DLS Capital Management Autumn 2017 by publications

AUTUMN

2017 USING A LIFE ASSURANCE SAVINGS PLAN TO FUND FOR GIFT TAX ECONOMIC OUTLOOK Dr. Constantin Gurdgiev

10 REASONS WHY PENSIONS STILL MAKE SENSE Sarah Keane

HAPPY BUT EXHAUSTED: 4 TIPS FOR REVERSING WORKER BURNOUT HANDHELD BANKING: WHAT DOES THE FUTURE HOLD GOOD REASONS TO ENCOURAGE SELF CONTROL AMONG EMPLOYEES

TABLE OF CONTENTS Using A Life Assurance Savings Plan To Fund For Gift Tax Economic Outlook - Alice In The Wonderland: The EU Banking Reforms Dr Constantin Gurdgiev 10 Reasons Why Pensions Still Make Sense Sarah Keane Business Briefs Happy But Exhausted: 4 Tips For Reversing Worker Burnout Handheld Banking: What Does The Future Hold Good Reasons To Encourage Self Control Among Employees Meet The Team Range of Services

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Welcome to the Autumn 2017 edition of our bi-monthly newsletter.

As always, this newsletter contains a variety of articles which we hope will be of interest to you and your business. We would like to draw your attention to two articles, in particular. Firstly on page 3 where the process of Using A Life Savings Plan To Fund For Gift Tax is discussed and secondly, Page 9 where Sarah Keane outlines the 10 Reasons Why Pensions Still Make Sense. Our highly experienced team here at DLS Capital Management are happy to assist you with any queries you may have, so please do not hesitate to get in touch.

Dervilla and Sarah.

USING A LIFE ASSURANCE SAVINGS PLAN TO FUND FOR GIFT TAX The use of life assurance protection policies to fund Inheritance Tax with the benefit of Section 72 relief is well known. However, the potential to use a life assurance savings plan to fund Gift Tax with the benefit of Section 73 relief is less well known or used. It can be a useful option, particularly for those who can’t get Section 72 life assurance cover. When an individual gifts assets to a beneficiary, other than a spouse or civil partner, the gift eats into the beneficiary’s available CAT Threshold amount. When the lifetime Threshold is used up, a Gift Tax liability of 33% will arise, the same as Inheritance Tax, for the recipient of the gift. However, gifting assets, rather than holding onto them until death, has two potential advantages:

• Assets are transferred earlier and can be utilised earlier. Say a couple aged 60 with a 30-year old son. If they plan to leave assets to their son after both of them have died, on average this won’t happen for another 34 years. Their son could therefore be well in his 60’s before inheriting.

• Any further growth in value of assets after transfer falls outside the CAT regime. If assets are expected to grow steadily in value, the sooner they are transferred to the next generation the better, from a CAT planning point of view.

What is Section 73 relief?

How the Section 73 relief from gift tax works in practice?

If a life assurance savings plan, expressly effected under Section 73 CAT Act 2003, is put in place to provide for the ‘relevant’ tax, Revenue will not charge Capital Acquisitions Tax (CAT) on the plan proceeds if the money is actually used to pay gift tax. The benefit of using a ‘qualifying’ life assurance savings plan to fund for the payment of gift tax is that, as long as certain conditions are met, the proceeds of the plan when used to pay your beneficiaries gift tax bill, will not increase your gift tax liability.

John and Mary are married. Their estate is valued at €1,000,000. John owns a rental property company valued at €500,000 which he has decided to gift to their son Paul in 8 years time. Total gift Tax free threshold

Whereas, if your client gives their beneficiaries additional money to pay the gift tax bill from their deposit account, this will be seen by Revenue as an additional gift, and will increase the beneficiaries’ tax bill. Bank Account Proceeds

‘Special’ Section 73 Plan

Value accumulated

€100,000

Tax payable

€33,000

Nil*

Left to pay tax

€67,000

€100,000

€500,000 €310,000 (assuming no previous gifts/ inheritances received)

Taxable gift

€190,000

Taxable at 33%

€62,700

Therefore, when John gifts the property company to Paul, he will lose up to 13% of the value of the gift as he will have to pay €62,700 in gift tax. To fund for this tax, John could affect a Section 73 savings plan, which would pay out €62,700 in 8 years’ time. This is then used to clear Paul’s gift tax bill. If John had given Paul the €62,700 from his bank account, this would have increased Paul’s gift tax bill.

* If this plan is used to pay the relevant gift tax arising on the gift being made, gift tax will not be payable on the plan proceeds.

Frequently asked Questions WHO OWNS THE SECTION 73 SAVINGS PLAN? The person leaving the gift is the proposer / plan owner and owns the Section 73 savings plan.

WHO PAYS THE PREMIUM ON THE SECTION 73 SAVINGS PLAN? The person giving the gift must pay the premium on the plan.

CAN I USE AN EXISTING SAVINGS CONTRACT AS A SECTION 73 SAVINGS PLAN?

COULD THE PLAN BE USED TO PAY A NUMBER OF DIFFERENT GIFT TAX LIABILITIES OVER TIME?

No, an existing contract cannot be switched to a Section 73 plan. The plan must be specifically endorsed as a Section 73 contract at date of commencement.

If you die before the end of the minimum 8-year period, the cash value of the plan will not qualify for relief in the payment of either gift tax or inheritance tax. Indeed if the owner died after the 8 years, and had not used the funds to pay gift tax before death, the value of the plan would not be exempt from inheritance tax.

CAN BOTH SECTION 73 AND SECTION 72 RELIEF BE AVAILED OF UNDER THE ONE PLAN? For the proceeds of a policy to be eligible for both reliefs the contract would need to have both a life cover element AND a savings element. To qualify for relief from inheritance tax (section 72 relief) the plan must have life cover of at least 8 times the annual premium, and if the plan is ALSO to qualify for relief from gift tax (section 73 relief) there must be a unit linked savings element to the plan. So, if there is no savings element on a protection plan it will not qualify for relief from gift tax (section 73 relief). And if there is not the minimum amount of life cover on a savings plan it will not qualify for relief from inheritance tax (section 72 relief).

WHAT HAPPENS IF THERE IS AN EXCESS AMOUNT ON THE SECTION 73 PLAN? Any excess over the gift tax liability that is not used to pay gift tax remains with the plan owner as it is their money.

WILL EXIT TAX BE DEDUCTED ON THE SECTION 73 PLAN? Yes, it is still a normal savings plan. Exit tax will apply on certain chargeable events if there is any investment profit (gain) on the plan.

WHAT HAPPENS IF I DIE DURING THE LIFETIME OF THE SECTION 73 SAVINGS PLAN BEFORE THE GIFT IS MADE?

ARE THERE CERTAIN RESTRICTIONS TO THESE PLANS?

There are some revenue restrictions and requirements. If these rules are not satisfied for any reason, the plan will lose its exemption from gift tax and could actually increase the beneficiariesâ&#x20AC;&#x2122; liability.

CAN A JOINT LIFE PLAN BE TAKEN OUT?

MUST THE PLAN PROCEEDS BE USED TO PAY GIFT TAX?

In the case of a married couple, who have made Wills leaving everything to each other on first death, it would be better if a S73 savings plan was arranged on a joint life last survivor basis so that death within the first 8 years would not unintentionally end the plan before it had reached its eight anniversary and its ability to pay Gift Tax.

No. A savings plan, expressively effected under S73 CAT Act 2003, does not oblige the policyholder to make a gift or use the plan proceeds to pay Gift Tax at any time in the future. It is simply an option after 8 years, assuming annual premiums have been paid for at least 8 years.

Source: LIA Journal, July 2017; Irish Life Advisory Services.

Dr. Constantin Gurdgiev

ALICE IN THE WONDERLAND: THE EU BANKING REFORMS This August, the world marked the tenth anniversary of the Global Financial Crisis that entered its active phase on August 9th, 2007 when BNP Paribas ended clients’ withdrawals from three hedge funds it operated due to “a complete evaporation of liquidity”. Thirteen months later, on September 7th, 2008, two main ‘Federally mandated’ lenders, Freddie Mac and Fannie Mae, were nationalised, and eight days after that, the Lehman Brothers filed for bankruptcy. Just over two weeks after that, Ireland issued a blanket Guarantee of its banks. The crisis turned fully systemic, spreading contagion from the banks to the sovereigns to the real economies, spreading from the U.S. to all corners of the world and triggering the Great Recession. The rest, as some say, is history.

Over the subsequent years, the Fed, the Bank of England, the Bank of Japan and the European Central Bank (ECB), alongside other central banks, deployed rapidly escalating and increasingly unorthodox and costly measures attempting to shore up markets’ liquidity, and subsequently support the economy. The U.S. Treasury and other fiscal authorities around the world pushed into the markets to provide support for banks and financial intermediaries. Waves of nationalisations and resolutions of the banking, insurance, pensions and

investment undertakings swept across the advanced economies and spilled over into a number of key emerging markets. The painful process of deleveraging prompted political shifts and crises that still reverberate across Western electorates, as well as in Asia and Latin America. Debt transfers from banks to governments, subsidised by the Central Banks, have led to an unprecedented increase in the real economic indebtedness around the world, raising total global leverage of households, non-financial corporations and sovereigns from $149 trillion or 276% of global GDP in 2007 to $217 trillion or 327% of GDP at the end of 2Q 2017.

THE PROMISE HELD HIGH With all the emergency efforts in place, however, the policymakers around the world have held high the promise that as bad as the Global Financial Crisis might have been, the lessons from it will ensure that never again will the advanced economies create the conditions for another similar crisis to wreck devastation over the global financial system. And to provide concrete footing for this promise, the leaders

of the EU, the U.S. and other major advanced economies have promised to dramatically reform their banking sectors to make it more resilient to shocks and to remove the implicit guarantee of transfers from taxpayers to the failing banks. Ten years after the start of the crisis, they did not deliver on these promises. Plain and simple.

THE TEST CASE OF ITALY Consider the events of 2017 to-date. This June, two relatively small Italian banks had to be, once again, rescued using the taxpayers funds. The bailouts were not trivial, totalling commitments of up to €17 billion (US$19.3 billion). More significantly, the rescues raised the question as to whether the European Union’s Banking Union system can be made work in the case of the larger, systemically important institutions running into trouble. The Italian bailout of 2017 involved the country’s largest bank, Intesa Sanpaolo, taking over the good assets of its smaller rivals Banca Popolare di Vicenza and Veneto Banca for a nominal price of one Euro. The Italian taxpayers underwrote the task of covering the losses and the bad loans. The deal got an approval of the European Commission, a nod from the ECB and a handshake from the European Single Resolution Board (SRB) - all the institutions whose job, per European Banking Union (EBU) rules, was to ensure that taxpayers were not on the hook for bad banks’ debts. In other words, just as with the ECB’s QE, the rules were broken, yet the rules were met. European banking regulators and politicians have eaten the cake that they still insist they keep. Reminiscent of the Cypriot bailout of March 2013 (that took some 17 months to structure and execute), the Italian banks bailout was 15 months in the working - a clear sign that the Italian and European authorities were going to great lengths in putting the veneer of compliance with the EBU rules on a deal that, in the end, violated the very spirit of these rules. The reason for this length in structuring the deal is that the Italian and the EU policymakers were desperate to avoid bailing in the bondholders in the two banks. In other words, the reason for the delay in 2017 bailout was exactly the same as the reasons for delaying Spanish, Portuguese, Greek and Cypriot bailouts. This is the first “plus ça change” moment for the post-Crisis European banking reforms.

While the two banks were non-systemic in size, they had large numbers of retail investors - mom-and-pop holders of banks’ bonds involved. To cut back the risk of political unrest, the Italian government shifted some of the earlier losses in the two banks to the semi-private rescue fund, Atlante, created back in 2015. The fund absorbed some €3.5 billion worth of the two banks’ losses, but that was hardly sufficient. As the two banks continued to lose deposits, Italian and European authorities, by the late 2016, were left with no options to shore up the remaining depositors and to shield them from a bail in. The third “plus ça change” moment for the European Banking Union has arrived: although the European reforms provided for a joint depositor guarantee fund, the fund had no real money to underwrite two regional lenders, without exhausting cash earmarked for the too-big-to-fail systemically important institutions. In other words, the fund turned out to be a pure paper tiger in the face of a small crisis, raising questions as to its sufficiency in case of a systemic banking crisis in the future.

The rationale for avoiding a bail in of banks debt was also identical to the reasons put forward in not bailing in the Irish, Greek, Portuguese, Spanish and Cypriot bondholders: the concern that applying haircuts on senior bank debt will trigger a contagion across the Italian (and by corollary the European) banking system. This was the second “plus ça change” moment for the reforms, which were explicitly designed to prevent such contagion.

By the end of February this year, it was clear that the Italian authorities had no other option left than to pursue a “precautionary recapitalisation” of the two lenders. This procedure requires, under the new set of European rules, that shareholders take the first hit in covering capital shortfalls, followed by junior bondholders. If the capital cushion remains inadequate post-junior bondholders bail in, the new system allows for a simultaneous bailing in of senior bondholders and provision of taxpayers supports. The Italian authorities decided to deploy only the first step, of bailing in shareholders. Which proved insufficient not only in terms of covering future capital losses, but even in covering existent losses at the time.

Which marks the fourth “plus ça change” moment for the EU reforms: as in the case of all peripheral Euro area countries heading into their respective bailouts, the system of risk warnings have failed the public, the policymakers and the regulators. In not a single European bailout of 2008-2013 did the supervisory and regulatory authorities pro-actively spotted the developing risks. And the reforms post-crisis did not change this inherent, systemic incapacity to assess risks either. It is worth noting that SRB decision to declare Banca Popolare di Vicenza and Veneto Banca non-systemic was based on the lenders holding assets of €28 billion and €35 billion, respectively, at the time of the bailout. Alas, the main reason why the two banks fell below the SRB thresholds for designating a bank as systemically important was that the SRB delayed issuing its decision until the crisis hit banks have bled enough assets to slip under the SRB thresholds. Whether incompetence, or worse, intent were behind this outrun of events is the moot point. The SRB and SSM pillars of the Euro area banking reforms has failed once again. “Plus ça change” moment number five is that after reforming the system of banks supervision, the Euro area still ended up with a situation, where extend-and-pretend measures were deployed to superficially conceal the true nature of the two banks’ insolvency, imposing unnecessary delays in resolving the problem, and, as a result, amplifying losses to the taxpayers. This is exactly what has happened during the peak of the crisis in Ireland, Spain and Greece, as well as in Cyprus.

All along, the ECB’s new Single Supervisory Mechanism (SSM) - designed as a warning system for banks solvency risks and serving as a cornerstone of the banking sector reforms - insisted that the Italian banks were solvent. Only two days before the announcement of the final taxpayersfunded bailout in June this year did the SSM acknowledge that the banks are “failing or likely to fail”. In theory, the SSM was set up back in 2015 to explicitly put some distance between the banking regulators’ and supervisors’ risk assessments and the national governments. In practice it failed. A similar failure also involved the SRB which was also set up to remove national political leaders from meddling with the decisions involved in shutting down insolvent banks. It took SRB until a day before the official banks rescue to declare the two Italian lenders to be ‘non-systemic’, de facto washing SRB’s hands of any responsibility for restructuring them.

SYSTEMIC FARCE In other words, within the 15 months span through to June 2017, all and every part of the European banking reforms package designed to create a structured system for resolving banking failures, have been found inadequate in the case of just two regional lenders. The end result of this farce was that Italian taxpayers were left on the hook, while senior banks bondholders were left whole and happy. The rules were circumvented, bent, but de sure, not broken. De facto, however, the whole policy infrastructure for addressing the banks’ insolvency was exposed as a fake facade, hiding the same old rotten building as the one that existed in the pre-2008 world. Adding insult to the already grave injury, the Italian deal used taxpayers money to directly subsidise Intesa Sanpaolo - the bank that took over performing assets from the regional banks. Inset got allots € 4.8 billion in cash for capital and operating expenses, plus €400 million in loans guarantees. In exchange for these monies, the Italian Government did not even get a single share in Intesa. Paraphrasing the old Dire Straits song, the new EU banks resolution infrastructure turned out to be “Money for nothin’ and assets for free” for Intesa.

INVESTORS WARNED In fairness to the SRB and the European Banking Union other key players, the reforms process worked differently in the earlier test of the system, involving Spain’s Banco Popular that was wound down earlier in June this year. In that deal, the ECB was quick in declaring Banco Popular as being troubled, or, in terminology of ECB “failing or likely to fail”. The SRB promptly took control, wiping out Banco Popular’s shareholders and haircutting junior bondholders before another Spanish bank, Santander, was asked to raise its own funds to finance the buyout of Popular’s assets. However, despite the accolades from the analysts and politicians, the Banco Popular’s winding down was a superficially easy test of the system, as it required no haircuts of senior bondholders and Santander faced no difficulty raising own finance. This is not what the resolution mechanism was designed to test.

Bank of England warned at the end of June that the U.K. financial system is heading in a worrying direction and that banks are “forgetting the lessons” of the financial crisis. Last year, the IMF warned that the Euro area continues to experience “market pressures” within the banking sector. The Fund estimated the some €900 billion of non-performing loans remain on the books of Eurozone lenders. In July 2017, the IMF issued a warning to the world’s 20 largest economies, the G20, stating that the current markets conditions present growing risks to global growth, and that financial systems vulnerabilities “present an immediate concern”. In June this year, Bank for International Settlements defined four non-political risks that are underpinning rising threat of a new economic crisis. Risks number two and three: financial stress as financial cycle matures across the advanced economies, and global debt levels continued upward trend.

Instead, the Banking Union infrastructure was developed explicitly to handle tough cases, like the Italian banking system that still holds €300 billion worth of bad assets, based on Banca d’Italia estimates, of which roughly €170 billion are officially non-performing. To-date, resolution of Banca Monte dei Paschi di Siena (BMPS), and Popolare di Vicenza and Veneto Banca, have cut only about €49 billion of rotten assets from the system. In the case of the BMPS, the end cost to the taxpayers of recapitalisation was in the region of €5.4 billion. The gross cost to the taxpayers of resolving less than €50 billion of defaulting assets has been around €23 billion, counting direct bailouts, plus costs. If the trend continues, Italian taxpayers can be looking at writing more cheques in years ahead.

In this environment, Irish banks are sitting ducks for risk and uncertainty associated with the fortunes of the international financial system. While the banking sector in Ireland has undergone significant deleveraging, profit margins across sector remain relatively weak, despite the banks pumping out some of the highest cost lending in the Euro area. And bad loans remain a stubborn legacy of the crisis, placing the Irish banking sector as the third worst in the Euro area by this metric some nine years after the crisis peak, behind only Greece and Cyprus. Deleveraging across the domestic Irish lenders since 2013 has cut non-performing loans loads from an average of 27 percent to just over 14.2 percent as at the end of 2016, and to an estimated 13 percent at the end of 1H 2017. However, this figure remains more than double the 5.3 percent Euro area average. Meanwhile, recent rights issuances and significant Contingent Convertible bonds placements by the Irish banks, in all likelihood, have nearly exhausted the room for near-future market funding through these sources. This means that Irish banks are still walking on thin ice and any exogenous shock can trigger a new wave of contagion into Irish financial system. Given the latest track record of the European Banking Union reforms, such a shock will most likely lead to a re-nationalisation of at least the weaker Irish lenders.

From the Irish investors perspective, the de facto failure of the European banking reforms implies higher risk over the longer term horizon. Research from the Bank for International Settlements shows clearly that the financial crises are becoming both more frequent and more severe. Last month, the ex-Chairman of the U.S. Fed, Alan Greenspan warned that the current conditions in the bonds markets the bread-and-butter of the banks’ capital reserves - can be characterised as an ‘‘irrational exuberance’’ type moment.

Dr Constantin Gurdgiev is the Adjunct Assistant Professor of Finance with Trinity College, Dublin and serves as a co-founder and a Director of the Irish Mortgage Holders Organisation Ltd and the Chairman of Ireland Russia Business Association. He holds a non-executive appointment on the Investment Committee of Heniz Global Asset Management, LLC (US). In the past, Dr Constantin Gurdgiev served as the Head of Research with St Columbanus AG (Switzerland), the Head of Macroeconomics with the Institute for Business Value, IBM, Director of Research with NCB Stockbrokers Ltd and Group Editor and Director of Business and Finance Publications. He also held a non-executive appointment on the Investment Committee of GoldCore Ltd (Ireland) and Sierra Nevada College (US). Born in Moscow, Russian, Dr. Gurdgiev was educated in the University of California, Los Angeles, University of Chicago, John Hopkins University and Trinity College, Dublin.

10 REASONS WHY PENSIONS STILL MAKE SENSE Sarah Keane BAAF, FCA, CTA, QFA - DIRECTOR - DLS CAPITAL MANAGEMENT

WHAT WILL THE STATE PENSION BE IN THE FUTURE?

STATE PENSION AGE INCREASING

Legislation is now in place that will increase the age at which the state pension becomes payable in the future.

The State Pension (Contributory) personal rate for a single person is currently €238.30 per week, or €451.80 per week with an adult dependant allowance. • Demographic changes in Ireland, as in countries across the EU, will put pressure on government finances as the cost of state pensions and health care for the elderly increase. Currently in Ireland there are 6 adults of working age for every one adult over 65, but this ratio is predicted to change to 2 to 1 by 2050. (Source: National Pensions Framework 2010).

Date

Change

1 January 2021

State Pension (Contributory) age increases to 67

1 January 2028

State Pension (Contributory) age increases to 68

• Steps taken in the past to plan for this demographic change can no longer be relied upon. The National Pensions Reserve Fund was established to help meet costs of social welfare and public service pensions from 2025, but is now being used to make investments in credit institutions and Irish Government securities as directed by the Minister for Finance.

LIFE EXPECTANCY

Life expectancy for those born in Ireland is now 78 years for males and 83 for females (Source: OECD). While increasing life expectancy is a good thing, it is also something your need to consider when planning for retirement. If your client’s retirement fund is to last longer your will either need to set aside more, or take a lower income each year in retirement.

Simply put, you cannot be sure the State will provide you in your old age with the same level of pension income, medical card support or other benefits as are provided currently.

Your retirement savings may need to last for up to 30 years after your finish working.

INCOME TAX RELIEF

Income tax relief is still available on contributions made personally to a pension, 40% of the contribution for a top rate tax payer, or 20% for a standard rate tax payer. For a higher rate tax payer, this is equivalent to the government topping up your net pension contribution by up to 67%!

Income Tax Rate

Pension Contribution Net of Income Tax Relief

Gross Pension Contribution

The same income tax relief that applies on pension contributions is also available for Pension Life Cover, which means cheaper life cover. For example, a 40 year old self-employed person non-smoker taking out €250,000 of life cover to age 65 with indexation and conversion option could choose between a life term cover plan and personal pension life cover.

Increase from net cost to gross contribution

40%

€6,000

€10,000

66.67%

20%

€8,000

€10,000

25%

In addition to income tax relief on any personal contributions, employer contributions to a Company Pension are also tax deductible and no benefit in kind is appropriated to the employee. No BIK means, no income tax, no PRSI & no USC – potentially around 50%. Pension income in retirement is subject to income tax at your highest rate on withdrawal, Universal Social Charge, PRSI (if applicable) and any other charges or levies (“tax”) applicable at that time. The tax rates used are current as at September 2017. Tax relief is not guaranteed. To be eligible to claim relief, your income must be taxable either Schedule E or Schedule D (case I or II). To claim tax relief, your client can apply to their Inspector of Taxes to adjust their tax credits. Contributions deducted from salary will receive immediate tax relief. Any employer contributions will receive tax relief in the year the contribution is made and are deductible by them as a business expense for Corporation Tax purposes.

LIFECOVER

Cover Required

Gross Cost (including govt. levy)

Net Cost after Net Cost after income tax income tax relief at 40% relief at 20%

Life Term Cover

€250,000

€30 approx

€30

Pension Life Cover

€250,000

€30 approx

€18

€24

The tax treatment of a lump sum paid out on death is the same for life term cover and pension life cover. In each case the lump sum is subject to inheritance tax, and there is no tax if the lump sum is going to a spouse or registered civil partner.

TAX FREE RETIREMENT LUMP SUM

ARF OPTIONS

The ARF option has been extended to all members of Defined Contribution company pensions. This means that the ARF option is now available on:

• • • • • •

Tax free retirement lump sums are available when taking retirement benefits. You can take 25% of your pension fund as a retirement lump sum or with a company pension you can instead choose to take a retirement lump sum of up to one and-a- half times your final salary, depending on the length of time employed. The maximum total tax-free amount is €200,000. A retirement lump sum of between €200,000 and €500,000 is subject to standard-rate income tax, currently 20%. Where total retirement lump sums are greater than €500,000 these will be taxed as income at marginal rate, plus USC.

Members and directors in DC Company Pensions AVCs for those in DB Company Pensions 5% directors in DB Company Pensions Personal Pensions Personal Retirement Savings Plan (PRSAs) Personal Retirement Bonds (PRBs)

Individuals need to consider their options carefully on retirement, and will need advice more than ever in this area. However, the ARF option gives what many individuals want in terms of:

• control over income drawdown • control over investment options

Warning: If you invest in this product you will not have access to your money until age 60 and/or you retire.

INHERITANCE PLANNING Pre-Retirement

Exit Tax on savings and investment plans is 41%. DIRT is 39%. Capital Gains Tax is 33%, with an annual exemption of €1,270. (rates as at 2017).

The tax treatment of pension funds on death can result in a tax efficient way of inheritance planning. A summary of the tax treatment of lump sums paid on death is set out in the table below. Personal Pension / PRSA / Company Pension / Personal Retirement Bond (PRB) inherited by

Income Tax

Capital Acquisitions Tax (CAT)

Surviving spouse or registered civil partner

No income tax due

Child (any age)

No income tax due

Yes. Normal CAT thresholds apply

Other

No income tax due

Yes. Normal CAT thresholds apply

Pension funds are exempt from Irish income and capital gains taxes (however pension income in retirement is subject to income tax at your highest rate on withdrawal, Universal Social Charge, PRSI (if applicable) and any other charges or levies (“tax”) applicable at that time). Warning: If you invest in this product you may lose some or all of the money you invest.

INVESTMENT FOR ALL

For children the inheritance tax threshold is €310,000 per child, including any other gifts and inheritance received from parents since 1991.

Pensions allow for a wide range of investment options to suit the risk appetite of every client. This includes investments in equities, bonds, property, commodities, but also deposits, trackers and other secure options. Different currencies such as Euro, Sterling or Dollar are also available.

Post-Retirement ARFs, Approved Minimum Retirement Funds (AMRFs), vested PRSAs and vested Retirement Annuity Contracts** (RAC) are all treated the same on death. A summary of the tax treatment is set out in the table below. ARF / AMRF / vested-PRSA / vested RAC inherited by

Income Tax

Surviving spouse or registered civil partner

No tax due on the transfer to an ARF in the spouse’s name. Subsequent withdrawals are taxed as income

Child (under 21)

No tax due

Yes. Normal CAT thresholds apply

Child (21 or older)

Yes – Due at standard rate *

Yes – Due at the marginal tax rate of the deceased

Yes. Normal CAT thresholds apply. No CAT due between spouses or civil partners

Other (Including transfer directly to spouse without going to ARF for surviving spouse)

GROSS ROLL-UP

Warning:

Capital Acquisitions Tax (CAT)

- Pension products may be affected by changes in currency exchange rates. - The value of your investment may go down as well as up.

FOR MORE INFORMATION ON PENSIONS, PLEASE CONTACT DLS CAPITAL MANAGEMENT

www.dlscm.ie info@dlscm.ie 25 Merrion Square Dublin 2

Treatment on death of surviving spouse ARF

(p) 01 6119086

Child (under 21)

No income tax due

Yes. Normal CAT thresholds apply

Child (21 or older)

Yes due at 30%

Other

Yes due at 30%

Yes. Normal CAT thresholds apply

( f ) 01 6619180

DLS Capital Management is regulated by the Central Bank of Ireland

* Amounts passing to a child over 21 are subject to income tax at the 30% standard rate.

diseases; and I- FORM will enhance processing efficiency for Irish manufacturing, allowing the production of highly customised 3D printed components. The four SFI research centres will engage in more than 80 collaborations with industry partners both at home and abroad. Announcing the new centres, Taoiseach Leo Varadkar said the investment would help create jobs and drive economic growth and the SFI research centres represent a shared vision and collaboration between government, industry and higher education. Director General of SFI and the Government’s Chief Scientific Adviser, Prof Mark Ferguson, said last year Ireland was ranked 10th for the overall quality of scientific research carried out here and that research centres had been central to this success. He commented that research and innovation matter for our future - in enhancing productivity, boosting competitiveness and tackling modern societal challenges together with ‘building a digitally-smart, low carbon, energy efficient, circular economy that offers well-paid, rewarding work and brings a good quality of life for all’.

FOUR NEW WORLD-CLASS RESEARCH CENTRES OPENED Four new world-class research centres are to be opened in Ireland as part of a multi-million Euro investment. The Science Foundation Ireland (SFI) centres, which will be focused on the areas of smart manufacturing, neurotherapeutics, bioeconomy, and 3D printing, will receive €74m in government funding and €40m from their respective industries over the next six years. In total, the four centres will directly support some 650 highly skilled researchers. The investment will support cuttingedge basic and applied research, with strong industry engagement, driving economic benefits and positive societal impact. The four research centres will focus on the following: CONFIRM aims to transform Ireland’s manufacturing industry to become a world-leader in smart manufacturing; BEACON will develop alternative technologies based on renewable biological resources; FutureNeuro is looking for treatments for chronic and rare neurological

IRISH MANUFACTURING INDUSTRY HITS A 2 YEAR HIGH IN AUGUST

Business surveys have been similarly supportive and the Investec Purchasing Managers’ index rose to 56.1 in August from 54.6 a month earlier, reaching the highest level since July 2015, well above the 50 mark separating growth from contraction. While Ireland is particularly vulnerable to Brexit due to its close trading links with Britain, manufacturers are proving increasingly resilient to any early impact with the subindex measuring new export orders rising to 55.6 from 54.6 in July. Export orders contracted for the first time in three years ahead of last year’s Brexit referendum but the sector has recovered and grown strongly all year.

A recent survey has revealed that, Irish manufacturing sector growth hit a two-year high in August as firms’ expansion into more markets and securing of new business added to signs that the booming economy is showing few signs of slowing down. Ireland has had the best performing economy in the European Union since 2014 and economists say continued jobs, wage and consumption growth back up Government forecasts for a further 4.3% expansion in Gross Domestic Product this year.

FOUR-FIFTHS OF MILLENNIALS WOULD MOVE ABROAD TO BOOST JOB PROSPECTS

Only 16% of millennials surveyed across 186 countries said they are willing to sacrifice career and salary to enjoy life. Similar results were found in an Irish-specific survey recently carried out by LinkedIn, with 6 out of 10 people saying they were interested in changing jobs, primarily because of pay. Providing their views on technology, almost 8 in 10 young people surveyed by the WEF believe technology will create jobs rather than destroy them. When asked to name the next big technology trend, 28% of survey respondents said that artificial intelligence will make the most significant impact, while education is seen as the sector that is most likely to benefit from the adoption of new technologies. However, despite positive views on technology, only 3.1% strongly agreed that they would trust robots to make decisions on their behalf.

More than 80% of young people globally would move overseas to advance their careers - with the US, Canada, the UK, Germany and Australia the most desirable countries to move to for job opportunities. The Global Shapers Annual Survey of 25,000 people under the age of 35, carried out by the World Economic Forum, also found that salary came top as the most important criteria when considering job opportunities, followed by a sense of purpose and career advancement.

WEST CORK-BASED GLOBAL SHARES IS TO CREATE 80 NEW JOBS

During this time the company has signed contracts with 6 FTSE 100 companies and the company’s client listing includes GSK, Skanska, Sage, Irish Life, Legal & General, Generali and others. The latest recruitment drive will grow the Global Shares team to a total of 228 staff members across the company’s 10 offices in Clonakilty, Cork City, Dublin, London, Edinburgh, Portugal, Germany, New Jersey, California and Hong Kong. Tim Houstoun, CEO of Global Shares, hailed the jobs announcement as significant in that the company exceeded their 3 year expansion target which was set in 2015. Some of the new positions are supported by the Department of Jobs, Enterprise and Innovation through Enterprise Ireland, and Martin Corkery, regional director, South and South East, Enterprise Ireland described Global Shares as ‘‘a great example of an Irish Fintech business with global ambition’’.

West Cork-based Global Shares is to create 80 new jobs, bringing its total global employee base to 228. The roles are across a number of areas of the business including IT, finance, multi-lingual share plan analysts, and trading and legal. The company, which provides share plan administration software, share-dealing, global custody and financial reporting tools, said that recruitment will begin immediately, with all roles to be filled over the next two years. The majority of the roles will be based in Ireland, primarily at the Global Shares headquarters in Clonakilty Co Cork. Founded in 2005, Global Shares has in the past two years seen its client base grow from 150 to 250 clients based in 25 countries, with participants in over 100 countries globally.

CONSUMER SPEND IN RESTAURANTS AND BARS INCREASES 9.1%

Andrew Harker, a senior economist at IHS Markit, said that face to face spending has moved closer to stabilisation highlighting that hopefully the high street can start to contribute to growth again in the near future. E- commerce spending rose for the third month in a row, with expenditure rising by 8.9% compared to the same month last year. According to Visa, “this trend underlines the growth in popularity of online shopping among Irish shoppers”. Research released recently by the European Commission showed that the strongest growth in the number of online shoppers across the EU last year was in Ireland. At least 59% of the Irish population made an online purchase in 2016. One sector which saw a spending reduction was health and education, where spending dropped 2.8% . However, this is believed to be a seasonal decline. Mr Harker commented that that Visa Irish Consumer Spending Index demonstrates further evidence of ‘building growth momentum in household spending following a soft-patch earlier in 2017’ with encouraging signs from categories that had been struggling previously. Consumer confidence is increasing again and this results in increased consumer spending, according to Philip Koponik.

Hotels, restaurants and bars have posted the fastest increase in consumer spending, seeing growth of 9.1% year-on-year. Philip Konopik, Visa Ireland country manager, said the growth was down to increased spending on the “experience economy rather than on things”. According to Visa’s Irish Consumer Spending Index, while spending remains modest, the rate of expansion has accelerated over three consecutive months. Face-to-face expenditure during the same period continued to drop, however, the pace of the fall is the slowest so far this year at -0.5%. Mr Konopik noted that this was a reflection of consumer behaviour, as a result of there being more options available, consumers are changing their habits. He commented that there is huge diversity across Europe of how people choose to pay for goods. For example, UK consumers would spend more on eCommerce as a result of the better availability of services like online grocery shopping.

HAPPY BUT EXHAUSTED:

According to a recent survey of American office workers, they are mostly happy, but also tired. It sounds like an oxymoron. Is it even possible to feel such conflict, and how can it be resolved? The answer probably lies in the fact that most people enjoy their work, and appreciate the opportunity to use their strengths. However, in many workplaces, it is difficult for people to maintain a healthy work/life balance, avoid stress, and in many cases say ‘no’ when their workload is too heavy. Unless people find a solution to this challenge, they may develop fatigue and other issues.

REVERSING WORKER BURNOUT for

Employers can use the four tips below to devise solutions to employees spending too much time working.

MANAGE EXCESSIVE DEMANDS ON TIME

Assess the time workers spend on completing their tasks, and discourage them from feeling compelled to remain plugged in 24/7. Workers will be more effective and productive if they have time to recharge away from office pressures. Encourage sufficient overlapping of responsibilities and teamwork to enable someone to handle gaps and emergencies without pressuring everyone to constantly be available.

ENCOURAGE AUTONOMY AND FLEXIBILITY

Many surveys on remote working and flexi hours have illustrated the benefits of allowing workers to choose their workplaces and work hours. Telecommuting workers, for example, have the advantage of adjusting their time and workplace in order to avoid conflicts with family life and other responsibilities. By providing this option, within reason, of course, you show a willingness for constructing their working arrangements around their family and other non-work demands, which fosters appreciation and loyalty. In turn, you create happy, relaxed and productive employees.

DON’T WASTE EMPLOYEES’ TIME

Research shows that meetings are one of the leading causes of time wasted at work. Ensure that all meetings have thoughtout agendas, and that they end with clear action steps. If you have to have meetings, consider doing so electronically to reduce wasted time and travel. Also work actively to reduce email overload.

PROVIDE OPPORTUNITIES TO RECHARGE

Encourage employees to take a break throughout the day. Major tech companies provide amenities which allow employees to take a time out, whether it is a nap, a round of table tennis, or just a place to get out of the office for a moment. A break provides a good opportunity to enhance creativity and increase physical energy.

THE CHANGING WORLD OF BANKING:

What does the future hold? A Permanent TSB spokesperson also said that the bank noticed that mobile usage has outgrown desktop electronic banking. The number of customers using the bank’s mobile app for day-to-day transactions continues to grow.

As we make the switch from online banking to mobile apps, how will the banking landscape respond?

This trend places considerable pressure on banks to remain competitive and current in the field of digital banking in order to appeal to the modern consumer as other digital financial services continue to shake up the market.

Few people can remember the last time they went to a physical branch of their bank. However, most of us handle our day-today banking on the go, using a mobile phone app.

N26 is one such ‘digital-only’ challenge. The company was awarded a European banking licence in 2016 and has already secured 10, 000 current account holders in Ireland alone. Head of International markets at the Berlin-based fintech company, Alex Weber, says that Ireland is one of their fastest growing international markets. He believes that the success of N26 in Ireland is driven by the fact that the Irish people are receptive to new, innovative technology. Also, since Ireland’s traditional banking landscape was - until recently - dominated by a few companies, clients are ready to welcome new players such as N26 with open arms.

In recent years, the banking landscape has evolved significantly. From physical banking, we have celebrated Internet banking, and these days, our bulky desktops have to make space for a more mobile solution - mobile phone apps. Both Bank of Ireland and AIB have seen mobile apps overtake their online banking option on the desktop as the main channel through which clients prefer to handle their finances. According to an AIB spokesperson, this migration is common across all banks. Permanent TSB, Ulster Bank and KBC agree with the sentiments of AIB and Bank of Ireland. According to KBC, the first quarter of 2017 saw 60% of current accounts opened using digital channels. There’s no question that customers are increasingly opting for mobile technology.

Competition from new players is changing the banking landscape and driving innovation to continue delivering new tools and services to the modern consumer.

Apple Pay was recently launched in Ireland, led by Ulster Bank and KBC. However, not all changes are quite as big. Most banks tend to focus on incremental changes and on making improvements to the user experience.

New Banking Innovations

Improvements to AIB’s app including Touch ID, a new fingerprint identification tool for iOS users. They also added the option for customers to open a savings account via the AIB app. Touch ID was also included in Ulster Bank’s app, along with a feature that helps app users to find their nearest ATM. The Get Cash facility allows users to withdraw money even without a debit card. By using a text or email directly from the app, users can share their IBAN and other account details. KBC’s customers have been quick to adopt the app feature that allows them to open a current account using their phones. All documentation can be photographed and uploaded using a tablet or phone, which speeds up the application process, but most importantly, it digitises the entire process. Bank of Ireland made upgrades to their app last year, and it is still ongoing. Much thought and effort is going into securing the app and delivering a smooth process for financial transactions and financial well being. Security is also a huge priority for Permanent TSB. A spokesperson said that customer feedback indicates that security is very important to their customers. As such, security is always an integral part of everything the bank develops. Clients want to know that their mobile transactions are secure. As such, the bank has assessed a variety of options, including biometric authentication, such as facial and voice recognition and fingerprint authentication to help improve the security of their apps.

The Banking and Payments Federation of Ireland (BPFI) foresees many more significant changes in the banking landscape. A digital transformation is evident as more consumer facing technologies appear across the banking sector, and we’ve only seen the start of it.

Keeping Up With a Changing Market

Regulators, on the other hand, are facing a number of challenges as a result of the changing face of digital banking. The Central Bank, in its Consumer Protection Outlook for 2017, indicated that they would focus on the impact of technology on its consumers. Due to the impact that technology driven innovation has on the way in which services and products are delivered, the Central Bank must consider emerging risks and the way in which their current consumer protection framework can eliminate those issues. The Central Bank is expected to publish a discussion paper and accompanying consultation paper on the matter in the coming months.

Keeping up with technological innovation and a shifting market is costly for banks. Bank of Ireland recently commenced a multi-year investment programme which would see the replacement of its core banking platforms, as well as upgrades to its payment applications. Permanent TSB appointed a chief technology officer for the first time, ahead of its major digital transformation project. KBC established an innovation hub, to drive it’s digital strategy.

Will We See Collaboration?

The need for innovation is driven by customer expectations, whereby modern consumers expect to receive the same level of innovation from their banks that they have become accustomed to from other service providers. Customer expectations for end-to-end user experiences are shaped by companies such as Amazon, Uber and Airbnb. Customers expect the same level of digital experience from their banks. Banks are left with the pressing decision about whether they should go it alone, or collaborate with fintech companies when it comes to the development of their technology. According to BPFI, this is a question of collaboration versus competition. Banks and fintechs pointed to collaboration as a means to harness new technology at a BPFI conference earlier this year. Contributors felt that collaboration would benefit both customers and banks, as it would build trust amongst consumers. AIB has a dedicated fintec department which works with identified fintech companies on the bank’s digital products function to enhance their value proposition to consumers. Their flagship projects include user experience enhancements, improvements to mobile security and providing online messaging. Permanent TSB also values the role of partnerships with fintech companies, and will be expanding their own engagements. Ulster Bank’s innovation solutions team is based in Dogpatch Labs in Dublin. Dogpatch Labs is a co-working space frequented by tech start-ups. Here, the bank works closely with the fintech community, focusing on ways in which the innovation can be harnessed for their customers.

AIB has over 1.2 million active digital customers, of which 650,000 use mobile banking. The number increased by 23% on last year, making mobile AIB’s most active channel.

Mobile Banking By Numbers

Three in every four Bank of Ireland customers are digitally active. Eight million of these customers interact on the mobile app every month. The bank’s mobile app has seen a yearon-year increase of 35% from last year to this year of active customers using the mobile app. At KBC, digital banking has increased by 83% among consumers, in the period January to March 2017, compared to the same period in 2016. The number of clients opening an account online has also increased by 37% in the same time frame. About two-thirds of Permanent TSB customers actively use their mobile banking app, and the number continues to grow. After the release of their new app at the end of last year, mobile usage has outgrown desktop. Mobile is clearly their clients’ first choice. Ulster Bank has seen a 22% increase in active mobile app users. In 2016, 62% of the bank’s customer interactions were digital, and 10% in branches.

GOOD REASONS TO ENCOURAGE SELF-CONTROL AMONG EMPLOYEES Self-control has been a focus of many studies for centuries. It has been debated by the early psychologists and philosophers alike. Freud believed that self-control n times by Tim Ferris, author of the 4-Hour Work Week. Plato’s perception was that the human experience was a constant struggle between rationality and desire. In order to achieve our ideal form, we have to exercise self-control.

MAINTAINING SELF-CONTROL IN THE WORKPLACE

In his work, Aleph, Paulo Coelho wrote, ‘‘If you conquer yourself, then you conquer the world.’’

Personal Change, where he wrote ‘‘The ability to subordinate an impulse to a value is the essence of the proactive person.’’

Self-control is an important key to cultivating an ethical and eﬀective workplace. Research has shown three powerful factors that may help eﬀective leaders to increase the self-control of their employees.

Recent studies revealed that people with high levels of selfcontrol tend to: • • • •

make healthier food choices; perform better at school; build higher-quality friendships; be better leaders at work.

However, lack of self-control in the workplace has dire consequences, according to a recent study. Let’s look at what the study revealed about people with low levels of self-control.

1. Encourage good sleeping habits Sleep restores self-control. Employees who experienced fewer sleep interruptions were found to be able to exercise self-control better than those who are sleep deprived. Long work hours can have a negative impact on the behaviour of employees.

ANTI-SOCIAL BEHAVIOUR Poor self-control causes employees to sweep work problems under the rug and to resist helping other employees. Employees who lack self-control tend to avoid engaging in corporate volunteerism.

2. Tap into displayed emotions

DEVIANT / UNETHICAL BEHAVIOUR

Instead of focusing only on service with a smile, which only pleases customers for a short while, companies should instead teach employees to tap into the emotions of their

Professionals with low self control resources tend to be fraudulent or unethical behaviours.

took on the perspective of their patients, and experienced genuine empathy. As a result, the physicians experienced higher levels of self-control and lower levels of burnout.

POOR PERFORMANCE Employees who have below-average levels of self-control

3. Create the right environment

They choose to spend less time conquering more complicated tasks, and generally perform worse than peers with high levels of self-control.

conduct in clear view, there is much you can do to help prevent negative behaviours associated with employees’ lack of selfcontrol. The right environment will help avoid the temptation to behave unethically.

NEGATIVE LEADERSHIP STYLES counterproductive leadership actions, such as verbal abuse.

Dervilla Whelan

Sarah Keane

(BBS, CTA) Managing Director

(BAAF, FCA, CTA, QFA) Director

Dervilla Whelan is the Managing Director of DLS Capital Management Ltd and also one of the founding members of DLS Partners. She was previously a taxation partner in Baker Tilly O’Hare (now part of Baker Tilly Ryan Glennon) and is a graduate of Trinity College, Dublin and the Institute of Taxation in Ireland. Her key skills include advising clients on all aspects of their financial affairs, including advising on the appropriate structures required for all types of investments and pensions. Dervilla is heavily involved in the Family Office service for our high net worth clients. Dervilla’s involvement with both DLS Capital Management Ltd. and the tax practice, DLS Partners, ensures that her clients benefit from a holistic approach to all of their financial affairs

Sarah Keane is a graduate of Dublin City University in Accounting and Finance and a Fellow of the Association of Chartered Accountants (FCA). She is also a member of the Institute of Taxation in Ireland (CTA), and the Professional Association for Financial Services in Ireland (QFA). Her key skills include advising clients on all aspects of financial planning, including retirement planning strategies, taxation and investment advice. Sarah is highly experienced in the preparation of investment financing strategies for individuals and companies. Sarah is also heavily involved in the Family Office service for our high net worth clients.

Graham O’Neill

Stephen Cahill

Graham is an investment researcher of international note and has been working in this area for over 20 years. He began his career in the stock broking industry before becoming an institutional fund manager where he practiced both in Ireland and the UK where he worked in senior roles with a number of institutions including Royal Life holdings, Guardian Royal Exchange and Abbey Life. Throughout his career, he has managed multi-million Euro funds and developed innovative investment fund concepts. Seeing the need for non biased, critical analysis of the investment industry, Graham began work as an independent investment researcher in 1992 and since then, principally, he has provided services to financial institutions. Graham is also a director of RSM Group, a leading UK investment research company.

Stephen Cahill is the Tax Manager at our Tax Practice, DLS Partners. He graduated from DIT and is a member of both the Association of Chartered Certified Accountants (ACCA) and the Irish Tax Institute. Stephen is responsible for all areas of Tax, including, VAT, PAYE, Income Tax, CGT and Corporation Tax. He also is involved in the preparation of Financial Accounts for sole traders and limited companies and assists in the preparation and review of monthly management accounts for larger corporations.

Independent Consultant

(BSc (Marketing), ACCA, CTA) Tax Manager DLS Partners

RANGE OF SERVICES RETIREMENT PLANNING

FINANCIAL PLANNING

•• •• •• ••

•• Financial Planning is central to our

Tax-effective funding for retirement. Income Planning for your retirement Personal Fund Threshold calculations Protecting the underlying value of your pension fund throughout retirement •• Advice on the most tax effective drawn down of your pension vehicles •• Taking transfers from Defined benefit Pension Schemes

PENSION STRUCTURE ADVICE •• Personal pensions •• Self Invested Personal Pensions •• Company/Executive pensions

- Defined Benefit Schemes - Defined Contribution Schemes •• Small Self Administered Schemes •• Personal Retirement Saving Accounts (PRSA’s) •• AVC’s

service offering

•• We compile fact finds based on client’s

personal and financial details •• We produce a Financial Plan for each client, showing their current financial position and their future financial objectives. •• The Financial Plan will encompass all areas of a client’s financial position, e.g. investments, borrowings, protection policies and pension policies •• Financial Plans are reviewed on an annual basis, taking into account any changes in a client’s personal and/or financial circumstances.

FAMILY OFFICE SERVICE •• Preparation of Quarterly Net Worth Statements

•• Preparation of a comprehensive

INVESTMENT ADVICE •• •• •• •• •• •• ••

Managed Funds Exchange Traded Funds Unit Trusts Investment Trusts Tracker Bonds Deposits Employment and Investment Incentive Schemes (EIIS) •• Structured Products •• Qualified Investment Funds (QIF) •• Renewable Energy Investments

•• •• •• ••

database which contains all information on Assets and Liabilities, thus facilitating instant access to information Centralisation of costs on all Personal & Investment Properties Appraisal of Investment Opportunities Monitoring of Investments Attend meetings relating to Investments on behalf of clients

DLS Capital Management 25 Merrion Square Dublin 2

www.dlscm.ie info@dlscm.ie

DLS Capital Management is regulated by the Central Bank of Ireland

(p) 01 6119086 ( f ) 01 6619180