As the dust begins to settle on the serious health problems that arrived on our door with the COVID-19 pandemic, attention is now turning towards the economic impact it has had on our country. Businesses are struggling to stay afloat while the economy slowly begins to reopen and forge a path out of this financial devastation.
All around the country, small to medium sized enterprises find themselves facing tough decisions and difficult days. And with Brexit re-emerging as a threat and a fragmented political landscape, there are no signs on the horizon signalling that things will improve drastically anytime soon.
I believe that business owners could look to their pension to serve as a temporary source of funding during the ongoing COVID-19 pandemic and should talk to their pension advisors to see what options are available to them, as there may be a way for them to access some funds quickly.
The current pension rules in Ireland preclude anyone from accessing these pots or funds largely until they are aged 60 or over. I believe Government are in a position to make a simple change to this which would ultimately serve as an economic life raft to many struggling business owners, who find themselves having to make unpalatable decisions.
Anyone who holds a pension scheme in Ireland today should be picking up the phone and talking to their pension advisor, because it is slightly complicated and there are rules but not everyone is going to be affected by the same rules. Going and getting proper advice about it is going to be so important.
For anybody over the age of 60, the pension is fully accessible. Now that’s a lot of people and a lot of people who are running businesses or a lot of people who are connected to people running businesses. And what that means is you can retire the fund but not yourself once you get to 60. Now there may be some slight restrictions on this, but any restriction in place can be easily changed.
For example, most people when they set up a policy have a retirement age of 65, and therefore they may say ‘hang on, my plan has a retirement age of 65 and I’m only 61 I can’t retire’. All that is required is a letter from the company stating they are changing the retirement age of its staff to 60 and now your policy is 60, and you still have full accessibility and you can keep on working which is can be really important.
I also advocate for the Government to change the date of access to pension funds to allow people access a certain percentage of this money.
Prospectively the Government could turn around in the morning and say everybody, and all age groups, are entitled to get 20% of their pension fund now if they want it. So, if somebody has built up their pension fund and they are in their early 30s or 40s and they can get 20% - that would be great for them and could mean the survival of a business.
By allowing people access to a certain portion of their pension pots when they really need access to cash, it means they would have a number of years to return money to these funds.
Of course, my advice remains that people should only examine this option in worst case scenarios, but he believes it is an option that must be explored if it means SMEs could have access to a lump sum of their own cash within weeks. However, I think that if Government were to examine changing the rules of access it could have a major impact on some people’s lives.
“The advice is still the same, do not touch the pension fund unless you need to, that stays the same.”
Tax and government legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate advice from their financial adviser before making financial decisions. Capital at risk. The value of investments and the income from them can fall as well as rise and the investor may not receive back the original amount invested.
Director, Personal financial planning
Smith & Williamson Investment Management (Europe) Ltd.
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains.
Smith & Williamson Freaney Limited Authorised to carry on investment business by the Institute of Chartered Accountants in Ireland. A member of Nexia International.