the-Bottom-line-Banner-MARCH-2021
News

Simon Shirley examines the recent report from the Interdepartmental Pensions Reform and Taxations Group and what it means for pension reform down the line. In 2018, the Irish government published A Roadmap for Pensions Reform 2018–2023, in respect of a proposed five-year plan for comprehensive reform of the state and private (or ‘supplementary’) pension systems. A key aim of the Roadmap is to promote long-term pension saving to address income adequacy in retirement. The Interdepartmental Pensions Reform and Taxations Group (IDPRTG) – chaired by the Department of Finance and includes representatives from the Department of Public Expenditure and Reform, the Department of Social Protection, Revenue, and the Pensions Authority – was established to carry out several tasks set out in the Roadmap, namely: proposals aimed at simplifying and harmonising the supplementary pension landscape; an assessment of the cost of State support for pension savings; and a review of the Approved Retirement Fund (ARF) structure. The group engaged in a public consultation process and received submissions from various stakeholders, including pension/life insurance companies, trustees, lawyers, advisors/brokers, investment managers, and private individuals. In recent weeks, it published a report on some of its work-to-date. This report has been broadly welcomed by the private pensions industry and contains positive and practical steps. The report contains several proposals to reform and simplify the existing supplementary pension system, i.e. the system that is relevant to most of us working in the private sector who have pension plans. This system consists of two pillars, broadly summarised as follows: Employer-arranged pension plans, known as occupational pension schemes. These are provided by employers for employees and are arranged on a “group” basis (i.e. for more than one employee and are the most common arrangements for employees in the private sector), or on an “individual” basis (i.e. for one employee only and are typically used by company owners and key executives). Individual plans, which are typically used by self-employed sole traders/partners, employees in non-pensionable employment, and employees who are changing/leaving employment. While many of the proposals make sense at a technical level, at the end of the day, many of us will always require advice on saving for our retirement, irrespective of the number of products, rules, options, etc., that are available.  As professional pension advisors/brokers, we are at the coalface of the system. For decades we have been advising employers, and individuals from all walks of life, from late teens to 90s, whether starting out or in retirement, whether running their own business to working for a multinational, on planning for retirement and planning in retirement. No matter how many technical groups are assembled, reports published, public consultations undertaken, etc., the fact remains that adequately planning for retirement will remain challenging for many of us, as we are programmed to engage more with short- to medium-term matters, rather than long-term issues and requirements. While the current system does have anomalies and inconsistencies, some of these wrinkles can often lead to improved outcomes for individuals, and can actually improve the attractiveness of saving for retirement, in conjunction with appropriate advice. I welcome that the report acknowledges the need for advice and states: “The need for independent financial advice in the lead up to, at the point of, and during retirement is widely accepted. Improving the availability of appropriate advice for pension savers received significant support in the consultation responses.” However, the danger in this process could be that the need for advice ends up being a footnote rather than being front and centre, given the various perspectives, experiences, and interests of the large stakeholders (i.e. the government, relevant state bodes, pension/life insurance companies, etc.).  Pension and retirement planning is a very personal experience, and a simplified one-size-fits-all solution may not always be in the best of interests of citizens, who tend to have very varied personal and financial backgrounds, objectives and expectations. To assist the large stakeholders in this process, the voice of the experienced professional advisor (through representative groups such as Chartered Accountants Ireland and Brokers Ireland) should be a key influencer in any changes to be made.  So far, I have been impressed overall by the preparatory work done by the government and the state bodies in recent years – however, effective ongoing communication and practical implementation of the reforms/changes to be made will be the ultimate litmus test. Simon Shirley is the Founder of Simon Shirley Advisors. He is the author of the new book, A Practical Guide to Pensions and Life Insurance, from Chartered Accountants Ireland.

Dec 11, 2020
News

While there’s an end in sight to the pandemic, COVID-19 has hit most businesses hard. How do we bounce back and recover over the next 12 months? The key, says Patrick Gallen, is to learn how to lead with resilience. I participated in an excellent webinar on organisational resilience and readiness last week. We were joined by guest speakers from around the world. What impacted me most about the discussion was the strong focus on how organisations, regardless of COVID-19 restrictions and a potentially hard Brexit, need to bounce back quickly as they recover from the pandemic and strive for survival and growth in 2021. Resilience is the capability of organisations to prevent (where possible) and respond effectively to crises and the ability to anticipate, adapt and take advantage of long-term trends and opportunities. A key component of resilience is leading and responding through challenge. In today’s world, where change and disruption are constant, simply bouncing back is no longer a sustainable strategy. It’s about moving from a survive to a strive mode. There is still a significant road ahead before organisations emerge from the current challenge and there will, no doubt, be new challenges that crop up. As a leader, you will need to direct with energy and purpose – and you will need to be resilient. Resilience is not only essential at an organisational level, but also at a team and an individual level. However, the way we speak about resilience at an organisational and a leadership level will influence an individual’s perception of resilience. An organisation’s resilience isn’t simply the sum of its employees’ resilience. It includes culture, leadership, beliefs and practices. Leadership needs to be shared and distributed across the organisation at all levels, with excellent communication and collaboration, avoiding silos and empowering employees to make quick and informed decisions. Here are my top tips for leaders in 2021 to be resilient and lead with purpose and energy. Balance Try to maintain a good work-life balance, which can be difficult when working from home on a continual basis. As a leader, make sure that a good work-life balance is encouraged and respected by you and the entire organisation. Connections and collaboration Encourage strong collaboration and support mechanisms within your teams and at all levels. As a leader, actively address the problem of silo-working. Belief You need to be confident in your ability to lead in challenging times, and this should be encouraged and supported by your organisation. Purpose Be sure to stay connected to your values. When you are connected to your values, you are more resilient. Rest, recovery and review After periods of intense work and focus (such as the last nine months), there is a need for rest and recovery, but just as importantly, a review of what has worked well and what needs to change. Learning from new and difficult experiences builds on your ability to navigate the next difficult experience. Self-knowledge and growth as a leader will build your resilience levels for 2021 – and beyond. Patrick Gallen is the Head of People and Change Consulting for Grant Thornton Ireland.

Dec 11, 2020
News

2020 was an unusual year, and 2021 will likely be just as strange. Moira Dunne emphasises the importance of setting your goals as usual, however, and gives some tips on how to stay on top of them. As we reach the end of an extraordinary year, our focus is switching to 2021. Most years we make new plans in January for the year ahead. And even though 2021 may still present plenty of uncertainty during this global pandemic, it is still important to do this to get motivated for the future. Here are some practical tips for goal setting to help maximise your chance of delivering your goals next year. Reflect on 2020 Before moving on, it is useful to reflect on what we learned in 2020. Most people were forced to rethink how they work. We adopted new working habits and routines, and found new ways to connect with each other. For many, this new way of working had benefits as well as down-sides. Consider what you learned from the changes you made in 2020. What do you want to bring forward into 2021? Here is a list of some of the key changes we encountered. Which ones are relevant for you? The power of uninterrupted time to get work done. The benefit of clearer communication with colleagues. How making quick decisions benefits business. Streamlined business processes that reduce time waste. The importance of planning ahead. The value of team interaction for problem-solving and creativity. Setting goals for 2021 Before you set your goals for 2021, review the status of the goals set for 2020. Some may never have been completed or even started given the circumstances of 2020. Some may not be relevant due to a change in business focus. Re-evaluate your priorities for the year ahead. Be realistic Take a realistic view of your workload and schedule. Where can you find extra time to work on your goals? Plan to achieve one goal at a time to avoid overwhelming yourself. Once you make progress on one goal, you will be more motivated to tackle the next one. Making progress It is hard to find time in our busy day-to-day schedules to work on extra projects or goals. The key to making progress is to work out the specific tasks or actions required to achieve the goal. With a list of tasks, it is easier to make some progress each week. Find a time block within your week that you can set aside to make progress on you goal task list. These time blocks can add up and, if well planned, will result in regular progress on your larger goal. Making a plan To help stay on track, I recommend that you create a simple goal plan with targets. This helps you stay motivated. It also provides a sense of achievement as you complete the work. Be productive Now is the time to focus on 2021 so you can finish this year feeling motivated and organised. And while 2021 may be another unusual year, having a purpose and a plan will help you get up and running in January. Happy New Year to you all. Moira Dunne is the Founder of beproductive.ie

Dec 11, 2020
Sustainability

Louise O’Mara considers how environmental, social and governance issues will impact on corporate decision-making in a post-COVID-19 era. As focus on climate change continues to grow, there is a greater interest in what part corporates are playing in the fight against climate change. Mindful of this, companies are transitioning their business models towards lower or net zero emission models as an expression of their desire to combat climate change. Stakeholders accelerating the sustainability agenda Mindful of the attention given to sustainability, companies are transitioning their business models towards lower or net-zero emission models as an expression of a desire to combat climate change. Asset managers and financial institutions are increasingly supportive of the sustainability transition. Funds invested in environmental, social and governance (ESG) assets are ballooning – sustainable assets under management have surpassed $30 trillion and could grow to $50 trillion by 2025. Companies are developing robust sustainability strategies so they can access this growing source of capital. In September 2020, AIB tapped this market with a €1 billion green bond. The transaction attracted significant investor interest, with the green format maximising depth of demand. Net-zero and the supply chain An increasing number of corporates are setting targets to be net-zero by a specific date. However, not all net-zero targets are created equal. The most challenging and most comprehensive target – Scope 3 – requires a company to achieve net-zero across all elements of its supply chain. In practice, this means that a company will require its suppliers to be net-zero, or it may have to purchase offsets to bridge that gap – at a cost. Consequently, the supply chain contract might be renegotiated to reflect that cost or the company may move to a different net-zero supplier, avoiding the incremental cost. This is a tangible example of sustainability impacting on cost and pricing strategies. Accordingly, what we are beginning to see (in its early stages, but with rapidly building momentum) is the creation of a ‘net-zero club’ populated by companies that are part of the solution. Green and sustainability-linked financing Companies are increasingly linking sustainability key performance indicators (KPIs) to financing, and there is an array of finance options available. The simplest form is a green bond, where the proceeds are directed solely towards eligible green projects. For example, Citi led Ireland’s inaugural green bond in October 2018. The proceeds were allocated to projects that address climate change, clean water, and wastewater treatment. Sustainability-linked bonds (SLBs) are linked to the sustainability objectives of the issuer. The cost of SLBs can vary depending on whether the company achieves its defined ESG objectives. As such, companies are committing explicitly to future sustainability outcomes and creating a financial incentive to achieve them. Finally, the ‘greenium’ or green premium refers to the pricing advantage offered to companies using green bonds/SLBs due to a higher degree of demand from investors. Co-dependency of finance and sustainability Although we have historically seen sustainability and finance as separate entities, they have often existed in parallel. What is exciting about the ‘net-zero club’ and the ‘greenium’ is that they represent tangible examples of sustainability directly improving margins – sustainability meeting finance in its most fundamental sense. As consumer sentiment continues to shift, we should expect finance and sustainability to walk hand-in-hand in the same direction. Louise O’Mara is Head of Corporate Bank Ireland at Citi.

Dec 03, 2020
News

Upskilling your people is the only way to cope with the future. By nurturing your workforce’s talents, explain Ciara Fallon and Ger Twomey, you will have a distinct edge over the competition. While the future of work is a topic that dominates the current business agenda, there appears to be a lack of momentum in making the necessary investments to implement effective workforce strategies. CEOs need to act now and plan how their businesses will upskill their people to thrive in a digital world. By now, we all recognise and understand that COVID-19 has fundamentally changed how people work, where they work, and what skills they require. The rapid move to a predominantly virtual working world exposed gaps in the capabilities of many organisations and their people. This is an issue that leaders were already struggling with before the pandemic. PwC’s Talent Trends 2020, based on survey data from late 2019, showed that 74% of CEOs were concerned about the availability of critical skills. But, just as the pandemic highlighted the biggest skills mismatches between organisations and their people, it provides an opportunity for CEOs to develop strategies to build the workforce they need for the future. And, given the urgency to find the right talent with the right cultural fit, more and more companies are realising the benefits of upskilling the people they already have. The acceleration of new ways of working makes it clear that upskilling people should not be a sideshow to other efforts CEOs are making to stay solvent and recover from the economic disruption caused by COVID-19. Upskilling should be a priority in a world where the speed of change is unprecedented, and the path ahead is uncertain. Here are four areas for CEOs to focus on to make the case for upskilling. 1. Deliver on business strategy When we asked more than 22,000 employees around the world about their hopes and fears for work, more than three-quarters said they wanted to improve their skills. Now is the perfect opportunity for leaders to take advantage of their people’s aspiration and align it with their upskilling initiatives and business goals. That means assessing your staff’s skills, particularly in relation to technology and other crucial skills such as problem-solving and working effectively in cross-functional teams. The CEO may need some upskilling too. 2. Prioritise employee engagement and experience There’s a measurable connection between successful upskilling and employee engagement. Among the CEOs who took part in the latest PwC Annual Global CEO Survey who had introduced an upskilling programme, 60% said it was highly effective in improving culture and employee engagement. And according to Gallup, highly engaged business units have lower rates of absenteeism (-41%) and higher rates of productivity (+17%). 3. Boost productivity Companies are expected to spend close to US$4 trillion globally this year on technology. If upskilling is done well, the digital, human and commercial capability uplift in your workforce will bring about greater use of new tools and enabling technologies, such as robotic process automation or artificial intelligence. By focusing the efforts of your workforce on value-add and enriching activities, and away from repetitive and routine tasks, you unlock greater value – such as stronger connections with customers, better innovation, or process efficiencies.  4. Embrace a growth mindset Upskilling is a medium- to long-term strategy. We live in a world beset by disruptions that will continue beyond this pandemic. The megatrends PwC has identified as critical challenges for the 21st century – such as the speed of technological change – require an agile workforce and agile management. Being prepared to weather crises with a flexible, knowledgeable workforce and a culture built on resilience will stand you in good stead. CEOs should lead with a growth mindset. They should encourage their workforce to evolve. They can start by upskilling personally and communicating what they are doing to their people. This doesn’t necessarily mean learning to code, but it does mean understanding what new technologies can do and what they can’t. Savvy leaders who value and nurture their workforce’s innate talents, ability to learn, and desire to do good work will have a greater chance of boosting their business and retaining and attracting talent. They will beat the skills gap. Ciara Fallon and Ger Twomey are Directors of PwC People and Organisation.

Dec 03, 2020
News

There are many reasons why you might want to exit your business – COVID-19, Brexit, retirement – but what is the cleanest way to do it? Niall Flood explains. As the year’s end approaches, and with the potential of good news on the horizon in the form of a COVID-19 vaccine, many business owners are taking the opportunity to consider their exit options. This may have been on their mind for some time, or the disruption caused by the pandemic may have accelerated their thinking, but the underlying reasons are often common across would-be sellers. These include a lack of interest from the next generation in taking over the business, or simply a desire on the part of the existing shareholders to convert the value of their shares in the business into cash to enjoy retirement fully. It many cases, there may be difficulties in finding a suitable buyer for the business, particularly in current market conditions. Good businesses can fail to attract buyers for certain reasons. COVID-19 and Brexit are creating uncertainty – this can reduce buyer appetite and the level of acquisition activity. The number of trade buyers for certain businesses may also be limited. Many buyers are focused on finding high-growth prospects, and not every business seeking a new owner is growing at a rate of 10-15% annually. An attractive option for business owners in these circumstances is to look closer to home and consider a management buyout (MBO). An MBO occurs when shareholders sell the business to the existing management team. This can often present a win-win scenario for both buyers and sellers. One of the main advantages of an MBO is discretion. Owners don’t have to advertise their intention to sell, nor spend time wondering whether buyers are simply curious ‘tyre kickers’. Another point in favour of MBOs is the potential to complete the transaction quickly. The existing management team knows the business better than any outsider and will not have to go through the usual due diligence process to complete a deal. The whole process, from inception to completion, can be carried out at pace – usually completing within six months if run properly. MBOs also have the added attraction of minimising the amount of disruption to the business during the sale process. Importantly, there are attractions for the management team as well. An MBO allows the team to benefit more fully from the dividends and profits generated by the company. It also offers management the opportunity to have more autonomy and input into the strategy of the business. For instance, the management may wish to take the business in a different strategic direction, with a view to growing it more rapidly and selling it at a higher price in future. Price is usually the critical factor when it comes to reaching agreement on an MBO, and there will naturally be a degree of tension between the seller and buyer in that regard. Owners will have their expectations and aspirations. The management team, on the other hand, will wish to minimise the amount they have to pay. A lack of funding usually reinforces that desire to minimise the price. Generally speaking, management teams don’t have a lot of cash to bring to the table and will have to finance the deal through debt, private equity or deferred consideration (or a combination of all three). Naturally, they don’t want to saddle the business with too much debt. The use of deferred consideration is a classic way to bridge the gap between the different value expectations of the seller and buyer. Under this arrangement, the management team pays a portion of the price out of future profits after the transaction closes. This can be a helpful compromise to ensure both sides get the deal done in a timely fashion – and without falling out during negotiations! While an MBO can be simpler and more straightforward to complete than a trade sale, there is typically a requirement to have advisors involved. Advisors assist with the various elements of the deal, including agreeing on valuation, determining the funding structure, raising the money, negotiating key points, and approving the legal details. Advisors also bring a level of experience and impartiality to the transaction, which can help surmount the various obstacles encountered along the way.  Niall Flood is a Director in KPMG Corporate Finance.

Dec 03, 2020