Is now a good time to take out an Investment Bond?

Ballina

Registered User
Messages
28
In February I was advised to put my Pension Lump Sum and some money I had on deposit but earning nothing , in to a Zurich Matrix Easy Access Investment Bond. Total approx €90,000. That was before Covid 19 was big news. There was a delay in getting some paperwork so I didn`t get the Policy Details until earlier this week. Now, checking on the Zurich website, each of the 4 investment funds have fallen in value, one as much as 17.43%, and the Risk categories on some have gone up to 6, whereas I`m a 3.
Then I read that the Government is taking 1% and a further 41% on gains if I make withdrawals. As a Pensioner I`m on the 20% Tax Rate. The annual management charge is 1.25% on each of the 4 funds in the Bond. From what I read, the markets may fall a lot further. I am within my 30 days cooling off period and I am getting cold feet due to my lack of understanding and the nagging thought that I might have more peace of mind if it was in the Post Office. I value security and ease of access over financial gain, but I thought anything over .5% interest might be worth a go.
Any advice or comments would be appreciated please?

Also, can someone explain an allocation rate of 100.5%? Where does the extra .5% come from? I`m assuming the the total amount I invested is the 100%?
 
Good morning. You have received poor advice. The 20% tax point vs 41% is huge and fair play to you for spotting it. The Annual Management Charge is also high. I’d also argue that the risk category sounds too high in that you are uncomfortable. Brokers seem to fall into two categories, the enlightened financial advisor and the commission-grabbing charlatan: this fellow would appear to be the latter.
 
And, unfortunately, I think you may find that while you can cancel the contract and recover your funds within the 30 day cooling-off period, you will only recover the current value of the funds and not the amount you invested. The details will be in the policy documents of the contract
 
Looks like this poster/pensioner is going to lose anything from 10 to 15k due to very bad advice. Would they be any recourse available to him/her due this advice?
 
In February I was advised to put my Pension Lump Sum and some money I had on deposit but earning nothing , in to a Zurich Matrix Easy Access Investment Bond. Total approx €90,000. That was before Covid 19 was big news. There was a delay in getting some paperwork so I didn`t get the Policy Details until earlier this week. Now, checking on the Zurich website, each of the 4 investment funds have fallen in value, one as much as 17.43%, and the Risk categories on some have gone up to 6, whereas I`m a 3.
Then I read that the Government is taking 1% and a further 41% on gains if I make withdrawals. As a Pensioner I`m on the 20% Tax Rate. The annual management charge is 1.25% on each of the 4 funds in the Bond. From what I read, the markets may fall a lot further. I am within my 30 days cooling off period and I am getting cold feet due to my lack of understanding and the nagging thought that I might have more peace of mind if it was in the Post Office. I value security and ease of access over financial gain, but I thought anything over .5% interest might be worth a go.
Any advice or comments would be appreciated please?

Also, can someone explain an allocation rate of 100.5%? Where does the extra .5% come from? I`m assuming the the total amount I invested is the 100%?

The highlighted bit is enough for you to make your decision. If it doesn't pass the "sleepless night" test, don't proceed with it.

the additional 0.5% is a bonus amount given by the life company. It can be used to pay commission (you will find they paid more than 0.5% with the advisor receiving the rest) or given to the client. You are getting 0.5% added. For your €90,000, the government take 1%, leaving €89,100. That amount gets the 0.5%, meaning €89,545.50 will actually be invested. This money is then recouped over time through the annual management charge that you are paying.

Looks like this poster/pensioner is going to lose anything from 10 to 15k due to very bad advice. Would they be any recourse available to him/her due this advice?

He didn't necessarily get bad advice. The OP wanted the opportunity to gain above interest rate returns. The paperwork was prepared in February. Risk ratings are based on volatility and financial markets have experienced volatility akin to a massive earthquake followed by a tsunami. The risk 3 funds could very well be risk 6 now. That is why the Esma rating system used is not fit for purpose but using numbers between 1 - 7 works for people. Until it stops working, see example above. A client investing just when there is a massive crash isn't bad advice, it's bad luck.


Steven
www.bluewaterfp.ie
 
Unfortunately, as previous posters have said .... if u cancel now u will only get the current value of your policy.

The 1% levy is deducted from your €90,000 investment - so you will be investing €89,100 ......... u are receiving an allocation rate of 100.50% .... so €89,100 x 100.5% will actually buy units in your chosen funds ...... €89,545.50.

The equity markets may fall a lot further - but they may not. Some commentators think the markets could surge ahead because of all the Central Bank stimulus and the fact that there is some belief that the US Fed will be forced to buy equities direct. The fact is that nobody knows for sure. Certainly not me.

One thing to mention in closing here - within the policy u only pay 41% tax on growth above €89,545.50. So suppose your current surrender value today is €80,000 ........... any growth between €80,000 and €89,545.50 will be tax free. Just something to be aware of.

Best of luck - I hope it all works out.
 
Hi Steven,

Is it not a major own goal to stick a 20% taxpayer into 41% investment funds?

And shouldn’t a decent risk-profiling process identify someone who can’t deal with too much volatility?

Gordon
 
Thank you all for your replies, you are confirming what I suspected, these documents are not written in simple English and seem to be designed to confuse lay people like myself.
 
Hi Steven,

Is it not a major own goal to stick a 20% taxpayer into 41% investment funds?

And shouldn’t a decent risk-profiling process identify someone who can’t deal with too much volatility?

Gordon

That's the taxation on gains in Ireland. If he bought shares directly, he would pay 33% CGT or 33% DIRT. What's the alternative, not take the tax free lump sum and draw it down at 20% income tax instead?

ESMA ratings are flawed as they measure volatility over the preceding 5 years. The crash in March could have changed a funds rating from one rating to another or two up. But risk profiling tools on their own are useless and a lot just use it as a compliance tool and don't ask any further questions. I've stopped using risk profiling questionnaires as the results as very limited and I get a better idea of risk profile by asking questions.

It's still not fool proof and you will never know someone's true risk profile until there's an actual crash. I had one client who was in a great financial position, didn't need their investment money and can quiet easily ride this out but they just couldn't take the falls and cashed out.


Thank you all for your replies, you are confirming what I suspected, these documents are not written in simple English and seem to be designed to confuse lay people like myself.

You should notify the Central Bank of Ireland as they insist that you are given all this paperwork so you can make an informed decision on your investments. The reality is it leads to move confusion.


Steven
www.bluewaterfp.ie
 
Thanks for that Steven. So gains are taxed at 33% in Ireland? :)

The point I’m making is that the OP pays 20% income tax and 33% CGT, but this ‘advisor’ has stuck him/her into something where he/she pays 41% on everything. Madness. A classic case of the ‘advisor’ only recommending the products that he has available to flog (and the ones that pay him).
 
It's no wonder the ordinary lay person is so reluctant to invest in these when the jargon is so hard to understand.
 
Thanks for that Steven. So gains are taxed at 33% in Ireland? :)

The point I’m making is that the OP pays 20% income tax and 33% CGT, but this ‘advisor’ has stuck him/her into something where he/she pays 41% on everything. Madness. A classic case of the ‘advisor’ only recommending the products that he has available to flog (and the ones that pay him).

I may be a little bit stupid but I'm not getting you on this? They don't pay 41% on everything, they pay 41% on the gains. Am I missing something? :oops:

It's no wonder the ordinary lay person is so reluctant to invest in these when the jargon is so hard to understand.

I built my house (well, I was nothing more than a labourer) and I used to hate being sent down to Chadwicks to get stuff. I wouldn't have a rashers what they were talking about. I had my list and if they asked any questions about it, I didn't have a clue. Every industry has jargon. An decent advisor should be able to adjust their language based on the people they are talking to and avoid using jargon to all but those with a working knowledge of how the industry works.

And allocation rates should be done away with. This idea of "free money" when it is being recouped by higher management fees is nothing but smoke and mirrors. Reduce management fees and any advisor fee is paid by cheque or straight off the investment amount. Everyone will have a much better idea of where they stand.


Steven
www.bluewaterfp.ie
 
With life company investments and other fund-type investments, one pays 41% on both income and gains. Whether one is realising gains on units in order to generate income is really a moot point. The return on the investment is obviously a function of underlying income and gains. For a 20% taxapayer, why would someone want to have their entire return taxed at 41%, when by going another route they could have a mixture of dividend income subject to 20% income tax and gains subject to 33% CGT.
 
With life company investments and other fund-type investments, one pays 41% on both income and gains. Whether one is realising gains on units in order to generate income is really a moot point. The return on the investment is obviously a function of underlying income and gains. For a 20% taxapayer, why would someone want to have their entire return taxed at 41%, when by going another route they could have a mixture of dividend income subject to 20% income tax and gains subject to 33% CGT.

Gotcha.

Not any options for that through an advisor. €90k is nowhere near the level of using a discretionary fund manager and we aren't stock pickers so can't advise on picking individual stocks. Distributing funds are still taxed at 41% on gains regardless of the fact that they pay out dividends.


Steven
www.bluewaterfp.ie
 
Given the high expenses and taxes involved, I don't think these funds are a good home for a €90k lump sum.

Personally, I'd stick with State savings products. Boring but at least the return is predicable.
 
People would often suggest buying an investment property, especially if one’s rent would be subject to the 20% rate of income tax.

In the past, €90k wouldn’t have been enough which is the raison d’etre for REITs; to allow ‘the little guy’ to get property exposure.

There might be merit in the OP investing some or all of the €90k in something IRes REIT. Income taxable at the 20% rate and analagous to owning an apartment only diversified and insulated from tenant issues.
 
Back
Top