The Gazette 1989

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

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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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