Q&A

Q My wife was working full-time up till recently and has a nice amount (approximately €20,000) in a company pension plan.

Now that she is not gainfully employed, we are wondering what is the best thing to do with this. Should we let it alone until she retires, or move it to a private pension scheme or just cash it out?

Mr S.W., e-mail

AYouroptions in terms of how you treat your wife's pension depend on how long your wife was a member of the occupational scheme. In general, there is very little scope for cashing out pension savings.

If she was less than two years in the scheme, she would be able to cash in her own contributions - subject to taxation at 20 per cent.

That aside, however, you are looking at where the pension savings should rest, rather than any question of cashing in the amount. Essentially, there are three options:

1) Leave the fund where it is - your wife can leave the €20,000 in her former employer's occupational pension scheme and allow it to grow there until she retires, at which point she will be able to draw part of the fund down as a lump sum and the balance as a small monthly or annual income.

2) Transfer the funds to a Personal Retirement Savings Account (PRSA) - PRSAs are the portable pension products introduced several years ago by the Government. They have had mixed success. For the more basic schemes, costs are restricted.

However, you need to determine whether a basic scheme is likely to do any more than track the fortunes of the market - and holders of such schemes are probably banking on more than that. Secondly, there is natural purchasing power in being a member of a bigger fund when it comes to dealing with trading costs and commissions.

However, PRSAs are not to be dismissed. They were designed for people in your wife's situation - those changing jobs regularly, working part-time or taking prolonged breaks from the workplace. Previously, someone in your wife's position could not contribute to a pension fund unless she was working. PRSAs allow her to continue to make contributions whether she is in employment or not.

3) Move the fund to a buyout bond - this is an investment fund other than the occupational fund of your wife's former employer which invests in a range of assets. The money again can be drawn down at retirement.

The issue of transfer values on funds moving from an occupational scheme is particularly intricate and, to some degree, subjective. Given the importance of making the right decision, your wife really should seek professional advice on the best option and on the transfer values she might expect.

Notwithstanding the Government's efforts to realise a short-term windfall from the pension assets of some of our semi-States, putting off pension provision is not a sound idea.

Even the €20,000 your wife has in her fund would not go far in terms of providing retirement income. At current annuity rates, she might expect a pension of around €1,200 per annum.

Q I sold some shares and made a profit. I was going to sell shares in Iseq 20 which I have a loss on. Can I use this loss against the gain?

Some advice I am getting is saying that the Iseq is treated differently to ordinary shares and that I cannot use that loss.

T.McM., e-mail

A Exchange Traded Funds (ETF) - of which the Iseq 20 is one - are a relatively new arrival on the Irish market.

To date, the Iseq 20 is the only ETF available on the Dublin exchange, although there is regular talk of others becoming available to investors here.

While they are quoted on the stock market in the same way as an ordinary share, they are a different class of creature and that is going to impact on the tax treatment.

Effectively, an ETF is a collective investment - a bit like unit funds - which invests in a range of assets. In the case of the Iseq 20, these assets are all shares that are quoted in their own right on the Irish Stock Exchange.

One of the things that sets ETFs apart from other collective investments is that they are themselves traded on the stock market.

They are seen as tax-efficient with dividends subject to tax at just 20 per cent - compared to 41 per cent plus PRSI and health levy - for dividend income from ordinary shares.

Another tax difference between ETFs and shares - and the one that particularly affects you at the moment - is that they are subject to a specific exit tax when your investment is encashed rather than being assessed under capital gains tax rules. Just like unit funds, this is levied at 23 per cent.

Unfortunately, that means that you cannot offset any loss you have incurred on the ETF against gains you might have made on other share dealings.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by 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 questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.