Q&A:Q I bought Aryzta shares last year at €37 per share because I believed that food stocks are a good buy in recessionary times. IAWS was always a very strong company, but the merger with a Swiss company seems to have slowed growth. The shares are now €22 and soon they will not be listed on the Dublin exchange. Do I have to sell my shares?

Mr P.W., e-mail

A As a general rule, you are right to say that food stocks tend to be a recognised defensive play at the time of economic downturn. However, nothing is immune to recession.

On top of that, what has happened in the markets in the past two years is far more complicated than simply the impact of recession. There has been a fundamental collapse in financial markets of all sorts and a subsequent lack of trust on the part of investors.

As it happens, Aryzta’s share price movement has broadly mirrored the performance of the Irish Stock Exchange over the period from last August when it was listed after the merger of IAWS with Hiestand.

For all that, there is no requirement for you to sell out at this time. The company is moving its primary listing to Zurich from Dublin, but that does not preclude Irish investors holding the shares – even though they will have to take account of a currency factor once the move takes place.

State guarantee on An Post investments

Q Are savings bonds, savings certificates and prize bond investments in An Post guaranteed by the State as they have done for a number of banks? Are they guaranteed up to a maximum of €100,000 as for the banks?

I.G., Galway

A An Post investments, such as the ones you mention above, have always been fully guaranteed by the State. That was what made them attractive to risk-averse investors, even at a time when the interest rates on offer were not competitive with other products in the market.

They remain fully guaranteed, regardless of the status of the recent blanket guarantee on seven named Irish financial institutions and will continue to be so even after that guarantee expires in September 2010.

The €100,000 limit does not apply to the An Post savings you mention.

Hoping for Irish Nationwide windfall

Q I was transferred from Dublin to Belfast two years ago. I was hoping when I returned to Dublin in September I would have had an enhanced deposit for a house with the Irish Nationwide windfall.

Surely if the society was worth €1 billion-plus some 18 months ago, all of that value couldn’t be lost and there might be some money left for members even if we are in for a longish wait.

Ms L.B., Belfast

A You are surely not alone in wondering how a company that appeared likely to return a windfall to members of up to €15,000 only a few years ago can have stumbled so badly. Unfortunately that is exactly what has happened. Frankly, Irish Nationwide overextended itself massively with loans to developers and the commercial investment property market.

A building society that was supposed to be serving the residential property sector ultimately had just 20 per cent of its loan book allocated to that sector, with the other 80 per cent fairly evenly divided between developer loans and loans to people to invest in commercial property. It is a shame for people, like you, who had reasonably earmarked what looked set to be a five-figure windfall for areas such as home deposits.

However, that is precisely where we are. Can it recover? It is impossible to be categoric about it but it does appear increasingly likely that Irish Nationwide might be merged with one or more of its peers to provide a larger, more stable operation. That is not likely to take place, if at all, until after the bad loans on its books have been stripped out by the proposed “bad bank”, the National Assets Management Agency (Nama).

Of course, any merger would likely put paid to any remaining hopes of existing Irish Nationwide members for a windfall gain from their investment.

Pension tax benefits for low earners

Q Could you please tell me what benefits there are in having a pension when you only pay tax at the 20 per cent rate (and are likely to do so until retirement).

Would the tax advantage not be eroded at retirement when you must pay tax on the pensionable income? Also, would the management fees incurred every year make it a completely futile exercise?

Ms D.O’R., e-mail

A It is certainly the case that there is less incentive for people on the 20 per cent rate to invest in pensions – and that is one of the issues being addressed by the Commission on Taxes which is due to report back to Government this summer.

The nature of the tax relief, whether it is at 20 per cent or 41 per cent, is an issue that is regularly highlighted by the pensions industry. And you are quite right, you are effectively deferring paying tax now on the basis that you will be paying tax on the pension fund as you draw it down in retirement. Again, that is the case, regardless of your tax rate.

One key benefit, of course, lies in being able to organise your retirement income so that you fall within a lower tax band than you do at the moment – in your case that your income would be below the income tax threshold.

Depending on the nature of your fund, a second benefit comes from the fact that your employer might also be making contributions to your pension, money that you would not otherwise receive.

The third benefit, theoretically, comes from the investment gain on your pension fund. That certainly sounds hollow at the moment as pension fund members examine the havoc wrought on their investment by stock market and property market collapses in the past year but, over the long term, you might reasonably expect to make a gain on such investments.

The key, as you point out, is to ensure that your investment gain is not more than offset by the impact of fees and charges. In this respect, the continuing reluctance of the pensions industry to be fully transparent in its charging structure and the impact of that on your investment is not helpful.

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.