Dominic Doyleanswers your questions

Maximising your pension

I am 55 years old and would now be eligible to retire and activate my pension bonds. Because I worked for various companies and as a consultant I have three separate pension bonds - two from New Ireland Assurance and one from Irish Life and Pensions.

Can you advise what the best method would be to capitalise on the value of the bonds to achieve a monthly pension? Is it better to combine the three bonds and approach various pension providers for the best value or to take the value of each bond individually? Would there be major fees involved in consolidating the bonds or would the fees be borne by the provider of the final pension? Would an independent financial advisor facilitate this process?

Mr S.C., e-mail.

Having spoken to a couple of people in the pensions business, the general view is that the value of the bonds should not be affected one way or the other.

However, you may find that you would be able to secure more attractive pension annuity terms on a larger pot - an argument for consolidating the three bonds.

It is worth mentioning that given your age, any annuity you take now is going to be considerably more expensive than if you were to wait a bit longer. With increasing longevity bringing the age to which a man can now expect to survive into the eighties, your pension pot is going to have to keep you going for close to 30 years and that will be reflected in the amount of monthly pension income you can expect to receive from your three bonds - together or separately.

I imagine any fees involved in such a consolidation would be borne by you but, before proceeding, I would suggest you approach a financial adviser - preferably a benefits consultant who will be familiar with pensions .

Vodafone shares

I read a question in Q&A on November 9th, which prompted me to wonder about tax liabilities/capital losses from the Eircom/Vodafone saga.

I paid €4,823.94 (IR£3,797.59) in 1999 for Eircom shares. I received €1,717.81 at the time of sale of Eircom in 2001. I received €135.00 in 2006 as payment for shares when Vodafone was restructuring.

I still hold Vodafone shares worth €1,477.48. I reckon this to be a capital loss of €1,493.65.

I know that any dividends are liable for income tax. Am I correct in assuming that the capital amounts I received back (€1,717.81 in 2001 and €135.00 in 2006) are not liable for any tax?

Can the capital loss be offset as a tax allowance against any other tax liability? Mr S.K., e-mail

The issue of losses incurred by hundreds of thousands of small shareholders on their Eircom investment is a recurring theme for this column.

In the normal course of events, disbursements such as the ones you received from Eirom (when it was taken private by the Sir Anthony O'Reilly headed Valentia consortium) and from Vodafone would be liable to capital gains.

However, your investment was already well into the red and you cannot be taxed on capital losses. There remains a considerable way to go before those initial Telecom Éireann investors will face a capital gains tax liability on their existing Vodafone holdings.

Can you offset capital losses against other tax liabilities? No.

Regarding capital gains and income tax on Vodafone shares (Q&A November 9th), you refer to the €1,270 annual capital gains tax exemption. You fail to state, however, that this annual exemption only comes into effect if there are no capital losses, either in the current year or carried forward from previous years.

Capital losses must be exhausted first before the annual exemption is applied. I consider it inequitable that the annual exemption cannot be availed of by persons with capital losses, and is sacrificed forever because the exemption cannot be carried forward, but that is tax law,

Mr P.L., e-mail

You are quite right that capital losses must be exhausted before the annual capital gains tax exemption kicks in. As to any unfairness in the system, it should be pointed out that the notion of allowing investors to carry losses over into succeeding years in itself eases some of the pain of what are, in hindsight, poor investment decisions. The tax man will balk at enhancing such relief by allowing people also to claim the annual CGT allowance.