PRSAsMy friend is a gardener (landscaper) aged 32. He now wishes to set up a pension with the intention of retiring at 60 - at the latest. He is a PAYE employee and would consider paying €80-100 per month.
Would you regard this as an adequate payment to ensure an income (when he is age 60) of €40,000-50,000 per annum? Furthermore what do you recommend as pointers that are "not to be ignored" when deciding what pension is best for him? Are there some features that are regarded as exceptionally good or exceptionally bad? Given his occupation would it be possible to include accidental cover with a pension - or should this be bought as a separate product?
Ms S.G., e-mail
I'm not sure when you mention the pension figure of €40,000 to €50,000 whether you are talking in today's values or in absolute terms when your friend reaches 60. If you are talking in today's terms, your friend will find himself paying considerably more than €80-€100.
The general pension target, for those that can afford it, is two-thirds of final salary plus social welfare pension entitlement but this is not cheap to fund. A recent report by the Society of Actuaries in Ireland showed, for instance, that those aged 30 earning €50,000 a year and looking to target a two-thirds pension, that is €33,000, would need to put 22 per cent of gross salary into a pension fund. And that assumes they will retire at 65. The earlier you want access to the money, the faster you must are going to have to set it aside.
To put those figures into context, if your friend was earning €50,000 and wanted a pension of €33,000 a year, two years ago he would have had to be saving more than €210 a week in his pension - more than €910 a month - and that's to retire at 65.
It's not comforting but it shows the urgency of people addressing the need to save early for their retirement. Your friend is not alone. The same survey showed most people in defined contribution schemes (where your eventual pension depends on the investment performance of your contributions down the years) is just around 10 per cent of gross salary. PRSAs are effectively personal defined contribution schemes.
In terms of what to look out for, the main thing is charges. You should ensure that as much of your money goes into your investment and not into the pocket of the person selling the pension through commissions or management fees. At the same time, you need to choose carefully to ensure your money is with someone with a good track record in investment. There is a large difference between the best and worst performers and this difference is exacerbated over time.
You say your friend is a PAYE employee. That means his employer will, from next September, have to offer a standard PRSA product for him to invest in. This caps commissions at 5 per cent of contributions and annual management fees at 1 per cent.
He is not, of course, obliged to invest in the PRSA offered by his employer but that may be his best chance of persuading his employer also to contribute something to the pot.
While standard PRSAs will probably be the cheapest on charges, they may not prove the best bet when performance is taken into account.
Your friend should get advice, preferably from a fee-based independent authorised adviser. It may sound expensive but this is one of the most important financial decisions he will make and it is nice to know any advice he receives will not be coloured by an advisers need to make a living from commissions.
Finally, I suggest he keep pensions and accident insurance separate. The more you bundle these things, the more expensive relative to other options they seem to become.
VAT on new homes
I recently bought a house with a friend from Menolly Homes. The completion date was November 2002.
The house was completed at that date but when we did the snag list it was found there was a significant amount of work still to be done. In particular there was one significant structural defect involving a lintel being put in the wrong way round.
We refused to sign off until this and other defects were rectified. This process dragged on for six weeks, and we eventually agreed that the house was complete.
Being desperate to move in, we agreed to a cosmetic fix to the lintel. However, by that time the new year had passed, and Charlie McCreevy's VAT increase came into effect, meaning that as a result of the builder's mistakes, we had to pay the extra 1 per cent VAT.
Because this was the builder's fault, we asked that they pay the VAT (our solicitor hadn't struck out the clause which said that we should pay any VAT increase). Since then, another month has passed, and the builder's solicitors have not been returning our solicitor's calls, and we think that this is a stalling tactic so that we eventually pay up. I realise that contractually we are obliged to pay the VAT, but do we have any recourse on the grounds that it is the builder who is at fault?
Mr P.C., e-mail
Cases like this show just how blunt an instrument a budgetary measure can be. Still, I find it hard to believe that you would be held responsible for the higher VAT charge given that the house was not completed only due to the builders not finishing a snag list.
Since your e-mail, you tell me that you have in fact paid the VAT in circumstances where you felt pressured that the house would otherwise be sold elsewhere.
I have talked to the Irish Home Builders Association, the section of the Construction Industry Federation that deals with the house-building sector, and we seem to have moved a little way forward. While it would be incorrect to say the IHBA polices its members, it does work to ensure that standards are maintained.
It has already contacted Menolly Homes and, no surprise, it has a slightly different spin on events. The company accepts that the completion notice - indicating that the house was finished from their point of view - was posted on November 21st.
It says you two did not get around to inspecting the property until December 6th - a fortnight later - with the snag list not being presented to them until December 10th, by which time the whole process had got caught up in that great Irish institution - Christmas. It might be worth checking how long a gap there tends to be at this stage.
However, it acknowledges that there might be room for compromise. After all, until the budget on December 4th, there would have been nothing like the same urgency about completions.
To be fair, Menolly says it did offer to close ahead of the January 1st deadline on the understanding that the snag list would be addressed but, given the experience of some buyers left waiting by less reputable builders, it is hardly surprising that this proved unpalatable.
Anyway. the IHBA tells me that Menolly is prepared to meet the two of you to discuss the problem and go through their files. They say that, if they establish that they were a "contributory factor", they will reimburse the money.
I suggest you contact Menolly or the Irish Home Builders Association. If that fails and the company insists on you bearing the burden, you can still consider other options.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 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.
