Q&A:Q I am the current holder of a medical card, being over 70. I have recently received a letter from the HSE asking me to fill out a form should my (married) income be over € 73,000 per annum, thereby losing this entitlement. All income, including pensions, social welfare payments and investment income, is to be included. Our total income is, in fact, in excess of € 73,000 per annum excluding investment income. However, when I sell my bank shares next week at a loss, our income will total less than €473,000. So I will not be filling out the form.
Mr B.D., Cork
AI don't think the sale of your bank shares will be a determining factor in whether or not your income comes in below the threshold for the medical card scheme for people over the age of 70.
As you say, when assessing eligibility, all income is taken into account, including investment income. However, investment income relates to any dividends or interest you might receive in any given year on your investments, not the investments themselves.
And selling the bank shares at a loss or otherwise will have no direct bearing on your investment income. If, as seems likely in the current circumstances, you were to sell your bank shares at a loss, that would impact on your capital gains liability but it has no bearing on income.
You cannot calculate that loss and set it against other income for the purposes of bringing your annual income below the €73,000 threshold for a married couple.
The loss of any dividend income would impact on your income, of course, but the banks are no longer paying dividends anyway so you don’t have to sell your shares to sidestep this.
Northern Rock
Q I have some 55 shares in Northern Rock bank. I purchased these shares in March 2006 for € 955. I am aware that Northern Rock has been nationalised by the UK government. I had not been following the whole situation and am now a little confused about my options in this matter.
I telephoned by stockbroker, Fexco, recently and was told that, since the bank is now nationalised, I would not receive anything for my shares. I was told to write the shares off against my tax. I am a student in full-time education and am not working. I am not paying taxes either. Can you advise what to do with my 55 Northern Rock shares.
Mr J.H., Dublin
AIt's not much consolation but your stockbroker is right. As Northern Rock has been nationalised, the sole shareholder is now the British state. All rights of previous shareholders died with the decision to nationalise the troubled lender back in 2007.
Where does that leave you with your 55 shares? In limbo, really. I note you say you are not paying any tax and that you are a full-time student.
As your broker said, you can write off the value of the investment, but not against all taxes. Capital losses are offset against capital gains not, for instance, income tax liability. You will need to wait until you make a capital gain on some other investment. Then you will be able to offset your Northern Rock losses against that gain before calculating any capital gains tax liability. The capital loss you have incurred is not time limited. It will continue to exist until you write it off against a capital gain.
Pension dilemma
Q I am about to retire on May 12th. I now learn that when I purchase an annuity there is only a guarantee of five years’ income. I am a widower without any children. However, I am led to believe that the part of my pension that would normally go to me would, in fact, go to the pension provider on my demise. I have a big problem with that. The financial institutions seem to win out all the time. Or am I being misled?
Mr F.M., Limerick
AThe trouble with pensions is that, all too often, those selling them don't do a great job of explaining how they work and those buying them pay too little attention as it is something that affects them only in the distant future. Unfortunately, this can leave people ill-prepared when the time comes.
In general, annuities work by trading your pension pot – the amount accumulated by contributions from you and your employer and the investment performance of those contributions – for a guaranteed annual income to you in retirement. There are variations.
You can allow for a guaranteed period of payment, as in your case; a facility to increase the annual payment by a certain factor to allow for inflation; or a spousal pension. Each of these factors costs money.
Normally, an annuity dies with the person receiving it – unless there is a guaranteed payment period. In simple terms, it is like an insurance policy.
You are paying a sum – your pension pot – for a certain level of cover. If you die early, the insurer benefits; if you live to a long old age, the insurer loses out.
The financial institutions tend to win out – after all they do have the actuaries calculating the probability of the age you will reach – but not all the time.
Were you misled? It doesn’t sound like it.
Investment advice
Q I have a gratuity of € 24,000 approximately in my retirement as postmistress. Could you advise me as to some worthwhile investment for a period of three years. I already have invested € 20,000 in an AIB Portfolio Combination Offer, Issue 46, of which € 16,000 is in a tracker fund to run for four years and 11 months, and the remaining € 4,000 is in a deposit policy with a gross return of 17 per cent after two years.
Ms M.O’C., Limerick
A You would need to be a good deal wiser than me to give investment advice in the current environment. Even the investment professionals I speak to admit they are at a loss.
All I can do is give general pointers.
First, you need to be aware of your attitude to risk. Most people believe they are open to an element of risk...until they realise they could lose some or all of their hard-earned capital sum.
Secondly, the older one is, the less time nature allows us to recover from adverse investment performance.
In the current market conditions, and with the benefit of a State bank guarantee, you could do worse than put your money in the best available deposit account. This is all the more so as the deflation we are experiencing effectively magnifies the interest gain on your money.
Anglo Irish Bank is offering 4.75 per cent on sums up to €100,000 or up to 7.3 per cent in its regular saver account for monthly contributions of up to €1,000. There is a lot of volatility in the deposit savings market so you will need to keep an eye on the rates on offer.
Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
