Money 31 . 08 . 2014SPLASHING THE ASHToni & Guy founder forked outfor a five-star view of Vesuvius p11

Do your homework on university feest h esunday t imes . i e

PARENTS are putting theirchildren’s education at risk byleaving it too late tostartsavingfor university.A survey by Standard Life

found 43% of parents have nofunds in place for their chil-dren’s education, while 44%worry they will have toborrow. Almost a quarter ofparents fear a third-level edu-cationwill not be an option fortheir children.SeparateresearchbyBankof

Ireland Life and Schooldays.ie,an information website forparents and teachers, foundthat 55%of familieshaveyet tostartsavingforcollegecosts.Ofthose who plan ahead, mostdo not seek advice onwhere tosave or invest their money.Bernard Walsh, head of

investment at Bank of IrelandLife, said: “Education costs aresomething every parent needsto plan for. Finding the rightoption will help take the stressout of the situation.”The best option depends on

your family’s circumstances.Eamon Dwyer, the managingdirector of City Life WealthAdvisors in Cork, said: “Thereisnoone-size-fits-all strategy.You need to do somethingabout it ifyouwantyourkids tobe sure of going to college.”We ask the experts how to

prepare financially for third-level education.

HOWMUCHWILL I NEED?It depends on howmany chil-dren you have, how long theystudy for and whether theywill have to leave home to goto university.DIT Campus Life, which

provides services for studentsat Dublin Institute of Tech-nology,saysthatitcosts€1,220a month for a student livingaway from home.Rent is the biggest expense.

In Dublin the problem is par-ticularly acute because of amassive shortage of rentalaccommodation.

“About €10,000 a year iswhat we typically plan for,”saidDwyer— so€40,000 for afour-year degree course.

SHOULD I SAVEOR INVEST?Your attitude to investmentrisk and the length of time youhave to build up your collegefund will determine whetheryou should save or invest yourmoney.David Quinn, managing

director of Dublin financialplanning firmInvestwise, said:“If you’ve less than five years,you probably don’t havemuch

scope for risk. You need timefor thevolatility of themarketsto smooth out a little bit.”Depending on circum-

stances, however, you mayhave an appetite for some riskover a shorter period thanfive years.

SAVING THEMONEYMonthly savings accounts arethe best option for thosewho want to avoid investmentrisk. The advertised returnslook attractive but bankswill reduce them as soon asyou have accumulated a

decent sum in your account.Nationwide UK (Ireland)currently pays the best rate —4% — on monthly savings of€100-€1,000. The maximumterm is 15months.KBCBankpays3.5%onsav-

ings of €100-€1,000 a month,or 4.5%if you open a currentaccount.It says you would need to

save €700 amonth at 3.5%, or€690at 4.5%, tohave a collegefund equivalent to €40,000 intoday’s money in five years’time. This assumes inflationof 2% and deposit interestretention tax of 41%.

WHATABOUT INVESTING?The burden of building acollege fund would be less ifyou could earn more byinvesting rather than leavingyourmoneyondeposit.Figuresfrom Investwise show youwouldneed tocontribute€650a month to build a fund of€40,000 over five years,allowing for charges, 2% infla-tion, an exit tax of 41%,and 6.25% annual investmentgrowth — “an achievablelong-term return withina reasonably conservative

portfolio”,accordingtoQuinn.The earlier you start, the lowerthe burden. Over 10 years,youwould need to invest €300amonth.Over 15 years you would

need to invest €200 a month,more than the child benefitsocialwelfarepayment of€130amonth.“My recommended invest-

ment provider would beFriends First, particularly if

there is an initial lump sumbeing invested,” said Quinn.“It has the most transparentcharging structure, withoptions including a cheapindex tracking fund.”For those investing less than

€200 a month, Quinn’s pickof provider was New Ireland.“Its headline charges are themost competitive,” he said.“However, it doesn’t have

quite the same transparency

as Friends First, or passiveinvestment options.”

STUDENT LOANSIn America and Britain, stu-dents typically rely on loansto pay for college, delayingrepayments until they finishuniversity and start working.Allied Irish Banks and Bank

of Ireland offer this facility tosome students, even sus-pending interest for part of the

There arelessons to belearntwhensaving for yourchild’s furthereducation,warnsMarkChanning

Elaine Edwards is battling with the costs of books and uniforms while prioritising primary school for her daughters Mia, 4, and Hannah, 6, before considering the expense of further education

LORRAINEO’SULLIVAN

COMMENTForget water charges. Theeasymoney arrives nextmonthwhen retirementfunds pay the pensionlevy for 2014, just intime for the budget on

October 14. This year’s haulfor the state coffers amountsto €675m, according to theProfessional Insurance BrokersAssociation (Piba), comfortablyahead of the €500m expectedwhenwater charges begin toflow next year.The pension honey pot will be

at its most abundant this year,with the levy set at 0.75% of thevalue of private retirement funds.The government says the taxwilldrop to 0.15%next year andmaydisappear after that. Don’t believeit. The levy is too lucrative for theexchequer and carries none ofthe political risks that havemadewater charges and local propertytax so toxic with voters. It is aclassic stealth tax:a smash-and-grab that goes largely unnoticedby those on the receiving end.Financeminister Michael

Noonan said in 2012 the levywould be scrapped at the end ofthis year, but he reneged on hispromise as soon as the country’sbiggest pension provider, IrishLife, was safely sold out of stateownership. This has left a sourtaste thatmakes it easy to forgetthe rationale for introducing thelevy in 2011 as a sensiblemeasurefor clawing back some pensiontax breaks at a timewhen thestate was bankrupt. In its rage

over the levy, the pensionindustry conveniently forgets thetaxwas its idea in the first place,conjured up as a better alternativeto reducing tax relief on pensioncontributions. Ireland’s bailouttroika believed pension taxbreakswere too generous anddistributed unfairly, with onlyhigher earners qualifying for taxrelief on contributions at the top41% rate. It wanted acompromise rate of 33% that

would have removed tax relieffrom higher earners, givingmoreto the lower paid and returnedthe balance to the taxman.Tinkeringwith tax relief was

anathema for the pensionsindustry, so it suggested the levyas a lesser evil, although it musthave realised that temporarytaxes have a habit of becomingpermanent. According to Piba’scalculations, the levywill havebrought in €2.3bn for theexchequer by the end of nextyear, with no indication of howmuch longer the taxwill last.While the industry did not

exactly wish for the levy, itshould bemore careful beforehaving another brainwave.

Called to accountLightning doesn’t strike twice—unless you are running a bank’spayments network. Ulster Bankhas been plagued by repeatedcomputermeltdowns that havelocked customers out of theiraccounts on several occasions in

the past two years. Bank ofIreland, which handles thestate’s payroll, messed up forthe second time in amonth lastweekwhen thousands of publicservants were not paid on time.The incident, whichwas

resolvedwithin hours, was a lotless serious than the problems atUlster Bank, where customerswere inconvenienced formorethan amonth in the summer of2012. Nevertheless, there arecertain disturbing similarities.One is the information

vacuum,with banks refusingto explainwhat caused theproblems. The issuewascompounded in Ulster Bank’scase by repeated failures tohonour its promises about whenits computersmight functionagain.Without knowingmore, it is

difficult to have confidence inbanks’ assurances that theyinvest heavily to keep theirpayment networks firing on allcylinders.Where did they findthemoney at a timewhen they

were on life support, ticking overonly because of an infusion of€64bn of taxpayers’ money?The irony is the computer

glitches coincidewith a pushtowards electronic banking, withthe government, regulators,banks and even the local creditunion trying towean us awayfrom the habits of a lifetime andembrace technology for financialtransactions.We are scolded forour reliance on cheques, yearsafter other Europeans have allbut abandoned them in favour ofonline funds transfers.Luddite customers are being

penalisedwith bank chargesand government stamp duty thatcan cost €1 for every chequetheywrite.The tomorrow’s world being

promoted by bankswould be a lotmore appealing if it didn’t breakdown quite so often.

Reit moveTherewas amid-Noughties feelabout the news coming out of the

propertymarket last week.Houseprices were up 13.4%in the pastyear, and by 23.2% in Dublin,according to the Central StatisticsOffice. Mortgage approvalsjumped by 46.1%, said the IrishBanking Federation.Further insights came in the

first set of results from the onlyreal estate investment trust (Reit)to focus exclusively on housing.The value of the properties ownedby the Irish Residential PropertiesReit grew from€46.5mwhen itcame to the stockmarket to€51.5m by the end of June—again of 10.7% in just 11 weeks.Average rents per unit grew

from€900 to €1,070 amonth butthis was not enough to keep upwith soaring values, resulting ina squeeze on yields. Gross yieldswere nudging 10%on some ofthe Reit’s properties in June 2013.Now, it is chasing propertiesbeing offloaded by Nama at agross yield of 5.2%.For investors this must

signal more of a hard slog thana quick buck.

NIALL BRADY

Short-sighted pension providers stung by raid on honeypots

Elaine Edwards, 34, is prioritising primaryschool for her children before consideringthe costs of further education. Sheestimates it will cost at least €200 perchild to send Hannah, 6, and Mia, 4, backto school this week in Portlaoise, CoLaois, including books and uniforms.“The biggest cost is uniforms. The

school allows only uniforms with a crest.It won’t let us buy a plain jumper and ironon the crest separately,” she said.A book rental scheme helps keep

some of the costs in check but it does

not include workbooks, which must bepurchased new.“We have to buy the books that aren’t

part of the book loan scheme. A lot of thetime you have to buy a new edition, eventhough only a couple of pages havechanged. It seems like a money-makingracket,” she said.To help pay the bills, Edwards has

set up an online business calledsweetstreatsgalore.com, which sells thekinds of traditional sweets that havelargely disappeared from the shops.

She also uses the family life websitemummypages.ie to source school itemsand swap tips with parents on how tomanage her children’s school years. Shethinks the state should do more to help.“The government should force schools

to give parents the choice of buyingschool crests separately from uniforms.They could also come up with a savingsor investment scheme where you wouldcontribute some of the child benefit eachmonth,” she said.

MARK CHANNING

School uniform costsmother’s primary concernHow parents pay for college

Savings Monthlyincome

Credit Unionloan

Other Creditcard

Bankloan

Moneylender

47% 46%

29%

12% 6% 3% 1%

Source: Irish League of Credit Unions

FINDING THERIGHT OPTIONWILL HELP TAKETHE STRESS OUTOF THE SITUATIONloan term. The catch is thatthey are available only to post-graduates or students in elitefaculties such as medicine.Their employment prospectsand salaries are perceived to bestrong, making loans to themless risky.AIB’s specialist faculty loan

is available to students trainingto be doctors, dentists, vetsand some other professions.Themaximumloanis€10,000,with no repayments and nointerest charged for up to fiveyears. After that interest ischarged at an annual rate of8.73%-12.99%, depending onthetypeofcurrentaccountthatthe student has.Bank of Ireland has a med-

ical loan for graduates whodecide to retrain as doctors.The maximum loan is€60,000, interest is chargedat an annual rate of 6.6% andno repayments are requireduntil after qualification.Repayments can be made overamaximum term of 10 years.Bank of Ireland also has a

postgraduate loan of up to€7,500 at an annual interestrate of 5.6% with a 12-monthmoratorium on repayments. Itsaid those requiring biggerloans would be assessed on acase-by-case basis. Interest-free loans of up to €1,500 over12 months are offered to allstudents.For loanswhere repayments

of interest and capital beginimmediately, AIB will lend upto€50,000 forone to fiveyearsat 9.95%annual interest. Bankof Ireland will lend up to€10,000 over five years at9.7% interest.Credit unions are an impor-

tant source of student financebutdonotsuspendrepaymentsuntil borrowers enter theworkforce. The Irish League ofCredit Unions said: “Of thosecredit unions that offer dedi-cated student loans, theaverage interest rate is about6.4% but some credit unionsoffer rates as low as 4%.”

SPLASHING THE ASHToni & Guy founder forked outfor a five-star view of Vesuvius