Q&A Dominic Coyle

I am a 70-year-old pensioner who has a pension plan with Irish Life ARF €139,000 and AMRF €60,000 invested with Irish Life funds for the past five years.

I was advised last December to invest in Irish Life Solutions Self-Invested Fund with EBS for four years, nine months at 3.85 per cent AER.

Is my pension fund covered by the Central Bank Deposit Guarantee? If not, what can I do to get peace of mind? Should I seek independent financial advice to make my pension fund more secure?

Mr NG, Dublin

I certainly think you should seek independent financial advice. I have had only a brief overview of the Irish Life materials on the Self-Invested Funds option and the abiding impression is of how many times the company dissociates themselves from any responsibility for your investment choices and outcomes.

In response to your specific query, your money is certainly not covered by the Deposit Protection Guarantee. This is primarily so because when you direct investments into areas that would be guaranteed, it is Irish Life money and its name that attaches to the deposit, not yours, according to some of the promotional materials for this investment choice.

Quite apart from that, there are several things that concern me. Front and centre is the fact that Irish Life itself labels this investment route as high risk. I clearly have no idea of your full financial position, but if the bulk of your savings are in this Approved Retirement Fund (ARF) and you are over 70, you should not be putting all your eggs into a high-risk basket.

Put plainly, if your self- invested fund goes against you, you most likely do not have the earnings capacity to recover your ground. There are plenty of impoverished pensioners out there who were advised – in line with default advice at the time – to put their money into blue chip investments such as high-yielding shares in Irish banks and the likes of CRH. While CRH remains a solid blue chip punt, hundreds of million of euro in pension assets have been wiped out at the Irish banks as too many know to their cost.

A related concern is the investment period. Again, I have no idea as to your general health, but if this is the bulk of your savings, you should not be locking it away for close to five years at this point in my view. A financial adviser might differ, but you would want to make sure s/he is independent (and preferably fee based). You make reference in your letter to Irish Life and state you were advised to go down this Irish Life route. That sounds as though you were being advised by someone in that organisation, who is tied to advising you only in relation to their products. Not good.

Finally, peace of mind? That’s difficult. You do not appear to be covered by any guarantee and you also now appear to be locked into a medium-term investment period. It could well cost you to get out of that. I think your instinct is to get financial advice and I believe that instinct is correct. You are, after all, talking about an investment of almost €200,000 and your letter does not persuade me that you are comfortable in your own ability to direct investment personally through the self- invested fund you are now in.

Can we force
Danske to pass on ECB rate fall?
I received a letter from Danske Bank informing me my variable mortgage rate has increased by 0.6 per cent. No reason given – just that following a review of mortgage products we are increasing your variable mortgage rate. We are struggling now and will find it impossible to pay this increase.

Every time I have rang Danske bank asking them why they have not passed on the latest ECB reduction their line is: “We don’t borrow ECB money, therefore we don’t have to (and won’t be) passing on any ECB interest rate reductions.”

It seems we (residential homeowners) are being penalised for NIB/Danske banks bad and reckless commercial loans practices. Can anybody do anything to help us?

Mr ND, email

Thousands of mortgage holders with Danske and elsewhere have found themselves in a similar position. A variable mortgage is precisely that – a mortgage on which the interest rate may vary. And while rates used to move up and down broadly in alignment with national or, subsequently, ECB interest rate movements, that is not obligatory.

More relevant, all banks got out of that alignment during the bubble years in pursuit of customers – most particularly through the sale of tracker rate products. Now they need to improve profit margins and, as they cannot touch tracker rates, the only choice is to expand the margin on variable and fixed-rate products, with the return from a change in a variable rate being more immediate.

The line you got from Danske was incorrect. Whether the bank borrowed from Europe or not is irrelevant in terms of passing on any change in ECB rates. That is relevant only if you hold a tracker rate.

The best advice for those who find they cannot meet their payments, or have fallen into arrears, is that they should contact their bank directly to try to make some arrangement. I urge you to put everything in writing – right down to confirming the contents of a phone call. The other option is to talk to someone in the Money Advice & Budgeting Service (Mabs), a free service provided by the Citizens Information Board.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara St, D2, or to dcoyle@irishtimes.com