Q&A:I have a share certificate for 584 shares with Irish Life & Permanent. What is the position now with these shares. They were registered in January 2010.
Mr A.R., Dublin
The position is that, following the decision of the Minister for Finance Michael Noonan to seek High Court orders clearing the way for a recapitalisation to Irish Life Permanent at the end of July, the share certificate you hold is essentially worthless.
However, before you do anything rash like tearing up your certificate, you should bear in mind that the Minister’s decision is currently the subject of a High Court challenge.
The issue of the recapitalisation was rejected by shareholders at an extraordinary general meeting of shareholders in Dublin in mid-July. This was hardly surprising as any recapitalisation would necessarily wipe out the interests of the shareholders voting on the issue.
For his part, as he noted subsequently, the Minister was obliged under the terms of the troika bailout to sort out the recapitalisation of the banks by the end of July last year and he went to the courts to get orders allowing him to do so. These were granted, a move that effectively gave the State control of over 99 per cent of the institution.
Since then, Piotr Skoczylas of dissident shareholder Scotchstone – whom shareholders have elected to the board of the financial services group – has led a legal challenge to the minister’s action. That remains in the courts, so no final decision is in place.
In the intervening months, again in line with bailout conditions, the Government has taken control of the Irish Life, the life business within Irish Life & Permanent as part of plans to split up the group.
However, in all likelihood, the shares you hold will not deliver any return, leaving you nursing a loss in the region of €2,300, given the price prevailing at the time you acquired the shareholding.
Of course, with hindsight, decision-making is a lot easier. Nonetheless, it must be pointed out that at the time you acquired your shares in Irish Life Permanent, Irish financial institutions were in crisis and had been for over a year. There was ongoing discussion about the prospects for survival of any or all of the Irish banks. Bank mortgage lending was seen even then as a key driver of the problems that had emerged at the banks.
The marketing of tracker mortgages tied to European Central Bank interest rates compounded the problem, given that following the collapse of Lehmans, Irish banks were having to fund such products with funds that were costing them substantially more than the ECB rate – ie banks in trouble were having to trade at a loss in a key portion of their market, especially for Irish Life & Permanent.
The bottom line is that an investment in Irish Life & Permanent or any other Irish bank in 2010 was necessarily a high-risk investment. Any equity investment carries some risk – ie that the company continues trading profitably or at all. The market builds that risk into the price. At the time you acquired the shares, they had already tumbled from around €22 a share to €3.90 – and they had traded even lower. Your investment presumed a recovery in the bank’s fortunes. That hasn’t happened.
The pros and cons of paying into AVCs
I wonder could you advise me on AVCs? I currently pay in to a TUI AVC as a means of topping up my pension funds for retiring. At the moment, like everyone else, I am feeling the pinch and I wonder is the AVC such a worthwhile investment now given the state of our pension reserves. Any advice would be greatly appreciated?
Mr B.M., Dublin
Additional Voluntary Contributions are a way of investing over and above the amount paid by you and your employer through an occupational scheme in order to maximise your pension income within the limits established by Revenue.
Especially for someone in a public sector scheme – which I assume members of the TUI (Teachers’ Union of Ireland) would necessarily be – this is useful only for people who are going to fall some way short of the maximum service required to secure a full pension.
A major advantage of AVCs is that they are almost always more flexible than an occupational scheme, which requires set contributions determined by the trustees in association with scheme members.
In the position where you now find yourself, this is useful as it allows you to adjust your AVC contributions. Many AVC contracts will allow contribution holidays. Even if they do not, you can stop contributing to your current AVC and, should your circumstances improve, set up a new separate AVC.
Charges are an issue in investment decisions, but the bottom line is that you are not obliged to continue paying into an AVC.
An associated issue is pension fund performance. Times have not been good for pension fund returns in the recent past. This has raised issues about the value of investing in what remain reasonably expensive, long-term savings without any assurance as to the financial return available at the end of the saving period.
The good news for you is that public service pension are the most secure available in the current market. They do not rely on fund return – as do defined contribution pensions which dominate in the private sector, and which also include your AVC. Nor are your retirement hopes based on the continued viability of a private sector defined benefit (or final salary) scheme.
Things could be a lot worse.
This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.
