paid out in the event of your death or on a ‘critical event’.

The difference in premium between the ‘Accelerated’ & the Specified Illness policy only is very small and in some cases can work out cheaper. You also eliminate the 14 day survival period issue.

Blogger Interview - Brian Lucey

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

‘Errors’ at AVIVA Life & Pensions

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.

Pension Companies and Business Retention

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.

The Life & Pension Industry's Vicious Circle

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.

What's In The News

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

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.

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

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.

Update 24th November 2011

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.

1% Levy on Life Assurance & Pension Products

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.

Blogger Interview - Miriam Ahern

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

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.

Save for Retirement or Kids Education

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

Blogger Interview - Killian Nolan

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

New Pension Product and Enhancements to Existing Products

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.

'The Ascent of Money'

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.

Jiangxi Orphanage Assistance‏

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

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)