According to online website booking service Hotels.com, Irish hotels are booming again with prices rising fast.
After years of having my personal pension account raided to pay for lower VAT rates across the catering sector, I only think it fair I am either given a share of their profits or else, receive a full refund of my money…with full interest!
Private pension accounts have been targeted by a 0.6% levy on the market value of assets which are managed in pension funds and pension plans approved under Irish tax legislation. (These include occupational pension schemes, Retirement Annuity Contracts and Personal Retirement Savings Accounts). This levy applies until the end of 2014. In 2014 an extra levy of 0.15% was introduced. This will continue to apply. This means that the total pension levy in 2014 is 0.75%.
.75% is a significant deduction from my personal pension account just to pay for the hospitality sector’s inefficiencies. I mean this in an economic sense. Poor economies across our traditional tourist markets and an over-supply of pubs and hotels during the downturn could only result in poor profits.
The wrong target
Targeting personal pension accounts to offset loss making hotels and pubs was the wrong move for a number of reasons:
First off, personal pension uptake across Ireland continues to be extremely poor. Sending a message to the public that personal pension accounts can and will become the rainy day fund for struggling businesses sends the wrong message to an already sceptical public.
Second, once Pandora’s box has been opened, it is always difficult to close. Just last week, a representative from the Society of Chartered Surveyors of Ireland alluded to the impact of VAT reductions on the hospitality sector and expressed a desire that similar incentives would be forthcoming for the construction sector.
The trust factor
Pensions represent a lot of things, not least among them, trust!
When somebody in their twenties or thirties buys into the concept of retirement planning and manages their finances in such a way as to be able to put money aside for 30 or 40 years, they are investing an extraordinary amount of personal trust into a system.
Every time a pension levy is taken from that personal retirement account, there is a breach of that trust.
As Governments across the world raise concerns about pension planning in general, the first priority should be in creating a system that places trust at the centre. Instead, we find the opposite.
The pensions levy must go!
The pensions levy is wrong. It is a raid on personal savings accounts for the sole benefit of the private sector. It represents a massive breach of trust.
Government must reverse the levy and move to reassure the public that retirement planning is a core objective. It should also refund the value of the levy to account holders for 2014 and 2015 since the sector it was designed to benefit is now reporting strong results.
If it fails to do so, it will feed into an already unhealthy scepticism towards retirement planning in general and ensure a loss for everybody in the years ahead!
Frank Conway is the founder of MoneyWhizz.org, the personal budgeting and money management service.
Question: How much would you have if you doubled one cent every day for the month of September?
Answer: Read on!
Personal financial planning is more important than ever especially if you are to believe medical experts who predict many of us will live to a ripe old age.
But all too often, financial planning is presented by financial planners as a mathematics exercise.
It’s a love affair, not a scare affair.
Financial services is flooded with archaic terminology which sometimes confuses even the experts. Take ‘Automatic Income’, a feature of unit linked bonds. While the term may signal an income feature, it is instead a cash-out feature, in other words, the customer simply taking their own cash back and NOT receiving an income at all. Within the pensions arena, things get much more confusing with layers of rules, regulations and terminology causing even the most seasoned experts to strain.
Personal financial planning must begin with a regular review of the basics. This can be achieved through five very simple tools: A personal income and expenditure sheet, income documents, bank account statements, credit card (and debit card) statements and receipts. That’s it for a majority of families.
Sweat the detail and the money will take care of itself
All too often, I hear people say how they have too little left over at the end of the month to save to retirement. However, after just three months of tracking their spending and improving their own personal relationship with money, many are surprised with the results.
Following are some simple steps all families need to take in order to improve their personal finances:
1. Identify where they are financially today. This includes analysing all income, outgoings, value of property, cars, pensions, stocks and bonds…everything that informs if one owns or owes more (or less).
2. Set goals. For example, how long do you plan to work…do you have children that will require third level education…have you made arrangements for possible inheritance tax bills for your children…will you need ready access to funds on retirement?
3. Develop a plan. Make sure you have a plan that will minimise future tax liabilities and that your investments are liquid which can be accessed quickly should you need. Illiquid funds like property can take far longer to access.
4. Monitor progress. When we set personal financial plans, we do so on the experience of today and future expectations. But future needs WILL change due a wide variety of factors, including loss of employment, family breakdown and illness. Because of this, it is really important that you review your financial plans to adjust accordingly to meet future needs.
But back to my original point about money. It is all about the relationship you have with it. Checking in often and inspecting it regularly will ensure it remains top of mind and under control.
One last thing, my opening question:
One cent doubled every day during the month of September will yield...€10.7MILLION!
Frank Conway is founder of MoneyWhizz.org, a personal budgeting and financial education resource developed for students and adults.
The Irish mortgage market continues to be extremely weak. This is based on a detailed analysis of mortgage lending statistics published by the Irish Banking Federation for H1, 2014.
On a statistical level, the latest figures look promising; lending is growing. But all is not as well.
On review of the actual number of mortgage units for a house purchase, activity is very low. For this measure, I only use three of the five mortgage categories listed by the IBF, which are first time buyers, second time buyers and investment property mortgages (I omit top-up loans and switcher mortgages).
Combining the 1st and 2nd Quarter figures, a total of 7,463 mortgage units have been completed.
Comparing the combined 1st and 2nd Quarters of 2013 to those of 2014 reveals a significant rate of growth, but such a comparison would be wrong since Q1, 2013 was a mortgage washout following the ending of Mortgage Interest Relief (MIR) in 2012, which ‘sucked’ a lot of additional mortgage business out of Q1, 2013.
A fairer and more reliable comparison would be Q2 and Q3 2013 with Q1 and Q2 of this year. Doing so reveals a more reliable growth trend.
Where all of this is going is what can we expect to see in terms of total lending for house purchases in 2014.
At a very minimum, if the best lenders can do is continue their current rate of mortgage lending growth, we should see in the region of 15,000 – 18,000 mortgages drawn (for house purchases) during 2014. Not too shabby when one considers that at the end of 2011, total units were barely more than 11,000.
But lets say lenders do reach the 18,000 mark, how does that compare to past years?
The answer is a little disheartening.
18,000 mortgage units for home purchase takes us all the way back to 1974, when a total of 18,313 units were originated.
Too Few Lenders
The real problem in the current mortgage market is that of too few lenders. AIB and Bank of Ireland are the dominant players, lending up to 92% of the value of the property. Beyond that, other mortgage participants are active, but much less so with some still hampered by severe mortgage arrears.
The ongoing ‘recovery’ in the Dublin property market is based on the narrow limitations of a significant cash audience. For a more sustained and broader recovery to take hold, we need a more robust mortgage market.
Good news for mortgage holders
For Irish mortgage holders, the decision means that interest rates remain at historic lows resulting in continued record low monthly repayments for the estimated 400,000 residential tracker mortgage holders here.
Bad news for savers
For Irish savers, the news should be less welcome. Over the course of the last 12 months, savers have been hit with a steady reduction in the amount of interest income they can expect to earn on their money. Additionally, the very significant rise in DIRT payable on interest earnings means that savers are being harshly punished for their prudence, a trend that is expected to continue as more and more banks reduce the rates of interest they are prepared to pay.
Across the savings spectrum, only one bank pays 4%, which is Nationwide UK on a regular savers account with a broad majority of banks paying, in some instances, fractions of a percent to their customers. Savers, who were broadly courted a few short years ago by banks, many of which were struggling to repair their capital ratios have now pushed those very same customers into the persona non grata category.