Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Pensions

Having taken early retirement last year, aged 59, I am increasingly worried about my pension and the sharp increase in inflation. My current pension affords me a very comfortable standard of living from which I could save if necessary. However, my pension is not index linked and I'm still (relatively) young. Could you outline what are my options vis-a-vis increasing/protecting my income for the future?

Mr R.B., e-mail

It appears there are a large number of people in your position, despite the fact that best practice for pensions, whether personal or occupational schemes, is that they do allow for indexing. It is all too easy at a distance from retirement to pooh-pooh the need for indexing, especially in a low inflation environment of the sort we have enjoyed in recent years. However, even in a low inflation situation, lack of indexation would noticeably undermine your pension's buying power over time. This is certainly a cause for concern, especially as people are living longer these days.

The bad news from your point of view is that, as with everything to do with pensions, the earlier one starts the better chance there is of most effectively providing for retirement.

The problem is simply that, in retirement, most advisers will be advising investment in lower risk instruments because, if things do go wrong, you have less chance and time at that stage to wait for a recovery. Naturally, such low-risk investments carry a similar low rate of return, generally below the current rate of inflation.

You say you are currently in a position to save and it is true that you are a relatively young pensioner. However, you don't say whether you have other commitments or other sources of income, what sort of pension scheme you were in and whether you were self-employed or otherwise.

Regardless, given the importance of avoiding mistakes at this stage, I think it imperative that you consult a financial adviser, preferably one who will offer fee-based advice and is therefore more likely, though not guaranteed, to offer independent advice. As to cost, such advisers tend to operate at about £150 an hour. According to the Irish Brokers Association, discussing your needs, preparing a report and discussing the recommendations therein would take about three hours - a small investment in the context of your financial wellbeing in the years ahead and your anxiety.

At 59 and with money to save, there would be a range of options from deferring part of your payment, reinvesting some of your lump sum, releasing capital invested outside your pension in areas such as your home and other investments or even taking a part-time job in an area of interest to you to augment your income and/ or salt away in a new pension plan to be drawn down at a later age. In the current labour market, there should be no shortage of opportunities in areas you might have wanted always to turn your hand to.

I am currently in a company pension scheme and making no AVCs for the last three years. I am considering opening a personal pension to afford additional flexibility. What are the tax implications of this move, and which is more tax-efficient? Would I be able to transfer my company pension to my personal pension after five years?

Mr F.M., e-mail

I'm not quite sure what you are trying to do but, if you are in an occupational or company pension scheme, you are not entitled to open a parallel personal pension plan.

Having said that, the situation is going to change under the long-promised and soon to be published Pensions Bill. However, quite what will and will not be allowed will not be clear until the Bill is published.

In the interim, all you can do is maximise your tax relief by making additional voluntary contributions either into the main company scheme or separately.

Bacon report

I am in the process of purchasing my first house. However my girlfriend has a site and we hope to build on it in her name before we get married. Could you clarify the implications of the Bacon report for the construction of a house as a second home under these circumstances? The overall plan is to rent the house being purchased and to live in the house which we hope to construct.

Mr C.R.C., e-mail

The gist of the recommendations in the Bacon report, which have subsequently been enshrined in the second Finance Act 2000 is that homeowners, in general, should own only one home or face being penalised through the tax system if they choose to own more. There are exceptions, including for registered landlords in certain circumstances, but that is not applicable here.

Ownership is the key and, as you put it, you are buying the house currently and the site is in your girlfriend's name. You are not married and both properties will carry separate names. In those circumstances, as I see it, you should be all right providing the property you are purchasing is done so clearly in your own name and only your name. I would go so far as to ensure the money paying the mortgage did not come from a joint account. The same applies to the site and to the house your girlfriend eventually wants to build on it.

As far as renting is concerned, you will be liable to income tax on the rent minus certain allowances for the expenses incurred in renting the property such as agents' fees, maintenance and repairs, etc.

Currencies

I am living and working in the US at present and I have a sizeable amount of money in US dollars and am planning to return home in the next few years. Should I keep my monies in US currency or should I change it over to pounds?

Mr P.K., e-mail

As I keep saying every time the issue of currency conversion arises, whatever you do is a gamble. You are essentially betting against the market and there is no way I or anyone can give you a clear answer on which course would be best.

To illustrate, not so long ago when the pound was stronger than sterling, the analysts were saying with great conviction that it would stay that way for the medium term. Guess what? Within weeks, we were back below sterling and have not broken parity since.

Certainly, the dollar is currently strong against the euro and it is the determining currency for the pound with which it is irrevocably tied. However, it has been stronger.

The best guess at the moment is that the dollar will weaken somewhat against the euro, simply because its recent strength means that is its more likely direction in the medium term. But if you are looking a couple of years down the line, I'd invest in a crystal ball.