Dominic Coyle answers your finance questions.
Pensioners gain in Cowen scheme
The Minister for Finance announced measures in the Finance Bill to encourage people on the lower 20 per cent income tax band to put some of SSIA money into a pension. But no mention was made of people who pay no tax. Why are they being ignored? And what about people like myself who have an SSIA but are already on a pension? Yet again, the elderly seem to be losing out.
Ms B.R., Dublin
The Minister did announce financial incentives to encourage the transfer of SSIA funds into pensions, but you are mistaken in thinking that he ignored those paying no tax. His measure was open to everyone earning €50,000 or less who pays tax at anything up to 20 per cent - and that includes people paying no income tax at all.
On the subject of pensioners, you raise an interesting point. There is nothing in the measures as currently proposed - although these clearly are subject to amendment before the Finance Bill is passed into law - to stop a pensioner availing of the incentives to put their SSIA savings into a pension scheme.
Anyone up to the age of 75 can open a Personal Retirement Savings Account (PRSA), regardless of income.
If you are already in receipt of guaranteed income of €12,500 a year, you should be able to withdraw the sum placed in a PRSA pretty much immediately - 25 per cent of it tax-free and the rest of it at your marginal tax rate - 0 per cent, I assume, in your case.
If your income is lower than that level and you do not have other pension savings of €63,500, you would only be able to take out the 25 per cent up front with the rest providing a small annuity, again taxable if you are liable to income tax.
In the words of one broker: "This should be a no-brainer for pensioners with SSIAs whose incomes are below the income tax exemption limits, as they will be the big winners."
Residency rule
My son, then a third-level student in an Irish university, opened an SSIA account in early 2002. He completed his studies in the UK between September, 2003 and July, 2005, after which he worked there.
He continued to pay into the SSIA and hopes to do so until it matures in early 2007. However, then we read your reader's question last week. Please let me know:
a) is my son ineligible for the full benefits of a mature SSIA;
b) as a student in the UK, would he still have been considered as been resident in Ireland - he would have been home at all holiday times;
c) should he inform the "powers that be" of the situation or close down the account?
Ms M.McC., by e-mail
The bad news is that your son will not remain eligible for the special savings incentive account payout if he does not return home before the end of this year.
The fact that he was abroad as a student rather than in any other capacity makes no difference to the residency requirements, the Revenue informs me.
As such, he can stay out of the State for only three years following the year of departure before losing his status as an ordinary resident in the State. Without that status, he is not entitled to benefit from the scheme.
Having left in 2003, the clock runs out for your son at the end of 2006.
To be fair, the Revenue makes this rule clear and I have lost count of the times it has been reiterated in this column over the past four-plus years.
Should he inform the authorities? I would suggest he waits to see if he relocates back here before the end of the year.
However, if he does not, he will need to inform the authorities.
Apart from anything else, if he is not eligible under the terms of the SSIA scheme, the Government will levy exit tax at 23 per cent on everything in the account - his own monthly contributions on which he has already paid tax, the Government bonus and any investment/interest gain.
By informing the institution with which he holds the account as soon as he is aware he will not be eligible, he will ensure it is closed at that point saving him any further double taxation on his own contributions.
Annuity cost
I am a PAYE employee. I have had 40 years employment in middle management in a number of companies and through two redundancies, additional voluntary contributions (AVCs), Canada Life and First Active. I have accumulated a fund of €600,000, which is in three separate parcels - AVCs, a buyout bond and personal retirement bonds.
I am 60 and unemployed, and have decided to purchase a annuity. How do I go about it? I have applied in writing to five of the major assurance companies, but have had no reply. What is a €600,000 annuity pension worth at 60 years in pension terms? I have read that you need €1,000,000 for a comfortable retirement.
You read a lot about self-employed retirement, but nothing about the PAYE worker.
Mr B.R., Dublin 16
There are a couple of issues here, at least one of which is very surprising from my point of view. The notion that any assurance companies, whose bread and butter is the money they earn from selling people like you and me products such as annuities would ignore potential customers is difficult to comprehend. The idea that five of the State's larger players in this sector would do so leaves me breathless. To be fair, I would suggest you have been either uniquely unfortunate or the letters you sent did not end up where they should have.
How should you go about purchasing an annuity? Given your circumstances, pretty much the way you have outlined yourself.
People like yourself, who are not in a specific scheme at the moment but who have accrued pension benefits in a number of different products and are approaching retirement, also need to shop around. Annuity rates have dropped sharply in recent years as people live longer and interest rates fall.
While there is no harm in calling the various assurance companies to seek details of the annuities they might offer, your approach of putting it in writing is recommended - once you have ascertained where best to direct such a letter.
I would suggest you try once more to contact some or all of the assurers - maybe calling first to determine who, by name, you should address the query to.
If that fails, and I can't imagine it will, you can approach the financial services ombudsman, Joe Meade, who is responsible for ensuring that companies like those selling annuities do not mistreat customers or fall victim to administrative lapses.
The ombudsman's office is based at 32 Upper Merrion Street, Dublin 2, and the phone number is 01 - 6620899. It also has a website, www.financialombudsman.ie, and an e-mail address: enquiries@financialombudsman.ie.
They will pursue the companies in question to handle your query efficiently. Obviously, any written record that you have of correspondence with these institutions would be helpful.
On the more significant issue of what you might expect to receive by way of a pension on your €600,000 pension upon retirement at the age of 60, Irish Life tell me that you could expect to receive €23,314.20 a year, assuming indexation of 3 per cent per annum to take account of future inflation.
If you wanted to guarantee that the annuity would be paid for five years - regardless of whether you died in the meantime - the annual figure would dip slightly to €23,248.20. This also assumes 3 per cent indexation.
Given the relatively small difference in the figure and the fact that, without a guarantee, your entire €600,000 will go to the assurer's coffers whenever you die, I would suggest that you avail of the guarantee in this case.
The guarantee means that should you die within five years of taking out the annuity, any outstanding payments for the five-year period would go to your estate.
Obviously, Irish Life is only one provider, but it should give you an indication of what you might get. Naturally, making provision for a spouse/partner or other extras would diminish the annual sum you would receive.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 10-16 D'Olier 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 ofmail, 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.
