Welcome to Harvest Financial Services presentation on Getting Your Retirement Strategy Right. 12 th May 2016

Transcription

1 Welcome to Harvest Financial Services presentation on Getting Your Retirement Strategy Right 12 th May 2016

2 Who are Harvest Financial Services? 23 years in business 50+ highly qualified staff Circa 1 billion under administration Highly regulated - MiFID/Pension Trustees/QFM Fee-based business model Pensions, investments and financial planning

3 Today s Topics Why Pensions are important. Background to pensions and how to maximise the opportunities Emer Kirk Investment Options and the need for exposure to real assets Terry Devitt

4 The need for Retirement Planning was never more critical Mortality improvements DB employer took risk DC now its down to us as individuals Age 60 or 65 target retirement date mindset but we have no idea what we can expect State Pension - we can t assume it will be sustained at anywhere near current levels

5 CSO: Census 2011 The Bad News We re living longer.

6 How much is enough? Only YOU can answer this What income will you need in retirement? Will you carry debt in to retirement? Will your kids be independent? Will your parents need assistance? How are you going to fund it???

7 Emer Kirk Getting Your Retirement Strategy Right

8 What I hope to cover today Planning for retirement how to fund it? Tax reliefs still available Different pension structures Protecting your plan

9 How are you going to fund it? Savings & Investments Inheritance Personal Value of Business Income Business Pension Private Pension State Pension

10 Personal Wealth Income from investments, e.g. will investment property provide rental income in retirement Inheritances Savings Capital value of investments

11 Business Wealth Will your business have any value at retirement? Can it be sold? What is it s real value? Do you intent to pass the business on to children? (PWC 2014 Irish Family Business Survey) Will Retirement Relief be available? Can you de-risk by taking cash out of the business tax efficiently throughout your working life?

12 Retirement Relief EUR 750,000 tax free if over 55 and under 66 EUR500,000 if over 66 Nothing tax free if significantly over limits e.g. sell for EUR2m no retirement relief Family company (generally 25% minimum) Must be full time working director for 5 years Available to spouses individually

13 Tax Efficient Cash Extraction a.k.a. Pensions Take value from business for own/family s benefit Corporation tax deduction Income tax relief on personal contribution Funds are invested in tax exempt investment vehicle, no income tax or CGT Portion paid tax free at drawdown Passes to spouse/children tax efficiently on your demise With some restrictions, you can decide where to invest the funds

14 The Different Types of Pensions Traditional pension insurance company, managed funds Self Directed Pension insurance company, more investment choice Self Administered Pension held in trust, open architecture, wide investment choice

15 Why Self Administered? Control Flexibility Security Transparency

16 Self Administered Pensions Some Investment Options Investment funds equities, bonds, multi asset Deposits Individual shares Property Direct property Development Partnerships Property Funds, e.g. IPUT, REITS

17 Tax Efficiency Draw from Company now Contribute to Pension Gross amount 100, ,000 Income tax, USC, PRSI 52,000 0 Net amount for investment 48, ,000 Invest for 20 4% 105, ,112 Net return (ignore CGT) 105,174 25% tax free lump sum 54,778 52% 85,454 Net return 133,659 Return on Gross Amount 105% 134%

18 Pensions What you need to know! Most appropriate pension structure for you Tax reliefs available, both corporation & income tax Gross roll up on investment returns Tax efficient lump sum at retirement Passes to estate/beneficiaries on death Standard Fund Threshold of 2M per person (spouse s pension?) Costs. All the costs! Where it is invested and the impact of investment returns on your retirement income (pre & post retirement)

19 Need to protect the plan! What happens to your income if you cannot work? What happens to your family s income if you die? What happens to your business if one of your partners cannot work? What happens to your business if one of your partners dies? Need to look at protecting both family and the key individuals in your business that can impact on your plan!

20 How do Harvest help? Indentify needs and objectives Prioritise these needs and objectives Work with your advisors (e.g. solicitor, accountant, tax advisor) Put your financial plan in place pension, protection, investment advice Review regularly

21 Terry Devitt The Need for Risk

22 So What is Happening in the World? Interest rates at all time lows Inflation largely absent Debt levels at all time highs Equity markets volatile Growth difficult to come by

23 The Geopolitical Landscape BREXIT.. The Rise and Rise of Donald.. Does QE actually work.? All eyes on China

24 25 yr Performance of Major Asset Classes

25 Getting Comfortable with the Risk in your Portfolio Growth cannot happen without Risk Most important Ingredients are Time and Diversification Learn to Ignore Market Fluctuations

26 Cash Fund vs. Equity Fund

27 The Equity Market Cycle

28 FTSE 100 over 30 years

29

30 Avoid trying to predict the markets. Remember We have two classes of forecasters: Those who don't know and those who don't know they don't know J K Galbraith

31 The Passive vs Active Debate Passive investing has exploded over the past decade Relative costs and performance main drivers of this trend But passive investing not the answer to all investment challenges

32 Passive vs Active 1 European Equities

33 Summary of investment Process Geopolitics Age Economics Market Market Valuations Attitude to Risk Risk Profile Projections and Review Conditions of Investor Suggested Portfolio Research and Analysis Recommended Funds List Monitoring and Review

34 Harvest s Risk Rating of Investments

35 Five Investment Pillars Time Horizon Asset Allocation/Diversification Differentiate between Cyclical and Permanent Losses 80:20 Rule Income

36 1. Time Horizon Exposure to Risk Assets (Equities, Property) requires a time horizon of five years minimum This allows for market cycles to run their course

37 And We All have More Time than we Think 300 Centenarians in Ireland Centenarians in Ireland Source: Human Mortality database (HMD) 0

38 2. Asset Allocation and Diversification Important to achieve appropriate balance between the major asset classes Market timing is a very difficult thing to get right so at times of uncertainty phased investment is advisable

39 Balanced Asset Allocation

40 3. Cyclical and Permanent Losses Portfolio Losses Cyclical Diversified Equities Ungeared Property Permanent Single Stocks Geared Property Debt of any Kind Private Equity

41 4. Follow the 80:20 Rule Ensure at least 80% of your portfolio is diversified, liquid and does not involve gearing The corollary is that a maximum of 20% of the portfolio should run the risk of permanent loss

42 5. Income Build in an income focus to a portion of your portfolio Income a real measure of value Compensation during volatile times Currently not difficult to beat Income from cash

43 The biggest risk is not taking any risk. The only strategy that is guaranteed to fail is not taking any risks. Mark Zuckerberg

44 Conclusion Important to have a plan Maximise tax reliefs available Invest for long term growth Plan early to maximise opportunities Need for advice never more critical

45 The information contained herein is based on Harvest Financial Services Limited's understanding of current Revenue practice as at May 2016 and may change in the future. The material is not intended to provide advice and is provided for general information purposes only. Please note that the provision of certain products and services do not require licensing, authorisation, or registration with the Central Bank of Ireland and, as a result, are not covered by the Central Bank's requirements designed to protect consumers or by a statutory compensation scheme. Warnings: The value of your investment may go down as well as up. You may get back less than you invest. Past performance is not a reliable guide to future performance. If you invest in a pension product you will not have any access to your money until your retirement. These figures are estimates only. They are not a reliable guide to the future performance of these investments. Returns may be affected by changes in currency exchange rates.

46 Thank You Terry Devitt Emer Kirk Harvest Financial Services Limited is regulated by the Central Bank of Ireland.