Free €10,000 life cover offer

A recent survey by Irish Life discovered that 2 out of 3 people who have life cover only have enough to protect their mortgage and have none to protect their children or dependants in the event of their death.

As a way of raising awareness, Irish Life are giving away €10,000 of free life cover for year to the first 20,000 people who sign up. There's no catch - the cover is free and anyone can apply provided that they're under 55 and have at least one child aged 13 and under.

Click here to get more information or apply. Or if you know people who might be interested, send them this link.

If you have any queries just drop me an e-mail to liam@ferga.com

An Irish institution bites the dust

I couldn't help feeling a little bit sentimental when I got a notification on Friday last that the EBS Building Society has been replaced by EBS Limited with immediate effect. While it may seem like just a name change and has no impact on customers' accounts, it's actually more than that. It's the demise of the old Educational Building Society, a mutual society founded in 1935 to help teachers and civil servants to buy homes. In its place is EBS Limited, a limited company which will soon become a part of AIB.

It is a shame to see an old mutual society disappear like this, even if the name will continue. Mutuals are owned by their members and would traditionally offer better value for money than private or public companies, which are run for the benefit of their shareholders. I can remember that EBS had a reputation for consistently offering competitive interest rates to their members before the property mania gripped us all.

Admittedly, EBS did lose its way somewhat in recent years as it tried to compete with the other mortgage lenders. It entered the commercial lending arena just as the wheels were beginning to come off, a move from which it never really recovered.

Shame how some bad decisions over a relatively short period of time can bring down a reputable society with a history spanning over 75 years.

More reasons to incorporate your business

If you're a sole trader, or thinking about starting up a business, new legislation should make it easier for you to incorporate the business as a limited company. For example, you'll be able to have just one director, just one document in the company constitution and you'll be able to have an AGM by correspondence. See this article.

At present, there are benefits to being a company director as distinct from a sole trader, when it comes to making pension provision. Here's a brief summary: -

Sole Traders

• Pension contributions limited to a fixed percentage of Net Relevant Earnings, dependant on age.



• Earnings cap of €115,000.



• No PRSI or USC relief.



• Earliest retirement age (except in ill-health) is 60.

Company Directors

• Companies can write off significant pension contributions against Corporation Tax, up to generous Maximum Funding limits.



• Funding not restricted by the earnings cap.



• Company contributions offer effective relief against tax, PRSI and the USC.



• Early retirement permitted from age 50, once director severs ties with company and disposes of shares.

Image: jscreationzs / FreeDigitalPhotos.net

No PRSI on Employer PRSA

I know - snappy title. The Department of Social Protection have confirmed that contributions by an employer to a PRSA do not generate a PRSI liability for the employee. Such contributions do, however, generate a USC liability.


In clarifying this, the powers that be have gone less than half-way to rectifying a known anomaly between PRSAs and Occupational Pension Schemes. Employer contributions to Occupational Pension Schemes are not a Benefit in Kind and therefore do not generate a liability for the employee in respect of tax, PRSI or the USC. Employer contributions to a PRSA are a Benefit in Kind and, while tax relief offsets the tax and now the PRSI liability has been removed, the liability to the USC remains.

When PRSAs were launched, less than eight years ago, they were designed to be low-cost, transparent, portable pension savings vehicles that would encourage more people to save for their retirement. Why the Government is now discriminating against them in favour of the older type Occupational Pension Schemes is beyond me.

Image: graur codrin / FreeDigitalPhotos.net

Surprise - Mortgage Lending is Down

This week, the Irish Bankers Federation published their Mortgage Market Profile. Unsuprisingly, the Irish mortgage market continues to contract. In my opinion there are two main reasons for this - (1) people are still deferring property-buying decisions due to fear / uncertainty / possibility of further price drops and (2) lending criteria has tightened so much that it's a lot harder to get approved for a mortgage than it was previously.

Here's an extract from the Press Release...

• 3,259 new mortgages issued in Q1 2011 to a value of €577 million
• Home purchasers continue to dominate the market


The IBF/PwC Mortgage Market Profile published today shows that 3,259 new mortgages to the value of €577 million were issued during the first quarter of 2011.

The volume of new lending is down 42% compared to the previous quarter and is down 53.1% on the previous year. While the seasonal pattern of mortgage lending typically results in a lower level of lending in the first three months of the year compared to other quarters, this more pronounced reduction in activity reflects the broader macroeconomic environment.

However, the key home purchaser segments of the market, First Time Buyers and Mover Purchasers, continue to dominate this smaller market. Together they now account for over 77% of the market by value and 67% by volume. In effect, more than three-quarters of all mortgage credit issued now goes to the home purchasing segments of the market.

Lenders generally continue to report subdued underlying demand for new mortgage finance. This has been influenced by uncertainty around macroeconomic developments, property price trends and future interest rate movements. At the same time, lenders continue to point to the need for prudent lending with the all-important focus on the borrower’s employment situation and capacity to repay.

Personal Fund Thresholds - Revenue deadline looming...

In accordance with Section 787P(2), Taxes Consolidation Act 1997, anyone with pension benefits with a capital value of over €2.3 million at 7/12/2010 has until 7/6/2011 to apply for a Personal Fund Threshold (PFT) Certificate. Anyone who misses this deadline faces substantial additional taxation when they retire. Bearing in mind that an application for a PFT Certificate involves gathering details of all pension arrangements, often from a variety of sources, anyone who needs a PFT Certificate should be taking action now.

Worryingly, in this Irish Times piece, Dominic Coyle tells us that by April 8th, only 144 enquiries had been received by Revenue on this topic, out of an estimated 6,000 affected people.

Who does this affect?

While the figure of €2.3 million might seem enormous, don't forget that this is the capital value of a pension fund. So you don't have to be a multi-millionaire to fall into this category. Here's a few examples: -

• Anyone in a Defined Benefit pension scheme with an expectation of a pension of €115,000 per year or more, before lump sum entitlements.

• Any Public Servants with an expectation of a pension of €100,000 per year or more.

• Anyone in either of the above categories with a lower pension entitlement but with additional pension funds from other sources, e.g. AVCs, RACs, pensions from previous employments etc.

• Anyone with Defined Contribution pension funds totalling more than €2.3 million at 7/12/2010.

What happens if the June deadline is missed?

After 7/6/2011, anyone who retires with pension benefits with a capital value of greater than €2.3 million, who does not have a PFT Certificate, will be taxed on the excess over €2.3 million at 41%. This is an additional tax, over and above the normal taxes that will apply to drawdown of pension funds. So an individual who retires with a pension fund of €3 million and no PFT Certificate will pay €287,000 in tax before drawing their pension benefits in the normal way.

How can we help?

We can gather the required information from the various pension schemes, calculate the capital value of pension benefits in Defined Benefit and Public Sector schemes, calculate the Personal Fund Threshold and prepare the application for submission.

The world will end when men & women pay the same for insurance

I wrote recently about how insurance premiums of all sorts will have to be harmonised for gender from 21st December 2012 following a European Court of Justice ruling. So from then on it will be illegal to charge different premiums for men and women for insurance.

But it will never happen!

As it turns out, 21st December 2012 is the day that the world ends. This is the day that the Mayan calendar ends and according to many highly respected sources, it will be the date that the world will come to an end. Google "End of World 2012" if you don't believe me. The internet never lies.

Oh those cunning Europeans.

Testing Posterous

Nothing to see here folks. Just testing!

TRS online only...and Revenue on YouTube

I see that Revenue are no longer accepting paper applications for Tax Relief at Source (TRS) on new mortgages - TRS must be applied for online. That might prove troublesome for people who aren't that comfortable with the web, don't have unrestricted access to the web etc.

However, Revenue have produced a few snazzy new videos and published them on YouTube to help people through the process.

You can get more details of TRS in general by clicking here and watch their videos by clicking here.

Unisex premiums for insurance deferred

I blogged last week about today's European Court of Justice hearing in relation to whether or not men and women could be charged different premiums for various types of insurance. This includes life assurance, income protection cover, car insurance - any type of insurance where gender is a factor in the price.

Well the Court today decided that gender-based pricing is not in keeping with EU law. BUT they have permitted an extension such that the current pricing methods can continue to apply until 21st December 2012.

No doubt our insurance companies will be poring over the full text of the judgement in the coming days to see what needs to be done. But it's business as usual for now...

You can read the press release here.

Men and Women are different, you know

Insurance pricing relies heavily on statistics. Men pay more for life insurance than women because the statistics show women tend to live longer. Women pay more for Income Protection because the statistics show that women tend to suffer more medium and long-term illnesses than men.

However, last year the Advocate General of the European Court of Justice claimed that it is legally inappropriate to price insurance products according to a person's gender. Next Tuesday, 1st March 2011 the Court is due to rule on this issue.

Depending on the ruling, this could mean that males and females get charged the same for insurance and assurance products going forward. It could even mean that existing policies need to be re-priced to harmonise for gender, although that would be a massive and costly undertaking, with potential challenges from people who have fixed cost contracts.

My guess would be that in the short term, insurance companies are unlikely to bring prices down. What are the bets we see costs of life insurance going up for women and costs of Income Protection going up for men, if rates need to be harmonised for gender?

Reviewable (me) Whole of Life

There's a particular type of life assurance product that has been on the market since the 1980s known variously as Reviewable Whole of Life Assurance, Unit-Linked Whole of Life Assurance and Make Extra Commission for the Salesman Assurance. Most life assurance companies have sold this type of policy at one time or another; some still do.

The basic idea of this type of policy is usually that you pay a premium, often monthly, and your premium pays for life assurance cover - a lump sum in the event of your death - and also buys units in a fund, providing you with a lump sum that you can cash in after some years. So far so good. The sales pitch usually focuses on the fact that it's whole of life, (meaning that the policy doesn't expire at any fixed date and you can therefore choose to keep your life assurance cover for as long as you need it) and that unlike other types of life insurace policies it acquires a cash value, so you can decide to stop the policy if you do decide you don't need the cover any more and can cash it in. The inference is generally that this is better than paying into a policy that only pays out on death and will expire at the end of the term if you're still alive - "dead money".

Here's a list of reasons why I don't like this type of policy and wouldn't sell one to an enemy, never mind a client.

(1) Review clauses. While the policies can theoretically continue for the rest of your life, there are always premium review clauses - often after 10 years, each subsequent 5 years and when you reach age 70, annually. At these reviews, the life assurance company can put up your premium to maintain the same level of cover or can ask you to reduce your cover if you want to continue paying the same premium. The older you get, the more frequent the reviews become so that eventually you'll be asked to pay so much to maintain your life cover that it just won't make any financial sense. That's not true "whole of life" cover.

(2) Variable cost of life cover. Aside from the periodic reviews, the cost of the life cover is not fixed. Let's say you start a policy paying €100 per month and at the outset €50 of this is paying for your life cover and €50 is buying units in the fund. This 50/50 split is not fixed and as you get older, the split internally will change without you being notified, so that it could be 60 life assurance/40 fund, 70/30 and so on, while you still pay the same €100 per month.

(3) The policy can eat itself. If the internal split between the cost of life cover and the amount diverted into your "savings" fund swings so far in the direction of the life cover that the life cover cost actually exceeds the monthly premium you're paying, the policy can perform a feat that even Hannibal Lecter would have baulked at - it can start eating itself. So going back to the example above, if you're paying a premium of €100 per month and the internal cost of life cover eventually exceeds €100 per month, the policy can start eating into the fund you have accumulated to subsidise the cost of life cover. Over time, the cash value of the policy gets eaten away and can eventually dwindle to nothing.

So my advice is to avoid these reviewable whole of life policies like the plague. There are alternatives. Several companies offer Guaranteed Whole of Life cover - life cover at a guaranteed, fixed cost for the rest of your life. It's expensive, but remember that at some point the policy WILL pay out the life cover and you have complete transparency and certainty around what you're paying, now and into the future, and what you'll eventually get.

Anyway, most of us don't need Whole of Life cover. For many people, the need for life cover diminishes over time - the mortgage and loans get paid off, the dependent children leave the nest and become financially independent, we build up pension funds, savings and investments so that our death is no longer a financial burden on anyone. For anyone in that position, it's far more cost-effective to take out life insurance cover to fulfil a need for a fixed period of time - Term Life Insurance is invariably cheaper than Whole of Life.

If you still can't get past the "dead money" idea - that premiums paid into Term Life Insurance are dead money if you survive to the end of the term, consider two things: - (a) you'd pay extra for a horrible reviewable Whole of Life policy. Do a cheaper Term Life Insurance policy and put the difference into a savings account every month. You'll know exactly what you're paying for life cover and what you're saving and you'll still have a lump sum to draw on when you want. (b) You pay for insurance on your home and car and don't expect to get a return from either if you don't claim. Life insurance is no different.