PENSIONS & BUSINESS PROTECTION: INVALUABLE PLANNING TOOLS FOR FAMILY BUSINESSES
May 21 2021
“As featured in the Irish Times and Irish Examiner special report on family business on the 21st May 2021.”
Proper succession planning is always a key challenge in every family business, and one that Invesco Senior Financial Planning Consultant, Eamon Dwyer has assisted clients with throughout his career. “Coming from a family business myself, I saw first-hand the importance of this aspect of planning. Experience has demonstrated time and again that when it comes to the succession process, passing a business from parent to child, the parent might not be in a financial position to complete the process, particularly if it cuts off an income stream in retirement.”
Invesco celebrates 30 years in business this year. Central to its longevity and success has been its ability and experience in guiding family businesses and SMEs over those 3 decades through succession, the transition and exit process. Eamon is a Certified Financial Planner and joined Invesco in 2019 following Invesco’s acquisition of City Life, which itself was a 2nd generation family business. “One of the great tools when planning for succession is the pension fund, a facility which, if appropriately managed, can assist a smooth transition as the principal moves into a financially secure retirement.” The pension fund is a vital tool, particularly for small and medium sized family businesses, greatly assisting in the successful transfer of an enterprise from one generation to another.
It can truly make the 1st generation business owner financially independent of the business which he or she founded from scratch. “There is a final point on this, which in effect resembles a well planned circle of life. When Mum or Dad retires the pension rules in Ireland allow for the remaining pot of money in the pension fund to be divided amongst other children, who are perhaps not in the business, when that owner eventually passes away. This way of passing assets to the next generation is important to consider when deciding on succession in family business. It can facilitate transferring the business to just the one key child, rather than handing it to a collection of family members who might not be interested or capable.”
However, it is an unfortunate commercial reality that the current owner of a family business - the company’s most important asset - is often the most forgotten about in this financial planning process. “Owners are so anxious to grow the business, devoting time to nurturing customers, safeguarding employees and maintaining the facilities, they often forget about the key to the whole operation - themselves,” explains Miceal Gunning, Invesco Wealth Management Director.
“We always try to highlight to owners various ‘what if?’ scenarios, and these are best discussed at least 10-15 years before a founder director is considering handing over the reins. Such as – considering what might happen in the event of serious illness or incapacity, or indeed should the owner unexpectedly die. Is there someone in the family capable of then stepping up, should a critical health event happen when the next generation are too young, and what effect would this have on the business? These are basic financial protection issues that owners will often not think about, be they sole traders, partnerships or limited companies.”
Miceál joined Invesco in 2000 having previously held positions with Ulster Bank and Bank of Ireland. A Certified Financial Planner, he leads the Invesco Financial Planning Team, specialising in providing holistic and goal based financial planning to business owners, company executives and families. “Another area of importance is making sure that Wills are up to date, and that a necessary Power of Attorney is in place, a document which outlines the owner’s wishes on the continued running of the business in the event of incapacity or inability to do so themselves. We see time and again situations where owners take the view ‘that won’t happen to me’ - but unfortunately it does.”
CSO statistics underline the reality that, in a 3-person business, there is a 50% chance that one will suffer a serious illness between the ages of 45 and 65, and a 30% chance that one of them will die. “Our advice is of course to focus on the positive, but to also keep an eye on the rearview mirror by taking care of basic housekeeping issues. Make sure those key-person insurances are properly in place for the owner and the key management team in the business. Without the appropriate business protection in place, the best laid financial plans can come unstuck.”