CASE STUDIES - Summit Life

Business Owners / Directors

Here at Summit Financial Planning we have many business owners as clients. We work with them closely to provide appropriate advice and ideas on how best to structure certain benefits through their businesses. Read more ▸

BELOW WE HAVE PROVIDED AN EXAMPLE OF THE TYPE OF ADVICE AND SOLUTIONS THAT WE HAVE GIVEN TO BUSINESS CLIENTS IN THE PAST TO TRY GIVE YOU A TASTE OF THE SERVICE WHICH WE PROVIDE.

Summit Financial Planning begins the planning process by, firstly, carrying out a detailed fact-finding exercise with client. This is always the starting point of every initial meeting with new clients. This allows us to build a proper picture of a client’s current financial position and also to drill down and find out exactly what are the client’s needs and objectives.

JOHN AND MARYClick to expand

Click to expand

OUTLINED BELOW IS A CASE STUDY WHICH PROVIDES AN EXAMPLE OF SOLUTIONS WE HAVE WORKED ON IN THE PAST:

John and Mary are a married couple and own a successful business together. John is 50 and Mary is 48 years of age. They have two children aged 13 and 10 years of age. John and Mary have a number of existing pension and life cover policies in place which need to be reviewed and taken into account.

They had three main requirements which I have outlined below:

They both wanted to retire from the business by the time Mary reached age 60 with at least 50% of their current salaries (€100,000 per annum) as an income which was to be funded from their pensions
They wanted to make sure that they had adequate cover on a personal & business basis to protect their family and business in the event something was to happen to either of them medically
They wanted the business to pay for the above requirements where possible

HOW SUMMIT FINANCIAL PLANNING HELPEDClick to expand

Click to expand

THE FIRST STEP WAS TO GATHER ALL THE INFORMATION ON THEIR EXISTING POLICIES.

This was easily done simply by getting John and Mary to sign a letter of authority which allowed Summit Financial Planning to request policy information directly from the life companies. We were able to ascertain very quickly which of these existing policies were worth keeping and which needed to be reviewed and replaced.

After analysing what John and Mary were looking to achieve and taking into account the existing policies they had in place, we were able to advise them of the following:

They wanted to retire within the next 12 years (Mary aged 60) with an income of €50,000 per annum each. Currently they had a combined pension fund of €800,000 from existing pension policies that they had paid into over the years. We calculated that they would need a pension fund of approx. €2.4m between them (€1.2m each) to fund their pension need. Therefore, they had a shortfall of €1,600,00
We calculated that they would need to contribute a monthly premium of €7,500 between them to build up the €2.4m pot of money required. Luckily the business was in a position to contribute this monthly requirement and we advised them to set up an executive pension plan with a suitable fund strategy (see investment strategy process). Our projections (€2.4m) assumed a growth rate of 6% per annum which is a reasonable rate of return over a 10 year plus investment term

The second part of their requirements was to ensure that they had adequate personal & business protection in place. Again they had a number of existing policies which we reviewed and took into consideration when providing our recommendations. We suggested the following:

As they had no income protection cover in place to protect the business in the event that either of them were unable to work due to illness or accident, we recommended putting in place income protection plans for both of them up to the maximum allowable (75% of salary). The company was able to pay the premiums and also receive tax relief at 12.5% on the premiums.
We also recommended putting in place two pension term assurance (life cover) policies of €400,000 (4 x salary) on each of their lives which would provide some cover in the event of either of their untimely deaths. Again, the company could pay the premiums and would receive tax relief at 12.5% on the premiums.
They had existing life & serious illness policies in place which we were able to re-price and get a better premium than what they were currently paying. This type of cover had to be paid personally and is not able to receive any tax relief on the premiums.

SUMMARYClick to expand

Click to expand

This is only a very quick snapshot of the type of advice and services which we provide to clients, whom have many different needs and requirements. By completing our tried and tested process of fact finding and listening to clients we are able to really help our clients achieve realistic targets and set achievable goals.

Self employed Professionals

At Summit Financial Planning we have many sole traders and professionals as clients. We work with them closely to provide appropriate advice and ideas on how best to meet their goals and objectives. Read more ▸

Below we have provided an example of the type of advice and solutions that we have given to a professional client in the past to try give you a taste of the services which we provide.

PETER AND SARAHClick to expand

Click to expand

Peter and Sarah are a married couple. Peter is 32 and Sarah is 30 years of age.

They have one child who is two years of age. They are both in full-time employment. Peter is a solicitor who has been working for the past two years with one other solicitor in partnership and the business is growing and doing well. Sarah is a primary school teacher and has returned to work on a full time basis. They are expecting their second child in six month time.

Summit Financial Planning began the planning process by, firstly, carrying out a detailed fact-finding exercise with Peter and Sarah. This is always the starting point of every initial meeting with new clients. This allows us to build a proper picture of a clients current financial position and also to drill down and find out exactly what are the clients needs and objectives.

Outlined below are some of the specific findings from the detailed fact finding exercise we carried out:

Peter was the only life that was covered on the life cover policy which they had in place to cover the mortgage (loan) on the house

The only other life cover benefit they had between them was Sarah’s death in service benefit from Sarah’s job (2 times salary)

They had no serious illness cover on either life

Peter had no income protection cover in place in the event that he was unable to work due to ill health or accident. This was of concern due to the fact that Peter is self-employed and not entitled to receive any state financial help if he is out of work. Sarah is covered by her employer in the event that she is out of work for a prolonged period of time

They have an emergency fund built up in their current account of six months net salary

Peter has a small pension from his time working in a law firm with a current value of approx. €35,000 and does not know what it is invested in. Sarah has a defined benefit pension from her current employment which has excellent benefits attaching

They have a monthly savings plan with their bank into which they are currently paying €250 per month between them. The current value is approx. €15,000 and it is invested in cash

Peter and his business partner currently do not have a tailored-made shareholders agreement in place and they also do not have any partnership cover (life cover). Partnership cover is a life cover benefit that is put in place to protect the partners of a business in the event that one or more partners of the business were to pass away unexpectedly. The benefit from the life cover policy can be used by the surviving partners of the business to buyout the spouse/estate of the deceased partner

HOW SUMMIT FINANCIAL PLANNING HELPEDClick to expand

Click to expand

After analysing the above information and speaking to Peter and Sarah with regards to what their needs and objectives were, we came back with the following recommendations:

The first priority was to put in place adequate life cover for both of them in the event that either of them were to pass away. We suggested that they should put in place a mortgage protection (life cover) policy on BOTH their lives for the mortgage on the house. We also calculated that they required a further €750,000 life cover on Peter’s life as he was the higher earner and €450,000 on Sarah’s as she had some life cover from her employment (death in service of 2 times salary). Also they will soon have a new born baby so they will have a financial need for at least the next 20 years while they raise their family. As Peter is self-employed we suggested putting in place a Pension Term Assurance (life cover) policy for €750,000 as he would be able to get tax relief on the premiums at his current rate of tax (40%). This will help reduce the cost of the policy. Sarah would not be able to put in place this type of policy as she is currently in pensionable salaried employment. Therefore, we recommended she should put in place a personal protection policy for the €450,000 with a 20 year term

As Peter is a sole-trader and not entitled to any financial help from the state in the event that he is unable to work due to illness or accident, we recommended that he put in place an income protection policy for the maximum allowable benefit (75% of earnings). This type of benefit is paid out to the claimant on a monthly basis and is subject to tax just like a normal income. Like a person’s normal income, it will help pay for the required day to day living expenses we all have to deal with (mortgage, food, utilities, clothes etc). As Peter is a higher rate tax payer (currently 40%), he would be able to receive tax relief at this 40% rate which makes the cost much more reasonable. Sarah currently has this type of benefit from her employment so does not require to put anything in place

The reality of one of them getting diagnosed with a serious illness is unfortunately very real. Serious illness cover pays out a once off lump sum which can be used to pay down some of a mortgage, medical expenses etc. We recommended that they put in place a dual life serious illness policy of twice their net salary which is €150,000

As they currently have an emergency fund built up, we would recommend that they try to obtain the best possible deposit rate from one of the institutions but to make sure that they can get access to it within a short time period without big penalties

Peter currently is not funding for a pension and has a small pension fund from a previous employment. After speaking with Peter about the type of pension fund he would hope to build up to meet his retirement goals, we recommended that he switch the value of his fund out of his old employer scheme and into his own personal retirement bond (PRB) policy which he would control. Also, he should set up a personal pension plan and start contributing an affordable amount per month. A risk profiling questionnaire was completed to ensure we helped him invest in suitable funds matching his appetite for risk on both policies

They are currently putting €250 per month into a savings plan which is invested in cash. Cash over the medium to long-term will not beat inflation. The purpose of this money is for the children’s second level education. Therefore, it is not required for at least another 10 years. We recommended that the existing fund (€15,000) and the €250 per month should be invested in a life company savings policy which provides access to many different types of funds to invest in (equities, bonds, property, cash etc). This enabled us to put in place a suitable fund strategy to try and obtain good returns over the investment period

Finally, Peter and his business partner do not have any partnership cover in place. This is a very important type of cover which will protect both Peter and his business partner and their families in the event that either of them passes away unexpectedly. After consultation with their accountant to get a fair open market value of the business (€500,000), we put in place two life cover policies for €250,000 on each of their lives. Also we recommended that they sit down together and put in place a proper partnership agreement

SUMMARYClick to expand

Click to expand

As mentioned already, it is vitally important and part of Summit Financial Planning’s client agreement to review all these types of policies and their individual financial position at least annually. Things change very quickly in life so it is therefore very important to review all of the above regularly.

Dormant Pension Policies

Summit Financial Planning deals with many clients who have existing pension policies from previous employment either from their time when working with a previous employer that provided a pension plan for them or possibly when they were self-employed and had been paying into a pension plan personally. Read more ▸

We are able to review these existing pension policies for clients and provide appropriate advice and ideas on how best to manage them going forward.

Below we have provided an example of the type of advice and solutions that we have given to a client in the past who had a two paid up pension plans from previous employment to try give you a taste of the services which we provide to clients.

STEPHENClick to expand

Click to expand

Stephen is 45 years old and is an employee of an engineering company. Stephen has two existing pension policies from previous employment which he has not paid into for a number of years. He does not have any up to date information on either of these polices except which life company they are with.

HOW SUMMIT FINANCIAL PLANNING HELPEDClick to expand

Click to expand

Summit Financial Planning began the planning process by, firstly, carrying out a detailed fact-finding exercise with Stephen. This is always the starting point of every initial meeting with new clients. This allows us to build a proper picture of a client’s current financial position and also to drill down and find out exactly what are the client’s needs and objectives.

We have detailed some of the specific pension findings from the fact finding exercise below:

Stephen was self-employed for a number of years and paid into a personal pension plan for approximately 4 years. He thinks the value of this personal pension plan is approximately €35,000 but does not know for certain or what it is invested in.

He also has a company pension policy from his time he worked in a company when he was in his twenties. Again he thinks that the value of this company policy is worth approximately €25,000 and he does not know what it is invested in.

After analysing the above information and organising for Stephen to sign a letter of authority which allowed us to get full policy information on the two pension policies, we came back with the following findings and recommendations:

The personal pension plan had a current and transfer value of €28,000. It was invested in a balanced managed fund (75% equities, 15% government bonds, 5% property and 5% cash). From the risk questionnaire that we completed with Stephen, we concluded that this fund was too volatile and high risk for Stephen’s risk profile (he came out as a low-medium risk investor from the answers he provided on the risk questionnaire). The charges were high (1.5% per annum fund management fee) plus there was only a limited number of funds which the policy could invest in.

We recommended that the full amount of this policy should be transferred into a new personal pension plan with a different life company which offered a lower fund management fee (0.75% per annum) and more importantly, a much wider choice of funds from which to choose to invest in. We helped Stephen put in place a suitable fund strategy that matched his risk profile. There was no penalty/charge to Stephen to transfer this policy and he would also benefit from the lower charges.

The company pension policy had a current and transfer value of €38,000. Again it was invested in a managed fund (78% equities, 17% government bonds, 3% property and 2% cash) which did not match Stephen’s risk profile. The charges were average (1% per annum fund management fee) and again there was a limited number of funds available to invest in.

We recommended Stephen to transfer the full value (€38,000) out of this company pension policy and into a Personal Retirement Bond (PRB). This type of policy (PRB) would allow Stephen to have a full choice of funds to invest in with very competitive charges (0.75% per annum fund management fee). Again we helped Stephen put in place a suitable fund strategy that matched his risk profile. It allowed Stephen to take full control of the policy as it was no longer part of his old employer’s pension scheme. Also, by transferring the company pension policy into a PRB policy, it provided Stephen with good options and flexibility.

SUMMARYClick to expand

Click to expand

As you can see from the above there are times when it makes sense to review existing policies to ensure that (A) they are good value and that charges are not too high and (B) that they are still meeting the needs/objectives and very importantly, the risk profile of the client.

As mentioned already, it is vitally important and part of Summit Financial Planning’s client agreement to review client’s policies and their individual financial position at least annually. Things change very quickly in life so it is therefore very important to review all of the above regularly.