Connections Spring 2010
Welcome to the Spring 2010 edition of Connections. As I write, it appears that Spring has finally sprung and the extra daylight particularly in the evening is a welcome sight following a long Winter. As ever, Connections contains a mixed bag of topics, which I hope you find interesting. Please let us know if you would like further information on any of the topics raised. In our Autumn edition, we ran a competition and a big thank you to all for your entries. The lucky winner was Michael Higgins from Newbridge, Co. Kildare. Michael and his wife Ann will soon be enjoying a wonderful weekend in the fantastic Dromoland Castle. Michael is pictured on Page 8 receiving his prize.
At CMCC, I am pleased to announce that Stephen Cox has joined our sales team as a Financial Adviser. Stephen is a specialist in all aspects of Financial Planning and he can be contacted on 086 6059882 or at scox@cmcc.ie. We have also recently revamped our website to make it more user friendly and I invite you to take a look at the improvements we have made by visiting www.cmcc.ie Finally, enjoy the Easter Break and as always, thank you for your continued business – we hugely appreciate it. Conor Murray
2
CMCC Financial Solutions
The consensus is that the general trend is positive – we are returning to growth but it will be a steady return rather than a bounce. Given the last decade, we will welcome stability. No false dawn please!
INVESTMENT REVIEW by Conor Murray
In terms of market performance, Quarter 4 of 2009 was more of a steady-as-she goes quarter compared to the heady gains of Quarters 2 and 3. However, there were some very important improvements in underlying fundamentals. The quarter saw a broad consensus that the major economies were on the mend and emerging from recession. We often talk about equity markets anticipating economic growth and here we saw the news anticipated in the early quarters.
Conor Murray
Greece and Dubai brought news which a year ago would have brought further panic. The markets in both cases had slight wobbles but largely took the news in their stride. For the most part, property analysts are calling the bottom of the market in some countries (eg UK, France). It’s at these inflection points that the concept of “prime” property really comes to the fore. When investors return to the markets they focus almost entirely on prime property.
Outlook As we enter the new decade we will be looking to see the major economies returning to growth in earnest. Consumer confidence is key and employment figures have a large bearing on this. The most recent US non-farm payroll figures were a little
disappointing. However, the consensus is that the general trend is positive – we are returning to growth but it will be a steady return rather than a bounce. Given the last decade, we will welcome stability. No false dawn please! There is no doubt that there are some worries about how the markets will fare when the Central Banks start to withdraw the considerable supports that were put in place over the last year. However, it is clear from the monthly meetings that the Central Banks are very mindful of winding down those supports only when the economies are ready. Inflation isn’t a pressing risk at the moment and this is allowing time. Hopefully the periods of extreme volatility are behind us and we can focus on the fundamentals of economies and companies. Although equity and property markets will always have ups and downs, we would like to think that most of the corrections of earlier exuberance have been now shaken out. One thing that the past 2 or 3 years has told us is that risk isn’t a theory or something from bygone days. Risk is all too real and can bite hard. The heightened appreciation of risk across governments and companies should lead to more prudence in business decisions and this in turn should make the investment world somewhat saver.
CMCC Financial Solutions
3
Whatever financial situation you may find yourself in, speaking to a financial professional will help relieve some of the burden.
SPRING CLEAN YOUR FINANCES by Michelle Curley
reductions and the overall drop in the cost of living. All of these changes will have affected the balance between your income and your outgoings, which is why now is the perfect time to take stock of your financial situation and see what changes, if any, you need to make.
Michelle Curley
With the new year well in force and the arrival of Spring on our doorstep, all of those new years’ resolutions that we made at the beginning of January seem so far away! If like many of us, you have not kept to all or some of them – then fear not – there is still plenty of time to make up for this! But don’t beat yourself up about it! As the saying goes - It’s better late than never and what better time to put them into check than now. Many people in Ireland have seen their income drop as a result of pay cuts, income and pension levies or even redundancy. Equally, some people will have seen their outgoings fall as a result of mortgage interest rate
The first thing to do is to take an objective view of your financial situation. Sit down with a pen and paper. Divide the paper into two columns. One side write down ALL of your outgoings, from mortgage repayments and grocery bills to child care and school fees. Then on the other side write down ALL of your incomings, including any State Benefits and Children’s Allowance. Add the total of each column. If your incomings are higher than your outgoings then that is fantastic news – you’re doing something right!! However it doesn’t stop there. You now need to think about how you can best use that financial surplus to improve your financial standing: are there debts or loans you could clear or pay off early such as car loans or credit card bills; could you invest that money and therefore enjoy the chance of seeing it grow; could you pay more into your pension and help secure your financial future or should you use it to build up a financial cushion in case your circumstances change in future? These are all questions you should be asking yourself.
If however, your outgoings are higher than your income then you’ve got some serious thinking to do. You need to identify exactly why this is so. Perhaps your income has dipped but your outgoings have stayed the same, or vice versa: your income has stayed the same while your outgoings have increased. Whatever the reason, you need to take action as the longer this problem goes on the more difficult it becomes to address. Whatever financial situation you may find yourself in, speaking to a financial professional will help relieve some of the burden. Your financial adviser will have seen it all before and can use their experience and industry knowledge to assist you in resolving your financial situation. If you find yourself in the fortunate position of having a surplus of income over outgoings we can show you ways to maximise this money’s potential and make your income secure. Equally, we can suggest ways in which you can reduce your outgoings yet still protect your lifestyle. So, now is the time to take stock and make a financial promise to yourself. Making a fresh financial start right now will make the rest of the year so much easier.
4
CMCC Financial Solutions
The aim of the framework is to deliver security, equity, choice & clarity for the individual.
NATIONAL PENSIONS FRAMEWORK – WHAT DOES IT MEAN FOR YOU? by Mary Fitzpatrick
The National Pensions Framework which summaries the changes proposed for pensions in Ireland was published on 3rd of March 2010. The aim of the framework is to deliver security, equity, choice & clarity for the individual. It also aims to increase pension’s coverage, particularly among low to middle income groups and to ensure that the state support for pensions is equitable and sustainable. The framework does not have an immediate impact on pension legislation; instead it sets out the Government’s intention for changes in the pension system over the next 4-5 years. Mary Fitzpatrick
Key developments for the future are as follows:
Social Welfare Pensions • Mandatory social welfare pension coverage will continue. • The government will seek to maintain the rate at 35% of average weekly earnings. • The system will be simplified with a move to total contributions approach. • State pension age will increase to 66 in 2014, 67 in 2021 & 68 in 2028. • Arrangements will be put in place to allow people to postpone receipt of the state pension and to make up contribution shortfalls.
Auto-Enrolment • This will increase coverage and employer responsibility. • There will be matching employer and state contributions. The state contribution will equal 33% tax relief (delivery mechanism to be decided).
Current Occupational Pension & Voluntary Pension Provision • Access to Approved Retirement Funds for defined contribution schemes with effect from 2011. • There will be stronger regulation • A new defined benefit model is proposed which schemes may wish to adopt in the future. • The funding standard will be kept under review.
Public Service Pensions • A single new pension scheme will be introduced for all new entrants with effect from 2010.
Tracing Service for Dormant Benefits • A tracing service will be put in place to facilitate the tracing of pension rights by former employees and scheme trustees. • Consideration will be given to the establishment of a State managed fund into which untraceable accounts would be deposited.
CMCC Financial Solutions
5
The issue of life cover needs to be addressed to ensure that family members are fully covered in event of the death of a main income earner.
INVESTMENT PROPERTY OWNERS – ARE YOU NOW AT RISK? by Stephen Cox
A substantial number of clients have purchased investment properties in the last number of years. Initially house prices would have been rising and rental income covering majority, if not all, of the mortgage repayments. Significant falls in house prices over the last couple of years may have left many investors with properties worth less than the outstanding mortgage, particularly if repaying interest only. The question that presents itself is what would happen in the event of the death of either party to the mortgage? The issue of life cover needs to be addressed to ensure that family members are fully covered in event of the death of a main income earner. Life cover would not have been a requirement of the original mortgage, but it is vitally important now. At the time of purchase clients could have borrowed up to 90% of the purchase price, or even in excess of this with additional security. House prices have fallen between 30% - 50% over the last number of years so this represents a real issue that needs to be addressed. Stephen Cox
Example: Purchased property in 2005 for € 350,000 Mortgage borrowed of € 300,000 – paying interest only with rate of 3.60% Repayments would be € 900 a month. Therefore could receive rent of € 900 before any tax liability (Example is based on an average variable rate for 2005 3.60% APR 3.73%)
2010 Property might now be worth now € 225,000 Mortgage owing of € 300,000 – interest only period might be up and paying annuity repayment at 2.15% or € 1,539 a month. Maximum tax relief is at 75% of ‘interest’ part of mortgage repayment. Interest of € 6,450 is capped at 75% - therefore can receive rent of € 403 before any tax liability plus annual fee of € 200. (Example is based on tracker variable of ECB + 1.15% APR 2.30%)
TWO CONCERNS – negative equity and increased tax liability. This could leave a financial burden on family members in the event of death. Please contact us today to discuss your personal circumstances.
6
CMCC Financial Solutions
Statistics show that more than 70% of businesses cease trading within 5 years of the death of the founder of the business.
KEY PERSON AND PARTNERSHIP COVER Are you a partner or a director of a business? Are all of your assets fully insured? Are you sure? Company owners or boards of directors are typically well prepared for the worst should they be unlucky enough to fall victim to a factory fire, serious robbery or other eventualities capable of damaging their business. They invariably take their responsibilities seriously in this regard and insure against fire, theft or other unforeseen threats to the company’s future earnings and to its very survival. Conor Carey
But not many ever give any thought to the potential loss of earnings and fundamental damage to the business as a result of the loss of a key employee through illness, disability or, worse still, death. Or, for that matter, the unexpected loss of a partner. Key Person cover is life assurance designed to protect the human assets of a business in the same way as fire insurance protects a company’s physical assets. The policy pays a lump sum benefit to the business on the death or serious illness of an insured key person. The death or serious illness of a partner can also have major repercussions for the future of the partnership. It can
by Conor Carey
cause immediate financial hardship for the remaining partners, possibly even loss of control of the business, and can potentially jeopardise the future of the business itself.
Key Person Cover Key Person cover is a policy taken out by a company on a key employee or director to protect the company and provide it with financial aid in the event of the death or disability of that individual. A key person is a principal, employee or director who plays such an important part in the running of that business so that their removal – either temporarily or permanently – could pose a real threat to its continuation and/or future success. This person may also be somebody in the company who may possess specialised skills or technical knowledge, expertise that is absolutely critical to the well being of that business. The key person could also be a director who has given a personal guarantee in respect of company borrowings, or who has lent money to the company – money that is repayable on his or her death.
CMCC Financial Solutions
7
Having Partnership Insurance can benefit both the remaining partners and the deceased partner’s next of kin by providing a lump sum so that the remaining partners can buy back the deceased’s share and thus retain control of the business.
Key Person cover is needed by a wide range of companies and for a variety of reasons. However, it is generally most important for small and medium sized businesses – companies that typically depend on the expertise and talents of a small number of individuals for their success.
time, if Income Protection is in place, the insurer can cover sick pay for that employee.
Statistics show that more than 70% of businesses cease trading within 5 years of the death of the founder of the business.
The consequences under this legislation on the death of a partner are twofold:
Do you want to be part of these statistics? – if not then protect your business TODAY!!!!
b) any sum due to a deceased partner, as his/her share of the partnership, has to be treated as a debt of the partnership.
The Key Person policy will provide a cash amount on the death of the insured to: • Facilitate the business to continue • Replace the Key Person • Repay borrowings if necessary Key Person protection can cover one or two nominated individuals, who can be a director or an employee. If they die or are diagnosed with a terminal illness, or one of the listed critical illnesses, the insurance company will pay a lump sum either on death or diagnosis of a disease. Likewise, if this key employee or director is absent from work for a long
Partnership Insurance The legislation governing the operation of a partnership is The Partnership Act 1980.
a) the Partnership is dissolved
This means that the surviving partners, will be required to produce a substantial cash sum in order to fund the repayment to the deceased partner’s estate. This payment might include any capital which the partner had invested in the business, the partner’s share of undrawn profits, and possibly payment for a share of the goodwill of the business, if such goodwill has been recognised by the partners as an asset of the partnership.
What would the consequences be if the surviving partners were not in a financial position to make this payment? Having Partnership Insurance can benefit both the remaining partners and the deceased partner’s next of kin by providing a lump sum so that the remaining partners can buy back the deceased’s share and thus retain control of the business. It also means that the deceased’s next of kin can quickly realise the value of the deceased partner’s share of the business. Moreover, it is tax efficient in that the remaining partners can inherit the deceased’s share of the business without having to incur inheritance tax.
8 CMCC Financial Solutions
The best interest rates FREE FINANCIAL on Easy Access Deposit HEALTH CHECK accounts in Ireland: Rates as at March 18th 2010 Nationwide UK (Ireland ) 3.3% (Min 2k€ Max 2m) | 3.3% AER Gross Variable*
At CMCC Financial Solutions we provide a free and confidential Financial Health Check covering areas such as Pensions, Life Cover, Income Protection, Mortgages and Savings & Investment Opportunities.
Benefits
Irish Nationwide 3.25% min €1 max €20k | 3.25% AER Gross Variable*
• • • • •
Anglo Irish Bank 3.1% on balances from €1 up to €100,000 3.1% AER Gross Variable*
CMCC Financial Solutions Competition Winner
Only 6 withdrawals without penalty.
Completely free of charge and confidential Advice from a qualified financial adviser No obligation to purchase We’ll meet you when and where it suits you best Its quick, a full review will take just one hour
(3% is applied to accounts with balances greater than €100,000)
An Post 30 Day Notice Account 3% Compound Amount Gross Variable* Ulster Bank Pathway Account: 3.6% | 3.1% AER Gross Variable* Gross for first 6 months then 2.6% AER . Min €15k.
National Irish Bank E-saver Account: 3% Min €1 Max €50k. 3% AER Gross Variable*
Withdrawals are allowed but when you make a withdrawal the interest rate drops to 1% for that month.
Allied Irish Bank Deposit 7: 3% on all balances up to €10,000 3% AER Gross Variable* (7 days notice required)
Ulster Bank “eSavings Plus” 2.98% Gross/2.767% Gross Variable* for 6 months then 2.46%, AER 2.5% Gross Variable* (min bal €10K) . Online Only.
Northern Rock Ireland 2.5% – online only (annual) | 2.5% AER Gross Variable* min €1000; no maximum.
RaboDirect 2% (online only) | 2% AER Gross Variable* on amounts up to €1million
*Gross: DIRT is currently chargeable on interest earned at 25% . For detailed information visit www.revenue.ie CMCC Financial Solutions is regulated by The Financial Regulator
Conor Carey (left) and Conor Murray (right). Congratulations Michael Higgins (centre) winner of a fabulous weekend away in the luxurious 5 Star Dromoland Castle.
TO BOOK AN APPOINTMENT
CONTACT Dublin Office: Arena House Arena Road Sandyford Dublin 18. Tel: + 353 1 2130733 Website: Email:
Galway Office: 2 The Friary Main Street Headford Co. Galway. Tel: + 353 93 34033
www.cmcc.ie info@cmcc.ie