Q&A

Could you resolve the following regarding the splitting of Eircom and the subsequent sale of part to Vodafone, in order to establish an initial share purchase price for calculation of potential CGT liabilities on the sale of Vodafone shares:

what was the original launch date and price of Eircom?

what portion of the cost should be allocated to Vodafone shares as an "initial" cost price?

what share price would be required to establish a "break-even" situation on the sale of the resulting "Vodafone portion"?

Mr B.M.-O'F., email

Eircom, or Telecom Éireann as it was then known, floated on the Irish Stock Exchange on July 8th, 1999 at a price equivalent to €3.90 - remember this was before we entered the age of the euro even if the pain of the Eircom fiasco is, for many, still an all-too-recent memory.

When the Valentia consortium, led by Sir Anthony O'Reilly, swooped on the company - or what was left of it after the demerger of the Eircell mobile phone business - the Revenue determined that €1.69 of the original purchase price was accounted for by the fixed-line business acquired by Valentia with the balance. Given that Valentia was paying €1.335 per share, investors were left nursing a loss of 35.5 cents per original Eircom share on that part of the transaction.

The balance of the original price, €2.21 per Eircom share at flotation, was attributed to the mobile business, Eircell, that was acquired by Vodafone.

The issue is somewhat complicated by the fact that Eircom investors did not receive a simple one Vodafone share per original Eircom share held. Instead, they received slightly less than one Vodafone share for every two Eircom shares held.

For simplicity, what you need to know is that the Revenue has determined that the "acquisition price" of each of the Vodafone shares you now hold is €4.66.

So, in order to break even you will need to receive more than €4.66 per Vodafone share if and when you choose to sell - a computation that will be further confused by the fact that you will be selling the shares on the British market and will therefore have to sort out the subsequent foreign exchange conversion.

For what it's worth, Vodafone was last night trading at 128.25p - or €1.856. On that basis, you are currently just over €2.80 out of the money on each of the Vodafone shares you hold on top of the 35.5 cent loss on the O'Reilly end of the deal.

The bad news is that there is little sign of the Vodafone stock climbing anywhere close to the break-even level.

Pension eligibility

I'm a single male civil servant and I pay a weekly compulsory contribution ("superannuation") towards a pension scheme. A deduction of 6.5 per cent of my salary is taken before any PAYE or low-rate PRSI. This deduction includes a contribution towards a "widows and orphans" fund, which I've been told is "compulsory for all male employees" only.

I understand that the pension scheme is based on 40 years of service/contributions. I was just under 19 years of age when I began work and will therefore have paid my full 40 years of contributions by the age of 59. I'm told that the earliest that I can retire on a pension is the August following my 60th birthday. Is this true? Will I have to continue to pay towards my pension after 40 years of service up until I'm actually eligible to retire?

If I decide to continue to work until I'm 65, will I be entitled to a greater pension than if I retire at age 60? If so, how much greater would the pension be?

Regarding my contribution towards the widows and orphans fund: if I should remain single and without offspring at retirement age, could I get a refund or would a medal be more appropriate?

Mr M.P., Waterford

I'll give the best guidance I can, but for a comprehensive answer you will need to refer to the specific rules of your civil service pension scheme. As a general rule with defined benefit schemes, the maximum benefit is 40 years service.

Benefit is generally 40/60ths (two-thirds) or, less often these days, 40/80ths (half) of final salary.

The bad news is that for as long as you continue to work, the rules of your pension scheme will probably dictate that you continue to contribute even if you have already served (and paid contributions) for 40 years. The thinking behind this in the case of defined contribution schemes is that each individual employee is funding a scheme that will benefit all. In truth, your contributions will fund only a fraction of your final pension benefit so you are still ahead on the deal - and that's even before allowing for the tax relief.

Can you retire earlier than 60? It's unlikely unless a special early retirement programme is offered, generally as part of a restructuring and, thus, rarely (if ever) in the civil service.

Most pension schemes will assess benefits for a male on the basis of retirement at 65. If you retire before this, generally, you will receive a lower pension benefit although, again, you will have to refer to the specific rules of your scheme to see how this would work for you in practice. If the service is allowing you retire at 60, it may do so on full pension. In the private sector, this certainly would not be the case.

Regarding your contributions to the widows and orphans fund: despite your status as a single man without any children I imagine you will have to grin and bear the fact that you are helping provide for the needy survivors of colleagues past and present. However - and sorry for sounding like a broken record - there is no way of being sure unless you refer to the rules of your scheme. Civil service pensions, at times, operate quite differently from pension schemes in the private sector.

Standard tax rate for joint income

Your answer of March 25th, 2005 to a query by M.B., Cork on tax calculation states that for married couples where there are two incomes the 20 per cent income tax rate limit is €58,800.

Is this always the case? In the case of my husband and me last year (2005) our joint income (both pensioners) was €53,500, but we were only allowed €47,700 taxed at 20 per cent, the balance of nearly €6,000 being taxed at 40 per cent. The income split between my husband and me was €44,000 and €9,500, respectively.

Ms R.G., Dublin

I had to trawl back through the files there to find the piece to which you referred. Your memory is clearly better than mine.

It appears your sums might also be better than the Revenue's. As you say, the tax bands last year were constructed in such a way that a married couple with income of up to €58,800 were taxed at the 20 per cent band when there were two incomes involved. Where there was only one income, the threshold was €38,400.

Any income above that level was taxed at 42 per cent, not 40 per cent.

On that basis, you and your husband should only have been taxed at the 20 per cent level on your earnings of €53,500.

Is this always the case? Well, yes, unless there are other factors that affect your tax position.

Now it's always possible that I'm missing something here - it wouldn't be the first time - but I would think you should certainly challenge the Revenue interpretation of your tax liability.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.