Independent Financial Advice

According to the employers’ group IBEC, the recession in Ireland probably ended in the first quarter of this year, and the economy is slowly returning to growth.
RTE business this morning quoted IBEC who say that the weaker euro and stronger than expected consumer demand are helping the economy to recover. It has consequently upped its forecasts for this year and next year.
In March, IBEC thought GDP would shrink this year by about 0.7%. It now believes it will only shrink by 0.1%. This implies that the size of the Irish economy will be virtually the same as last year, though GNP – which excludes profits from foreign multi-nationals – will fall by a further 1.5% they believe. IBEC also raised its 2011 growth forecast from 2.1% to 2.3%.
A weaker Euro and a recovery in global markets which was stronger than expected, has precipitated and more favorable business environment for Irish companies who export their wares. IBEC believes exports will make a positive contribution to growth this year.
There are also signs that Irish consumers are spending more. This improved outlook for consumer demand is now helping to lift the economy out of recession. Along with these factors we have made good strides in improving our competitiveness (through cost cutting and reduced pricing across the board).These things combined have lead IBEC to take a more optimistic view of the economy this year.
It is not all ‘plain sailing’ however as IBEC warns that the emerging recovery here could be choked off if financial market stress over Europe’s debt crisis continues for a number of months.
We will take any ‘silver-lining’ we can and hopefully be mindful of the dangers and pitfalls that remain ever present.

An article in today’s Irish Independent by Charlie Weston warns borrowers to reject offers (some in the region of as much as €15,000) to quit very cost effective tracker mortgages they currently have.
BANKS who are very anxious to clean up their balance sheets could soon start trying to tempt mortgage holders to go elsewhere by offering them up to €15,000 off their home loan. This is because these tracker mortgages are loss making for the banks.
The Consumers’ Association has called on the Financial Regulator to carry out a probe of mortgage lenders to make sure they are not attempting to encourage homeowners to give up tracker mortgages.
The association’s chairman, James Doorley, said lenders were under a statutory obligation, under the regulator’s consumer protection code, to act in the best interests of customers. This meant that any attempt to incentivise customers to give up their tracker would be a breach of the code. Lenders are attempting to get people to give up their trackers when they get into arrears and need to restructure their mortgage.
A spokeswoman for the Financial Regulator has also said that lenders were required to act honestly and in the best interests of customers.
“Our firm view is that no bank should offer incentives for tracker mortgage customers to switch to less favourable options,” she said.

The Irish Brokers Association (IBA) said lenders were quietly trying to protect their capital by tempting borrowers to switch to other providers. Their consumers have been advised not to touch these “break-deals” unless they are offered more money.
A spokesman for the IBA said lenders were particularly keen to get people to give up trackers. “Not only do many banks no longer want new customers, some don’t even want their existing customers anymore,” he said.
This situation could lead to a situation where mortgage holders will be able to negotiate lucrative deals with their banks in return for ending the relationship.
But the IBA warned: “Consumers need to be extremely vigilant as experience would indicate that you get nothing for nothing as far as the banks are concerned.”
They said that a homeowner with a €300,000 variable rate mortgage may be tempted by having 3pc to 5pc of this loan written off, which would amount to a discount of between €9,000 and €15,000.
The IBA said it believes tracker customers would need a break-deal offer above 25pc (€75,000 on a €300,000 mortgage) to make it worth their while. They are worried that customers who dealt directly with the banks could have significant pressure brought to bear on them to change their terms. “We are urging mortgage holders not to feel pressured into changing their loan terms or switching to another provider. People should see this as an opportunity to perhaps secure a better deal in the market,” they said.
“It is likely to be the start of similar campaigns, particularly from those lenders keen to exit the Irish market”.
I have said it time and time again, beware of the banks. This is sneaky! This is particularly underhand and is attempting to take advantage of the most vulnerable (i.e. those who may be falling or have fallen into arrears!). This kind of practice is not ‘helping –out’ customers when they really need it – it is in fact giving them a ‘kick’ when they are down.
Once again it exposes the truth about the banks integrity (or lack of!)

If I had a euro for every time a client said to me over the years, “I’ve been with this bank for years!! They know me…. they appreciate my business…. they will look after me!!”, I’d be a rich man now!

People, unfortunately, believe that their banks do appreciate their business – as they quite rightly should – but they are sorely mistaken!! This is evidenced once again, as it has been so many times in the past… in a recent article in the Irish Indo. It emerged that some banks are charging their existing customers far more for their fixed-rate mortgages than they are charging new borrowers!!
The article went on to accuse some lenders of discrimination after it became clear that they were charging their existing customers some of the highest rates for locking in to a fixed-rate home loan.

At the same time new customers (to the same institutions) are able to avail of rates that are up to as much as 2% cheaper.
Well known lenders such as Bank of Ireland and Permanent TSB have been accused of punishing customers for being loyal because they charge higher fixed-rate mortgages to existing customers.
“So………. you think your bank appreciates you? …your business?……your bank looks after you!! … gives you ‘special’ deals or terms??…….sorry folks…….. you are wrong!!”

Following the move by Permanent TSB (PTSB) to increase its standard variable rate by 0.5pc, thousands wish to lock in to fixed rates, with others expected to follow.
This is at a time when some fixed rates are at historically low levels. However some of the fixed rates being offered to existing customers are so high that it does not make fixing worthwhile.

For example; PTSB offers a new customer a 5 year fixed rate of 3.7%. Their (esteemed and much valued!!?) existing customer, who wants the same 5 year fixed option, will be charged 5.75%!!!! …. a full 2.05% more or around €293 a month more on a fairly average mortgage of 250,000 mortgage over 30! This is absolutely outrageous!!!! Shocking!

We all know and understand the notion of ‘sweeteners’ for new clients or new business, incentives to ‘win’ new contracts or new customers. … But this is really outrageous. It is nothing more than an affront to their existing client bank.

I always knew institutions, shall we say, ‘incentivised’ NEW business, but this takes the biscuit! It is an abuse of their position and plays on the vulnerability of clients in the current environment. These lenders are doing this on the assumption that due to the weak property market, clients will be discouraged (or unable) to take their business elsewhere!..Which they should of course do (if able to)!

Over 25% of the employers are actively exploring changes to the benefits of defined benefit pension DB schemes.
According to a recent Mercer survey, 20% of the employers favour freezing the upper level of benefits at the current level until they are replaced by defined contribution schemes, or some similar hybrid scheme.
What this move means to workers is that whereas they would have a defined contribution scheme, or some kind of a hybrid scheme, going forward, they could continue to hold or keep their defined benefit pension benefits for their past service.

Mercer said that while pension schemes had enjoyed very good market performance in the last 6 months, this recovery has still not been enough to lift many (most) of the defined benefit schemes out of the ‘red’. This had lead so many schemes into difficulty and they now find themselves seriously underfunded.
Most employers & trustees are worried about what action they should take.

About 10% of the schemes were expected to come to a final decision on their plans towards the end of 2009. This deadline has now been extended by the Pensions Board to end June 2010. However, a larger number of pension schemes may take to the end of 2010 to submit their plans.

A warning has already come from a senior consultant at Mercer, Ms Aisling Kennedy that 2010 will mark a landmark year for Irish defined benefit pension schemes, with the trustees and employers trying to find ways and means of addressing their many shortcomings.
She said many schemes are likely to undergo structural changes in view of the magnitude of their defects. A survey revealed that more than 50% of them believed in continuing with their present structures but getting employers to make higher contributions. Mercer expects changes next year with employers doing their utmost to reduce costs involved. About 25% of schemes plan to raise member contributions.
About one in seven schemes or approx 15%, are considering changing existing benefits already earned by members. This is not straight forward and would require an application to the Pensions Board under the terms of Section 50 to the Pensions Act. Ms. Kennedy said that reducing benefits already earned was very unlikely due to stringent conditions stipulated by the Pensions Board.

In nearly 15% of cases the winding-up of the scheme has already decided upon or are in the final stages of that decision.
There are tough decisions to be made in the coming months for the employers & trustees of many DB schemes. The reality is that these schemes, often considered a ‘safe as houses’, are and will be only as safe and strong as their employers behind them. Unfortunately, as we have seen in recent months, some will not survive!!!

Thank goodness we unlikely to have another budget for at least another year! The 2010 budget was passed in the Dáil leaving us trying to adjust our personal budgets to the fall-out. There have been severe cutbacks imposed on public servants and those in receipt of social welfare benefits. These burdens only add to the hardships already brought by the 2009 budget through its substantial increases in income taxes and health levies.

One upshot is that public servants seem likely to take industrial action due to the 5-15% reduction in their incomes. Pressure is already mounting for the withdrawal of the 4% cutback on benefits to the long-term unemployed, the disabled, widows and carers and other vulnerable sections of our society.

The government appears to have achieved the objectives it targeted to accomplish the €4bn savings in spending this year (’10) and pave the way for a further €3-4bn savings next year, 2011. New revenues and/or savings are expected to come from a series of measures such as;
– a new property tax,
– public sector reforms,
– changes to water rates and
– far-reaching changes in pensions to new entrants in the public service,
– reducing pension relief to private sector employees and
– possible further taxation.

Surprisingly, there have been hardly any protests over the sharp cutback in allowances for the under 23 group of jobseekers. If the government can provide sufficient places for training and education to this group, the proposed weekly cuts for the €100 or €150 levels should not arise provided they take up these places.
This budget with its extra stingers, some of which are outlined below, has already raised a hornets’ nest.
• The Treatment Benefit Scheme, for which workers pay PRSI payments, will be restricted to only the Surgical Appliances Scheme, in addition to the Dental Benefits and Optical Benefits comprising free examinations.
This will effectively put an end to many part-payments for dental treatments previously enjoyed by workers, for fillings, extractions, severe gum treatment, root canal therapy and dentures. The same will apply with regard to eye and ear treatments too, for replacement lenses, eyeglasses, contact lenses and hearing aids.
• Those who don’t have a medical card will have to pay €120 for their drugs due to an additional exemption on the drug payment scheme.
• Medical cardholders will have to pay a prescription charge of 50c per item.
• A reduction or end to some FAS job training and initiative allowances.
• Reduction in rent allowance (yet to be announced).
For the lower paid, the New Year looks bleak due to the cutbacks on various benefits along with the possibility of further pay cuts in the new year.

Interestingly, workers in the private sector have found the budget somewhat less of a burden than expected. The damage had been already done by the April mini-budget, when their health and tax levies were almost doubled; taking the marginal taxpayers (top rate) on to an effective tax rate of 51-56%. A survey conducted for the Sunday Business Post reveals that nearly 50% of private firms had already effected reductions in working hours and/or pay cuts.
The biggest impact from the present budget is the reduction in child benefit, the PRSI social welfare treatment benefits and other health-related charges.

You can find out how much extra tax you will pay, due to these three budgets since 2008, by going on to www.budget.gov.ie/Budgets/2010/2010.aspx. Scroll down until you come to the Summary, where there are tables of workers distributed into different groups such as single, married with children, and married without children and so on. There are also general tables depicting earnings and how the earnings are affected by levies, taxes and PRSI charges.

We all need to assess where we stand in the aftermath of these budgetary changes and the fall in asset values in recent times.

You should talk to an independent financial planning adviser, ideally a fee-based adviser, to see where your plans are and what measures you should take to get your financial plans back on track.

IRELAND has been identified as one of a small number of countries that poses “a real risk” to the future of the euro, according to a recent report by influential German think-tank CESifo. The same group had warned 3 years ago, of a “very serious” slowdown in the Irish economy.
In the report we are listed with Greece as two countries where the international money markets see us as significant risks of a sovereign default or an exit from the Euro currency. This ‘risk’ is reflecting in the markets for Irish and Greek debt, CESifo says, even though it acknowledges that leaving the eurozone is not on the political agenda.
Interestingly, Munich-based CESifo mentions that Ireland, along with Finland, is countries for which eurozone membership is “not optimal”. This, they say, is due to our heavy reliance on trading with countries outside the eurozone.
The CSEifo research warns that a “wave of bailouts” of weaker member states must be avoided to keep the euro currency stable.
As mentioned, in 2007, CESifo warned that our economy faced “very serious” slowdown that would coincide with a “significant reversal” in construction activity.
Last November CESifo research coordinator Paul de Grauwe said he could not understand how so many spectators could not see that a huge portion of our growth was based on the ‘bubble’ that was the credit-led construction boom.
We have gone some ways to get our house in order…. but we still have a long way to go. We are far from …”out of the woods” yet!!

Having 24 committees in the Dail which only has a membership of 166 TDs has been described as “absurd and ridiculous” by the Labour Party’s Pat Rabbitte.

24 committees are still in place despite a recommendation by all parties to reduce it to 15. According to Rabbitte, there were no reasons to justify their existence except that “…. the former Taoiseach wanted to give everybody who was not awarded a Ministry of State a chairmanship and stipend to keep them happy. He started to distribute stipends for deputy chairmen and convenors.”

Mr. Rabbitte said it was amazing that such an elaborate committee structure had continued.
Mr. Rabbitte made these comments while participating in the debate on the Amendment Bill on the House of Oireachtas, introduced by the Minister of State at the Department of Foreign Affairs, Mr Peter Power. The bill was proposing the provision of €360m for running the commission for another three more years.

Richard Bruton, the deputy leader of Fine Gael said the provision of only nine months’ funds sufficed. He said he expected some review on the extent of value efficiency gained for the money spent during this period.
Richard Bruton went on to point out some glaring discrepancies here, namely:
• The resources currently demanded by the Oireachtas represent a 65% increase compared to what it was 5 years ago; this is despite less productivity and less inspection and enquiry in all areas.
• Despite the number of TDs in both houses remaining the same for the last five years, staffing had increased by 43% while the budgetary allocation has increased by €54m or 65%. An incredible waste of money in these very hard times!!
• Bruton also pointed out that the first thing that had to be done was to “follow the money” adding that we had failed appallingly in that task.
• He deplored the government’s attitude towards solving problems which he said was little more than setting up an agency for every major problem that has arises. He claimed that this is why the Dail had been blind-sided on so many instances and cited the Fás and the HSE as bodies that could not be properly scrutinised in the past.
Dick Roche, the Minister of State had the final word when he commented “the evolution of quangos during the past 10 or 15 years has cost us tens of millions of euros. Virtually every one of the quangos created did not need to be created.” Dick, I could not agree more!

I hope that sense will prevail and the brains that created these unnecessary committees will have the ‘testicular fortitude’ to own up and unwind these money wasters and ‘jobs-for-the-boys’!

On a positive note Euro business activity has strengthened further according to recent data published.
• Its services sector registered the biggest growth in early December for two years.
• The manufacturing sector also recorded the biggest growth since its previous best in March 2008.
• The Markit research group compiled index for Flash service purchasing manager of Euro zone in December rose to 53.7 from its November index of 53. These even surpassed economists’ expectations, bettering the highest point reached since November 2007. This is the fourth month that it has topped the 50 mark; the cutting edge separating growth from contraction.
• The EU economy that had been in the doldrums for five quarters in succession returned strongly to register a 0.4% growth in the quarter ended September 2009. It is projected to grow up to 0.5% during this quarter.
• The rise of the new business index to 53 in December from 51.2 signifies a 25-month best; a promising sign of continued growth for next month too.

Manufacturing activity too on an upward curve
• The EU manufacturing sector that returned to growth in Q3 did so registering its fastest pace of growth in 21 months. Its flash manufacturing index did better than expected, by moving to 51.6 in December from 51.2 the previous month.
• The manufacturing output index registered a 27-month best by moving from its November 54.8 to 55.2 in December. The rise in the index for backlog of work from its November 50.2 to 51.9 in December indicates the existence of a demand far greater than what is being currently supplied.
• Exactly one year ago, this index was stagnating at 29.2; the lowest point surveyed in its 12-year history. The all round rises in the manufacturing and services sectors lifted the composite index from its November 53.7 to 54.2 in December; going even beyond the economists’ expectations of 53.9 for December.

Eurostat confirms a return to rising prices
• Findings by separate independent sources confirm that the annual inflation rate of the European Zone was in positive territory in November, after a break of seven months.
• The revised figures from Eurostat, the EU data agency, indicate the emergence of continental Europe’s economy from recession; it also sites that prices have climbed by 0.5% during the last 12 months. Although, it is below the earlier projection of 0.6%, still it marks a good breakthrough from the 0.1% drop registered in October.
• Compared with last year, the Euro zone has seen its prices rising since April. This is considered largely a reflection of the increase in energy costs, once again since the collapse experienced by gas and oil prices during the past financial crisis.

Last month’s Budget brought a measure of relief to homeowners who are heavily burdened with the pressures of meeting mortgage payments.
Brian Lenihan, the Minister for Finance has asked the financial regulator to consider the possibility of extending the six-month freeze in the Legal code of conduct on legal proceedings on mortgages in arrears, to twelve months.

Furthermore this budget extends more protection to mortgage holders who find themselves in negative equity. Their mortgage interest relief was to have expired in 2010. The new deadline has been extended as far as the end of 2017. This enhanced seven-year relief will also be applicable to recipients of qualifying mortgages up to 1st July 2011. This measure is seen as an inducement to potential first time buyers. Transitional relief is also to be granted to those who take qualifying loans between 1st July 2011 and 31st December 2013.

In praising these new measures, Darragh O’Brien, Fianna Fail TD has stated that they will certainly help stimulate the very depressed housing market. Deputy O’Brien went on repeat the well known fact many young couples are enduring severe financial hardship. This has been caused by the well documented and widespread pay cuts and job losses and putting then under fierce pressure to meet their mortgage commitments.

Some don’t like to think or look or plan too far ahead. Retirement is one such ‘Future’ event. It is an inevitable reality that we have to accept – presuming we are lucky enough and healthy enough to get there! Saving for this should commence as early as possible – well well ahead of retirement age. As they say in the country “you can’t fatten the pig the night before the fare!”
Here are some thoughts to consider;

• Your plans for the future should include making an honest assessment of your likely commitments and responsibilities (if any) in respect of children who may still depend on you, or an elderly parent. Ideally you want all major expenditures i.e. mortgages, car purchases, etc to be well finished by retirement. Accelerate these in your later working years if need be.

• Don’t forget that you will probably increase your spend on healthcare – for yourself or indeed elderly parents if living with you. Also allow for the increased costs of trips you may be planning in retirement and live that retirement in comfort.

• Your post retirement period should be stress-free as far as possible. Work should only be on your terms and for enjoyment, fulfilment or routine, not out of necessity!

• Decide and plan you preferred activities and hobbies in retirement. You will have spent your whole life in the routine of working so you will need to replace it with a new routine, which hopefully will be active, enjoyable and rewarding.

Health warning!!
• Do not get carried away with speculative investment! At this stage in your life you do not want to squander your hard-earned savings. This is not the time for that.

• Concentrate on very safe but low interest bearing investments like government securities and bank deposits.

You owe it to yourself and your partner, if applicable, to prepare well and make the most of you well-earned retirement.