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28th October 2015 – Pension Pointers

As the end of year tax returns and some company year ends approach the following are a couple of points to consider re pensions

  • Budget 2015 – the pension levy is being withdrawn at the end of 2015
  • The state contributory pension is currently 230.30 p/w.  Add a dependent’s pension (over age 66) and the total is 436.6 p/w which is 22,703.2 p/a. This works out at a retirement fund of €504,515.56 for each couple with full contributory history (based on annuity/pension rate 4.5% p/a). This is financed by PRSI contributions plus additional contributions from the Government Finances. Following on from the Budget, this will increase by 3 euros p/w.  How sustainable are these levels going forward……
  • There is an old pension rule – 10 times salary provides for 50% pension

For example – For a Gross salary of 50,000, target a retirement fund of 500,000 to provide an income of 25, 000 p/a – are you on track…..

  • Keep it all tax free (tax relief on contributions, growth tax free and take out tax free)
    • – Aim for a fund of circa 400,000

(These are sample figures and retirement options will be bespoke to the individuals situation at that time)

Fund of 400,000 today :

  • Take 25% Tax free cash = 100,000
  • Transfer Balance of 300,000 in AMRF/ARF taking income of 4% p/a = 12,000
  • State contributory pension with dependents pension = 22,703

Total income is 12,000 + 22,703 = 34,703 p/a which is below the income exemption limit of 36,000 p/a for a couple

A reminder of the tax relief on pension contributions

  • Sole Trader – The tax relief is 40%  for those on the higher rate of tax and 20% for those on the Standard rate.
  • Company Director – Employer contributions receive tax relief of 12.5% plus exempt from BIK, PRSI, USC

Any growth in the funds are tax free (no exit tax/DIRT/capital gains tax)

The pension is the most tax efficient way of transferring funds built up in your business into your personal capacity. This becomes very important as you approach retirement.

25th August 2015 – A Bear in a China Market

With the recent turbulence in the stock markets below is a view from Quilter Cheviot which sums up last week’s events in China and also addresses why we are still positive about equities

A bear in a China shop?

Global stock markets fell sharply last week on concerns about the robustness of the Chinese economy. This, combined with the anticipation that the US central bank may raise interest rates as soon as next month was enough to send share prices tumbling. The UK FTSE 100 fell by 363 points over the course of five days, a fall of around 5.5%. US and European markets dropped by similar amounts. The downward trend has carried on into this week.

Should investors be worried?

The Chinese economy has been slowing for some time. This is in part a deliberate policy by the authorities who wish to see the country shift from a reliance on exports to a greater emphasis on domestic consumption. This transition also coincides with a reduction in capital investment and infrastructure spending which China had embarked upon in the aftermath of the global financial crisis in order to shore up the economy. Thus, GDP growth of over 10% per annum has now slowed to around 7%. The reason for the market jitters, however, is the fear that actual growth is somewhat below that figure. Recent data showed that exports fell by 8% in the year to June. This was followed two weeks ago by a “mini-devaluation” of the Chinese currency, the yuan. Coincidence? The Chinese would say yes, that the change in the currency regime from a fixed peg against the dollar to a more flexible, market influenced rate was aimed at improving the chances of the yuan being accepted as a reserve currency by the IMF later this year. Indeed the currency adjustment was around 3%, hardly a major devaluation. Sceptics would say no, the economy is clearly floundering, a view supported by numbers last week which showed China’s manufacturing  sector shrinking at its fastest rate since 2009. And look at commodity prices they would say. Oil back below $50 per barrel and metals prices at the lowest for six years.

So who is right?

Firstly, the link between falling commodity prices and slower Chinese growth is not as straightforward as one might think. True, China is the largest importer of oil and minerals in the world, but even if economic growth this year is only 6% (less than official forecasts), the absolute level of imported materials is around the same as it was five years ago when commodity prices were booming. This is simply because the Chinese economy is now much larger in size compared to five or six years ago. Weak commodity prices are largely a function of excess supply rather than a collapse in demand. With oil, we have seen the huge ramping up of shale production in the US. This combined with higher OPEC output and the likelihood of Iranian oil coming back to the market has pushed prices back below $50 per barrel. In the case of metals, new production which was planned some years ago is only now coming to market, sending prices lower. So, while commodity producing countries such as Brazil are indeed suffering because of low prices, many other parts of the world are better off, seeing lower input costs in manufacturing. Lower oil prices are also resulting in lower diesel and petrol prices, boosting disposable incomes for consumers.

What about interest rates?

It is widely believed that the US will be the first major economy to raise interest rates with much commentary centred around September as the likely starting point. However, the recent further fall in the oil price suggests that inflation levels will remain subdued for the foreseeable future. This seems sufficient for the Fed to stay its hand for now. Nevertheless even if rates were to rise next month, it is likely to be a token increase, with subsequent movements very slight indeed. In the UK, inflation is also conspicuous by its absence and any move seems unlikely until well into next year.

Is the global economy in trouble?

Even with a lower Chinese contribution to global activity, world growth is likely to be above 3% this year. The US economy, still the world’s largest, is in good shape, with jobs being created, a housing market that is recovering and low inflation. Growth should be around 2.5% this year. The strengthening dollar is a headwind for some companies, but the economy is well balanced and lower oil prices translate to more consumer spending power. The UK is also in good shape and should show a similar growth rate to the US this year. Again, low inflation is allowing real wages to rise, boosting consumer spending. The prospect of higher interest rates seems some way off into the future. The Eurozone is financially more stable now that Greece has secured its bailout. Quantitative easing (QE) and the lower euro should allow growth to improve from a very low base. Outside of China, however, the prospects for Asia and emerging markets is mixed. Japan is seeing modest improvement on the back of QE after years of contributing nothing to global growth. In the developing world, some countries are being hurt by lower commodity prices, but others who mainly import raw materials are benefitting from lower costs.

And the outlook for markets?

Share prices have suffered a sharp correction in the last few weeks, albeit after many stock markets reached all-time highs in the spring. Valuations are around the average for the last twenty years, so the current weakness offers a good entry point. Moreover, dividend yields remain well above government bond yields, underlining the income attractions of equities. Low commodity prices are likely to keep the lid on inflationary pressures, removing the need to raise interest rates. This suggests that bond yields are likely to remain low for some time. Therefore, while stock markets may remain volatile over the coming months, investors shouldn’t be afraid of taking advantage of the recent dip in prices to add to positions where they can.

2nd March 2015 – Standard Life’s Share Distribution

Standard Life recently wrote to shareholders regarding a distribution they will be making in April following the sale of their operations in Canada.

These payments will automatically be regarded as earnings subject to income tax unless the shareholder instructs Standard Life otherwise. This income option may expose shareholders to an income tax charge of up to 51%.

The alternative is for this income to be taxed as Capital Gains Tax. There is an annual exemption from Capital Gains Tax of up to €1,270 for any gains received on the sale proceeds of a capital asset.

Many Standard Life shareholders received their shares free in 2006 when the company demutualised and listed on the London Stock Exchange. The average award for a shareholder was 673 shares, which will qualify, for an estimated payment of £491, which is circa €660.

Standard Life will only allow the capital gains option on this €660 payment for those who request it by 4.30 pm on March 18th.  In their recent correspondence there is an Election Form. To avail of the capital gains option – You need to complete Step 1 – put ALL in the box and sign.  The form needs to be returned in the prepaid envelope enclosed.

24th February 2015 – Finance Bill 2015 – Changes to AMRF/ARF

Finance Bill 2015 – changes to AMRF and ARF

The following changes were recently introduced for AMRF and ARF holders

AMRF – New withdrawal facility

From 2015 onwards, AMRF holders will be able to withdraw annually up to a maximum of 4% of the value of their AMRF on the 1st February in that year. Such withdrawals are subject to PAYE and USC. AMRF holders are not obliged to make the withdrawal. This is optional.

ARF – Imputed Distribution

The ARF imputed distribution rate of 5% is being reduced to 4% for ARF holders under age 71. For those ARF holders, age 71 and older, the imputed distribution of 5% remains in place. For ARF holders whose total fund is in excess of 2 million, they remain subject to a rate of 6%.

ARF holders under age 71 have the option of maintaining the imputed distribution rate at 5%. The reduction to 4% is optional. Life companies are handling this in different ways. Some are automatically reducing the income to 4% while others are keeping at 5% and leaving it up to the ARF holder to instruct them to reduce the rate. We will be contacting clients on an individual basis with regards to this.

Budget 2015 -Pension Levy

With regards to the pension levy, this is being reduced to .15 % in 2015 and will expire at the end of 2015.

9th February 2015 – Why all this money on deposit

There is currently over 92 billion of funds on deposit with banks in Ireland. A large proportion of this money is earning less than 1% interest annually. The life companies recently carried out a survey to see what was preventing depositors from looking for alternative investment opportunities for their funds.  There were 2 key barriers identified:

1 – The first was access to funds. Most depositors wanted immediate access to funds.

2 – The second was risk – many were reluctant to take risk with their funds

In response to these findings the life companies have introduced risk targeted funds. These are funds focused on specific levels of risk and corresponding returns. They range from no risk to small levels of risk to medium and high.

Following on from this a number of the companies recently launched investments whereby investors have instant access to their funds.

With the current state of play in Europe it is likely to remain a low interest rate environment in the short to medium term. There is a lot of debt in Europe and the most effective way of tackling this debt is for governments to fund their borrowings at very low interest rates.

In November, European Central Bank president Mario Draghi told the markets that inflation is firmly back on the ECB’s agenda, as it strives to stimulate growth in Europe. Two weeks ago quantitative easing took place in an effort to stave off deflation and stimulate growth.

“It is essential to bring back inflation to target and without delay,” he said. The European target of course is 2 per cent.

In light of this environment of low interest rates and inflation, we recommend considering the investment opportunities currently in place with the life companies.  They offer the opportunity to outperform inflation and deposit rates. They have a wide range of funds specifically targeted to your level of risk while offering instant access to funds.

If you would like to discuss the above in more detail, please drop me an email.

05 September 2014 -Third Level Education

The following are the results of a Survey carried out by Standard Life with regard to the cost of 3rd Level Education

Over four out of ten parents worry they’ll have to borrow for children’s 3rd level education

Almost a quarter of parents worry 3rd level education won’t be possible

A Standard Life survey of 1,000 adult respondents* revealed that while practically all Irish parents (96%) want their children to attend third level education, 44% worry they will have to borrow from a bank/credit union to fund it. Four out of ten parents or 43% said they have nothing in place to fund their offspring and almost a quarter of parents (24%) worry 3rd level simply won’t be possible.

Additional survey findings from parents:

  • Almost half of parents (45%) regret not starting a regular savings policy when their children were born

When parents were asked what was in place to fund their children’s education:

_ 43% have nothing

_ 38% have a regular savings plan

_ 10% have a lumpsum/inheritance,

_ 9% of parents say grandparents have offered to help

_ 8% an investment property

_ 5% other means

This year’s results versus last year’s:

  • The percentage of parents worried about having to borrow for their children’s 3rd level education has decreased from 51% to 43%
  • Parents who are worried 3rd level won’t be possible has fallen from 28% to 24%.
  • The proportion of parents with nothing in place has fallen from 45% to 43%
  • The percentage of parents with regular savings plan in place has decreased from 43% to 38%.

“Parents seem more optimistic about providing their children with a 3rd level education, but it seems many will have to borrow to do so,” said Sinead Cullen, product development spokeswoman for Standard Life. 

“It’s cheaper in the long run if people can save for their children’s education rather than borrow,” she said.

“The average cost per student can be typically between about €7,000 to €10,000 p.a. depending on whether they’re living at or away from home. If parents could save between around €100 to €200 per month from the beginning for each child, they would be in a strong position at university time; importantly they will also have peace of mind for all those years too,” she said.

If you are interested in starting a savings policy to fund for 3rd level education, please drop us a mail as we have access to a wide range of products.

Vodafone – Verirzon Consideration

Vodafone recently sent correspondence to shareholders with details on the deal with Verizon. Vodafone, following on from their correspondence in December 2013, carried out a return of value to shareholders, partly in cash and partly in Verizon Shares.
There was a consolidation of the existing shares for new Vodafone shares at a rate of 6 new shares for every 11 held.
E.g. original share holding 2539 – new shareholding is 1384.
Return of Value – Verizon Shares
Shareholders also received 0.026 of a share in US telecoms group Verizon as part of the deal. That means shareholders will have received one Verizon share for every 39 Vodafone shares they held and any fractions of entitlements to Verizon shares will have been automatically sold on behalf of the shareholder. E.g 2539*.00263001= 66 or 2539/39 = 66 Verizon Shares
Return of Value in cash – $.4928005 for every Vodafone share held
E.g. 2,539 *$.4928005 = $1251.22
There were a number of forms enclosed in the recent correspondence sent by Vodafone.
·         Details of the consideration for each shareholders individual holding
·         Dealing form – Vodafone is offering a free service to sell shares. The form is to be signed and returned only if selling your shares
·         W-8BEN- Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Verizon is an American company and pays dividends in the US. For a non-US resident receiving US dividends a US company will automatically apply 30% withholding tax unless a W-8BEN form is received from the shareholder.  In the Irish – US tax treaty agreement, it is agreed only 15% withholding tax should apply on US dividends but also only a credit of 15% withholding tax is given by the Irish Revenue on the Irish shareholders tax return forms even if 30% withholding tax is applied where no W-8BEN form is completed by the shareholder. In order that only 15% of withholding tax is applied instead of 30% withholding tax then a shareholder must complete and sign a W-8BEN form and return it to Computershare.

Education Savings Plans

Education Savings Plans

  • The cost of financing a 4 year course in college is circa €40,000
  • 99% of parents want to send their children to college
  • 50% of parents have savings in place
  • Younger Parents (age 25 -35) are the biggest savers and save on average 192 p/m per child
  • Ireland – Baby Boom (over 75,000 in 2010)

If you were to save the children’s allowance of €140 per month from birth to age 18, a growth rate of 6% p/a, will provide a fund of circa 40,000 to fund a 4 year course…..

We have access to a wide range of savings plans and funds tailored to these savings requirements