Personal Finance Q & A

Your queries answered by DOMINIC COYLE

Q

My son, who has been without employment for the past two years, is now living with and is fully supported by me. He had to rent out his home. I am topping up that rent in order to meet the mortgage. His stress has led to substantial medical bills. While Revenue will likely consider this gifting to him, neither his health bills nor his mortgage relief is useful as he does not pay tax.

– Mr KK, Dublin

A

Sad though your son’s position is, the good news from your perspective, in defraying some of those costs, is that his medical bills at least are eligible for relief.

The rules governing tax relief on such bills through the MED1 form allow you to claim for any “qualifying” health expenses paid by you regardless of who receives the treatment – albeit only at the standard rate of income tax.

Unfortunately I don’t see how you can claim in relation to mortgage interest, given that it is in your son’s name.

Options on pension savings that are falling in value

Q

I am a single woman, mid-40s, with €175,000 in several PRSAs, down from €220,000 in recent years. I have now been advised by a financial adviser to relocate my monies to Standard Life, which has a wide range of funds.

My concerns are that the markets are so volatile that I feel my capital sum will continue to decrease. While I appreciate pensions are a long-term investment, I do not see an improvement in the markets to bring me back to where I was, and to provide me with a decent income on retirement.

What Standard Life is estimating is €500 a month (at present values) or €374 a month with a lump sum of €31,000. It seems small to me.

I am wondering if I can remove the capital sum now and invest it in an alternative savings account (and hope for the best).

– Ms GD

A

Several issues arise here. Most importantly, you will not be able to access cash in your pension fund and move it to an alternative savings account. Pension savings attract tax relief on the basis that they will be locked in until you retire. Of course, the Government is currently reducing that relief and, with it, the incentive to save for retirement – never mind the retrospective levy on pension funds imposed earlier this year.

On other matters, I am always wary of advisers who propose frequent relocation of funds. You need to ascertain precisely what the adviser has received and continues to get from the current arrangement, and what they will receive for moving your business. Apart from its wide range of funds – which exists but is not unique to it – how has Standard Life performed and does its investment strategy suit?

Finally, the suggested annuity from €175,000 does seem low. The broad projection used to be an annuity equivalent of 6 per cent of the fund – about €875 a month in your case. Although blue-chip bond yields have been hit, your €500 a month amounts to a yield of just 3.4 per cent.

While the outlook for pensions is not bright, your investment returns – hit by two sharp downturns in a decade – should smooth out over the remaining two decades of your working life.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.