Public Servants should consider retiring now

I recently looked at a pension projection for a 61 year old hospital consultant, working for a HSE hospital. The projection gave him details of his pension and lump sum from the superannuation scheme should he retire now, as well as the projected figures if he stays to age 65.

The twist, however, is the fact that the projections take no account of the 15% salary reduction to which he will be subjected, as a result of Budget 2010. Because public service pensions are based on a percantage of final salary, if your salary is reduced by 15%, your pension will be also.

But in the Budget, a window of opportunity was provided. "To ensure that any increase in the number of retirements can be managed, the legislation on pay reductions in the public service will provide that any retirements in 2010 would be on existing, pre-cut pay terms." So any Public Servant retiring in 2010 will have their pension based on 2009 salary level.

Given that Public Service pensions accrue at a rate of 1/80 or 1.25% of final salary for each year of service, a higher earner facing a pay cut of 15% would take 12 years to build up the lost pension entitlement, unless pay increases come back into fashion during that period. Someone facing a pay cut of 8% would take over 6 years to build up the lost pension entitlement.

So if you're a Public Servant and within sight of pension age, you might do well to consider retiring now. Which is presumably a deliberate move by the Minister.

Deadline approaches for pension contributions

If you're filing your 2008 tax return and paying your tax online using Revenue's online service www.ros.ie you have until November 16th to do so. You can reduce your tax bill by making a pension contribution before you make your tax return and backdating the tax relief on the pension contribution against your 2008 tax liability.

For high earners, this is the final opportunity to claim tax relief on pension contributions up to the 2008 income ceiling of €275,239. The income ceiling has been reduced for the 2009 tax year to €150,000.

Pensions - you can go your own way

I was at a Standard Life presentation today and one of the speakers noted that since Standard Life launched their Synergy platform in 2006, they now have over 1,200 Stocktade accounts containing an average of €45,000 each.

Stocktrade is Standard Life's chosen stockbroker for their self-directed pension contract. Using the Standard Life / Stocktrade platform, we can set up pension plans for clients allowing them to mix their fund between managed funds, cash deposits, direct property (which they choose) or shares, ETFs and bonds of their own choosing.

Interesting that Irish pension clients have chosen to entrust €54 million via Stocktrade into shares, ETFs and bonds of their own choosing. Far from being a niche product for the High Net Worth customer, self-directed pension funds are now coming into their own as something open to everyone - Personal Pensions and Buy Out Bonds included.

Claims - It could be you

For a bit of light reading, I was just reading over Irish Life's claims statistics for 2008. An insurance company's claim-paying record is hugely important.

In 2008 Irish Life paid out over €220 million in claims, broken down roughly as follows: -

• More than €134 million in life cover claims to over 2000 families
• More than €34 million in Specified Illness claims; and
• More than €52 million to over 3,000 Income Protection claimants

Considering that this is one company, albeit the largest in the country, these are sobering statistics. No doubt each claimant thought they would never need the cover when they took it out.

Poor response to second-home tax

I blogged earlier this month here about the €200 tax on second homes. Today is the final day for payment of this tax. According to RTE, only €15 million has been collected to date. That's 75,000 houses out of a potential 200,000.

Anyone eligible who doesn't pay this faces penalties.

New style of pension tax relief

Credit where it's due to the Commission on Taxation for taking a long-term view on reform of pensions legislation, rather than concentrating on how money could be saved in the short term. Many of their proposals on pensions are largely focused on making pension planning more attractive, rather than cutting costs. Given the changing demographics of our country, this is very welcome, especially since short-term cost-cutting might have been an easier sell to the Government in the current climate.

One of their more interesting proposals is that the idea of "tax relief" on pensions should be replaced with a more transparent system, whereby for every €1.60 an individual contributes to a pension plan, the Government adds €1.00. For the first five years, the Government would match contributions €1.00 for €1.00.

This system would deal with the age-old perceived inequality that our current system offers more benefit to higher-rate taxpayers than to those on the lower rate. It is the equivalent of offering 50% tax relief for five years, then 38% relief thereafter. To take an example of a pension plan that exists for 25 years, that's the equivalent of an average rate of tax relief of over 40%. This is lower than what many high rate taxpayers currently enjoy but higher than what low rate taxpayers are currently offered.

Perhaps more importantly, it's simple. The idea of the Government putting money into your pension plan directly somehow sounds more appealing than the current tax relief system, even though tax relief is also the Government adding money to your pension plan - just expressed in a different way.

Let's hope Brian Lenihan pushes this one through. Radical pensions reform can tend to take an age to implement, as I've said before, even though Charlie McCreevy proved that it doesn't have to.

The pensions section of the Commission's report can be read here.

Don't forget to pay the €200 levy on second properties

The Local Government (Charges) Act 2009 introduces a €200 annual charge on non principal private residences, payable by the owners to the local authority in whose area the property concerned is located.

The final date of payment of this charge is the end of this month, i.e. 30th September 2009. It's your responsibility to pay this charge - you won't be receiving any reminders in the post.

Full details (including how to pay it) can be obtained at http://www.nppr.ie

Investment thoughts from Anthony Bolton

I was invited on to a conference call this week by Irish Life, featuring guest speaker Anthony Bolton, stock market commentator and President of Investments for Fidelity. For 28 years Anthony managed the Fidelity Special Situations Fund which became the UK's most successful mutual fund since its launch. He is a popular columnist for the Financial Times and his views regularly appear in investment media.

The conference call covered a wide range of topics but centred on Anthony's view on what sectors would lead the next bull market. His belief that we are entering into a multi-year bull market will be a welcome insight to existing investors who have experienced large losses over the last year and a half and investors sitting in cash who are looking to re-enter markets.

He also spoke about using a phased investment strategy over the next year to limit the volatility which will persist in stock markets.

If anyone wants to hear the recording, it's about half an hour long and the MP3 file can be accessed by clicking here. The slides to accompany the call can be accessed here.

Thanks to Irish Life.

Till debt do us part

I wrote a short piece recently for the Curious Wines blog's wedding series with a few financial tips for those about to tie the knot. Here's the link: http://ow.ly/ktKa

Pensions Apartheid: Public vs Private Sector pensions

Well-known independent actuary Tony Gilhawley recently wrote a report for the Professional Insurance Brokers Association on the differences between Public Sector and Private Sector pensions. It makes for fascinating reading.

You can download it in MSWord format from here.

Permanent TSB raises variable mortgage rates

I see that Permanent TSB is set to raise its Standard Variable Rate for mortgages by 0.5% from next Monday, thus reversing the effect of some of the recent European Central Bank base rate cuts. They have blamed the high cost of funds and tightening margins in the lending market.

Even before this rate increase, Permanent TSB's Standard Variable Rate was nowhere near the most competitive in the market.

I sympathise with any Permanent TSB mortgage customer with a loan of more than 92% of their property's current value. Such customers (including those in negative equity) have no option but to remain with Permanent TSB.

Anyone below 92% at least have the option to move to another lender.

What to do with your pension when you leave a job

As I've been getting an increasing number of queries on this topic recently, which I suppose is a sign of the times, I wrote the following article for the Sunday Business Post as a sort of FAQ.

http://archives.tcm.ie/businesspost/2009/06/28/story42723.asp

New lower variable rate from KBC

Another downward rate change this week, which is always welcome.

KBC just launched a new variable rate 2.59% (APR 2.62%) for new business - re-mortgages, trader uppers & FTBs. Max LTV 80% for FTBs & trader-uppers and 60% for re-mortgages.

Not the best variable rate in the market but KBC do offer the facility to re-draw overpayments - you can make regular or ad-hoc overpayments but can ask for them back at any time, which is a nice feature.

They'll also do some refinancing of existing debts on re-mortgages, which AIB won't.

New fixed rate for First Time Buyers

ICS have announced a new two-year fixed rate at 2.75% (APR 2.7%) which is available only to First Time Buyers. AIB already have a two-year fixed rate just five basis points higher at 2.8% (2.84%) for all mortgage customers, First Time Buyers, trader-uppers, those switching lender etc.

At around €410 per month per €100,000 borrowed over 30 years before tax relief, these rates seem like a reasonable bet for someone who wants a bit of security for the next couple of years.

That said, I will repeat two of my old mantras about fixing - (1) Don't fix in an attempt to beat the variable rate, unless you really believe you know more than the bankers. Predicting the long-term movement of variable rates is well-nigh impossible. Fix if you want the peace of mind of knowing what your repayment will be and then forget about it. (2) Don't Don't DON'T give up on a good tracker variable rate to avail of a fixed, unless you're very close to the end of your mortgage term. Chances are you'll never get your tracker rate back and the variable rate options at the end of your fixed period may be far higher than the tracker you have now.

Tax Relief on Life Assurance

I'm surprised that life assurance companies don't spend more money advertising this, but if you want something done, you might as well do it yourself! There is a form of life assurance policy that can qualify in full for tax relief at your highest rate, which can therefore knock up to 41% off the cost. In some instances you can also claim back Employee PRSI relief on the premium.

Such policies are available to the self-employed and those in non-pensionable employment (i.e. in employment but not in an Occupational Pension Scheme.) One fact that is not widely known is that if you contribute to a PRSA, you are deemed by Revenue to be in non-pensionable employment, even if your employer contributes to your PRSA. So you would still be eligible to hold a tax-efficient life assurance policy.

Some points to note about life assurance policies on which you can claim tax relief: -

(1) They only provide cover on death and have no value except on death.

(2) They cannot be assigned so you can't use them as security for a mortgage or other loan.

(3) You cannot have a joint policy, although if you and your partner are both self-employed or in non-pensionable employment you can each have such a policy.

If you're eligible and are seeking to protect your dependents at a reasonable cost, this is definitely worth enquiring about.

AIB display prudent lending policies

I see that AIB have now started "stress-testing" mortgage applications at 5%. Stress-testing is a process by which a lender evaluates an applicant's ability to repay a loan if interest rates increase.

Given that their actual variable rates for new customers vary between 2.25% and 2.65% they are factoring in potential future rate increases between 2.35% and 2.75% in assessing a customer's ability to repay. This is well in excess of the Financial Regulator's guidelines on stress-testing and AIB are to be commended for it. It may result in their losing business to competitors who will stress test at a lower rate, but recent events have shown that being the lender who will offer the biggest loan isn't necessarily a good thing.

Negative Equity explained

Article from the Irish Independent explaining the impact of negative equity on homeowners, with contributions from yours truly.

http://www.independent.ie/business/personal-finance/property-mortgages/homeowners-stuck-in-a-trap-1743504.html

Irish Nationwide - Burgess was right

It was heartening to hear Brendan Burgess receiving repeated applause when speaking at the Irish Nationwide AGM yesterday. Brendan had been a long-time critic of many Irish Nationwide policies and of its former Chief Executive, Michael Fingleton. I had attended two previous AGMs where he was heckled for speaking out while Mr. Fingleton was praised for bringing in profits to the society. Now that we all have seen the costs of these profits and the unacceptable risks taken to achieve them, at least the members have accepted that Brendan Burgess and his fellow dissident member, Shane Hogan, were right to criticise the board. It's only a shame that they weren't listened to before the society was brought to the brink of destruction by the actions of their board and former chief.

It's not as publicly known, but Messrs Burgess and Hogan also forced Irish Nationwide to drastically improve their treatment of borrowers in arrears and many Irish Nationwide borrowers may have avoided repossession because of this work, whether they realise it or not.

Related links: -

RTE News

Irish Independent

Irish Times

More good news from the European Central Bank

The European Central bank has today announced a further rate drop of 0.25%, to bring the main refinancing operations rate down to 1%. This reduction will knock about €12.50 per month per €100,000 off a 25 year mortgage IF your lender passes the cut on in full.

It won't, of course, do anything for you if you're in a fixed rate.

More on breaking out of fixed rate mortgages

I blogged on 9th April here about the possibility of a once-off amnesty for fixed-rate mortgage holders being introduced, allowing them a once-off opportunity to revert to variable without penalty. Charlie Weston of the Irish Independent has published a piece on this topic today. You can read it here.

Government-backed investing in Ireland Inc.

For those of you with a low tolerance for taking risks with your money, the options for investing your cash are thin on the ground. You can leave your money on deposit, but with interest rates falling, so are your anticipated returns. There are a handful of Tracker Bonds out there but you need to make sure you understand the participation rate, what's being tracked and the final year averaging clauses before parting with your hard-earned.

A new option has surfaced recently - investing in Government Bond funds. Such funds effectively loan money to the Irish Government on pre-arranged terms, i.e. at a fixed rate. As long as the Irish Government can honour their commitment, your money is secure.

Eagle Star were first to market with two such funds - the Irish Government Bond 2012 fund, which should return 12.1% on 5/3/2012 and the Irish Government Bond 2016 fund which should return 38.1% on 18/4/2016.

New Ireland followed with the 2014 Government Bond Fund paying a 4% coupon and maturing on 15 Jan 2014 and the 2016 Government Bond fund paying a 4.6% coupon and maturing on 18 April 2016.

All quoted returns are before deduction of charges and tax (if applicable) so make sure you buy from a broker who offers competitive deals on charges. (Like us!)

Investments can be made with lump sums or by way of a lump sum pension contribution or Approved Retirement Fund.

Be careful with annual house insurance increases

Your home insurance may well include a clause that increases your level of cover by a fixed amount, or perhaps by the Consumer Price Index (CPI) each year. This was appropriate when the cost of building was rising steadily. However, a recent review by the Society of Chartered Surveyors suggests that the cost of rebuilding a home has actually dropped by up to 5% recently.

So when your house insurance is up for its next renewal, check that the rebuilding cost is still a reasonable estimate of how much it would take to rebuild your home.

Two points of caution, though - (1) many people under-insure their homes, grossly underestimating the rebuilding cost of the property. Manke sure you're not one of them. (2) Many policies link the value of the contents to the rebuilding cost, e.g. contents insured for 20% of rebuilding cost. If you choose to amend the rebuilding cost on your house insurance, make sure the contents cover is still appropriate.

Bank of Ireland are reviewing their policy of automatic annual increases. See here.

Make your pension contribution early

There has been some confusion over the Supplementary Budget's 1% levy on life assurance policy premiums, which takes effect on 1/6/2009. It's not 100% clear whether or not this applies to pension contributions as well as life assurance premiums. We are awaiting clarification on this.

Got a note from Hibernian Aviva today - "Hibernian Aviva Life & Pensions Ltd is working with the Irish Insurance Federation and other life assurance companies to clarify the impact of the proposed levy and we are seeking to mitigate its effect on customers.

We want to assure you that we will be doing everything we can to lobby the Department of Finance to re-think the imposition of this proposed levy and to convey to them the potential damage that it will have on the Life & Pensions industry."

I fully support their efforts, as adding a levy like this to a pension product is simply a reduction in the tax relief by another name.

However, if this is going to be the case, there's a strong argument in favour of making pension contributions prior to 1/6/2009 and thus avoiding the 1% levy. This would be especially relevant to the self-employed who would normally pay their annual pension contributions in October or November.

Should banks allow penalty-free breaks from fixed rates?

As anyone with a variable or tracker variable rate mortgage will gleefully tell you, the European Central Bank (ECB) have slashed interest rates repeatedly since October 2008, down to their current low of 1.25%.

But this will be of no use to someone who is on a fixed rate mortgage, where the repayments are fixed for an agreed period of time. If you attempt to break out of a fixed rate, you must pay a substantial penalty, which generally renders the exercise worthless.

I usually hold the opinion that if you enter into a contract with your eyes open, you must deal with the consequences if it doesn't go your way.

But on this issue, I feel there is some merit in a proposal for a once-off amnesty where owner-occupier mortgage-holders get a brief "window" of time to break out of a fixed rate entered into prior to October 2008 without penalty.

In Brian Lenihan's Budget speech, he said "The Government has decided that from the 1st of May, Mortgage Interest Relief for principal private residences should only be available for the first seven tax years of the mortgage. I believe this move is justified given the significant recent reduction in interest rates and in house prices."

He is using the rate decreases as a justification for a reduction in TRS, but those on a fixed rate don't benefit from such decreases.

The ECB rate cuts were designed to stimulate the economy, but this aim will be diluted by all those on fixed rates.

As has been said before, these are unprecedented times - perhaps there is scope for one more unprecedented action?

What will this Budget achieve?

I'm struggling to find too many positives about yesterday's Budget.

I do accept the need for tax increases and spending cuts in the current climate.

But the overall strategy of this budget baffles me. He reduces incentive to save money, by increasing DIRT tax, CGT and Exit Tax on investments. This at a time when interest rates are very low anyway and most other investments are going through a very volatile period.

So if he doesn't want us to save, maybe he wants us to go out and spend instead, thus putting much-needed money back into the economy, right?

Wrong - he increases levies and reduces reliefs so that people will have less money to spend.

So what does he really hope to achieve?

Fear of Budget good for business

Although the r-word hasn't exactly been good for business, there have been two noticeable trends of recent days and weeks: -

(1) Self-employed people deciding to invest money in Personal Pension arrangements this week, in case the April 7th Budget changes rules on tax relief.

(2) Older people deciding to draw their pension benefits this week, in case the April 7th Budget imposes tax on lump sums with immediate effect.

It seems reasonable to assume that there will be some changes to pension legislation in next week's Budget, though only Brian Lenihan and a select few know what form they will take. But if the fear factor causes a bit of a rush, who am I to complain?

Pension tax cuts in the Budget?

Everyone has their predictions about what will happen in next month's Mini-Budget, which is likely to be more juggernaut than Mini. Some possibilities are discussed in today's Irish Independent here.

The Minister needs to tread very carefully if considering reductions in tax relief available to those seeking to fund their pensions. Confidence in pension funds is at a low point at the moment, given the recent downward trend in fund values. This confidence will inevitably return when values start rising again. But if the Minister picks this point in time to announce cuts in tax reliefs, it could cause many people to simply scrap their pension plans altogether. This, of course, would be a bad thing for people's long-term futures and would render wasted all the millions spent on pensions awareness campaigns of recent times.

That said, tax savings are inevitably required. Here's one for the Government to consider - introduce a low rate of Capital Gains Tax and/or tax on dividend or rental income on pensions. Currently, neither tax exists within pension funds. At a rough estimate, funds under management in Ireland total over €55 billion and that's after all the recent falls. Even if there is a recovery of 5%, that would add €2.75 billion. A tax of 10% on gains alone would add €275 million to the Exchequer coffers, while still leaving pensions an attractive form of investment.

I'll only take 1% commission on tax savings for this idea.

Permanent TSB service levels

I hear that Permanent TSB are currently processing mortgage applications with a delay of about sixteen days. In other words, if you send something to them in connection with a mortgage application today, it may well be the first or second week of April before it gets looked at.

If I assume that this is not because the property boom has suddenly restarted while I was sleeping, it's presumably because they cut staff numbers.

But in a time when there's less mortgage business to go around, wouldn't you think that it would make more sense to improve service to help win business, rather than go the other way?

New mortgage rates from AIB

AIB announced new mortgage rates today - Standard Variable down to 2.75% (APR 2.79%). Fixed for two years at 2.8% (APR 2.84%) or three years at 3.1% (APR 3.14%). Other fixed rate options available but those are the ones that caught my eye.

Ulster Bank and National Irish Bank withold some of the ECB rate cut

Ulster Bank and National Irish Bank have announced that they are only passing on 0.25% of the European Central Bank's 0.5% rate cut announced this week. This applies to their Standard Variable Rate products only - Tracker Variable customers will get the full rate cut, but only because they have a contract that compels the bank to do so.

This is bizarre logic - if you've got a Standard Variable Rate mortgage with Ulster Bank for example, this rate cut may bring your rate down to 4.69%. Depending on the value of your home, you could get a variable rate from AIB from 2.75%. That's a huge difference and if your mortgage is anything more than about €200,000 the savings on interest would recoup the cost of switching in under a year.

So what exactly are Ulster Bank and National Irish Bank trying to achieve? Encourage their Standard Variable Rate customers to switch lenders? So that all they'll be left with are those who can't switch because they no longer qualify for the size of mortgage, have a bad credit rating or are in negative equity?

Answers on a postcard please...

Repossessions still at a very low level

Guess how many houses were repossessed by the banks in 2008? One in every hundred mortgages? One in every thousand? Nope - 96 in total, or one in every 10,000 mortgages issued, according to figures released yesterday by the Irish Banking Federation.

While that's of cold comfort to you if you happen to be one of the 96, it does display that actual levels of repossessions in this country are low. The rate in the UK is 35 times higher.

Ireland's first Euribor tracker mortgage

Leeds Building Society have announced a new tracker mortgage product which tracks Euribor rather than the European Central Bank (ECB) base rate so beloved of previous tracker mortgages, which are now rarer than hen's teeth.

The Euribor rate is more representative of the rate at which banks lend to each other. The ECB rate and the Euribor rate used to follow each other closely. Then came the credit crunch - the Euribor rate went sky-high while the ECB rate didn't. So banks quickly withdrew ECB trackers from the market because they were borrowing at Euribor but their customers were only paying back at a small margin over ECB. In effect, they were losing money on a lot of their more competitive ECB tracker mortgages.

This new Euribor tracker rate takes that unsavoury possibility away for the banks. It's good for customers in that it means they aren't at the mercy of bank management who decide not to pass on rate cuts. But it's a risky punt too because the Euribor rate has shown that it can spike upwards from time to time which would be painful if your mortgage tracks it.

In any event, the Leeds offering is expensive at Euribor + 3% but then Leeds aren't targetting mass-market business. However, it's an interesting start which will hopefully be picked up on by other lenders. Euribor tracker with a ceiling anyone?

I'm taking all the credit for the idea, by the way...I mooted the possibility of a Euribor tracker in The Sunday Tribune here back in December. Royalty cheques in the post to the usual address, please, Leeds!

Standard Life rating upgrade

Standard Life has had its credit rating upgraded from A to A+ by rating agency Standard & Poors this week.

Such ratings are not infallible guides. For example, Enron's rating remained at investment grade four days before the company went bankrupt, despite the fact that credit rating agencies had been aware of the company's problems for months.

But nonetheless an upgrade is a positive endorsement and is welcome news.

New ICS First Time Buyers Mortgage package

Just got a release from ICS about their mortgage package for First Time Buyers.

A fantastic 1 year fixed rate of 2.55% (3.6% APR*) available to First Time Buyers who drawdown their mortgage before the 30th of June 2009

€1,000 cash First Time Buyer mortgage customer's will receive €1,000 cash for mortgages drawn down by the 30th of September 2009

€1 billion fund - On Monday the 16th of February 2009, Bank of Ireland announced that it has put in place a fund of €1bn for First Time Buyer mortgage customers. This fund of €1bn is across Bank of Ireland Group, including ICS Building Society

These are welcome initiatives but I can't see them causing too many First Time Buyers to rush out and buy now. The one-year fixed rate is only of value if the rates after year one are competitive.

And what exactly does it mean that they have put in place a fund of €1bn for First Time Buyer mortgage customers?

A really low rate fixed for three years or longer would be a nice twist. Over to you, AIB...

New statistics on life assurance & specified serious illness claims

There are some interesting statistics contained in Bank of Ireland Life's latest press release - just 20% of surveyed adults have serious illness cover and just 40% have some form of life assurance cover.

The former figure is the most worrying as further research showed that 50% of specified serious illness claims were by people between 20 and 49 years of age.

The Bank of Ireland Life release doesn't mention the need for Income Protection, as they don't sell the product, but their research highlights the need for it. If your income stopped because you couldn't work, how would you survive? If you're self-employed or a shareholding director, you'd receive no income from the State. Even if you're a Class A PRSI PAYE worker, the State Disability Benefit for an individual is barely €200 per week.

Public Service Pension Levy - some sense prevails

I blogged last week here about the possibility that the levy could cause some people to reduce their pension contributions. Thankfully, my fears in this regard have turned out to be unfounded.

The following is the latest information available about the levy, with thanks to Eagle Star / Zurich: -

We (Eagle Star / Zurich) have been asked a number of questions in relation to the levy and its impact on pension contributions. We contacted the Revenue and have just received the following answers:

Q1. Are these levies regarded as pension contributions or as a separate levy / taxation?

A. The levy will be regarded as pension contributions.

Q2. Do the levies form part of an employee's age related contribution limits?

A. No, they do not form part of the employee's age related contribution limits.

Q3. Will the levies be applied to an employee's gross salary or net salary after the deduction of any employee / AVC contributions?

A. They will be deducted from the employee's gross salary, net pay arrangement to be operated.

Q4. Do the levies qualify for tax relief & what happens to anyone earning over the 2009 earnings cap of €150K?

A. Yes, tax relief is available, see 3 above. No restriction with reference to €150K earnings cap.

Q5. Is this proposal contingent on Union agreement & what timeframe are we looking at?

A. This proposal comes into effect on 1st March 2009.

Eagle Star Zurich - a good news story

In the current climate, I'm almost relieved to read some good news stories from time to time. Eagle Star / Zurich's new business in 2008 was actually up by 1% on 2007, despite the difficult year. This was largely driven by pension & PRSA sales which pulled the overall average up - other areas like Mortgage Protection life assurance were understandably down.

Credit where it's due - we've enjoyed a good working relationship with Eagle Star for many years and I'd suggest that their trend-bucking performance is largely attributable to consistently above-average fund performance, excellent online platform and a strong PRSA contract.

With hindsight, they have done themselves favours by steering clear of exotic and over-complex investments (e.g. ISTC) in favour of good old-fashioned stock picking.

More details can be read here.

Public Service pension levy

I've been following the reporting of the Public Service Pension Levy announced this week.

I can't see any clear explanation as to whether this new levy will be included in your usual limits for tax relief on pension contributions (e.g. 20% of income while in your 30s, 25% of income while in your 40s etc.) As the levy qualifies for tax relief, it seems reasonable to assume that it will be included as a pension contribution for the calculation of these limits.

If it is, a rather bizarre situation may arise where an individual has been voluntarily making additional pension contributions - Additional Voluntary Contributions (AVCs) and/or Notional Service Purchase (NSP - "buying back years"). The additional levy could put them over the limit for tax relief for their age. So the logical thing to do would be to reduce their voluntary pension contributions.

Given that the Government has spent an awful lot of time, effort & money trying to encourage people to contribute to their own pension, it seems counter-productive to then introduce a levy which may have the effect of encouraging people to reduce their contributions.

Brian - make sure the levy doesn't count towards the age-related limits for tax relief!

Thinking of reducing your pension contributions?

I know of some people who have reduced and in some cases stopped their pension contributions recently. Some did so due to external circumstances - job loss, slowdown in business etc. Others did it because the value of the fund had dropped recently. For those in the latter category, have a read of the following article from the Motley Fool / Yahoo! Finance - The Move You're Going to Regret

It's a US-centred article, but the principles apply to Ireland and anywhere else.

AIB cut variable & fixed rates

I see today that AIB have cut variable rates on residential mortgages in line with the most recent ECB rate cut. Standard Variable is now 3.25% (APR 3.3%).

Fixed rates have been cut also - two year fixed is now 3.00% (APR 3.04%) which suggests that the powers that be are predicting a further cut in the variable rate in the not-too-distant future.

Veronica Ferguson R.I.P.

One more personal post before getting back to business.

Again - a word of thanks to colleagues, clients, friends & family for their support and sympathy on the death of my mother, Veronica Ferguson on 15th December 2008.

It has, of course, been difficult to lose both parents within such a short period of time, but I believe it's how they would have wanted, as they were inseparable for many, many years.

So thanks for all the messages of sympathy and support and a final thanks to my parents for doing such a wonderful job - if I can do half as well with my own kids, I'll consider myself a good parent.