Investment in Ireland

When you consider the level of investment needed in Ireland to:
1. Pay for the banking crisis

2. Fund the government deficit

     3. Provide finance to long suffering businesses


You would think every aspect of our investment regime would be structured to maximise the flow of funds. In fact, the exact opposite is happening!

Irish pension funds are sitting on €80 billion in assets. A reducing amount of this is invested in Ireland.

Concerns about the level of equities in Pension Funds means they are selling equities. The volatility of Irish government debt means they cannot invest in this either. SME investment is handicapped by a range of Revenue rules dealing with close companies.

Even the annuity market cannot claim to be immune: whilst the yield on Irish Gilts rocket upwards annuity rates remain depressed because of the need to back them with German Bonds.

To borrow loosely from Coleridge: “Money Money everywhere and Everyone Going Broke”.


Author: Aidan McLoughlin


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Disclaimer: 

• The opinions expressed are those of the individuals rather than Independent Trustee Company.
• Independent Trustee Company does not take responsibility for the accuracy of any content.
• The contents cannot be construed as advice.
• We would strongly suggest that any information provided should be discussed with your financial adviser before any action is taken.

Pensions and the Sex-Factor

The decision of the European Court of Justice last week which has determined that using sex as a factor in assessing insurance premium levels will no longer be allowed provided plenty of newspaper coverage last week, much of which focused on increased motor insurance premiums for women into the future.

For pension purposes however, the news may be slightly better, assuming that the ‘discrimination’ applied in the purchase of annuities has traditionally favoured men. While on the motor insurance front, it is clearly being assumed that while the cost of insurance for women will definitely rise, the cost of insurance for men may not fall to meet it in the middle. Applying this presumption to the pension market would mean making pensions significantly more expensive for men.

Given that pension coverage for men is much greater than for women, this may seem unlikely, as the impact on such a large proportion of the market would, not only result in a fall in business, but would result in lower incomes come retirement age. While many questions were asked last week about whether increased premiums would result in fewer women drivers, it’s far more likely that to increase the costs of making pension provision will have the immediately knock-on effect of reducing the numbers applying for it.

Would a drop in the costs encourage more women to take command of their own pension provisions? Today, for a woman aged 60 to purchase an annuity to provide an income of €30,000 will cost approximately €670,000. The equivalent cost for a man would be approximately €645,000.

So we can look at this ECJ decision in a positive light, while it may cost a 40 year old woman more per year to insure her car, the reduced cost of providing for retirement may far outweigh this.

Sonia McEntee

Canvassing Irish Government on Pensions Issues

Pension savings still the best tax break but planning is essential

The National Recovery Plan has received a lot of bad press but from a pension savings point of view there is some good news!

Whilst the government has indicated some significant changes to pensions it has also indicated a willingness to talk to the industry. In particular some of the points made by Aidan McLoughlin when he appeared before the Finance Committee of the Oireachtas are reflected in the Plan  itself:

1.                   The figures bandied about for tax relief are not properly understood

2.                   Pensions tax relief is actually only a form of tax deferral

3.                   Pensions have a key role to play in terms of investing in the economy

On the negative side the Plan suggests that tax reliefs on contributions made by the employee, to include AVCs, will be curtailed. A phased introduction of income tax relief for employee contributions is anticipated. The marginal rate will over a period until 2014 be reduced to the standard rate of 20% for everybody. In addition, the relief from PRSI and health levy for employee contributions will be abolished. It is also significant that the €150,000 earnings cap which determines the maximum tax deductible pension contribution is to be reduced to €115,000.

The good news for most pension holders is that they can continue to avail of the existing reliefs in relation to pension contributions made by their employer. Contributions may be made by the employer before corporation tax and are not taxed in the hands of the employee.

While there are very few commitments in the Plan to not increase taxation in specific areas, significantly in the domain of pensions relief, the Government pledges not to make pension contributions made by the employer subject to Benefit-In-Kind for the employee.  This basically gives certainty to those who continue to plan for retirement reassurance that they may continue to avail of tax relief.

We believe this will impact significantly on the design of remuneration packages for the future.

The Plan however does have a negative impact on the reliefs available on retirement. It is anticipated that the max tax free lump sum available on retirement be set at €200,000. Furthermore, the standard fund threshold which is the max funding which can be achieved tax-free in all your pension arrangements will be reduced from the current €5.4 million to a yet unspecified level.

Both of these are extremely retrograde steps with no revenue raising potential for the State. At a time when we Ireland is trying to attract multinational headquarters and high tech business it is critical that key decision makers in those enterprises aren’t discouraged. It is to be hoped that the discussions with the industry will allow sanity to prevail on this point.

How Much is Too Much?

We all know that Irish pension funds lost more value in 2008 than the pension funds of any other major economy. Belatedly the Pension Board has indicated that this is because Irish pension funds have too much invested in Irish equities. How do they know this? The question isn’t as stupid as it sounds.

Basic investment philosophy for at least 5 decades has suggested that returns above inflation are best achieved by investing in real assets such as equities. Various investment gurus have established that the risk inherent in equity investment can be significantly reduced by:

1.                  investing over a long period of time

2.                  investing regular amounts rather than lump sums and

3.                  using a diversified portfolio

All of these are available to Irish pension funds.

In addition, our population profile would suggest we have one of the youngest populations in Europe and (until very recently) a growing population.

Does that not mean therefore that we should have more invested in equities than any other country in Europe? If this is the case then events like 2008 will have a short term impact on fund values. However, overall the fund should continue to out-perform in the long term.

Unless, of course, you decide to get out of equities at the bottom of the market – thereby crystallising the loss and missing the bounce. Which you might do if your Regulator was saying you had too much in equities.

Author: Aidan McLoughlin

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Disclaimer: 

• The opinions expressed are those of the individuals rather than Independent Trustee Company.
• Independent Trustee Company does not take responsibility for the accuracy of any content.
• The contents cannot be construed as advice.
• We would strongly suggest that any information provided should be discussed with your financial adviser before any action is taken.

The Not so Smart Economy

Attracting high-end employment into Ireland is more difficult than ever. How do you get the scientists and the decision makers to come to Ireland to drive on the development of the smart economy?

One smart idea would be to consider that the key decision makers are likely to be 45 plus and to be very conscious of pensions. If you have a generous pension system these individuals could see a real benefit to locating their key people here. There is no cost to Ireland as:

1.                  The benefits will be paid by employers at a tax cost of 12.5%

2.                  75% of the benefits will be taxed to income tax at rates of up to 50%

Just when you think we are onto a winner the government finds a way to mess it up. By proposing that tax free lumps above €200k be taxed, the government could generate tax savings of €4m to benefit the Irish economy ……and drive away multinationals worth billions a year for the economy!

Still “fumbling in the greasy till and adding the halfpence to the pence”.
How smart is that?

Disclaimer: 

• The opinions expressed are those of the individuals rather than Independent Trustee Company.
• Independent Trustee Company does not take responsibility for the accuracy of any content.
• The contents cannot be construed as advice.
• We would strongly suggest that any information provided should be discussed with your financial adviser before any action is taken.