Classic cars great to look at but can burn a hole in your pocket
Five years of austerity has forced many of us to hold on to old cars – doing so can burn a hole in your pocket, however. As well as shelling out for repairs or replacement parts, the tax bill could be twice as expensive as that paid on a new car.
The main exception to the rule is classic cars, where car tax and insurance is usually cheaper than that paid on standard cars. But most of us don't have an old Mustang or Aston Martin. So just how much is it costing you to hold on to your veteran wheels?
The Sunday Independent teamed up with AA Ireland to find out how much more tax – if any – is paid on old cars compared to their newer models.
Old Honda Civic: An extra €1,830 in tax over 5 years
If you own a 2006 Honda Civic 1.8L, your motor tax bill for the year comes to €636. At €270, the tax bill on a 2014 model is less than half that paid on the old car. You're therefore paying an extra €366 a year in car tax by holding on to your old model.
So you would save €1,830 in tax over five years if you can afford a new car – assuming tax rates don't change over those years.
Old Jaguar: An extra €1,255 in tax over 5 years
As the price tag for a new Jaguar could be anything from €50,000 to €190,000, if you're short of cash and searching for ways to save money, upgrading to a new model clearly isn't the way to do so.
If you can afford a new Jaguar, however, you'll easily save a couple of hundred euro a year in tax. The car tax on a 2004 Jaguar XF 2.2L is €951 a year. The tax for a newer model with a similar size engine, such as a 2014 Jaguar XF Sport 2.2L, comes to €750 a year. That's €251 a year less than the tax paid on the old car – or €1,255 over five years.
Old Nissan Qashqai: An extra €1,165 in tax over 5 years
The car tax on a 2005 Nissan Qashqai 1.5L is €413 a year – more than twice the €180 you'll pay on a 2014 model. So you'll save €233 a year in tax – or €1,165 over five years – by upgrading to a new model.
Old Land Rover Range Rover: €2,705 cheaper for tax over 5 years
If you've got an old Range Rover, hold off before upgrading to a new model. You could pay more tax on the new model than the old one. The car tax on a 2006 Land Rover Range Rover 4.4L is €1,809. That's one hell of a bill – but upgrade to a 2014 model and your annual car tax will jump to €2,350. That's an extra €541 a year – or €2,705 over five years.
If your car is on its last legs, it could cost you hundreds – if not thousands – in repairs and replacements to keep it on the road every year.
"So many things can go in a car with wear and tear – oil leaks, suspension, clutch, timing belts, power steering, wishbones, ball joints and so on," said Conor Faughnan, director of consumer affairs with AA Ireland. "As well as the price of replacement parts, the amount of labour required varies from car to car – it can take a lot longer to fit a part in one car versus another."
Should you have to replace your engine or clutch, it will be a big financial hit. If you own a 2007 Nissan Qashqai 1.5DCi for example and your engine has just given up, a replacement second-hand engine could set you back as much as €1,000, according to the online car parts retailer, Micksgarage.ie. Unless you're a mechanic, you'll also have to pay someone to put the engine in for you. A new clutch could set you back several hundred euro.
Replacement engine or clutches are bills you're unlikely to face that often, particularly if you look after your car. However, there are a raft of other parts that regularly need to be replaced.
"Brake pads for a Nissan Qashqai are needed every one to two years, but brake discs last longer," said John Smyth, a spokesman for Micksgarage.ie.
"You'll probably get 20,000 miles out of a set of brake pads and about 40,000 miles out of a set of brake discs. A set of front brake discs and brake pads costs about €126. It's critical that a timing belt is changed every 60,000 to 80,000 miles – and your timing belt and water pump should be changed together. It costs about €112 for a new timing belt and water pump."
If you own a 2005 Ford Fiesta, replacement parts could work out cheaper than a Qashqai. A set of front brake discs and brake pads for a 1.25L petrol model costs about €59; a new timing belt and water pump costs about €83; and you could pay €300 for a second-hand replacement engine, according to Smyth.
Tyres are another bill which could be a big blow to your pocket. A new set of tyres could easily cost you €500 or more, depending on your car.
To keep the cost of an old car in check, get it serviced every year. Doing so will spot problems early on – and prevent runaway bills down the line. A good service typically costs a couple of hundred euro. "When servicing is put on the long finger, car owners tend to incur additional costs as undetected problems are exaggerated," said Faughnan. "There is also the safety issue."
Civil service early pension: should I stay or should I go?
Q I am a civil servant who can either take early retirement in 2014 based on 37 years' service under my current salary of €70,000 – or wait until 2015. If I wait until 2015, I will get a new pension based on the reduced salary arrangements ironed out under the Croke Park and Haddington Road agreements. 2015 is my normal retirement age – that is, 65. Which option is better for me financially?
Tom, Howth, Co Dublin
A There are two schools of thought on this and neither is correct nor incorrect – it comes down to what is most beneficial to you. The question is should you go now or next year? Your salary is €70,000 a year. Your annual pension will be almost half of this – €32,500. Therefore if you leave in 2014, your annual earnings are halved. Does that suit you? If you stay, you will earn €70,000 in 2014 and 2015.
Now to the sting in the tail – by staying until 2015, your first pension year will be 2016 and this is computed on a lower salary number. However, you will have at least another full year of service, bringing your total years' service to 38. I would estimate that your pension rate would be €31,000 a year.
Longevity for males is 78, and 84 for females, so for each year you live, you have a higher pension if you retire in 2014.
A simple question to ask yourself – do you like your job? If the answer is yes, stay and use your final salaried earnings to pay off debts or build up a nest egg. Otherwise, jump now and secure a marginally improved pension.
Q I have recently received a large inheritance of almost €100,000. I want to use some of the money – about €10,000 – to go on a really nice family holiday with my two adult daughters and their three children. I don't need access to the rest of the money. I retire in six years' time. Deposit rates are low so what are the alternatives?
Maeve, Douglas, Co Cork
A There are typically four core types of investment: cash, which includes bank deposits, credit union savings accounts and so on; bonds, which are issued by government or corporate bodies; property, residential or commercial; and equities – such as shares in companies.
Investing in a managed fund will give you exposure to all of these types of investment. Outside of these managed funds are the satellite funds such as water, commodities, gold, and wine to name a few.
With the exception of cash, you need to give all other investment types a five-year spin. Otherwise, you won't have much chance of getting a good return on your investment.
One golden rule of investment is to diversify – not just between types of, but also among, investment funds. With €90,000 for investment, you should consider having at least five or six investment funds.
I would consider the following investment fund types for you – corporate bonds; European commercial property; equity funds with or without capital protection; water funds; and alternative energy. Before investing, seek professional advice. Ensure all of your money is invested from day one, and that none of your investment is swallowed up in up-front charges.
Don't forget another golden rule of investing: "You will never go broke taking a profit." With your professional adviser, set yourself a desired, yet realistic, rate of return on your investments. When your investment reaches that return, take the profit.
- John Fagan is principal partner of the Dublin taxation and financial advisers, Fagan & Partners
Sunday Indo Business