Wednesday 13 December 2017

Take pension planning off backburner

This is the time of the year when many SME owners start looking ahead to 2013 and beyond.

In tough economic times most SME owners are so focused on trying to keep their heads above water that it's understandable if some long-term financial planning gets put on the backburner.

But SME owners should ensure they're providing for their own future too, and not be put off by some of the negative commentary regarding retirement saving.

Bank of Ireland works closely with SMEs across the country to help them to plan effectively and to look to the coming years with confidence.

Here are five key messages that may help them with those plans:

1. Retirement plans can reduce your tax bill

Many SMEs will file tax returns at this time of year. Investing money into a retirement plan is a sensible option for all. Unlike a deposit account where you pay DIRT on any growth, with a pension, you actually get tax back.

So, what is available when you save for retirement? You can get tax relief on contributions dependent on Revenue approval, tax-free growth (subject to a government levy of 0.6pc on the value of pension assets for years 2011-2014) and up to €200,000 as a tax-free lump sum and a regular income in retirement.

Just be aware that any tax-free retirement lump sums taken since December 2005 count towards the €200,000 limit.

2. Retirement age is increasing

If you're under 50, the minimum qualifying age for state pension has risen to 68. So you should start to make plans now to bridge the gap if you intend to stop working at 65 or even 60.

3. Pension funds performing well

Some SME owners stopped paying into pension funds in 2008 and 2009 when stock markets fell heavily. Did you know that many pension funds have performed strongly since 2009 with typical funds generating a gain of over 20pc over the last 12 months, according to a Mercer Pooled Fund Survey. There may be an alternative solution available that is better for you.

4. Planning is key

Some people find retirement savings complicated. It is not straightforward. Therefore it is vital that you get the right advice and in writing. This will help you put a retirement plan in place that will act as a roadmap that you can revisit regularly.

5. Reviewing is a must

A tip is to review your retirement plan each time you get your car serviced. It's a useful trigger and it should ensure that you don't forget this crucial aspect of your finances.

Some SME operators consider their business their pension. We hear this quite a bit. In the past, we used to also hear that "my property is my pension".

Your business is a hugely important asset, but how are you going to realise an income from it when you retire – or are you just going to keep working?

Do you have family members who may want to take over running the company as opposed to you selling when you want to stop working? How will the economy be performing and how will your business be operating in 20 or 30 years' time?

These are difficult questions to answer. But now is the time to start thinking through what you want and what you want for your family. A simple rule in any part of business or investing is not to put all of your eggs in one basket. So what can SME owners do?

The answer is taking money out of your company in a tax-efficient manner, putting it in your name and investing it in a manner that fits your attitude to risk, but gives you real diversification.

SME owners rarely succeed by waiting for others to come up with the ideas, make the plans and create success.

I always like the quote "entrepreneurship is living a few years of your life like most people won't so you can spend the rest of your life like most people can't". To do this, you need to allow time to plan for the future.

Bernard Walsh is head of pens-ions at Bank of Ireland Life.

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