Market Outlook
Irish Medical Organisation

Market Outlook

Welcome to the first edition of our 2017 newsletter.

2016 was a year of market volatility with a sharp equity correction, concerns over China, even recessionary fears. These were all muted by two significant unforeseen political events: the Brexit vote in June and the election of Donald Trump as the next President of the US.

And most of the risks to the global economy over the coming year will also be political: Brexit and the invoking of Article 50, the assuming of office by Donald Trump, presidential elections in France and Austria as well as general elections in Germany and the Netherlands. All of these events pose enormous challenges for the US and the EU and will ensure that the volatility we saw in 2016 will certainly continue in 2017.

Choosing a fund or funds to sail you through these events is a tall order. With literally hundreds of funds to choose from, where to start is a daunting task. Therefore, IMO Financial Services has engaged an external investment consultancy firm, Clarus Investment Solutions, to provide independent and specialised investment support. We asked Clarus to carry out an assessment of funds offered by the six domestic life companies and to produce a set of preferred funds across four different risk bands.

In total, Clarus surveyed 130 funds in the following categories:

  • Multi-Asset
  • Absolute Return
  • Global Equities
  • Property

Funds were ranked using a bespoke scoring system which takes account of 20 criteria such as charges, returns, volatility and diversification.

This advice combined with an annual review of your portfolios is a New Year’s resolution you should adopt. Whether you are the frugal saver or an avid investor, saving money for a rainy day or for your silver surfing retirement, keeping abreast of your savings performance and what affects it, is vital.

We thank you for your support and business in 2016, and indeed over the last 20 years. We look forward to meeting with you in 2017, to continue to work closely with you to provide positive outcomes and to help you meet your investment objectives.

Best wishes,

Francis McGrath

Your Financial Advisory Team

Francis McGrath                                               Daragh Turley                                    Pat Donnelly

fmcgrath@imo.ie                                             dturley@imo.ie                                 pdonnelly@imo.ie

086 3852484                                                        086 8113023                                        086 8224090

Market Commentary

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

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

Bonds

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

Currencies

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

Commodities

• 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

Irish Economic Outlook

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

Update on Standard Fund Threshold

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

Finance Act 2016

PRSA and RAC changes affecting those aged 75 and over

The Finance Act 2016 included an amendment to the treatment of PRSAs and Personal Pension Plans (RACs) when an individual reaches, or has reached, age 75. This change impacts members immediately who are over the age 75 and have not taken benefits from their PRSA/RAC pension plans.

Key implications

  • Policy will be deemed vested and be taxable at 40%
  • Policy will go into ‘lockdown’ and policyholder will have no further access to assets
  • Once the policy has gone into lockdown, it will not be possible to access the 25% retirement lump sum or transfer to a post-retirement fund.

If this affects you, what do you need to do now? 
In order to avoid the above-mentioned implications, Revenue has agreed to a period of grace where a PRSA/RAC can be retired from providing that certain forms are being completed within 30 days of the passing of the Act.

PRSA and RAC changes affecting those younger than 75 years of age

There are no immediate changes to these policies but if these benefits are not taken before your 75th birthday the following will happen:

  • Retirement benefits will not be accessible after age 75
  • It will create a Benefit Crystallisation Event (BCE) on your 75th birthday
  • You will need to submit a BCE Declaration within 30 days of your 75th birthday otherwise a BCE charge of 40% will automatically be taken from your PRSA or RAC.

If this affects you, it is therefore imperative that you contact us immediately by email on imofs@imo.ie or by phone on 01/6618299 so that we can advise you on the necessary steps.

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

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

IMO Membership

Start reaping the benefits of membership.

If you were previously a member of the IMO you can rejoin here.

Join nowRejoin here ›

Enquiries

Have a question? Please get in touch with us and we will be happy to answer.

ENQUIRE NOW

Make an Appointment

Make an appointment with a financial adviser.

CLICK HERE