Q&A:I have recently qualified for the contributory old age pension together with an increase for a qualified adult which is paid directly to my spouse. The amounts on a weekly basis are €230.30 for the basic pension and €153.50 for the qualified adult.
We are assessed for income tax on a joint assessment basis but within this there is a requirement to split the income between self and spouse. I had assumed that the basic €230.30 would be shown as self and the increase for qualified shown as spouse. Given our particular circumstances the tax rates to be applied would be 48 per cent, including USC, for myself and 20per cent for spouse.
However, to my dismay I have now been told by Revenue that I am deemed the beneficiary of the total pension and that the total amount of €383.80 should be included as income of self and therefore is subject to tax at 48 per cent.
The net result of this interpretation is that on my marginal income of €230.30 I am asked to pay tax of €184.20 (48 per cent of €383.80) leaving me with €46.10 per week. I cannot comprehend how this treatment can be seen as reasonable or a correct interpretation. I quite understand that the total pension is liable to tax, but not in a way which gives rise to an effective marginal tax rate of 80 per cent on one partner’s share of the pension.
Mr G McL, Dublin
Back in 2007, then social welfare minister Martin Cullen set down that qualified adult allowances be paid direct to the qualifying adult in order to ensure that they had some independent income.
That’s all well and good. However, the Revenue continues, not unreasonably, to rely on the fact that the allowance is an additional payment on top of your pension and is therefore part of your income. It cites the wording of the Social Welfare Consolidation Act 2005 where, in section 112, that the weekly pension rate “shall be increased” by the amount of the adult allowance. Its view is that the total payment is one pension payment.
It may not sound very fair but paying the money directly to the qualifying adult was a political decision and not one made under tax law.
Will bank offer me a good deal to pay off tracker?
I am now in a position to pay off my mortgage eight years early. The mortgage is a tracker (80 per cent ECB + 1.25).
Should I expect the bank to offer me a good deal to get this tracker off their books? Should I approach the bank myself or would I be better to engage a financial adviser to negotiate on my behalf?
Ms ME, Meath
Good for you. Finding yourself in a position to pay down debts early is always comforting. However, there are a couple of things you need to consider.
First up, is this mortgage your only debt? On a tracker rate of the European Central Bank rate plus 1.25 percentage points, this loan is undoubtedly the cheapest money you will ever borrow. If you have any outstanding debts on personal loans – such as for a car, to finance home improvement, to pay for education – or credit card debt, you should certainly pay that off first.
For the same reason, if you foresee any prospect of borrowing for such items, or anything else in the near future, you should similarly reconsider any early repayment plan. Otherwise you are only going to penalise yourself financially.
If you are certain that there are no outstanding debts or impending purchases requiring borrowing, then and only then should you consider using this money to repay your home loan.
Will the bank cut a deal in order to get the loan off their books? Possibly, but I wouldn’t bet on it.
While it’s certainly true that the bank is losing money on the loan, it’s also the case that all banks are under considerable pressure not to be seen as an easy touch as they struggle to get themselves back onto a sound commercial footing. They will see you as having had a good deal on the loan and are likely to be reluctant to enhance that further.
Still, you never get what you don’t ask for. Getting hold of their money eight years early means the bank can minimise the loss it makes on the loan. You could certainly hold out the prospect of long-fingering early repayment to consider funding other spending and see if you can get a reaction.
Should you get a financial adviser to do the talking for you? I don’t see any reason why. It’s possible that someone more proficient in dealing with financial institutions might have more chance of success in securing some form of discount for you, but it is far from guaranteed – and the cost of a financial adviser could, in any case, more that account for any benefit you receive from the exercise.
What are my chances of a prize bond win?
A recent correspondent refers to “having built up a substantial amount which we currently invest in prize bonds. We get a great return on them versus putting cash on deposit”.
You make no reference to this in your response but I was gobsmacked to learn that anyone could make a “great return” from such an investment. I have been investing in prize bonds for almost 40 years and have not got one cent back. I am wondering does one have to have, say €100,000, in prize bonds to have any chance?
Mr G McL, email
Prize bond draws, like the Lotto, are a matter of chance. On that basis, I would assume that the greater share of the entries you own – in this case the higher number of individual prize bonds – the better your chances of winning a prize in any given draw, or cumulatively over a period.
That’s not to say there are not some attractions to prize bonds. First up, your bond is entered in every weekly draw for as long as you hold it – which, in itself, makes it a better bet that the Lotto – but as with the lottery, you pay no tax on any winnings.
And, if you are of an altruistic bent, there is the satisfaction of knowing that in these times of austerity, you are helping balance the State’s books as the bonds are managed by the National Treasury Management Agency alongside other State savings.
There are more than 8,500 winners each week but then again there are more than 200 million bonds in issue . . .
The other key attraction of the bonds is that they can be redeemed at face value. Of course, no allowance is made for inflation, so you are still effectively losing money in almost all circumstances – unless your bond comes up in a draw.
Ultimately, only in a period of sustained deflation would prize bond purchase be considered a “sensible investment option”, as against a somewhat virtuous punt.
* 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.
