Dominic Coyle answers your personal finance questions.

Pensions

While reading your response to a reader's query on personal pensions last week, I was prompted to write. I am conscious that when giving advice the adage of "doctors differ" is very true. However, when discussing pension issues, I would consider tax relief on contributions as fundamental.

My view is that if you don't get the tax relief, don't put your money into a pension fund. I appreciate the set-up costs associated with personal pensions have traditionally been high. This may not automatically be the case, but future contributions will still attract ongoing charges. If the premium is increased in future years this could attract even more high charges - all without tax-relief.

I would suggest a PRSA is probably the most cost-effective way to solve your reader's dilemma. This may necessitate having to bite the bullet with their existing plan. I apologise if you consider I'm sticking my nose in where it's not wanted. Mr T.O'H., email

Never worry about sticking your nose in. This is an information column and, as you say, there can be more than one solution to every problem.

If we were looking at the case of someone who had not started a pension, I might well concur with you. The Personal Retirement Savings Account (PRSA) is designed to be portable across all jobs and none. It is tailored to the needs of people who will change jobs several times during their careers, to those who work for companies that do not offer an occupational pension scheme, for those who might work in a self-employed capacity at times and within the PAYE sector at others, and for those who might take a career break.

However, there are several drawbacks with it, not least the fact that it is unproven - something that might matter less if the only voices raised in doubt were those on one side.

As it is, those selling the plans question whether there is enough in it for them to be a worthwhile part of a product portfolio and those buying them are worried about whether they are simply buying a tracker product that has little chance of delivering the growth required.

In common with all defined-contribution plans, and particularly personal pensions, it suffers from the over-optimistic nature of people about how much they must put away to cater for their retirement.

Unlike occupational schemes, even the less advantageous defined-contribution ones, there is little evidence of employers being prepared to contribute to PRSAs, although they are obliged to offer facilities for employees to contribute to such an account where no other pension option is available.

However, in the case of Mr F.T., he has already started a personal pension and is being offered the opportunity to join a non-contributory defined-benefit scheme.

This raises two issues. On one hand is the question of the not-inconsiderable cost should he close the personal pension having almost inevitably been front-loaded with charges. Second, as I am sure you would agree, he would be foolish to snub an opportunity to join what is the Holy Grail of employee pension options.

The point you make about tax relief is mostly valid, although I would question if it is the only reason for continuing to pay into an existing pension plan when you expect your employment with the non-contributory defined-benefit employer to be short-term.

However, in my view the best way to address this would be to keep the personal pension going but at a vastly reduced rate of contributions (almost all personal pension plans make provision for this) to minimise the loss from the absence of tax relief. Then you can enjoy the privileges of membership of the non-contributory scheme and worry about transfers should they become necessary later.

IPO shares

I work for a large US multinational. Approximately two-and-a-half years ago, it spun off part of the company through an initial public offering (IPO). For every share we held in the parent company, we received a percentage of a share in the new company (roughly one-third of a new share for every share held with the parent company).

On the day I received my share allocation and the first listing on the Nasdaq, the share was priced at $36 (the price of the parent share on the day was about $60).

When I sell these shares, what way will I be liable for tax? Will it be purely capital gains or will the new shares be seen as some form of benefit in kind? If I sell them for below the issue price of $36, can I write this off as a tax loss? Mr R.B., email

The key element would appear to be whether the treatment you received from your company in respect of the allocation in the spun-off company was the same as that granted to all other shareholders in the parent company. Did non-employee shareholders in the US multinational also receive approximately one-third of a share in the spin-out for every share they held in the multinational?

If all shareholders in the company were treated equally, you are only liable to capital gains tax on the gain in the share following its flotation. This will be determined by the price you secure for the shares in the new company when you sell them.

It is important to note that, on the information you have provided, capital gains would be liable on the full value of the shares (minus the annual capital gains tax allowance of €1,270).

The fact that the shares were listed at $36 on Nasdaq at the point of flotation is irrelevant. The only price the Revenue cares about is the price you paid for the shares, which would appear to be nothing.

Similarly, if the price at which you eventually sell the shares is less than the $36 listing price, it will not create a capital loss which you can set against other gains. Having paid naught for the shares, any price above that is effectively a gain.

Of course, if you paid for the shares, it would be different but the situation vis-à-vis which tax liability you face would not change as long as you were treated the same as other shareholders who were not employees of the multinational at the time.

If, however, you were treated more favourably than non-employee shareholders, then you are looking at benefit in kind upon which income tax is due. However, this seems unlikely as the tax would have been due at the end of that tax year and the company would almost certainly have circulated warnings to staff on the tax liability involved in such an allocation.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or email 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.