‘Pensions help with planning, investment and debt management’
There is a lot of security to be gained by having a pension plan in place, a senior financial advisor with IFAC has warned. Not only does it provide security in the here and now there are many aspects to a pension plan that can ease the pressure when it comes to putting a succession plan in place and planning, generally, for the future.
This was the advice imparted to AgriLand by IFAC’s senior financial advisor Teresa Beirne during the launch of the organisation’s Irish Farm Report 2019 in Co. Laois on Thursday, June 20, last.
The report details the views of over 2,133 Irish farmers and contains a comprehensive analysis of 21,755 sets of IFAC farm accounts over a four-year period.
It also points to the fact that 86% of farmers in this country do not have a succession plan in place.
Beirne says that because most people spend a lot of their lives working, putting a pension plan in place is as much about protecting and looking after themselves now, as it is when it comes to retirement.
This covers everything from pension planning to life cover including what happens in the case of serious illness and a person cannot work.
She continued: “It’s a broad field; IFAC operates a full brokerage and our job is to meet clients and have a look at what they have already.
“A lot of clients would, in fact, have bits of policies that they might have forgotten about – even if it’s only old life policies, etc. – we investigate those by spending a lot of time making the clients aware of what they have.
“It can be very difficult sometimes for clients to understand what they have because there is so much jargon around the wording of all the different policies.
“I think that where the reluctance has been in the past is because people simply did not understand; I’m meeting clients day to day and a lot of my time is spent explaining different concepts about pensions, etc.”
‘Pensions and succession’
IFAC’s senior financial advisor says that when it comes to pension investments these days there is also much discussion about succession plans.
Indeed, she adds, succession planning discourse has been to the fore over the last 18 or so months.
There is certainly a lot more talk about this particular topic than there ever has been before and it’s interesting to see the number of people who haven’t made even a will.
Beirne continued: “In some cases farmers made a will years ago and they haven’t looked at it since; now their children are much older and the farmer hasn’t revisited his options.
“Usually the will is one of the first things that we would mention to our clients; we would work very closely with the tax advisors with regard to this.
“Generally what happens is a client will work on as much tax planning as is possible to mitigate the tax that will be paid, depending on the number of children or who is going to farm.
“If they have life cover all the loans can be paid off; there is a lot that goes into the equation – particularly if something happens to both parties in the home and farm – where there is no will or structure on the farm set-up it causes a lot of problems.”
‘Dealing with debt’
Meanwhile, Beirne pointed to debt proportionality.
If there is a portion of debt that cannot be written off through reliefs, she added, a policy can be taken out – a section 2 policy – in which both the husband and the wife pay into.
When one party is gone out of the picture the tax kicks in because there is no tax between spouses.
She continued: “It’s like a life policy – years ago this was very unattractive because it was a whole of life policy but you never knew how much it was going to cost because cost was variable.
“Now there are policies whereby you can get a fixed cost so you know exactly what it is going to cost you and calculate very easily if it makes sense to do it or not.
“There is also one particular type of policy that after 15 years if things change you can stop paying into it; you can get back 70% of what you have paid in if you decide that you don’t need it or for whatever reason it might be.”
Utilising what is there
Beirne says she is seeing a lot more interest in this type of policy – particularly over the last 18 months or so.
Pensions very much tie into succession planning as well.
She continued: “I have often come across situations where, let’s say, the farm is going to go to one person so the pension – through approved retirement fund – will be where somebody, after taking their tax-free lump sum and maybe drawing an income, will use the residual balance tax efficiently to pass it on to one of the other children.
“There is a lot more scope to talk to clients about that. Overall, I find that clients don’t really know what is available to them and I do think that some pension advisors make the situation very complex when it is actually quite simple,” she concluded.