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GAZETTE
Retirement Planning -
It's Never Too Early to Start!
by Harry Cassidy
Ma ny self emp l oy ed people wait
until it is t oo late to start t h i n k i ng
a b o ut retirement a nd their likely
pension requirements. Do you fall
into this category?
Wi th increasing u n c e r t a i n ty
s u r r o u n d i ng f u t u re taxation
provisions a n d the reduction of
allowances a n d reliefs, o n e of t he
mo st attractive tax b r e a ks available
to self-employed professionals is in
the area of p e n s i on c o n t r i b u t i o n s.
Un d er current legislation, all
c o n t r i b u t i o ns to a u t h o r i s ed p e n s i on
plans are fully deductible against
i n c ome tax at the t op rate. Th is is
subject to an overall limit of 15% on
net relevant e a r n i ngs per a n n u m.
T h e d e a d l i ne for c o n t r i b u t i o ns to
achieve full tax relief, however, is 31
J a n u a ry following the year of
assessment. To avail of tax relief for
the year of assessment 1991/92, the
d e a d l i ne for c o n t r i b u t i o ns
is only six
weeks away, namely 31 January,
1993.
While this brief article does not
allow time to outline the detailed tax
c omp u t a t i o ns of p e n s i on
c o n t r i b u t i o n s, I wo u ld like to bring
to your a t t e n t i on o ne of the mo st
attractive a nd beneficial p l a ns
available at present, namely, the Law
Society Retirement An n u i ty P l a n.
T h e b e n e f i ts of this u n i q ue P l an are
not c o n f i n ed to the tax a d v a n t a g es
outlined above b ut include specific
cost a n d structural features.
Retirement Annuity Plan
T h e I n c o r p o r a t ed Law Society
established a Retirement An n u i ty
P l an in 1975 to provide its memb e rs
w h o are self emp l oy ed or in n o n-
p e n s i o n a b le emp l o yme nt with the
o p p o r t u n i ty to provide for their
retirement d u r i ng their wo r k i ng life.
T h e n umb e rs involved in this P l an
have been increasing a n n u a l ly
a l t h o u gh the current memb e r s h ip of
450 still represents quite a small
percentage of qu a l i f i ed solicitors in
the country.
Main Advantages
A key feature of the Plan is its very
low entry costs thus providing key
benefits to young solicitors in the
early years. T he initial a nd ongoing
charges of the Retirement Annuity
Plan are also lower t h an those of any
other life assurance scheme available
at present. T he initial entry charge is
only 2 . 5% of each sum invested a nd
the ongo i ng ma n a g eme n t,
administration a nd investment fee is
only 0 . 6% per a n n um.
No rma l l y, mo st insurance schemes
carry an entry charge of at least 5%
with ma n a g eme nt fees ranging f r om
0.75 to 1%. Such a high level of
charges would obviously have a
negative effect on investment levels
a n d p e r f o r ma n c e. In a d d i t i o n, the
Law Society Retirement P l an h as the
following benefits:
• No initial units.
• No charge for switching between
f u n d s.
• No penalty charges for ceasing
c o n t r i b u t i o n s.
T h e P l an o f f e rs c omp l e te flexibility
in t h at p a r t i c i p a n ts are not tied to
ma k i ng a n n u al p a yme n ts or
p a yme n ts of any specific a mo u n t.
I nd e ed the m i n i mum c o n t r i b u t i on
currently required in a year is a mere
£500.
Performance
A l t h o u gh we c a n n ot g u a r a n t ee the
rate of return of the P l a n,
particularly in current ma r k et
c o n d i t i o n s, o ur objective as F u nd
Ma n a g e rs is to achieve a real rate of
return substantially in excess of
i n f l a t i o n. T h e returns of the past six
years a nd the first six mo n t hs of this
year are s hown in the chart below.
As you can see, the Law Society
P l an h as p e r f o r med very favourably
in c omp a r i s on with the ma in
insurance c omp a n i e s. In a d d i t i o n, it
s h o u ld be r ememb e r ed t h at all gains
m a d e within the F u nd are completely
tax-free.
Fund Options
T h e P l an o f f e rs solicitors
considerable flexibility in the choice
of f u n ds at their disposal. A
solicitor can c h o o se to invest in the
Ma n a g ed F u nd (which is a b r o ad
spread of equities, gilts, p r o p e r ty
a n d cash) or in the Ca sh F u n d.
Typically, in t h o se years immediately
prior to retirement, the Ca sh F u nd is
a beneficial o p t i on since it allows
p a r t i c i p a n ts to protect a c c umu l a t ed
gains.
Year to
30/6/92
91
90
89
88
87
86
Irish Law Society
Pension Fund
5.5
17.3
(9.4)
19.2
26.9
7.4
20.8
Irish Life
Managed Fund
(0.5)
12.4 (1L2)
19.8
26.1
10.9
22.1
Standard Life
Managed Fund
2.2
15.6 (14.8)
16.4
29.0
14.1
20.8