Global growth expectations have stabilised and improved

Global growth prospects have stabilised and economic indicators are encouraging for 2017.

• The US is experiencing one of the longest economic expansions in its history.

• In Europe, the move from ongoing austerity into limited fiscal expansion continues.

• Monetary policy remains highly accommodative globally and credit conditions continue to improve.

• Despite political changes in the US, UK and France, the markets are now focused on structural factors that could drive more dynamism in those economies.

• UK growth may be negatively affected by Brexit.

• Economic growth in the Eurozone could be held back by contagion effects following the UK referendum result.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

Equities are still the more attractive asset class relative to other assets.

• On an absolute basis equity markets are more fully valued and are above historical averages.

• Relative to bonds – which remain on highly elevated valuations – equity markets are favourably valued.

• We see the equity market still with further upside despite the broad gains in global markets over the past number of years.

• At some stage a shock to equities could emerge from rising bond yields or inflation.

• The structural backdrop in the Eurozone is not positive and further fears of a crisis may emerge.

• Asia and Japan should offer interesting opportunities in the year ahead. The US market

arguably remains the ‘cleanest’ structural case for an equity investor but we remain alert to its absolute size in the global markets, the need for diversification, and its fuller valuation.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

Ultra-low bond yields – an unattractive long-term investment?

• ECB policy rates should remain low for an extended period of time due to subdued economic growth and low inflation.

• The US central bank is set to raise rates further in 2017 with risks being skewed to more hikes than the market currently expects.

• Inflation, although still at historically low levels, has seen a pick-up due to rising commodity prices and some upside wage pressures in the US. Since investors – and central bankers – have been focused on downside inflation risks for so long, it would not take much change on the upside to produce inflation concerns.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

Low intensity currency war continues.

• No major country has the inflation justification for actively pursuing a stronger currency. The US has been able to shoulder a stronger currency as other economies such as Eurozone, Japan and China have pursued weaker currencies actively. There are limits to the US’s tolerance of this however.

• Currency weakness has been a deliberate preference for the Eurozone but at some stage the valuation of the euro versus the dollar will become attractive enough to warrant hedging of dollar based investments.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

• Donald Trump’s election to the White House has increased expectations that the reflation trade will continue as fiscal spending increases.

• The price of oil is likely to be underpinned by a large reduction in capital expenditure by oil companies.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

The Irish economy performed strongly in 2016, with all indicators of economic activity expanding at a reasonable pace. However, recent tax data, car sales, retail sales, and consumer confidence are suggesting some easing in activity since the beginning of the summer. Sterling weakness and Brexit uncertainty are having an impact.

Looking ahead to 2017, there is immense uncertainty. The key risks to the economic outlook include:

• Growing wage pressures in the public sector;

• Brexit;

• The policies of President Trump; and

• Weak domestic political leadership.

Economist Jim Power predicts a GDP growth of around 3.3% for 2017.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland

The Standard Fund Threshold (SFT) is the maximum pension an individual is allowed at retirement for tax purposes. This is a lifetime limit and includes all pension benefits taken since 7 December 2005. The Standard Fund Threshold is currently €2,000,000. At retirement, any amount over the SFT is subject to income tax at 40%.

The table below shows the SFT limits since its introduction:

Date of Change                                 Standard Fund Threshold

7 December 2005                             €5,000,000

2006                                                       €5,000,000

2007                                                       €5,165,000

2008 to 6 December 2010             €5,418,085

7 December 2010                             €2,300,000

2011 to 2013                                       €2,300,000

1 January 2014 to present            €2,000,000

Members with funds greater than listed above had an opportunity to apply for a Personal Fund Threshold (PFT) based on the value of their pensions on that date.

Initially, public servants who retired on or before the 30/06/15 used their pre-cut rates of pay in calculating their pensionable remuneration for PFTs.  Individuals who retired after 30/06/15 had to use the lower “post FEMPI” rates of pay in calculating pensionable remuneration for PFT calculations.

However, the 30/06/15 “grace period” was extended, initially to 30/06/16, and now to 01/04/19. This means that public servants can go back and have their benefits re-calculated on the pre-cut rates of pay which will result in a higher benefit calculation. The extension of the “grace period” may have implications for public servants in two sets of circumstances.

1-Individuals who applied to Revenue for a PFT based on the 01/01/14 changes on or before the 31/07/15 deadline for such applications and who did not intend to retire before the end of either of 30/06/15 “grace periods” deadline or the initially extended deadline of 30/06/16. The PFT cert in these circumstances would have been based on post-FEMPI reduced rates of pay.  If those individuals now retire on or before the end of the extended grace period 01/04/19 their retirement benefits will be based on pre-cut rates of pay and there will, therefore, be a mismatch between their benefits and their PFT was calculated, i.e. PFT was based on reduced rates of pay.

2-Individuals currently without a PFT (due to the fact that their capital value of their retirement was marginally below the SFT of €2m as it was based on post-cut rates of pay) who did not retire on or before the end of the 30/06/15 or 30/06/16 grace periods.  Those individuals, who now retire before the 01/04/19 grace period, their benefits will be based on pre-cut rates of pay, and it is possible that the capital value of their retirement benefit entitlements may have exceeded the SFT limit. They now need to apply for a PFT.

It has been agreed with Revenue that those individuals who fall into the situation in 1 may apply for a revised PFT while those in situation 2 may apply for a PFT.

The deadline for the application for a PFT or revised PFT is three months before the individual’s retirement date or by 01/01/19 whichever is earlier.

If you are considering retirement we strongly advise you to contact HSE Pension Management, Manorhamilton, Co Leitrim (071/9820496) and request a recalculation of retirement benefits.

If you have any further queries, please contact us on imofs@imo.ie or call 01/6618299.

Warning: The material in this newsletter is not intended to provide advice and is provided for general information purposes only.

Fitzserv Consultants Ltd. t/a IMO Financial Services is regulated by the Central Bank of Ireland