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Investec Wealth & Investment
Financial Planning
Andrew Fahy
Winter 2016
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Welcome & Introduction
Purpose of the presentation:
To demonstrate how Investec Wealth & Investment’s Financial Planning Team can
help to protect and grow your family’s wealth.
Areas we intend to cover include tax planning, retirement planning, and succession
planning.
The overarching theme is the importance of proactive long-term planning, constant
monitoring, and robust high-quality advice, delivered in partnership with your
existing tax and legal advisors.
A case-study-led 35 minute presentation, which will not be exhaustive, but which wehope will resonate with you and provoke thought/action.
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Typical Lifecycle of a Client
Human Capital transitioning to Financial Capital
We each have a number of touch-points in our lives and significant events
from a Financial Planning perspective. Our aim is to assist you by delivering
personalised solutions at these various touch-points.
Our lifecycles are set against a background of constantly evolving tax and
pensions legislation.
Complexity necessitates robust high-quality advice and constant monitoring.
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Financial Planning – The current environment
Longevity & Legislation
At age 65, there is a 47% probability of at least one half of a couple living to at least 90
years of age (JP Morgan Asset Management, 2015).
Tax rates have increased and tax free thresholds have fallen:
Capital gains tax and capital acquisitions tax have increased from 20% to 33%.
The Group A (i.e. Parent to Child) tax-free threshold has fallen from €543k to €310k.
Fund exit tax has increased from 20% to 41% and losses remain relevant.
The pension fund cap has been decreased to €2m, and the earnings cap for individualpension funding has been decreased to €115k.
Tax-free lump sums have been restricted to €200k.
Demise of Defined Benefit Schemes and historically low annuity rates.
Case Studies
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Case Study 1
Transferring wealth from company balance sheet to personal balance sheet
Background
Tom and Anne are 61 and 62 respectively. Their company distributes products and owns two investment
properties worth €800k in total. Cash reserves amount to €1m. Profits of €950k expected to arise over the next
three years, after which the business will wind down. Their salaries are €43k and €25k per annum respectively
and they have 20 years service. Anne has a small defined benefit pension. Tom has no pension.
Solutions
Back-fund both pensions to the tune of €625k and €210k respectively.
Dispose of the investment properties.
Make ongoing pension contributions for three years to shelter profitability and extract further cash, with a
view to ending up with €1.5m of cash on the balance sheet.
Undertake a Members’ Voluntary Liquidation of the company three years from now and take retirement
benefits from the two pension schemes.
€1.5m tax-free by way of Retirement Relief.
Tax-free lump sums and tax-exempt Approved Retirement Funds (“ARFs”).
Issues
The bulk of Tom and Anne’s wealth is tied up in the company, and will be taxed on way out at rates ranging from
33% to 52%. The couple also require income in retirement.
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Case Study 2
Avoiding the overfunding of your pension by “retiring” early
Background
Brian is 55, married, and set up a successful company 17 years ago. He has built up a large pension fund of
€2m over the last 14 years. For the last number of years, he has kept his salary at €35k p.a. to avoid the higher
rates of income tax and USC (previously his salary was circa €100k p.a.).
Solutions
Brian had additional headroom of €150k in respect of his pension.
Brian wound-up his pension scheme and transferred it to a PRSA. This preserved the death benefit.
Brian then obtained a concurrent employment. When Brian departed from that employment,
his P45 entitled him to take his retirement benefits without having to sell his shares.
25% lump sum , no levy, and ARF free to grow without penalty or mandatory 4%/5% p.a. taxable drawdown.
Issues
The Standard Fund Threshold of €2m limits the benefit of growing Brian’s pension further. A “penalty tax” at 40%
arises on amounts in excess of this. If Brian dies “in service”, there is a major issue in relation to his pension
fund. As a 20% director, early retirement by Brian (i.e. before 60) would trigger an obligation to sell his shares.
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Case Study 3
Having one’s cake & eating it – Redundancy, tax-free lump sums, and the property ladder
Background
Denise has circa €800k in her employer sponsored occupational pension schemes. She is 51 and is being made
redundant, and has been offered an ex-gratia lump sum of €200k. Denise has 16 years of employment service
and 12 years of pension scheme service. Her employer’s UK-based HR department is advising on the relevant
package.
Issue 1
Maximum Tax-Free Ex-Gratia Redundancy: SCSB = [ (€200k x 16) / 15 ] – Tax Free Lump Sum (i.e. €200k),
which works out at €213k less €200k, which equals €13k (not a great result), however…
In this case, it makes sense for Denise to waive her right to a future tax-free lump sum, because:
The deduction in the SCSB formula is for a future tax-free lump sum from an occupational pension scheme.
Denise has only 12 years’ scheme service.
She should therefore waive her right to the tax-free lump sum and then transfer the €800k to a PRSA.
Denise can now get a second €200k tax free (i.e. “have her cake and eat it”).
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Case Study 3 - Continued
Having one’s cake & eating it – Redundancy, tax-free lump sums, and the property ladder
Issue 2:
Denise wishes to use her €200k lump sum and dispose of her long-standing share portfolio with a view tohelping her son to get on the property ladder.
The current “Group A” Parent/Child tax-free threshold is €310k and there are other assets which will beinherited at some future point.
Solutions:
Portfolio loan arranged for the client to avoid triggering a tax liability by disposing of assets which are
pregnant with gains.
Funds advanced to Denise’s son and daughter-in-law by way of a loan which may be written-off over a
number of years using the Small Gift Exemption.
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Case Study 4
For whom the bell tolls – Death related issues
Background
David is 72, is in poor health, and has a will, but it is basic in nature. David is married, and has children and
grandchildren. His asset base is made up of the following:
Investment account held in his own name (opened in 1998). David has been advised to
reconstitute this as a joint account for administrative ease.
Bank accounts in his own name.
Life company based investment fund worth €250k (€150k invested in 2010).
Family home which will ultimately be inherited by David’s daughter, Annabel.
ARF worth €1m.
PRSA worth €200k which David has been advised to “retire”.
Issues
Tax efficient asset/pension transfers and protecting his wife’s position.
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Case Study 4 - Continued
For whom the bell tolls – Death related issues
Solutions
Leveraging the CGT and Fund Exit Tax rules to maximise family wealth.
Favourable tax treatment and enduring nature of the ARF.
Non-retirement of the PRSA.
Use of Will Trusts, Enduring Power of Attorney, and avoiding probate issues.
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Appendix
The marriage of Investec “Wealth” & “Investment” working for you
Individual aged 35. Target retirement age of 60. Pension assets of €150Kaccumulated to date. Intends to make maximum tax relieved contributions annuallyuntil retirement
• Case 1 – Suboptimal investment strategy (e.g. cash deposits, estimate of 1% pa return)
Contributes €822k over 25 years up to age 60
Potential to accumulate €1.124m by age 60
• Case 2 – Invests on a “medium/high” risk basis (estimate of 6.50% pa return)
Contributes €415k over 15 years up to age 50
Potential to accumulate €2.15m (effective maximum fund threshold) by age 60
Warning: The above case studies are based on current tax legislation. Performance figures are indicative only. They are not a reliable guide to the future performance of your investment. Performance
figures do not include charges.
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Conclusion
Build the house first…
Once you have the right structure and a robust financial plan in place, use Investec
Wealth & Investment’s scale, international reach, and depth of investment
resources to create your personalised investment portfolio.
Our charging structure is transparent and our interests are clearly aligned.
Financial Planning is a complimentary service where we manage money for clients.
Please do not allow time poverty to prevent you from optimising your family’s
wealth.
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Contact details
Investec Wealth & Investment
The Harcourt Building
Harcourt Street
Dublin 2
T +353 1 421 0300
www.investec.ie
Andrew Fahy
T: +353 1 421 0321
Gearoid Hussey
T: +353 1 421 0317
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DISCLAIMER
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The information contained in this publication has been compiled from sources believed to be reliable, but, neither Investec Wealth & Investment, nor any of itsdirectors, officers, or employees accepts liability for any loss arising from the use hereof or makes any representations as to its accuracy and completeness. Theinformation contained in this publication is valid as at the date of this publication. This information is subject to change without notice, its accuracy is notguaranteed, it may be incomplete or condensed and it may not contain all material information concerning the matters discussed herein.
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