Last week I received a phone call from Neil Hartnett a financial advisor in Limerick and as usual I got a few interesting business ideas from him! I can remember meeting Neil at an MDRT meeting in America some 20 years ago when we were talking about the best types of business to concentrate on when arranging retirement planning and protection for now or existing customers.

Back then he fascinated me my saying that by and large he didn’t bother too much with arranging retirement plans for the self-employed as there were too many restrictions and limitations in relation to what percentage of income they could invest in a tax efficient way. He then said something quite logical that even to me made total sense. He said that by and large the cheque coming from the personal bank account is much smaller and more difficult to get than the cheque from the company account. Neil said that he preferred to concentrate his prospecting efforts on the owners of limited companies.

That is something worth thinking about!

Let’s compare the relevant turnovers of say a successful medical consultant to a supermarket owner who operates a limited company. The medical consultant has a gross annual income of perhaps €350,000 whereas the local supermarket could turnover €200,000 per week which is more than €10,000,000 per annum.

If we assume both are aged 45 the maximum that the medic can get tax relief on if he or she saves money into a retirement plan is 25% of €115,000 so that equates to an annual payment of a maximum of €28,750 into their retirement fund.

If the supermarket owner has a salary of even €100,000 and let’s say has no pension fund in place then it is possible to target a fund at age 65 of up to €2million. Assuming an annual return of 5% pa this would suggest that the company should make a payment of just over €60,000 a year for 20 years. That’s an annual payment of less than 1% of the company’s turnover…its chicken feed! In addition if life insurance and serious illness insurance is needed it can also be paid from the company cheque book.

I rest Neil’s case!

Yes the company cheque book is easier and the cheques are bigger and for those who are working in the family market and perhaps working too much at night it is worthwhile to remember too that the company cheque book normally closes at 5:30 so no need to work so much in the evening if you are working in the company market.

Ted Dwyer Family Business

December 2014

Ted Dwyer is the Founding Director of City Life Wealth Advisors a family business in Cork