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Category : News

What’s the story with SME’s and pension schemes?

Small & Medium Enterprises (SME’s) and pensions schemes… they don’t appear too often in the same sentence! Pensions are a real issue for employees working in these small businesses and a headache for their employers. So what is the current situation and what needs to be done?

 

Pension coverage is at historically low levels

With the economic crash, pension coverage levels fell dramatically in Ireland. At the end of 2005, 56% of the working population in Ireland were in pensions schemes. Roll on a decade later and this figure had fallen to just 46%.

However these figures include public servants who we know are all included in pension schemes. So when you look at the private sector only in Ireland, the coverage figure at the end of 2015 is a lowly 33%.

We also know that almost all large employers in the private sector have pension schemes for their employees, which in turn means that pension coverage for SME workers is a lot less than this one third figure…

 

Do SME workers need pensions?

The answer to this is a resounding yes! The maximum state contributory pension for someone aged under 80 in Ireland today is €238.30 per week. While politicians like to increase this figure, it is becoming ever more difficult to do so. Unfortunately old age pensions and pensions for public servants are paid out of tax receipts; there is no pot of money that has been saved to pay for these. Today there are approx. 5 people working (and paying tax) for every retired person (taking money from central funds). But by 2040 this ratio will have halved, so there will be less money coming in and more going out.

Old age pension rates are very unlikely to ever provide more than subsistence benefit levels. Workers need to plan their retirements themselves.

 

Why is the problem so acute among SME’s?

There are a number of reasons for this, and all of them valid. However that fact doesn’t make the problem go away…

First of all, many SME businesses started from nothing. Many started in the owner’s kitchen or garage, as they pursued their wish or need to build a business themselves. Taking earnings out of the business was a challenge in itself, never mind funding a pension! Employees were then hired as needed, often pushing the earnings of the owner back again for a period of time until the new employee became productive. Funding pensions remained down the priority list. If the owner didn’t have a pension scheme, the employees were unlikely to have one either.

Then as SME’s moved on to a more sound footing, why were pension schemes not introduced? Some of the reason may be down to the increased flexibility that exists within SME businesses. The owner decides how much will be paid to an employee in total – usually he / she will be happy for the employee to decide the split between salary and pension. More often than not, the employee wants to maximise income today, so they take all of their earnings as salary. So part of the reason is down to choices made by employees in SME businesses. Corporates on the other hand are much more rigid. When you join a large organisation and agree a salary figure, you are also automatically enrolled in the pension scheme. You’re not given the option to opt out of the pension scheme and take the money as cash instead.

We also know that SME businesses were very hard hit during the economic crash as they don’t tend to have deep pockets or wealthy shareholders behind them. As a result, they slashed costs in their businesses simply to survive. Pension contributions were one of these costs.

 

So what needs to be done?

Unfortunately the problem is not going to go away for employees in SME businesses. There are a few stakeholders to bringing about change.

Employers in SME businesses need to start thinking a bit more like large companies. Pensions are a social requirement for workers today. They are doing a disservice to employees to look after them while working, but to then effectively set them adrift in their later years. SME employers often also underestimate the value of pensions in recruiting the best people into their businesses and then retaining them. Pension schemes are a really important and valued employee benefit.

Employees need to take ownership themselves too. This is not their employer’s problem. If employees want more than simply eking out an existence in retirement, they need to take some pain today. This is either in the form of lower earnings and a pension contribution by their employer, or saving for retirement themselves.

The state has a role to play too. First of all, tax relief must continue to play an important role in encouraging people to save for retirement. However more needs to be done… And this may be in the form of mandatory pensions, where employers are obliged to provide pensions for their employees. This system operates in a many countries around the world, and is currently being studied by policy makers in Ireland. Watch this space – you’re going to hear a lot of discussion about auto-enrolment in pension schemes in the coming years.

 

If you are an SME owner or an employee and want to start taking control of this issue yourself before being forced by auto-enrolment, give us a call. We’ll be delighted to guide you.

What’s changed over the last decade?

History teaches us many things. Particularly if we’re looking for a bit of guidance in prudent personal financial management, the last decade offers us a wealth of useful lessons.

During the last decade we’ve seen a (hopefully) once in a lifetime global economic collapse, the entire banking system teetering on the brink, followed by a deep recession. However thankfully now in Ireland (although unfortunately not in every corner of the country), we’ve seen a strong recovery in recent years to a point where it appears the boom times are back! So what can we learn from all of this, particularly as we hear that dreaded “boom” word??

 

Be careful who you listen to

Let’s start with the European Central Bank’s Monthly Bulletin of March 2007 that said,

“Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. External conditions thus provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum.

“Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency.”

Well, how about that! Within a few short months the global economy started to implode, and the whole EU project faced desperate times with the emergence of the PIIGS economies – do you remember them? These were also the days of Dublin taxi drivers boasting about the 3 properties (never to be built) they had bought for a song on a beach in Bulgaria.

So be careful who you listen to and be very circumspect about market noise and the latest “sure fire” investment opportunity.

 

Keep a long-term perspective

When you are looking at your pension fund, or your risk rated investment portfolio, you need to maintain a long-term focus. There’s always a huge temptation to try and time the market, but this is folly.

The people who suffered most in the economic collapse were those who had no plan and tried to call the market. These people typically sold assets such as shares or property after significant falls in value and then after suffering so much, were very slow to re-enter the market and missed most of the recovery. In fact, stock markets had pretty much fully recovered in 2011, but many people were out of the market for much of the recovery period and their portfolios did not recover. In fact the S&P 500 rose by almost 200% (196.2% to be exact) from the eight years from March 2009, rewarding people who stayed invested.

People with a plan typically stuck to it and avoided making short-term calls. They did not make large scale asset movements and as a result they experienced the collapse, but more importantly also the recovery in the markets.

 

Diversification is key

Back to those Dublin taxi drivers, and many other people in Ireland, this is one lesson in particular that was bitterly learned. Ireland’s love of property above all other assets hit many people very hard. No matter what your investment objectives are, it is very important that you protect yourself by not being over-exposed to any one asset category in particular.

 

Keep emotion out of it

If investing were a science then there would simply be a formula for success. We all know this is not the case. Our successes (and failures!) are strongly affected by uncontrollable market factors, which emotionally affect us and cloud our judgement.

The people who tend to suffer most are those who exhibit extreme emotions in relation to investing. Being too greedy is a recipe for disaster in a rising market, as these people often don’t take the opportunity to lock in any gains. In a falling market, excessive fear is also a big enemy as people exit the market and are too fearful to re-enter, thus missing a market recovery. The answer is to make investment decisions on logic alone…both yours and that of your adviser!

 

Have a safety net

The economic collapse resulted in a lot of pain for many people, with salary reductions and a large increase in unemployment being two of the most unwelcome effects.  For these people, cashflow became an immediate issue as their non-discretionary outgoings (such as mortgage and other loan repayments) typically did not reduce in line with the fall in income. This caused significant issues for people with no cash buffer as they struggled to deal with banks and other creditors, resulting in significant financial pressure, stress and a dramatic fall-off in their lifestyle. Going forwards, many people have prudently prioritised a cash (or other liquid asset) buffer as one of their investment objectives.

 

Don’t go it alone

As people saw their portfolios collapsing and faced uncertainty about their financial futures, it became more and more difficult to make rational decisions. This is where a trusted voice became extremely valuable and for many, that voice was their financial adviser. We’re able to stand back, remove the emotion from the situation and provide clear thinking in a difficult situation. Sometimes the advice might be to do nothing. For others, we can help you face up to your situation and plan on how to deal with it.

Having that second opinion, apart from the positive impact it will have on your financial wellbeing will also seriously reduce your stress levels!
So in summary, our advice is to have a financial plan and stick to it. Tune out of the market noise and watch the horizon rather than the next hill. And let us help you to keep emotion out of your decision making and to stay on the right track.

Minimise the impact of divorce on your financial plan

A marriage breakup is usually a traumatic time. Very significant life decisions are needed about custody of children and access arrangements, and where each party will live. Often relations between the parties become quite fraught… and then financial arrangements need to be agreed.

At this stage, the difficult areas of dividing up the assets, maintenance payments and agreeing the ongoing repayment of debt need to be tackled. Having a financial planner involved in this process is very valuable, as they will approach the task in hand without emotion. Our job is simply to achieve the very best outcome in relation to the financial issues that will inevitably arise.

So to help you, here are some of the areas that we can help you with.

 

We’ll start with our lack of emotion!

We’re actually as emotional as the next person… except when it comes to our clients’ finances! At this highly charged time, it is invaluable to have someone at the table who will leave emotion at the door, and who will look coldly at the financial picture. Sometimes a potential solution such as selling a family home in order to buy two smaller homes needs to be voiced, but often it is difficult for both parties to agree this themselves. Having a voice of reason can save a lot of time, expense and additional heartache.

 

Make sure you get (the right) life cover in place

Once an agreement for maintenance payments are put in place to support the other spouse and children, it is very important that life cover is put in place to secure these payments in the event of death. However we strongly suggest that you seek advice in relation to the type of policy and the beneficiary profile in order to reduce the Capital Acquisitions Tax (CAT) liability on receipt of the benefit.

If you are the recipient of maintenance payments, it is also important to ensure your ex-spouse has adequate income protection cover should he/she be unable to work because of illness or injury.  Also we’ll help you to ensure that you retain any health insurance cover, as lapses in cover can lead to increased cost or indeed reduced coverage down the road.

 

Be realistic about household expenses

This is particularly important if you previously didn’t pay too much attention to the money being spent by you and your ex-spouse each month. If you are to be the recipient of maintenance payments in the future, you need to immediately take a forensic look at what is spent to maintain the family. You need to track and document your monthly expenses very diligently, and also think through the one-off expenses that arise during the year – motor expenses, education expenses, holidays, club fees, insurance costs etc.

All of these costs quickly add up and we can help you think through them all. However we don’t have a magic wand to make them go away – the reality going forwards is that a single income may / will have to sustain two households, so sacrifices often need to be made.

 

Pensions are a minefield – we’ll help you through it

Pensions are complex beasts at the best of times. On divorce they become even more complicated. We can help you to ensure an equitable solution in relation to an ex-spouse’s pension, through the application for a Pension Adjustment Order (PAO). This entitles you to a share of your ex-spouse’s pension fund.

There are different ways that these can be established. The benefits for both parties can remain in the pension scheme until the pension scheme member retires, or instead the non-member can transfer their share of the assets to their own arrangement. We’ll help you identify what’s the right approach for you.

 

We’ll help you to minimise the tax bite

This can emerge in many ways. If people are generally inexperienced in financial matters, we can help you structure your income tax payments to avoid any nasty (big) tax bills. We can also advise you in relation to the transfer of assets between both parties to ensure this is done as tax efficiently as possible. And we can help you reduce where possible any future inheritance tax liabilities.

 

Divorce is very difficult and the financial repercussions can be immense. Don’t let them spin out of control – we can help you maximise the value of every euro that is available.

What’s all this talk about auto enrolment in pension schemes?

You might have heard references in the media to “universal pensions” and to “auto enrolment” of employees in pension schemes. So we thought it might be useful to give you some thoughts about our thinking on these concepts.

 

What are universal pensions and auto enrolment?

Universal pensions are pretty much what it says on the tin. It is a concept of every adult (or at least every working adult) having retirement savings in place to help fund their old age, when they are no longer working.

Auto enrolment is a similar concept, but this time aimed at all employers who would be obliged to include all of their employees in a pension scheme. At the moment, some do and many don’t. An employee would automatically have to be included in a pension scheme by their employer, with contributions paid by the employer, the employee and the state (via some form of tax relief). The employee could then choose to opt out if he/she so wished.

 

Why might auto enrolment be introduced?

Because Ireland has a looming retirement crisis. State old age pensions, which provide subsistence level benefits only, are likely to be under significant pressure in the future as they are paid out of current tax revenues – there are no savings in place to pay them. So today’s workers pay tax, which funds the payments to pensioners today. Currently there are 5 people working for every pensioner. However this rate will halve by 2040. There will be less money coming in and more going out – the cost of state pensions are increasing by approx. €200m each year.

So the government has a problem and needs people to save for their retirement themselves. And this challenge is only getting bigger too, as a result of the collapse of the economy. In 2009, private pension coverage in Ireland (those with pension funding in place) was 51.2% of workers. However by the end of 2015, this figure had fallen to 46.7% coverage. When you look at the private sector alone (excluding all public servants), coverage levels are down at less than one third of employees. So the issue is that under the current voluntary system, a great proportion of workers simply don’t (or are unable to) make provision for their future needs. The government has articulated that auto enrolment is the main plank of a potential solution to driving up coverage levels.

 

When might it be introduced?

This is the big question! Auto enrolment is certainly a number of years away as it’s one of those nettles that successive governments have failed to grasp. However it appears to now be on the horizon within the Dept. of Social Protection. There’s no doubt that it will take some time to design a scheme, gain agreement with all social partners and then implement the scheme. Maybe we’ll see it in the early 2020’s?

 

Is auto enrolment the way to go?

First of all, Ireland is not the only country with this ageing population and retirement challenge. Auto enrolment has been introduced successfully in a number of countries around the world, and as recently as 2012 in the UK. As a result, pension coverage in the UK jumped from 47% in 2012 (similar to our coverage today) to 66% last year. So the results have been very encouraging there and in other countries such as Australia, New Zealand and Singapore.

The benefit also of following these countries is that there are also lessons to be learned from mistakes that they made. Any system that is introduced needs to minimise the administrative burden for employers. Any new system also needs to avoid a “race to the bottom” where employers with good pension schemes in place for employees might reduce benefits to the minimum allowed under auto enrolment.

 

How will it impact you?

We work hard with all of clients, encouraging structured retirement planning. After all, our goal is to help you to live the life that you want to live, without money being an insurmountable hurdle. Retirement planning is central to the achievement of this goal. So if you’re following a structured retirement plan, then auto enrolment will not impact you at all as it is aimed at people with no retirement funding in place. If you have no pension funding in place, auto enrolment will get you started, through your employer setting up a scheme.

But waiting for auto enrolment is not the answer. This has been one of the biggest political cans kicked down the road by successive governments. Don’t risk your future waiting for this to stop. Come and talk to us and we’ll help you to start taking control of your financial future in retirement.

How well is your company protected?

One of the more important business activities of any company owner or partnership is the whole area of risk management. Yes of course you have the day-to-day challenges of bringing your products to market, selling, building your brand and your presence, and meeting and exceeding the expectations of your customers through your product delivery.

Sitting behind these are the important tasks of running the financial side of your business, getting the best people in place and running your business efficiently. And then there’s risk management, in case anything goes wrong.

So what do you think about when you think of something “going wrong”? Is it a fire in a warehouse, an accident involving a company vehicle, maybe somebody tripping and falling in one of your retail outlets? Is it someone suing you for poor performance in your business activities? These are all areas where businesses build contingency plans or put insurance in place.

But one area that sometimes slips under the radar is the potential impact to your business or partnership if something happens to your most important assets. Your people. We want to make you aware of the different strategies that you can put in place to safeguard your company against the death or inability to work of one of your key people.

 

Partnership Insurance

People who are engaged in a professional partnership, such as solicitors, accountants, medical professionals and others who work together outside of a company structure need to consider what would happen in the event of the death of one of the partners in the firm. Because on death, the deceased partner’s share of the firm immediately becomes part of their estate, which could be called upon as a debt by the deceased partner’s survivors. This potentially could create enormous issues for the remaining partner(s) who would need to immediately raise finance (if they can) in order to buy out the deceased partner’s share. Of course the alternative is that a deceased partner’s family member could instead become involved in the firm instead, this being a real potential recipe for disaster!

BDO Simpson Xavier released the sobering statistic that 72% of businesses cease trading within 5 years of the death of business’s founder, often because the remaining partners simply don’t have the financial firepower to compensate the deceased partner’s estate and keep the business going forwards.

Thankfully partners can protect themselves against this risk. Each partner can take out partnership insurance on the lives of their partner(s). Should one partner die, the remaining partner(s) now have immediate access to the necessary capital to buy out their deceased partner’s share of the firm. The deceased’s family are looked after and the firm can continue to grow.

 

Co-Director Protection

This is similar to partnership insurance but in a company context where there are directors in the business who are shareholders of the business. When there is Co-Director Insurance in place, in the event of the death of a director, the remaining directors (or the company itself under a Corporate Co-Director’s Insurance policy) can buy out the shareholding of the deceased director.

This prevents a deceased director’s family having to become involved in the business, where they may have no desire or experience to do so. This insurance also enables the company to control it’s own destiny, should such an unfortunate and unforeseen event occur. The deceased’s family are fairly compensated and the remaining directors retain control of the ownership and direction of the business – a best-case scenario for all concerned.

 

Key Person Insurance

It’s not at all unusual to have one or two key people in a business, who are not shareholders in the business. They may simply be exceptional employees with unique talents or expertise that the business relies upon heavily. To lose such a person would be like cutting off a limb, and may even threaten the very future of the business, as their input is so key.

Businesses can protect themselves against the loss through death or illness of such a person through a Key Person Insurance policy. These policies enable the business to survive such a loss, by providing a cash lump sum for the business. This may give the business time to hire required replacements or to pay down some debt as they adapt to life after their deceased colleague. This insurance might prevent a business imploding after the loss of a key person.

 

Yes it is important to protect your physical assets, your premises, your vehicles and your stock and to ensure you can adequately manage any other potential liabilities. But your people are the very heartbeat of your business.  Don’t let losing them lead to the death of your business.

How much money are you happy to lose?

“Well none obviously” I hear you say. But is that actually the case?

This is a really important question, and one that we spend a lot of time on with our clients, helping them to answer it. It is really important because it helps you clarify how much risk you are willing to take with your money in return for different levels of reward. Let us explain…

When we start working with a client who is saving or investing money, whether it is to build up a nest egg, grow an existing portfolio of investment assets or indeed plan for their retirement, gaining clarity around your investment objectives is the first step. When do you want this money to be available and what must this money be able to do for you? We’ll take an example…

 

Sean and Mary

We had clients recently (we’ll call them Sean and Mary) who had a sum of money to invest as a result of an inheritance. We spoke at some length about their future lifestyle goals and dreams and throughout our discussion, one goal kept coming to the surface. When they retire in about 12 years time, they want to escape from Ireland for a few months every winter and live somewhere warmer. They want their own place in the sun.

So now we had both a timeframe (12 years) and an objective (a holiday home). The question that they now started asking was what size / type / quality of holiday home could they afford? And so our conversation turned to risk and reward.

 

Attitude to risk

We explained that we needed to understand their attitude to risk. Are they people who would invest this money and take no notice of movements in stock markets and other assets over the next 12 years, even where there were significant swings? Or instead, are they likely to lie awake at night worrying if the value of their pot of money decreases at all, even just in the short-term? Of course relatively few people are at either extreme end of the risk spectrum, most are somewhere in between. It’s our job to find out where you are on this spectrum.

 

Capacity for risk

We also look to establish your capacity for risk. This is effectively your financial firepower in terms of taking risk, or how much you can afford to lose. If your financial goals are out of reach or significantly threatened should you lose some or all of your money, then you have very low capacity for risk. If you have lots of other financial assets and losing some or all of your money won’t make a material difference to you, then you have a high capacity for loss.

 

Risk v reward

Once we understand your attitude and capacity for risk, this leads us to a conversation about building the right investment portfolio for you. Because risk and reward are inextricably linked. If you can’t take or don’t want risk at all, then maybe your money needs to be on deposit. You will get a very steady return (or at least you should), albeit a very low return. And apart from the impact of inflation, you won’t lose any of your money. But you won’t grow it either.

However if you are comfortable with your portfolio being more volatile and taking swings in value, this offers the opportunity for you to make higher returns. But of course you are now running the risk of losing money (instead of growing it!) and possibly suffering a correction in markets just before you need your money, potentially scuppering your plans. This is the classic risk v reward trade-off.

We can demonstrate how different baskets of assets (cash, bonds, shares, property etc.) can be combined to produce different risk & reward profiles.

 

Back to Sean and Mary!

Coming back to Sean and Mary, they are actually relatively conservative investors. They don’t want to (and would) worry about their money if there are significant swings in their investment over the next 12 years. They’re happy with only gentle falls in their investment amount from time to time, while recognising that this conservatism will potentially suppress their return. But they are very sure about one thing. They definitely want to afford that place in the sun in 12 years time and have no other means of funding it. They’re happy if the property ends up being a little smaller than they might wish for. But to them this is better than shooting for a palace, but possibly ending up with a cardboard box!

 

Does your investment portfolio reflect your attitude to risk and your capacity to take it? We’d be delighted to hear from you and help you make sure that you have a risk appropriate portfolio in place.

Brexit, Trump etc. How do you keep your investments on track?

Lots of factors are currently creating a great deal of uncertainty for investors; Britain breaking up with Europe, President Trump settling into the White House (and everything that promises!) and continuing low growth across Europe. Then when you consider interest rates at rock bottom, uncertainty caused by global terror and other such negative factors, the picture is quite daunting for investors today.

So what do you do?

Well the answer is probably, not very much! Let us explain…

 

Stick to the plan

First and foremost, remember your investment objectives, and crucially your investment timeframes. In most cases, these are medium to long-term – at least they should be if you are invested in any sort of risky assets. These time frames are critical to your investment success. The markets regularly experience short-term volatility, but to try and time this volatility usually turns out to be folly. Research tells us time and time again that staying invested is the key to long-term success. Investors who look to sell out at the top and buy at the bottom usually miss both points, and often by very wide margins.

 

Volatility is not the enemy

Volatility is simply a feature of investment markets which go through periods of both calm and volatility, sometimes in line with the market cycle, at other times reacting to once-off events. Times of volatility have historically proven to be bad times to make significant investment decisions, as strategies tend to be coloured by short-term factors. Don’t let your emotions cloud your decision-making.

 

Stay diversified

A far more robust approach to investing is to stick to the asset allocation approach that was used in constructing your portfolio, as this is more likely to deliver long-term success. There are endless examples of investors chasing that one sure bet – technology companies in the late 1990’s, bank stocks in Ireland and foreign property investments in the 2000’s.  And we all know where these ended up. A key principle of successful investing is to stay diversified across asset classes, geographical regions and sectors. This will protect you against unforeseen calamitous events in a single area.

 

Don’t stop believing (or saving)

When short-term volatility happens, some investors are slow to commit more money to their investment strategies. This is effectively trying to time the market. It’s important that you keep the faith! Keep investing, although talk to us about the best way to do this. It may make sense for you to employ a strategy such as “euro cost averaging”. This is where you invest a fixed amount at regular intervals. This ensures that if markets are moving around, you are buying in to the market at various price points, thus ensuring you’re not exposed to the risk of investing and be exposed to an immediate fluctuation.

 

Look backward as well as forwards

While of course we are always at pains to point out that past performance is not a guide to future performance, at the same time it’s sometimes worth looking back and seeing where you came from. This hopefully will give you confidence in the future! Look at an investment that you’ve had for a long time – this could be an old pension fund, a children’s education fund or even your family home. Or for example, just look at stock market returns over any 10year+ time frame. With very few exceptions, the results are extremely heartening. This will give you a sense of how time is your friend and will bolster your confidence to stick with a consistent investment approach throughout good and bad times.
Often it simply makes sense to sit down with an expert who will look dispassionately at your situation and reassure you, or guide you towards a change. We would be delighted to help you.

Important: Past performance is not a guide to future performance

Image courtesy of Michael Vadon

What will you leave when you die – a legacy or a tax bill?

As Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes.” However the good news is that both of these don’t necessarily have to occur together!

This is one area that we’ve been getting a lot of queries about from people. As they start to think about their mortality and what they are going to leave behind for loved ones after they’re gone, our clients want to ensure that they leave a lasting positive legacy, rather than a nasty tax bill!

The reason we’ve been getting quite a number of queries about this area of personal finance is because it featured in Budget 2017, but maybe not to the extent that everyone hoped.

 

Inheritance Tax in Ireland today

Back in the heady days of 2009, a parent could leave up to €542,000 to each of their children (smaller thresholds apply for other relationships) before inheritance tax had to be paid. The tax that had to be paid was 20% of any excess over this amount. And then the economic crash happened… As a result, the parent / child threshold was slashed over a few years to a threshold of only €225,000, above which an increased tax rate of 33% had to be paid.

This caused all sorts of problems for people wanting to leave assets, particularly to a single child, and where their wealth was tied up in a single property. In many cases, the low threshold resulted in a family home having to be sold by a bereaved child, simply to pay a tax bill!

Fast forward to budget 2017 and there were great hopes around the parent / child threshold being increased back up above €500,000. This didn’t happen, however the threshold has been gradually increased over recent years up to €310,000 now. Unfortunately the tax rate has stayed stubbornly high at 33% of amounts above the threshold.

The situation is not so bad where there are a number of children inheriting from a deceased parent, as the threshold amount applies to each individual child. It’s important also to note that there is no inheritance tax payable by a bereaved spouse. There are also exemptions available when a farm or business are being inherited and in some circumstances where a child is living in the house to be inherited, so it’s important to get advice about these situations.

 

You need a plan

So if after you’re dead and buried, it is likely that the value of your assets will exceed the inheritance tax thresholds of all your children, you should come and talk to us, as all is actually not lost. It’s still possible to leave a lasting legacy rather than a tax bill, but this situation needs careful planning. Thankfully there are a few ways that we can help you.

 

Be Prepared

You first of all want to ensure that your assets are distributed exactly in accordance to your wishes. To ensure this happens, make sure you have a will as this will clearly set out your wishes.

 

Spread the love (and the money)!

When you’re writing your will and particularly if your assets are significant and it’s in accordance with your wishes, spread your inheritance also among grandchildren, parents, siblings, nephews and nieces as each of these will qualify for a tax free threshold of €32,500. Even outside of this, other people will qualify for a further reduced threshold of €16,250. The threshold amounts are lower… but it all counts! So spreading the love can reduce the tax bill payable later.

 

Don’t leave it all until death!

Another way to reduce or avoid a tax bill on death is to pass on assets at an earlier stage. First of all, every individual can gift €3,000 p.a. to another individual without triggering a tax bill for the recipient. So parents can gift each of their children €6,000 each year. This can build up over time… Of course also passing on property at an earlier stage may result in it being passed on while asset values are lower, as property values generally increase over time.

 

Get appropriate life cover in place

There are life assurance policies designed specifically to pay inheritance tax bills called Section 72 policies. These may well be the best route if your assets are significant, and your beneficiaries are likely to inherit amounts in excess of their thresholds. We can help you get this cover in place.

 

Dying is a serious business! If what you leave behind is important to you, then an inheritance strategy is needed. We’ll be delighted to help you leave a really positive legacy after you.

5 ways we can help you with money in 2017

We’re not trying to wish our lives away, but there is no doubt that our focus is starting to shift at this stage towards 2017. And as we approach the end of the current year, we’ve been thinking about how we can help our clients even more with all of their financial challenges. As part of this thinking we’ve identified a few ways in which we believe we help you manage your money better. So here goes…

 

Take a strategic view with your money

We all get sucked into focusing on the day-to-day and short-term challenges of our financial situation. Should we borrow to change the car? Are we saving enough for an upcoming holiday or should we just use the credit card for a few months? These are important challenges, but thinking only about these diverts your attention away from the longer-term picture.

We see our role as helping you to lead the life you want to live, both today and in the future, and that money is simply an enabler of this lifestyle. So we will help you take a longer-term view of your finances, looking at your income, expenditure, assets and liability. We might challenge you on your short-term budgeting, but with a view to helping you to achieve long-term goals! And we’ll help you actually identify those goals, and then work with you into the future to make sure you achieve them and live the life you want.

 

Stick to the plan

Particularly when investment markets are very volatile, there can be a huge temptation to ignore your financial plan, stay out of the markets and just keep your money in cash. And particularly with events like Brexit and the recent US elections, there has certainly been a lot of volatility and uncertainty around!

However we will help you keep focused on your plan and not react to every bump in the road. Because we’ve seen that these events typically only cause short-term impacts. Take the US election as an example. Excluding 2008 when there was an unusually deep recession (with little to do with the election cycle), the average return of the S&P 500 index in US presidential election years going back to 1960 has been 9.1% versus 8.8% for all other years. Not much of a difference there! So we’ll keep you focused on the plan to achieve your financial goals, rather than reacting in a knee jerk fashion to every market shock.

 

Make more informed choices

We all make choices every day in relation to money. Most of these are relatively small and while we can help you with overall budgeting, these are choices you’ll make on your own each day! However we can help you with the big financial decisions that typically will be based on desired lifestyle or other life goals. For example, how will you decide whether you’ll retire early, or whether you’ll buy a place in the sun when you retire, and what’s the relative financial cost of each? Or what impact will a 2nd annual holiday have on being able to privately educate your kids, if that’s what you want? These can be hard questions to answer, but we can help you at least to understand the financial picture of all of these choices.

 

Manage risk

This is one we constantly talk to our clients about. We don’t want you lying awake worrying about your investments. That’s why we place a lot of emphasis on fully understanding your risk profile. If you’re not fazed by your investments going up and down frequently, then we may guide you towards a portfolio with risk in it, once you have the capacity to live with that risk. However if you are going to sweat over every movement in the markets, we are more likely to suggest that you minimise the impacts that these movements will have on your portfolio.

We’ll ensure that you manage your money, rather than your money managing you!

 

Build your confidence

This is probably the most valuable impact that we can have. We can bring a realistic picture to manage any financial insecurities you might have. For example, we had a client recently who was worried that she wasn’t paying enough into her pension plan. However when we analysed this client’s situation and her lifestyle objectives, it became very clear that not only was her pension funding adequate, in fact she will be able to retire earlier than she had thought and still achieve her chosen lifestyle.

You may be faced with a simpler financial decision and be unsure which way to proceed. In all of these instances we’ll be delighted to provide a 2nd opinion to help you reach your decision, and bolster your confidence in the process.

 

Yes, we will make sure you have the best value financial products and we will help you maximise the impact of every euro invested. But we hope that our impact on your money goes far deeper than this. Talk to us, we’re in your corner.