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GAZETTE
FEBRUARY 1989
reliable guide to the future but the
surveys also normally show where
each fund has its money invested
- so much in shares, so much in
property, so much in Government
funds, so much in Ireland, so much
abroad etc. That type of
information has to be combined
with a view of future prospects on
the various markets to make the
best choice - and "best" can vary
with the attitude to risk of the
client.
Just recently two companies,
Irish Life and Hibernian Life have
issued
new
funds
which
guaranteed that at least the
investor will get his money back at
the end of three or five years. Also
new are a wider range of units
linked to overseas markets.
There is no tax on the returns
from unit linked investments. They
can be cashed in at any time, but
because of the heavy set-up cost
it is usually advisable to be thinking
of them as a medium to long-term
investment. It is usually possible to
switch from one fund to another
within an insurance company at
least once a year without additional
cost. So it is important to reassess
past decisions from time to time
and see if a change is needed.
Mr X may also want to consider
the options mentioned below for
Messrs Y and Z.
Client 2 -
Mr Y has a reasonably
good job. He is set somewhere in
the middle of the middle classes.
His income is adequate to keep him
going. He has a mortgage on his
house, a few pounds put aside for
emergencies, and just about gets
by. He has come into an inheritance
of £25,000 and wants to put it
aside for the future. He sees it as
a security for his family and as a
nest egg which may be needed
when his children go on to third
level in five to seven years time. He
is not too keen on taking any risk.
If he were willing to take a risk,
then any of the options mentioned
above might suit. But let us assume
that he would really lose sleep if
there was much risk involved. He
could still consider the new
guaranteed unit linked funds from
Irish Life and Hibernian Life. Irish
Life offers the alternative of three
or five year guarantees. The
Hibernian Life plan carries a three
year guarantee. During the three or
five years the units can go down in
value. The guarantee is that at the
end of the period they will at least
be worth what was put in.
That means that a large
proportion of the funds will be put
in fairly safe investments so these
funds are not likely to provide the
extraordinarily good returns yielded
by some funds in recent years. But
that is the cost of safety.
There are other funds - money
and gilts funds - which carry little
or no risk of a downturn either. But
their growth rates have never been
exciting.
Long term deposits are another
option. It is a question of shopping
around for the best rate. Lists of
deposit rates are carried in the daily
papers but they should only be
taken as a guide. Better rates can
sometimes be negotiated while
other times the rates published are
not really on offer. So you have to
shop around. But DIRT tax will be
stopped on all resident accounts
and Mr Y will certainly not be able
to claim it back.
Post Office Saving Certificates
still offer a better tax free return
than is obtainable after tax on
deposits but the gap is narrowing.
Client 3
- Mr. Z is in his mid-
fifties and has just been made
redundant. He has a lumpsum of
£20,000 to invest. He has a
deferred pension which he will start
drawing at age 60 or later and in
the meanwhile hopes to get some
work. But jobs are hard to find. He
still owes about £2,000 on his
house mortgage but no other
debts.
The uncertainties in Mr Z's
situation makes it extra difficult to
give one-handed advice. On the
one-hand he might get a job but on
the other hand he may not. Social
welfare considerations add yet
another dimension to the problem.
If Mr Z does not get a job he will
be able to draw unemployment
benefit for fifteen months. There is
no means test on that. But at the
end of the fifteen months, any
further social welfare will be means
tested and the lump sum, if
declared, will be taken into
account.
It is crazy but true that the man
who spends his redundancy lump
sum has no problem about getting
the means tested dole while the
man who tries to husband it will
have his dole payments reduced -
perhaps to nil. Mr Z will certainly be
asked what he did with his
Irish Stenographers
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(Director:
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Qualified Experienced Stenographers.
Fast, efficient service.
Overnight Transcripts by arrangement
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£20,000 and may be asked to
produce letters from local banks
declaring how much, if anything, he
has on deposit.
So long as he is out of work he
is unlikely to be liable for income
tax. Short-term social welfare
payments are still exempt from tax
although some change had been
expected in this year's budget.
Unfortunately only those over 65
years of age or incapacitated can
claim back the DIRT tax stopped on
deposit interest. So if Mr Z simply
puts his money on deposit he
would end up paying DIRT tax
although not really liable for tax
because of his low income.
Post Office Saving Certificates
are one option. They can provide a
six monthly income if a proportion
of the Certs are cashed in every six
months - just after the interest is
added in. But cash in a day too
soon and you do not get that six
months interest or any part of it. So
care is needed.
A return of about 6 Vi pc tax free
is available in this way while leaving
the capital untouched.
Another tax free alternative are
Government stocks. The dividends
are liable for tax but there is not tax
stopped at source. So a non-tax
payer can avoid the tax. Stock
values can move up and down, so
there is a risk for someone who
may want to cash them in at short-
notice. But someone who can hold
them until they mature knows
exactly what he is going to get
back and exactly what income he
can expect, so there need be no
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