Articles

Personal Development

Thinking is the top-rated next generation skill, but the ability to think critically is rare. Follow these tips to stand out from your peers in the soft skills stakes. WORDS BY STEPHEN TORMEY I was browsing LinkedIn recently when a headline caught my eye. It read: “The top skills companies need – and how to help your employees develop them”. I’m a sucker for a list, so I clicked in and scrolled down for the answer, whizzing past the verbiage in the process. To my surprise (and that of the article’s author, as I found out when I eventually read the intro), the leading ‘next generation skill’ is... thinking. We do it all the time but according to research from the Harvard Graduate School of Education, it’s the most important skill of the future followed by self-understanding, empathy, ethics and communication. Develop your critical thinking According to Georgetown professor, William T. Gormley, critical thinking consists of three elements: a capacity to spot weakness in other arguments, a passion for good evidence, and a capacity to reflect on your own views and values with an eye to possibly changing them. He elaborated on these points in a recent Harvard EdCast, which you can listen to here. But how can you develop these three elements and learn to think critically? According to an article published by NUI Galway, there are a number of ways to do this. You will likely know some of the points mentioned (join a debating society, get involved in class discussions etc.), but there some very noteworthy suggestions also. They include: Swap coursework with a classmate and critically evaluate each other’s arguments, use of evidence and conclusions; Accept that criticism and disagreement aren’t the same as conflict. It’s okay to hold different views to a classmate, friend or lecturer; Engage critically with course content, particularly with your assigned reading; and Remember that critical thinking is hard. As a set of ‘higher order’ skills, it isn’t something you can learn overnight. Keep trying. Ask for feedback – and learn from it. There’s some great material there, but the university’s Christopher Dwyer also suggested a very useful – and fun – means of honing this skill in his book entitled Critical Thinking: Conceptual Perspectives and Practical Guidelines: play devil’s advocate. In the era of groupthink and news bubbles, it’s easy to be convinced that there’s a right way and a wrong way. Seeking out alternatives, even seemingly irrational ones, could help you see things in a new light and this is what your future employers will be looking for - someone who is technically competent but can approach things with fresh perspectives. Let the debate begin!

Nov 01, 2018
Personal Development

Empathy isn’t only helping us connect with the feelings of others, it also hones our own self-awareness, aiding us in building and nurturing healthy relationships. WORDS BY PAUL PRICE When asked about artificial intelligence (AI), Amos Tversky, psychologist and long-time collaborator of Nobel Prize in Economics winner Daniel Kahnerman, replied, “We study natural stupidity.” Tversky wasn’t saying that humans are stupid, only that we have a propensity for emotional reasoning. Indeed, it is this ‘emotional stupidity’ and emotional intelligence (EI) that sets us apart from machines.  Despite rapid advances in emotional recognition algorithms, it is unlikely that machines will manage to simulate the most human of EI skills – empathy – any time soon. Why? Because empathy requires both feeling and imagination. It is the ability not only to understand others’ perspectives but to attune emotionally to them so that we ‘feel’ what they are feeling. Like a social radar we use to read the mood of a room, or the political currents of an organisation we enter, empathy is a uniquely human skill. And while at times it seems akin to a sixth sense, empathy, through focused effort and regular practice, can be learned.  To ‘feel’ the feelings of others, we must first channel our own. This begins by learning to recognise visceral signals inside our own body and what they are telling us. What feelings do the physiological signs preempt? What triggers them? By honing our self-awareness in this way and learning to quieten our inner chatter during interactions with others, we can gradually form a base for empathetic social-awareness. For those who find this a challenge, here are a few suggestions to help with one-to-one collegial interactions. Take an active interest in the experiences and the concerns of colleagues and be ready to reciprocate.  If a colleague seems emotionally burdened, show a healthy concern for their wellbeing. Be ready to listen if they care to share. Do so with compassion and without judgement and without trying to ‘fix’ them. If you feel that an experience from your past might help, offer to share it, but curtail talk about yourself. Remember this is about their circumstances, not yours. If values differ widely, to attune, you might try some method acting. For example, if a colleague is distraught at the loss of their cat but you are not a pet lover, you might revisit how you felt at the loss of a loved-one of your own. But maintain a healthy objectively so as not to exacerbate the situation. If you simply cannot attune to what the person is feeling, rather than avoid reflecting altogether, consider saying something like, ‘I can’t imagine how you are feeling.’ Empathy requires practice. Observe people interacting in different social settings whenever possible. Pay attention to how their moods change and learn to identify related emotional cues. Avail of every opportunity to practice your listening and emotional response skills, particularly with friends and family.   Here are some tips for developing empathy in work-groups: At meetings, avoid excessive note-taking. Instead, focus on the speakers and what is going on around you. Make occasional eye contact. Observe how others respond to their facial expressions, body language, verbal cues and tone of their voices. Notice how these signals relate to the thrust of the meeting and the mood in the room.  Pay attention to timing, particularly when you are contributing. Observe others that you consider naturally possess empathy. If you continue to have difficulty, consider engaging the help of a trusted mentor. Through developing empathy, we learn to appreciate difference, embrace diversity and nurture healthy relationships with those around us. Any time invested in developing this competence is time spent future-proofing our careers, not only towards AI but against potential relationship blunders.

Nov 01, 2018
Spotlight

Auto-enrolment makes sense, but there are critical issues beyond pension coverage that need to be considered. BY GILLIAN RYAN I went to visit my daughter in the Gaeltacht on Sunday so we had a five-hour round trip, much of which was spent reading articles in the Sunday papers and on LinkedIn about pensions – much to my husband’s delight. Genuinely. I know that’s probably most people’s idea of hell but given the fact that I have worked in the pensions industry for longer than I care to remember, I find such articles really interesting and, if I’m honest, a little frightening. My job and career to date is based on people’s need to invest in pensions. I work with advisers to support them so they can help their clients build better financial futures. On that basis, you might say I have a vested interest but as well as working in the business, I’m a wife, a mum and a friend, so my vested interest is less about my job and more about the futures of the people I care about. That said, my professional experience gives me greater insight than most on this topic. The road trip involved me reading articles about the potential reduction of tax relief on pensions contributions, the ability to bring pension funds back to Ireland from different jurisdictions, the alleged complexity of different pension structures, the fact that public sector workers don’t really need to worry too much about their pensions, and that the private sector does not appear to worry enough. I shared some insights with my husband as we drove down the dreary M6. I don’t imagine my comments and observations made the trip any more exciting for him. It did, however, open up a discussion about our future though and the potential cost of financing it. Damian is a golf club member and I’m a gym member. We both like driving nice cars. We’re not big travellers but like to have a sun holiday once a year and enjoy socialising. I could go on, but the point I’m making is we like to enjoy life and this costs money. We both work hard and believe that life is for living, but we have two children and we know it’s important to provide for them as we want them to have everything they need. What struck me as really scary was that, although I have worked in financial services for over half of my life, this was probably the first time we had a forensically in-depth discussion about such things. Maybe it is a sign that we need to get out more, but it is more likely because we have reached the stage in life where we know we are half-way there and we want to live in the comfort that we have grown accustomed to in retirement – but we don’t want to work forever. We are both members of occupational pension schemes, to which we and our respective employers contribute. As we near retirement, the need for – and the benefit of – being a member of these arrangements is becoming ever more relevant. There is a push to increase pension coverage in the private sector in Ireland and I agree that this is something that should be done. I have some concerns about the direction of change, however. Coverage If I think back to when I was 20 and retirement was two more lifetimes away, pension funding was the furthest thing from my mind. Had I not worked in a company with a pension scheme, I am quite confident that I would have elected to spend my money elsewhere. On that basis, I genuinely believe that 20-something year olds need a push to make provision and to that end, the introduction of an auto-enrolment (AE) system that would automatically include this cohort of private sector employees makes a lot of sense. They will be grateful someday that this was “forced” upon them. Adequacy I believe an AE scheme is appropriate for those who don’t make the decision to fund but at a certain stage in life, one needs to start taking responsibility for one’s own financial future. The issue of having set levels of pension contributions in place is that members of such schemes believe that just ticking the box is enough. They believe they have a pension, which they do, but that brings me to my next concern: is the pension that you contribute to adequate to support your needs and desires in retirement? This is where the requirement for financial advice kicks in. Individuals need to be asked the following: Are you maximising the tax reliefs available to you at this stage in your life? Are you taking enough risk to generate the returns you need on your investment? How does your pension fund fit in with the other assets you own? When you retire, what should you do with your pension to provide for the future you want? We are all living longer, so how do you save enough to ensure that you can afford to retire comfortably? There is a cost for getting this advice, and rightly so. But in the world we live in, surely we understand that you get what you pay for – particularly if you are savvy enough to plan ahead. Tax relief I mentioned tax relief in the last section and in the weekend papers, there was much discussion about tax relief and the possibility that the Government may seek to reduce the tax relief available to higher rate tax payers. The papers referred to the “standardisation of tax relief on pensions” and I struggle with this one for many reasons. Higher rate taxpayers earn more and therefore pay more tax on their income. To that end, they should be entitled to tax relief at the same rate as they pay on income earned. If it was about creating a more simple structure and encouraging more private sector workers to fund pensions, then why not standardise at the higher rate? If our Government wants to increase coverage, they should surely aim to make pensions more attractive to the lower earners rather than penalise the higher earners. Reducing higher rate tax relief will not encourage those subject to tax at the lower rate to fund pensions. It will make no difference to them and will more than likely reduce the amount of pension contributions made by the higher rate cohort, so this contradicts the Government’s stated ambition to increase private sector coverage. Tax standardisation only relates to reliefs, which is one part of the equation. There has been no reference to standardising the tax paid on the income from retirement benefits. As a higher rate taxpayer, why would I make contributions to my pension and get relief at the lower level when at retirement, the same Government that reduced the relief available to me in the accumulation stage (pension funding) want to tax the income paid to me in the decumulation stage (retirement) at the higher level? That isn’t a balanced approach. The cost to fund auto-enrolment Private sector versus public sector pensions – this is the most emotive debate of them all and, as you can imagine, the public sector don’t want their pension benefits to be touched. To be fair, I completely understand that. While it is a significant cost to the economy, there are a huge number of men and women who work hard to earn this benefit and I am sure that if I was eligible, I’d be fighting to retain it too. Many academics and industry representatives have tried to come up with solutions that would create a level pensions playing field between the private and public sector. To date, no-one has been successful. My main concern, and the one that the Government tends to brush over, is that the majority of pension costs incurred by the State relate to public sector pensions – not private sector pensions. Conclusion AE in some form makes sense and addresses the coverage issue. It doesn’t address the adequacy issue, however, and there should therefore be a middle ground where individuals can seek advice and fund private contracts where necessary. The means by which the State funds the introduction of AE, which is a system to maximise coverage in the private sector, should not be funded by a reduction in tax relief. This move would be totally counter-productive in a world where private sector pension funding needs to be increased. Anyway, if you have made it to the end of this story, you will be glad to hear that my daughter is having a great time at the Gaeltacht and my husband is delighted that she will be home next week, so there’s no need for anymore (pension) road trips. Gillian Ryan is Strategic Business Manager at Standard Life.

Oct 01, 2018
Spotlight

It seems likely that Ireland will soon adopt the Auto Enrolment Retirement Savings System, so here’s some practical advice to help your clients prepare for the road ahead. BY GARY BRIGGS Back in 2012, when the UK Government introduced automatic enrolment (AE), only 50% of private sector employees in the UK were enrolled in any sort of pension scheme. Today, that figure is very close to 100% and the few employers that have failed to comply with the legislation face heavy fines. Whether they wanted to or not, the vast majority of UK employees are now saving money for retirement and although their futures are not guaranteed to be rosy, they are certainly more financially secure. Both employers and employees make contributions, resulting in an additional £2.5 billion saved into workplace pensions each year. In Ireland, which will introduce AE by 2022, there is a mountain to climb. According to research carried out by Standard Life in early 2017, only one-third of all private sector workers in Ireland have any sort of pension scheme while the topic of retirement planning never even occurs to three-quarters of all employees. This presents a massive challenge for employers, and their accountants, who will very shortly need to start preparing their workforce for across-the-board pension contributions. AE, which is currently subject to a public consultation process, is likely to apply to those between 23-60 years of age and earning over €20,000 per annum. Contributions will begin at 1% for employees, increasing to 6% in year six. Contributions will also be matched by employers up to a maximum of €75,000 and the proposed State contribution is €1 for every €3. Just to be clear: AE is probably going to apply to ALL employers. So a household employing one nanny will need to be just as diligent as a multinational corporation with 500 employees. The only differences will be in the scale of the operation and the timing. If Ireland follows the UK’s example, large corporations will be first in line. This will give SMEs, who are less likely to have pension arrangements in place, time to get their houses in order – but nobody will be exempt. Your role Let’s also be honest: not everyone is going to like this. Many employers, especially smaller ones, will regard it as an additional administrative and financial burden. Some employees may resent additional monies being automatically deducted from their payslips. Sadly, some will see it as a necessary evil akin to tax, rather than as a welcome gift for the future. In contrast to the UK, it is proposed that employees in Ireland – not their employers – will choose their pension provider on an individual basis. This could lead to confusion for employers. This is where you, the accountant, come in. Your existing relationship with your client puts you in the perfect position to prepare them for this sea change. By pointing clients in the right direction and helping them organise their payroll data, you can smooth what can otherwise be a painful process and add significant value to your client/accountant relationship. It will also make your clients less likely to fall prey to other payroll administrators that might claim to offer a one-stop solution for AE. Key factors I was fortunate enough to be involved in the UK’s AE project from the beginning when one of my clients, a restaurant chain with over 40 sites, asked me to embark on a pension planning and budgeting exercise. This was followed by an investigation into the optimum software and payroll services to make the proposed process work efficiently. I soon realised that significant adaptation to their existing systems would be required and that financial advice was only a tiny part of the overall process. There were also 14 volumes of guidance notes to digest. Since then, I have helped hundreds of employers – large and small – to introduce workplace pensions. While every business is different, there are three common factors when it comes to the effective roll-out of pension schemes. The first is data. Put simply, if you put bad data in, you get a bad solution out. So before any employer can even start to implement a pension scheme, they must get their employee and payroll data into impeccable order. More often than not, this requires an element of cleansing and re-formatting the data to make sure it’s compliant with whatever pension software they are going to use. Payroll operators may also need some degree of training to become familiar with the new process. The second factor is communication. Assuming the Irish Government goes ahead with AE, we can expect the relevant government department to immediately start a nationwide campaign to promote the initiative. Many clients will nevertheless remain perplexed about their obligations. The average employee will be even less aware, and this ignorance will be far from bliss. Much of the language associated with pensions and AE is highly technical and the process, with its staggered enrolment dates and incremental increases, has the potential to be confusing. Effective communication will be required at every stage of the process to make employers and employees accept, and eventually embrace, this initiative. At Vintage Corporate, we developed a comprehensive communications toolkit to help our clients keep staff informed and engaged. Aside from the statutory letters, we supported the enrolment process with staff notices, workshops and one-to-one meetings. This gave us the opportunity to introduce the wider topic of general financial planning, which can ultimately improve employees’ financial well-being and enhance their employer’s status as a great company to work for. The third key factor that facilitates adoption of workplace pensions is project management. These pension reforms will be Ireland’s biggest for many years and will necessitate a complex, highly regulated process. Each employer will have to complete numerous steps, often placing great pressure on support staff. Your clients can of course manage the entire exercise themselves, but it is likely to consume many hours that could be better spent. In the long run, it may be more cost-effective for them to call on the services of a professional adviser who has already managed the process several times and knows the ropes. A long road If you are speaking to your clients about AE, you should also help them realise that their obligations will be ongoing. Most employers naturally focus on the initial launch and implementation, giving less thought to the longer term. The UK experience has shown that this was simply the beginning. Like us, you could introduce a comprehensive ongoing service whereby a member of your support team maintains regular contact with enrolled companies and visits them at least once a year to ensure compliance. You could also present clients with an annual report and a certificate of good pension governance. Gary Briggs is Managing Director at Vintage Corporate and a leading authority on workplace pensions and group insurance.

Oct 01, 2018
Spotlight

The consultation on the automatic enrolment retirement savings system has begun, but what does the Government’s strawman proposal recommend? BY JOE CREEGAN The long-awaited strawman on automatic enrolment (AE) to retirement savings has been launched, two decades after it was first mooted. The background to its introduction is stark; recent statistics issued by the Central Statistics Office suggest that as little as one-third of employees outside the public sector have no pension coverage. This statistic ignores the potentially bigger issue around the adequacy of contributions being made, something I will come back to later. Worryingly, this statistic has worsened since 2008 when 54% of all employees were contributing to a personal pension or a pension plan sponsored by the employer. This figure includes public servants and the most recent corresponding figure is down to 47%. Ironically, AE in not new to Ireland as, in the past, it was not unusual for employers to make it compulsory for new employees to join the company’s pension scheme. This was more typical in the world of defined benefit schemes, where benefits are calculated with reference to final salary. However, the public sector aside, defined benefit schemes have mostly been replaced by defined contribution schemes. In such schemes, the benefits are determined by the contributions made and the investment return achieved. With the move to defined contribution schemes, the joining of the pension scheme has also become voluntary. During the recession, many employees faced with pay cuts and increased income tax chose – unsurprisingly – to sacrifice future income needs to protect current income. As a result, we now have a cohort of workers that have lost a decade during which they should have being saving for retirement. When you examine the detail in the proposed strawman, this cohort will unfortunately have to wait another decade before it gets close to making adequate contributions towards retirement. The detail Looking more closely at the detail of the consultation document issued on 22 August 2018, the proposal is to commence contributions in 2022 with an initial contribution of 1% from the employer and 1% from the employee and a contribution from the government of 0.33% in lieu of tax relief. This would be payable on gross annual earnings to a maximum of €75,000, which gives an effective tax break of 25% to all taxpayers. It remains to be seen how contributions in excess of €4,500 (6% of €75,000) will be treated for tax purposes and, indeed, how existing pension arrangements will operate going forward – many of which currently attract income tax relief at the marginal rate. Over time, contributions will be required to increase to 6% from the employer, 6% from the employee and 2% from the government in 2027. This would be close to an appropriate contribution level for an adequate income in retirement. The concept of increasing the contribution over five years is a sensible one and is similar to the ‘Save More Tomorrow’ concept in the US where employees divert salary increases each year towards pension funding. Over the last 10 years, this concept would not have worked in Ireland. Indeed, any attempt over the last 10 years to introduce AE might have been interpreted by hard-pressed taxpayers as just another tax, not unlike USC. On that note, the messaging around AE will be crucial. The public will need to understand that the appropriate level of contribution is the 14% arising in 2027 and that the initial contribution is simply a mechanism to phase in a more appropriate level of contribution. The fact that the Government proposes to appoint up to four external providers will counter any suggestion that this is “just another tax”. Another point of debate will be the capping of charges at 0.5% of assets under management on the assumption that the automatic enrolling of employees will reduce distribution costs. While the proposed ‘central processing authority’ will introduce cost efficiencies, it is important to ensure that employees have access to appropriate advice on their investment decisions and the adequacy of contributions being made. In relation to investment returns, this will continue to be the most important decision for employees – especially in light of the fact that these returns will continue to grow tax-free. In fact, over time and with the right investment strategy, this tax break will provide a greater benefit from the Exchequer than the 0.33% (increasing to 2%) of salary. As Figure 1 demonstrates, the investment returns far outweigh the cumulative contributions made over time. Communication and engagement It is important to recognise that AE is not the same as compulsion and many employees may opt out at every opportunity. Engagement with the pension scheme therefore becomes even more important if scheme members are to truly appreciate the benefits of long-term savings. Specifically, we need: To ensure that members are contributing at the right level as early as possible in order to maximise the contributions made and, more importantly, the investment return on these contributions. There is nothing to stop people starting contributions now, and indeed at a higher rate than proposed under AE; To ensure that members make the right investment decisions. For example, a low-risk approach might not be appropriate for someone with a long time horizon to retirement; and To help members understand the conversion from savings to retirement. This is particularly important where, after retirement, members retain responsibility for investment decision-making under approved retirement funds rather than purchasing an annuity with the retirement fund. It is therefore important that communication and engagement with scheme members, at the very least, addresses these three elements sufficiently. Furthermore, the introduction of AE will bring a younger cohort into retirement funding and we will need to reconsider how we communicate with this group, perhaps with better use of technology, to build trust and highlight the importance of long-term thinking. The AE consultation process will run until 4 November 2018 and while the initiative is positive, there will be many issues to be resolved before the system can be rolled out in 2022. In the meantime, and before AE becomes mandatory, we all need to do more to encourage our employees to join the company pension scheme and get the immediate benefit of the employer contribution and tax relief. For those employers without a sponsored pension scheme, why wait to be forced to introduce a scheme in 2022? Joe Creegan is Head of Corporate Life and Pensions at Zurich Life.

Oct 01, 2018
Ethics and Governance

Trustees lend their experience to a new guide on ethics and governance.  BY NÍALL FITZGERALD I have always been involved in sport in some shape or form since a very young age. If I wasn’t playing or coaching, I was standing behind the goalposts playing ball boy. Now I am the club treasurer.” “I fell into it. A tragic accident resulted in serious injury to one of my children. We did everything we could to raise funds for the operation and, thanks to the kindness, empathy and generosity of people, we succeeded. After that, helping others and getting involved in worthwhile causes I believed in came naturally.” These are just two responses we received from the volunteer trustees we spoke to as part of our research for the Concise Guide of Ethics & Governance for the Charity and Not-for-Profit Sector (Concise Guide), published by Chartered Accountants Ireland in September 2018. It was both a humbling and enlightening experience to meet with so many voluntary trustees across the island of Ireland as part of the research. They generously give their time, skills and energy to be involved in the governance of a charity or not-for-profit organisation. In keeping with their passion and nature of giving for the benefit of others, the participants were very forthcoming with insights, tips and sharing what their experience has taught them about being involved on the boards of such organisations.  Opportunities and challenges We explored the views of the research participants, also consisting of valuable input from executive and senior management from the sector, on topics related to ethics and governance. Many of these are reflected in the Concise Guide but there are two open-ended questions that are worthy of further emphasis in this article: What are the greatest opportunities for the sector today? What are the greatest challenges facing the charity/not-for-profit sector today? When we collated responses from all participants, we were able to summarise them into a number of distinct opportunities. Figure 1 illustrates the results of our collation of opportunities. Figure 2 illustrates the results of our collation of challenges.  While it is unnecessary to speak about each highlighted opportunity and challenge, as many speak for themselves, there were a few observations worth noting here: There were no significant differences in the items being discussed between Northern Ireland and the Republic of Ireland, although it should be noted that there were a couple of considerations unique to the sector in Northern Ireland. For example,  funding concerns resulting from loss of access to EU structural funds after Brexit occurs. There was also a sense of greater collaboration between organisations in making joint funding applications and sharing resources to deliver a common purpose in Northern Ireland.  There were concerns about organisations of a certain size and their ability to respond in a timely manner to some regulatory changes.  For example, General Data Protection Regulation (GDPR) is expected to have an impact on the fundraising activities of some charities and not-for-profits. Most research participants agreed on the importance of the regulations but expressed that, without the right skills or the resources to employ them, or right tone on the board, some organisations may struggle to comply.  When it came to regulations and standards in relation to financial reporting, many believed once you have a handle on your requirements, it is just a matter of ensuring your accounting system is set up to capture the required data. For example, those who were transitioning to Charities SORP outlined the difficulties that can be involved in reporting on income and costs by activity and ensuring that required reserves are established, in addition to capturing and recording movements to and from these reserves. All agreed, however, that life was a lot easier once it was set up. It was interesting to observe the non-accountants wishing to be more informed about the finances and keen to have the financial reporting requirements explained to them in a non-technical manner. Interestingly, but unsurprisingly, technology and social media were seen as both an opportunity and a threat. While this is elaborated on in the Concise Guide, it is clear that, regardless of which side of the divide you are on, technology and social media cannot be ignored. The highlighted opportunity to ‘make a difference’ (see Figure 1) in society provided a lot of comfort on what these volunteer trustees were gathered here to do. It is why they are involved in the first place. When you combine this with the highlighted opportunity that involvement in the sector offers for personal development, it recognises the unique intrinsic reward that is only realisable in doing good for others. What other reason do you need to pat a trustee on the back this coming Trustee Week, 12-16 November 2018? Ask them why they do it and maybe their response will inspire you to want to do it, too!   Níall Fitzgerald FCA is Head of Ethics & Governance at Chartered Accountants Ireland.

Oct 01, 2018
Management

Overcoming imposter syndrome can be challenging, particularly when it spirals into persistent negativity. BY DR ANNETTE CLANCY Have you ever felt that you don’t belong? That you’re a fraud? That it’s just a matter of time before you’re found out? If so, you’re in very good company including Maya Angelou, Albert Einstein and Meryl Streep. Research tells us that almost 70% of people will experience imposter syndrome (a feeling of incompetence despite all evidence to the contrary) at some point in their lives. This feeling is particularly prevalent among high achievers such as CEOs, who have deep-seated fears of looking ridiculous, of being humiliated and of losing face. Imposter syndrome is also accompanied by the anxiety that others will find out that you’re not as smart, creative, clever or capable as they think you are. You will be humiliated, shamed and ultimately deemed to be incompetent, thus confirming your inner fear of being unsuitable for this challenging job into which you have been promoted and for which you have worked so hard. So many of us spend so much of our time trying to be perfect or, if not perfect, getting so close that it makes no difference. Work cultures that foster a zero-deficit mentality further exacerbate this drive for perfection. Imposter syndrome also masquerades as other personality types: Perfectionists set extremely high standards for themselves. They tend to be critical, risk-avoidant and may suffer from overwhelming anxiety as they attempt to do the impossible. It’s a self-defeating proposition. Add this to a work environment that extols the virtue of perfection and you have a heady recipe for defensive behaviour and poor decision-making; Experts need to know every detail about a problem or situation before they feel confident about giving their opinion. They suffer from ‘paralysis by analysis’ and are afraid of looking stupid. They instead strive to know all the details about a problem before committing to a solution; and Micromanagers are unable to delegate and must oversee the smallest details of every project. Even when they do delegate, they are disappointed with the results and end up re-doing the work to their own standards. Other people’s efforts are never as good as their own. Overcoming imposter syndrome can be challenging, particularly when it spirals into persistent negativity. The following techniques can help to manage it and its symptoms. Break the silence Fear of humiliation keeps many people from talking about imposter syndrome. Yet, keeping it to yourself only escalates the anxiety and increases the stress. Tell somebody (anybody) about your fear and you may find that you meet another one of the 70% with a similar story to tell. You won’t be alone and you may even give someone else permission to articulate their fear also. Is your boss an idiot? Didn’t think so… you have been appointed to this position because your boss has evaluated your credentials and qualifications and has made a judgement call that you are the best person for the job. If you don’t trust your own judgement, at least trust theirs. You deserve the position, you are the right person for the role and you deserve to be here. Talk about mistakes Companies that operate no-blame cultures where employees are encouraged to talk openly about mistakes and problems are more likely to be supportive of staff wanting to relinquish attachment to their inner imposter. Focus on the positives Finally, take comfort in the fact that imposter syndrome is a symptom of success. If you feel like a fraud, more than likely you are an over-achiever and have very high standards. You didn’t get to where you are by wishful thinking and an accident of fate. Dr Annette Clancy is an organisational consultant and also researches organisational behaviour, in particular emotion in organisations.

Oct 01, 2018
Management

The success of any change programme will depend on an organisation’s ability to get a small number of things right. BY DR GERRY McMAHON If today’s workplaces are to survive and prosper into the future, change must be accepted as a normal part of life. The drivers of organisational change are many and varied. They are also constantly increasing due to influences such as globalisation, competitive pressures, political and economic developments, and ongoing technological improvements. As a result, ‘change management’ covers a host of initiatives including mergers and acquisitions, restructuring, entering new markets, developing new products and services, introducing new technology, changing organisational processes, upskilling, upsizing, downsizing and the re-organisation of work. Employee resistance and the law Employee resistance is the most common problem faced by management when implementing change. Such resistance frequently manifests itself in an appearance at the Workplace Relations Commission (WRC) or the Labour Court, though it spans a continuum from passive withdrawal from the process to actively sabotaging the change, thus ensuring its failure. Of course, in general, changes cannot be made to employees’ terms and conditions of employment without their consent. Many employment contracts contain a ‘variation’ or ‘mobility’ clause that may allow amendments to be made to the contract without employees’ consent. However, these clauses are limited in that they will only allow the employer to make reasonable changes to non-material terms and conditions. Hence, for example, if an employer fails to engage or consult in respect of the change, an employee could resign and claim constructive dismissal. The claim would be that the organisation acted unreasonably and/or that the organisation breached its contracts of employment by amending the terms without consent. Should consent be sought but not forthcoming, an organisation would find it difficult at that stage to proceed with the changes across the board. In deciding on these claims, the WRC will usually examine the extent to which the employer acted reasonably by engaging and/or consulting with staff and whether employees’ consent was unreasonably withheld. The reasons for employee resistance to change include the following: People are satisfied with, or prefer, the status quo; The change is seen as a personal threat; The cost of the change seems to outweigh the benefit and the change isn’t going to be a success anyway; and Management is perceived to be making a mess of the change. Related thereto, organisational change is often associated with significant risks to employees’ health and is equated with high levels of stress. Hence, it should be no surprise that all of the effective ‘change models’ acknowledge that: People take time to accept change; They experience a psychological and emotional process in doing so; During this process, feelings of emotional distress, helplessness and meaninglessness are common; and Employees eventually accept the change(s) and may even find meaning in their revised role or setting. However, it is also well known that many change initiatives fail to achieve their objectives as they are undermined by employee sabotage, falling morale, lost productivity or industrial action. To enhance the prospect of successful change, the following guidelines therefore warrant consideration. 1. Specify your ‘change’ objectives At the outset of the process, list the objectives of the change programme. This list of specific, measurable, agreed, realistic and time-bound (SMART) objectives should be framed in terms of both business and employee outcomes. What are the perceived advantages of the change programme? What are the assessment criteria and targets? 2. Involve employees from the outset Research confirms that the best way to avoid negative consequences is to involve staff in the decision-making from the very outset. Related thereto, empirical research reveals that good communication increases acceptance, openness and commitment to change. It is also true that a deeper strategy of participation allows for an array of options and opinions to be elicited and considered. By being involved, employees are more likely to understand the rationale for – and to influence the nature of – the change, thus reducing their anxiety and resistance levels. A common approach is to clearly outline the business case for (and inevitability of) change and to invite the employees\union to help in the search for a solution. This has merit in helping to minimise any negative fall-out that would accompany a process which simply tells employees that their terms and conditions (and job security) are under review. By engaging the union’s support in creating both clear business and people objectives, the change path should be smoother and completed more quickly. For example, a practical output from such a process may include supporting or financing individuals facing redundancy in finding new employment or developing new skills. For those employees opting to leave, the provision of career transition support to help them identify other suitable employers and roles will ensure that they feel supported in moving on, protect the employer’s reputation and minimise the prospect of the employee becoming disengaged and\or disruptive. Of course, in these circumstances some organisations take what’s termed the ‘co-optation’ route, where they pay off the leaders of a resistance group by giving them a key role, seek their advice to enable their approval and emphasise the value placed on their opinions. This is largely a ‘needs must’ combination of manipulation and participation. In a similar vein, some organisations prefer to progress change via coercion, as they apply direct threats or force on the resisters (e.g. threats of redundancy, transfer, loss of promotion, negative performance appraisals or bad references). Dimensions of this approach were identified in an ESRI study, which found that employers who faced employee resistance were more likely to increase their use of part-time workers and job rotation techniques. However, the fall-out from such a strategy should be carefully considered (e.g. reduced trust levels, declining morale and productivity, and labour turnover). 3. Tune into the employees While engaging key staff (and, if applicable, their union representatives) is essential, the prospect of success is likely to be significantly enhanced through a good communications strategy. By extending communication across all areas and levels, misinformation and misinterpretation can be minimised. Hence, fora should be provided where employees can share their concerns and be listened to. By encouraging questions, listening to employees and reflecting appropriately thereon, staff concerns can be allayed as they gain a better understanding of the necessity and format of the change – and how their issues are being addressed in the new order. Success in implementing change is normally associated with those who must live or give effect to the change. It is therefore important to view the change process through the eyes of the most crucial participants in the process including the managers who establish the priorities, devise the strategies, control the resources and manage the performance levels. The appropriate response is to listen to their concerns and think constructively and creatively, rather than defensively, about how to respond to them. Employees need to know what is happening, why it is happening and how it will impact on them. This has major implications for communication, training and follow-up with staff. At the most fundamental level, this is about helping employees to view or redefine their value in terms of the range of skills and competencies they have to offer, and to find opportunities for deploying their abilities. 4. Select leaders and support managers Some organisations recognise that there are proactive and open-minded managers and staff who embrace change willingly and effectively. Their identification and engagement throughout the organisation can help ensure that it’s not perceived as just a ‘top down’ or executive onslaught. Dr Gerry McMahon is Managing Director at Productive Personnel Ltd., a human resources consultancy and training company.

Oct 01, 2018
Management

Which of these tech titans will win the battle for your office? BY MICHAEL J. WALLS In my last article, I wrote about Google’s G Suite and the benefits of having a cloud-based office application for a digital-first finance function. However, having recently attended a Microsoft event entitled Modern Finance – Cultural Transformation in a Digital Age, I was forced to have another look at Office. There’s a battle brewing between the two tech giants to become your primary office-based application. Microsoft dominated this space for decades with Office until Google entered the race in 2006 with a suite of cloud-based office applications. In recent years, there has been an increased uptake in cloud technology and this has allowed Google to take a chunk of Microsoft’s market share. I decided to put the two head-to-head and examine the ‘trinity’ of applications used in businesses every day (email, spreadsheets and word processing) to find out who comes out on top. Round 1: email Anyone who has worked in an office over the last two decades will be familiar with Microsoft Outlook. Love it or hate it, Outlook isn’t going anywhere and is still regarded by many businesses as the primary application for emails. In recent years, an upsurge in businesses using webmail, which coupled with an increase in mobile device usage, has allowed Gmail to take a few swings at Outlook. Outlook: the traditionally desktop-based email application is now available in a web-based format. For those of us who want a slicker layout and style to their emails, there are more formatting options available than in Gmail. Gmail: finding an email is incredibly easy (as one would expect from a search engine) and keyboard shortcuts make life easier for navigating the dozens of emails received each day. Google recently introduced ‘confidential mode’, which enables further encryption of sensitive emails. Users can set an expiration date and/or an SMS passcode on their sent emails. Round 1: Google. Round 2: spreadsheets I’ve always been a fan of Microsoft Excel. The first accounting use I ever had for Excel was as a teenager helping my Dad with VAT analysis. Since then, I was hooked. When I joined Google in 2015, I was eventually converted to Google Sheets. I found Sheets to be a useful collaborative tool with most of the functionality of Excel. This is going to be a tough round to decide. Microsoft Excel: desktop-based and is sometimes prone to crashing. We have all seen the dreaded white screen with errors. On the upside, there is a lot of additional functionality not yet available in Google Sheets, such as Power Pivot and Power BI for data visualisation. To catch up and get ahead of Google Sheets, Excel has introduced co-authoring via OneDrive. This enables multiple users to work on the same spreadsheet at the same time. This is going to create a lot of efficiency for accountants currently addicted to saving multiple versions of Excel spreadsheets. Google Sheets: Sheets was collaborative in nature long before Excel introduced co-authoring. If an Excel function is not available in Sheets (such as ‘remove duplicates’), you can use a free add-on to give you this functionality. There are also some very useful Google-specific formulae not yet available in Excel, such as Filter and Query. Finally, Sheets also syncs seamlessly with other G-Suite applications such as Docs and Slides. Round 2: Microsoft. Round 3: word processing The last of the office ‘trinity’ but by no means least, the beloved word processor. Microsoft Word: as accountants, this is our default application for preparing reports, financial statements, engagement letters and even Accountancy Ireland articles! Microsoft Word is very easy to use, with Mail Merge and formatting a document much simpler. Google Docs: Docs gives you the ability to insert a table from a Google Sheet, which syncs the data from the source rather than embedding a spreadsheet. If you’re preparing a set of financial statements, the latest numbers are auto-updated in the document. Google Docs is easier for tracking changes from multiple users. Changes are clearly marked for the document owner to accept or reject. This is a game changer for preparing and reviewing legal agreements, which is currently quite tedious in Microsoft Word. Round 3: draw. Overall winner It’s hard to say which offering is better. Both Microsoft and Google have come a long way since the initial release of their respective offerings. Choosing one over the other comes down to the business owner and what is needed from the application. If you’re looking for something collaborative, Google G Suite might be the answer. If you want something with added functionality, Microsoft Office could be the solution. My advice would be to trial both and see which one suits you best.   Michael J. Walls ACA is the Founder & CEO of Dappr and Chartered Accountants Ireland’s 2018 Young Chartered Star.

Oct 01, 2018
Spotlight

Both the Republic of Ireland and United Kingdom are driving pension reform, which is a good thing for their citizens. BY CAROL MALCOLMSON The recent publication of the Roadmap for Pensions Reform 2018-2023 in the Republic of Ireland from a Northern perspective is a very thought-provoking document. It sets out the ambition for pension provision in the Republic to cope with the three burning issues for any jurisdiction: an ageing population; the ratio of those in employment to those in retirement; and the inadequacy of basic State pension provision. In the paper, the concept of automatic enrolment (AE) has been introduced. This is something we in Northern Ireland have been familiar with for a number of years. It is interesting that the paper sets out a desire to ultimately set contribution levels at 14% of salary, of which 6% is borne by the employer. Contrast that with UK regulations which state that, from April 2019, contribution levels will be 8% of “qualifying earnings” with the employer contributing 3%. The desire to have 14% of salary directed to retirement provision is to be commended. We all know that contribution levels of 8% of qualifying earnings will not deliver a comfortable retirement income. However, higher employer pension contributions mean higher fixed costs for the business. Therefore, this has to be balanced against remaining competitive in the global marketplace. The level of opt-outs in Northern Ireland has been much lower than anticipated. It will be interesting to see how next April’s increase changes the mind-set of employees. It will also be interesting to see if any UK political party has the intention to set contribution levels where they have a meaningful impact on retirement provision. This is not very high on the political radar at the moment, I suspect, but it is something that needs to be revisited in the near future. The Republic of Ireland roadmap also outlines proposals for the reform of drawdown options and this should be welcomed. Legislation introduced in 1972 needs to reflect lifestyles in the 2020s. The introduction of the Taxation of Pensions Act 2014 in the UK swept away a set of very complex drawdown and death benefit restrictions applicable to money purchase schemes. This has resulted in greater public engagement in pensions. Prior to the Act, the concept of being able to access whatever a client wanted, whenever they wanted, from a pension pot was caught up in a complex set of rules and regulations. On death, the ability to cascade wealth through the generations was restricted by a penal 55% tax charge on individuals drawing income from their pension pots. The introduction of flexi-access drawdown and inherited drawdown has fundamentally changed the pension landscape in retirement. Flexi-access drawdown allows clients to manage their affairs in a tax-efficient way without the incumbent problem of forced annuity purchase at a time when gilt yields are poor. It also presents opportunities for the profession, as tax consequences need to be managed. The age at death currently determines the tax treatment – under 75 means no tax consequences and over 75 means that benefits are taxable at the beneficiaries marginal rate as follows: Pre-April 2015 In the case of a 65-year old client with no spouse, a pension pot of £1 million, and drawing an income of £30,000 per annum incurs a tax charge on distribution to residual beneficiaries of £550,000. Post-April 2015 In the case of a 65-year old client with no spouse, a pension pot of £1 million, and drawing an income of £30,000 per annum incurs a nil tax charge on distribution to residual beneficiaries.  Inherited drawdown is possibly the most important positive change to UK pension legislation in the last 40 years. The tax treatment on death was a genuine disincentive for clients. Pension reform in either jurisdiction has to be applauded. Going forward, we need to empower and encourage individuals to plan for retirement because it is a fact of life – we cannot stop the clock ticking. From my perspective, it is clear that the Republic of Ireland and UK are pushing ahead with pension reform, and it is clearly beneficial for those who are prepared to put some savings aside now for a more affordable retirement. Carol Malcolmson is a Partner in BDO Northern Ireland’s Wealth Management department.

Oct 01, 2018
Spotlight

A comprehensive guide to the tax rules as they apply to pensions in the Republic of Ireland. BY CRÓNA BRADY Are pensions really too complicated? Many individuals don’t invest in their retirement and one of the reasons often cited is a lack of understanding when it comes to pensions. This article will outline the tax rules around pensions, consider the tax issues arising when contributing to pension funds, and highlight the tax rules that apply when an individual retires and wants to access their pension fund.  First, let’s look at the three main types of pension available in Ireland: the contributory and non-contributory State pension; occupational pensions; and private pensions. The State pension The contributory State pension is not means-tested and is paid to individuals from the age of 66 who have made sufficient PRSI contributions during their working life. The non-contributory State pension is a payment for individuals who are over 66 years of age, but do not qualify for the contributory State pension because of insufficient PRSI contributions, or who only qualify for a reduced contributory pension based on their social insurance contributions. Both State pensions are subject to PAYE or income tax, but not USC or PRSI. The usual tax credits, including the PAYE credit, apply. Occupational pensions Occupational pensions are pension schemes provided by an employer in the workplace. A scheme of this nature is generally funded by both employer and employee through contributions based on a percentage of an employee’s gross salary. For example, an employee might contribute 6% of their gross salary to the occupational pension while an employer will contribute 4%. Tax relief can also be granted to employees on their contributions and this will be discussed in further detail later in this article. An occupational pension scheme will be either a defined benefit or a defined contribution scheme. In a defined benefit scheme, the pension paid on retirement is related to final salary and the number of years of employed service. The employer will have to fund the pension regardless of the value of the fund at retirement age, hence why these schemes are increasingly rare. Under a defined contribution scheme, the pension payable is based on the value of contributions in the fund at retirement age. Employers in Ireland are not legally obliged to provide an occupational pension to employees. However, if they do not operate an occupational pension scheme, or have certain restrictions to accessing the scheme, they must by law ensure that employees at least have access to a standard Personal Retirement Savings Account (PRSA). There are tax benefits available to companies that set up a Revenue-approved occupational pension scheme. For example, the contributions paid by the company will be fully tax deductible for corporation tax purposes provided they do not exceed Revenue limits, which are generous, and the contributions are paid during the accounting period in which the deduction is made. Deductions cannot be taken for accrued pension contributions, while gains arising in Revenue-approved schemes made by the pension fund are exempt from income tax and capital gains tax. Furthermore, any employer’s contribution to the employee’s pension fund will not give rise to a benefit-in-kind (BIK) for the employee. Private pensions While an occupational pension is organised by an employer, a private pension is one that is organised by the person themselves. This type of pension is common among the self-employed and workers whose employers do not provide an occupational pension scheme. Private pensions generally take the form of a PRSA or a Retirement Annuity Contract (RAC). A PRSA is a personal pension plan available to both self-employed and employed individuals who may or may not have an occupational scheme, and is taken out with an authorised PRSA provider. On retirement, a PRSA provides retirement benefits based on the amount of contributions paid and the growth on these contributions. PRSAs are available regardless of your job or employment status so part-time employees, casual workers, contractors and homemakers can take out a PRSA. An RAC is another form of personal pension plan that can be used to provide a tax-free lump sum and a regular pension on retirement. RACs are available to the self-employed or employees who do not have an occupational pension scheme. The value of the pension pot under the RAC depends on the contributions made and the investment growth. Contributions to both plans are generally made by the individual, although some employers contribute to PRSAs. Where an employer contributes to a PRSA, this is treated as a BIK. Employer contributions to an employee’s PRSA are not liable to USC or PRSI, however. Tax benefits of occupational and private pension plans All three types of plan are generally tax-approved by Revenue, which means: You can receive income tax relief on your own contributions; You are not taxable on employer contributions (if any); Your investments roll up tax-free within the pension fund; and The lump sum you can take at retirement is also tax-free up to certain limits. Tax relief on contributions Self-employed or individuals in non-pensionable employments can claim tax relief on contributions to Revenue-approved private pensions. Employees can also claim tax relief on contributions to Revenue-approved occupational pension schemes. Relief is granted up to the highest rate of income tax paid by the taxpayer. If you pay tax at the marginal rate of income tax, relief is therefore granted at 40%. If you are a standard rate taxpayer, relief at the rate of 20% is granted on gross contributions made. There is no PRSI or USC relief available on pension contributions. The maximum relief that can be granted is based on your age and relevant earnings. If you are 35 and earning €80,000, for example, you can put 20% of your salary (€16,000) into your pension. As you get older, you can save a higher percentage of your annual salary. The percentages are listed in Table 1. Net relevant earnings are earnings from employment (including BIKs and bonuses), trades and professions less certain payments and deductions and non-pensionable employments. The maximum net relevant earnings for each person that can be taken into account for tax relief is €115,000. This means that earnings over €115,000 will not be taken into account in calculating the allowable pension contribution. Contributions exceeding the limit for a particular year can be carried forward and claimed in the following year, and spouses and civil partners are treated separately. Contributions can also be made until an individual reaches 75 years of age. An employee who is already a member of their employer’s occupational pension scheme can make Additional Voluntary Contributions (AVCs) to their pension in a given tax year. The maximum tax-deductible contribution an employee can make to their AVC is aggregated with contributions already made to the occupational pension scheme. The above limits for tax relief also apply. Claiming tax relief If you are an employee paying PAYE, tax relief is generally applied by your employer via payroll. If not, you can apply online using Revenue’s MyAccount platform. For others, including the self-employed, you can apply for tax relief on contributions through your annual income tax return. Where contributions are made after the end of the year of assessment but before 31 October (or the Revenue Online Service/ROS extended date) of the following year, it may be treated as made in that year once an election is made. Retirement options There are several choices when it comes to taking your pension benefits, whether you are in an occupational pension scheme or a personal pension. The options are broadly similar but there are several factors that influence which option is more suitable – not least the size of the retirement fund, the level of income required to fund retirement, other income sources, inheritance planning and current health. Most people will generally choose to take a tax-free lump sum from their pension. The balance of the fund must then be used to either purchase an annuity or investment in an Approved Retirement Fund (ARF). If, however, an individual does not have a pension of at least €12,700 per annum for life or has not reached the age of 75, the lower of €63,500 or the balance of the fund must be transferred to an Approved Minimum Retirement Fund (AMRF) or used to purchase an annuity before an ARF can be purchased. Tax-free lump sum: the maximum tax-free lump sum that can be taken on retirement is 25% of the value of the fund in the year of payment. This is subject to a lifetime limit of €200,000. Any excess pension lump sum over €200,000 will be subject to income tax with the next €300,000 taxed at 20% and the balance taxed at 48% (40% income tax and 8% USC). If you are a member of an occupational pension scheme, you can take a tax-free lump sum based on your salary and service with the employer up to a maximum of 1.5 times your salary (subject to the overall maximum of €200,000). ARFs: ARFs are after-retirement investment plans that allow you to continue to invest your pension fund during retirement and draw down money as you need it, rather than buying an annuity. Annuity: an annuity is a traditional pension policy that guarantees a fixed income throughout your life in retirement. This differs to an ARF, which allows you to draw down different amounts as you need it. Unlike ARFs, when you die, an annuity typically dies with you. AMRF: an AMRF is similar to an ARF in that any income or gains arising in the fund are tax exempt. However, before investing in an ARF, you must have guaranteed income of over €12,700 per annum including the State pension. If you don’t, then €63,500 of the pension pot must be used to purchase an AMRF or an annuity. The balance of funds can then be invested in an ARF. An individual can only have one AMRF and it becomes an ARF on reaching age 75, or if you satisfy the specified pension income requirement of €12,700 before age 75, or if you die before age 75. Accessing your pension pot on retirement On retirement, you will want to gain access to your pension pot. Below, we set out some available options. It is not an exhaustive list, as individual circumstances may differ. All the options discussed below can apply regardless of whether you have a personal pension or an occupational pension plan and crucially, they depend on your level of income on retirement. Pension fund generates an income greater than €12,700 per year: if you are under 75 years of age and your pension (including the State pension) is more than €12,700 per annum or if you have an existing AMRF with a total premium of €63,500, you can take a tax-free cash lump sum of up to 25% of the value of the pension fund, subject to a maximum of €200,000. Alternatively, those in occupational pension schemes can take an amount based on salary and service up to a maximum of 1.5 times your salary. With the remaining balance, you have four options and must choose one of the following: Buy an annuity, which is a guaranteed pension income for life; Invest in an approved retirement fund (ARF); Draw down taxable cash; or A combination of the above. If your pension fund generates an income less than €12,700 per year: as noted previously, if you are under 75 years of age and your pension (including the State pension) is less than €12,700 per year, you can still take a 25% tax-free lump sum but you must either purchase an annuity or use the first €63,500 to invest in an AMRF. You can then invest the balance in an ARF or take it as taxed cash. You also have the option to buy extra guaranteed pension income to bring your total up to €12,700 per annum. Withdrawals and taxation ARF and PRSA: once retirement age has been reached, you must withdraw a certain percentage from your ARF or PRSA each year under Revenue rules. Every year, Revenue will apply a tax on the assumption that you withdraw a percentage from your ARF and vested PRSA, regardless of whether you do or not. This is known as an imputed distribution. The amount payable is a percentage of the value of your ARF or PRSA fund at 30 November each year. The percentage depends on your age and is 4% if you are 60 years or over for the full tax year, 5% if you are 70 years or over for the full tax year or 6% if you have pension assets of €2 million or more and are over 60 years of age for the full tax year. Any payments from an ARF, AMRF, annuity or PRSA are subject to income tax, PRSI and USC. Tax must also be operated at source by the pension administrator. Tax credits can be allocated against these payments to reduce any tax arising. The income tax rate (20% or 40% before PRSI and USC) depends on the tax rate applicable to you. Pension administrators must apply tax at the marginal rate (40%) unless they have an up-to-date Tax Credit Certificate for the pensioner. PRSI does not apply to withdrawals by individuals over 66 years. Annuity: payments from an annuity are subject to income tax, PRSI (if under 66 years of age) and USC. AMRF: an AMRF’s investment growth can be accessed or drawn down before the age of 75. However, individuals can make one withdrawal of up to 4% of the value of the assets of the AMRF each year, which is taxed under normal income tax rules. Any withdrawal taken from an AMRF can be offset against the amount you need to take out of your ARF each year. An AMRF may not be suitable for those who need to take a regular drawdown from a fund before the age of 75. This is why many people choose to take out an ARF with an AMRF, so that the ARF can be used to draw down regular income. Serious illness: if you suffer bad health and need to retire early as a result, you may be able to take your benefits early. Pension providers will generally seek medical certification from a medical practitioner. Limits on tax-exempt pension funds: Finance Act 2006 introduced a limit on the value of an individual’s pension fund that qualifies for tax relief. This is called the Standard Fund Threshold and applies to occupational pension schemes, RACs, PRSAs and certain foreign pension schemes. From 1 January 2014, the maximum allowable pension fund (excluding State pensions) on retirement for tax purposes is €2 million. If the fund is greater than this limit, income tax of 40% will be charged on the excess when it is drawn down from the fund. Conclusion In Ireland, only 35% of workers in the private sector contribute to a private pension. At the moment, it is estimated that over 600,000 people claim tax relief on pensions in Ireland and the fact that relief is available to everyone – including employees and the self-employed – should act as an incentive in encouraging much-needed pension funding. While tax relief is progressive in that marginal rate taxpayers can claim tax relief at the top rate of income tax, the fact that the relief is a deferral of tax must be kept to the fore in any discussion on pension reform. If measures are introduced to restrict the tax relief currently available to the marginal rate taxpayer for pension funding purposes, or to restrict the tax relief on employer pension contributions, this will discredit any policy measures aimed at encouraging individuals to take responsibility for funding their own income in old age. Cróna Brady ACA is a Tax Manager at Chartered Accountants Ireland.

Oct 01, 2018
Management

Amatino’s Barry Kieran shares his thoughts on the challenges and opportunities facing small- and medium-sized practices. What trends do you see in terms of evolving client needs? Sectoral trends are very important in the current market where nuances can have a significant impact on the bottom line. More than ever before, clients need access to accurate, timely information that takes into account the various internal and external factors that influence their ability to compete and grow their businesses. For some time now, Amatino has noticed a trend where clients – particularly in the SME sector – are demanding more specialised services and advice in areas like finance, funding and working capital facilities. Businesses increasingly want to benchmark their own performance so they are looking for advisors with sectoral expertise. We see a growing trend of businesses seeking to outsource finance and payroll so that they can focus on their core business activities. Many small businesses have outgrown their existing accounting systems and outsourcing is attractive both from a cost perspective and because it frees up internal resources while helping businesses keep abreast of changing regulatory and legal requirements. Small businesses making the transition up to medium frequently need to rethink their approach and formalise and upgrade their management information system.  How are you responding? Priorities for Amatino include being watchful and responsive to clients’ working capital needs, Revenue practices, foreign exchange fluctuations and other sector specific trends. We recruit specialist staff with the industry experience to deliver the sectoral expertise that clients increasingly expect. Keeping pace with technology is vital so we continuously invest in our IT platform and systems. Cloud, scanning, artificial intelligence and client apps help us meet client demands for on-the-go access to live information. As a border-based practice, what is your sense of preparedness for Brexit? The sense of preparedness is still poor because businesses have no certainty about what the UK’s future relationship with the EU will look like. Very few businesses have developed a comprehensive plan. SMEs, particularly smaller businesses, lack the time and resources to prepare for different scenarios. Enterprise Ireland and the local enterprise offices are promoting a scenario-based modelling technique covering areas like tariffs, lengthened supply chains, and labour and financial restrictions – but most businesses still need a more comprehensive plan. We are encouraging all clients to talk to us so that we can help them put strategies in place that will see them through the next couple of years, whatever the eventual Brexit outcome. Is your firm experiencing any pressure points? In common with most practices, our experience is that finding people with the right training and experience can be difficult in the current market. Clients are experiencing the same recruitment pressures – that is one of the reasons why some clients are choosing to outsource their finance function. We have addressed this through training and the skills we seek in new people. What is the biggest obstacle facing small- and medium-sized practices? Talent acquisition would be one of the big obstacles, particularly for smaller firms. Practices can’t afford to stand still, but it can be difficult for smaller firms to secure the expertise and resources they need to thrive in a very competitive marketplace. Also, very few smaller firms seem to prioritise investment in their website, brand and digital services; failing to do so sends a message to clients and potential clients. It’s important to stand out from your competitors and not let yourself down when prospects or future staff check out your online profiles. What single piece of advice would you give to your fellow practitioners? If you haven’t done so already, embrace technology. The right type of client appreciates the efficiencies and benefits of a real-time management information system. Understanding the live position of their business enables them to make good decisions that maximise opportunities and minimise risk. This also makes lots of sense to the accountant in practice working with the client. It is also especially important for good real-time and regular communication, and to improve efficiencies.    Barry Kieran FCA is Managing Partner at Amatino, which has offices in Dublin, Cavan, Monaghan and Carrickmacross.

Oct 01, 2018
Strategy

While business continues to hope for the best, the prospect of a no-deal Brexit appears to be strengthening. BY MICHAEL FARRELL More than two years on from the Brexit referendum, the business community still has no clarity on the UK’s future relationship with the EU. In recent months, rising political tension in the UK has contributed to anxiety among businesses that the prospect of a no-deal Brexit appears to be strengthening. A July white paper set out the UK’s approach to economic partnership, security partnership, cross-cutting cooperation (in areas such as personal data, cooperative accords in science and innovation, and fishing opportunities) and institutional arrangements. It said that preparations for a range of possible outcomes, including a no-deal scenario, should continue and “given the short period remaining before the necessary conclusion of negotiations this autumn, the Government has agreed that preparations should be stepped up”. Within days of its publication, the white paper heightened political division in the UK Government with Prime Minister Theresa May’s difficulties compounded by amendments to the UK’s Trade Bill, which is currently making its way through Parliament. These included an amendment ruling out the UK sharing the EU’s VAT area, which could threaten the avoidance of a hard border in Ireland. At the time of writing, while much is undoubtedly going on behind the scenes, things are relatively quiet during Parliament’s summer recess. However, the Conservative Party conference at the end of September will stir tensions again and may impact the UK’s negotiating stance ahead of the next EU Council summit in October. Nothing is agreed until everything is agreed While Brexit may mean Brexit, despite the political to-ing and fro-ing, we’re none the wiser as to what Brexit will eventually mean for businesses. Currently, the draft Withdrawal Agreement between the UK and EU is 80% agreed, with a 21-month transition period envisaged whereby the UK would stay in the Single Market and Customs Union until 31 December 2020 to give businesses and administrations time to adapt. However, all we know for sure is that this could still unravel since nothing is agreed until everything is agreed. Indeed, if anything, the prospects for a no-deal outcome seem to be growing stronger. In June, the EU urged member states to step up preparations for a potential no-deal outcome while, more recently, UK Trade Secretary Liam Fox, quoted in The Sunday Times, put the odds on the chances of the UK leaving without a deal at 60/40. Meanwhile, the border between Ireland and Northern Ireland remains a major hurdle. While the UK and Ireland have both said that they will not erect a hard border, it is difficult to see how customs checks and border police can be completely avoided in a no-deal scenario. Even if a border is somehow avoided, there will be customs and border issues to overcome as EU member states will not want unregulated goods entering the single market. It is also likely that there will be customs skills shortages. Speaking after a Cabinet meeting in Derrynane, Co. Kerry in July, Taoiseach Leo Varadkar said Ireland could have to hire around 1,000 new customs and veterinary inspectors to prepare Ireland’s ports and airports for Brexit and, earlier this year, over 550 border force roles were advertised by the Home Office, including some Belfast-based roles. Worryingly, an InterTradeIreland survey of 751 businesses carried out in June/July 2018 showed that only 20% of respondents anticipate having a Brexit plan ready by March 2019. Of the businesses surveyed, 30% predicted a negative sales impact and 24% are deferring investment plans. The survey also showed that businesses face challenges in areas such as overhead costs, energy costs, new competitors and difficulties in recruiting. Where businesses have plans in place, we are beginning to see estimates of the potential cost impact of various Brexit scenarios. This is particularly true of larger businesses. Bombardier, for example, recently estimated that it would cost their Belfast plant, which operates a ‘just in time’ supply policy, around £25-30 million to hold a number of months’ worth of material to avoid stopping its lines in the event of a no-deal Brexit. Useful reading material For Chartered Accountants, an interesting paper to review is the recent publication by the Tax Strategy Group (TSG) on the taxation and customs impacts of Brexit. This notes that traders may use a customs agent for deferred payment of VAT and excise, and for assistance with customs clearance procedures. The paper points out that such services come at a cost to business. “In 2016, over 1.3 million customs declarations were submitted to Revenue by 140 agents on behalf of numerous Irish traders, whereas only 75 individual businesses submitted declarations on their own behalf. This suggests that a significant portion of third-country trade is facilitated by agents and this is also likely to be a feature of trade with the United Kingdom post-Brexit.” The TSG paper states that customs formalities on trade with “third countries” are currently managed through Revenue-approved authorised economic operators who pay duty and VAT on a monthly basis rather than at the point of import. Ireland has 144 authorised economic operators, which account for 89% of third-country imports. Revenue has identified 38,000 traders who have regular dealings with the UK and a further 100,000 who have less frequent trade. It is the larger group, with infrequent trade, that is at risk of significant changes in processes as they are less likely to have authorised economic operator status, the paper states. Other useful publications include a seven-point fact sheet setting out what businesses across the EU 27 need to do to prepare for Brexit. It warns that businesses will need to make all necessary decisions, and complete all required administrative actions, before 30 March 2019 in order to avoid disruption. It also covers responsibilities under EU law in areas such as the supply chain, certificates, licenses and authorisations, tax, rules of origin, restrictions on the import and export of goods, and the transfer of personal data. Bord Bia has published a guide for current and potential food and drink exporters, which aims to help identify operations partners, establish more efficient distribution channels and devise strategies for reducing supply chain costs. Chartered Accountants Ireland and the Institute of Chartered Accountants in England and Wales have also jointly published a guide to help businesses prepare for the post-Brexit trading environment. Dangers on the horizon As well as trading and supply change challenges, other dangers include a weaker Sterling and recruitment difficulties. Businesses in Ireland and Northern Ireland are not alone in facing skills shortages – recruitment difficulties are also being felt by employers in the UK. According to the latest quarterly Labour Market Outlook from the CIPD and the Adecco Group, labour supply is failing to keep pace with demand, exacerbated by a “supply shock” of fewer EU nationals entering the UK. The number of EU-born workers in the UK increased by 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. As we move into the last quarter of the year it is frustrating that, more than two years on from the referendum, there is still so much uncertainty. Chartered Accountants will be helping businesses review budgets and plans for 2019 in the coming weeks. As is always the case in uncertain times, cash and costs will need to be the focus pending greater clarity on what the future holds.   Michael Farrell FCA is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Oct 01, 2018
Spotlight

The pension industry has struggled to get its message through to younger people, but maybe there’s a better way. BY MUNRO O’DWYER Let’s start at the beginning. What reasons do people give for not saving into a pension? Some believe that they don’t make enough money to save for a pension; they believe that they won’t need a pension; they are prioritising paying down debt; their employer doesn’t offer a pension scheme they can participate in; they are already struggling to manage their finances on a week-to-week basis. There is also a cohort that believes pensions are a con, associated with rip-off fees and rogue financial advisers. Other reasons do get mentioned, but the list above covers more than 90% of individuals. From the pension industry’s perspective, this makes no sense. How can these people not see the benefits of tax relief or the magic of compound interest? Do these people not know that the State pension may be unsustainable? Don’t they understand that one in two children born today will live to be 100? Both sides are simply not talking to each other, certainly not in any meaningful way. Late last year there, was a Twitter post from a financial advisor which stated: “By the time you’re 30, aim to have 1x your annual income set aside for retirement. At 40, 3x; at 50, 6x; at 60, 8x; and by retirement, 10x”. There was lots of variety in the responses, but my favourite captured the disconnect perfectly: “By age 35 you should have double your salary saved. 35 year old me: I’M SUPPOSED TO HAVE A JOB??” The cause of the disconnect Why does the disconnect exist? Very simply, immediate gratification has enormous appeal. Psychologists tell us that humans act upon the ‘pleasure principle’, which is a drive to gratify our needs, wants and urges. In olden times, when people didn’t live very long, such thinking made sense – but we still live with that mental programming. So, back to pensions and why people don’t save. Very simply, sacrifice is a hard sell. For confirmation of this point, ask any politician. Saving into a pension offers a route whereby we are saving for our future selves – a person many of us just don’t connect with. People plan for the near-term but when it comes to who they’ll be in 20 or 30 years, that doesn’t act as a motivator. We are also more consumerist than in the past. Marketing messages promoting the latest technology, clothes, car or other purchase have very strong appeal and come at us from all directions – TV, billboards and now, our phones, iPads and PCs all facilitate a drumbeat of temptations. This all drowns out arguments around compound interest, of course, and income shortfalls in our seventies, eighties and nineties. Generation Y and the millennials So do we simply bemoan Generation Y and the millennials who won’t see things our way and save for a pension? That is just too simplistic. Pensions are not the only barometer of financial responsibility and pensions are not the only savings route that makes sense. There is lots of evidence to show that those in their twenties, thirties and forties can, and do, save for tomorrow. The savings vehicle is just not a pension – it is a home, a car, a wedding, some tangible aspiration. There may not be much that is tangible about a pension for a 35-year old when set against the financial challenges they are facing. Consider the couple in their 30s who see the money they pay on rent every month as a waste and a diversion away from saving towards a house that offers a reasonably solid investment, but also delivers a home for their family. Pensions are very worthy, they are very helpfully tax-incentivised by the State, but they don’t offer that immediate tangible benefit that a step on the property ladder offers. So the first challenge to recognise is that pensions have stiff competition for people in their thirties as demands on income for people in this age bracket are significant – rent, affording a mortgage, childcare, caring for dependants, and that’s before paying for holidays and the latest iPhone. How does the financial services industry react to these nuanced financial challenges? By giving blanket advice to put every spare penny into a pension. From the earliest age possible. And, as the Twitterati called out, this is not always appropriate, nor reflective of the financial circumstance of individuals, and ultimately it is unhelpful and doesn’t achieve the desired objective. 35% private sector pension coverage in Ireland proves the point. Taking a fresh perspective So what is effective? For a start, I believe that we need to meet people where they are in terms of their personal financial circumstances. We need to be smart about what we are trying to do. Many people who would benefit the most from support have a relatively low average level of investible assets, which means that it simply isn’t cost-effective for most advisers to spend time with them to develop or maintain a financial plan – so don’t make this the ambition. Technology can help. Financial apps that can process the range of variables that make up an individual’s financial behaviours are needed. The mantra can’t be that saving for a pension is “right” and that not saving for a pension is “wrong”. Prompts are needed to improve individuals’ financial behaviours, prompts that are grounded in sound data-driven logic and behavioural theory, and these technologies have emerged over the past number of years. Pensions can often feel like a very big commitment. A short while Googling “pension contribution rates” will lead to eye-watering amounts being required to deliver even a modest income in retirement. I would propose a different approach. I would argue that the best way to set goals is to make them so small that they’re fail-proof. Start there, and build on those initial (small) successes. Do that, and you create a domino effect that can help you reach more ambitious goals faster. Learning a new language We are about to embark on a new departure for pensions in Ireland. Auto-enrolment (AE) is planned to be introduced from 2022 and the philosophy is that AE will “nudge” young savers into a pension and inertia will keep them there. The UK is past this point and there are some great examples of communications that are being developed in that market. Last month, the Association of British Insurers launched a “Love Your Pension” campaign, with key messages around the fact that it’s your money; that a small change leads to a big difference; that when you save, your employer tops it up; that the Government tops it up too and it’s worth waiting for. Pensions have a really valuable role to play in supporting individuals to save, but those individuals have complex, messy financial lives and these factors need to be taken into account. Only then will we see significant success. Munro O'Dwyer is a Partner at PwC Ireland.

Oct 01, 2018
Feature Interview

Shaun Kelly, Global COO at KPMG International, recounts a career that took him from West Belfast at the height of The Troubles to the US and beyond. Shaun Kelly, Global Chief Operating Officer (COO) at KPMG International, has moved house 14 times. It is often described as one of life’s most stressful events, but Shaun wouldn’t strike you as the ‘stressed out’ type. Speaking by phone from his office in Manhattan, the Belfast native credits much of his family’s ability to transition from country to country and city to city to his wife of 34 years, Mary, with whom he has four children. Without Mary’s supportive influence, it’s difficult to see how Shaun could have enjoyed such a stellar and varied career, which began in what was then Stokes Kennedy Crowley & Co. (SKC). Shaun had just completed the B.Comm degree in University College Dublin (UCD), lured by the strength of the university’s Gaelic football team (he had played minor football for Antrim). He then went on to qualify as a Chartered Accountant in 1983, taking joint first place in the final exams with another SKC colleague, before an opportunity arose for a short stint in the firm’s office in San Francisco. “That was 1984, the same year Mary and I were  married. We married in August, and in September we were in San Francisco,” he said. “It was a tremendous opportunity, going from Ireland in the early eighties to the San Francisco Bay area in the mid-eighties with all the advancements in technology and cultural diversity.” Shaun returned to Dublin after two years but soon after, the US firm lured him back with a full-time role in audit. Following the birth of their first two children in California, however, Shaun and Mary decided that they would raise their children in Ireland. This led to a 10-year break from KPMG, during which time Shaun worked on advisory, corporate finance and insolvency assignments in Belfast, but in 1999 the US firm came calling once again. “I re-joined the firm and spent a couple of years in San Francisco. I was then asked to move to the Chicago office to run the mid-west region of what was our Transaction Services practice at the time, which was essentially the due diligence mergers and acquisitions (M&A) practice,” he said. “While I was there, I was asked to head the US Transaction services practice and soon after, I also became global head of Transaction Services for KPMG. And then, in 2005, I was asked to lead KPMG’s US Tax Practice which involved a move to New York. I did that for five years and in 2010, became the head of operations for the US firm. I did that for five years and in 2015, took on my current role as COO of KPMG International.” The road ahead Although Shaun’s role is global in nature, his travel gives him ample opportunity to visit the family’s home in Donegal. Between his board roles at UCD Michael Smurfit School of Business and the American Ireland Fund, and his advisory role with KPMG’s Belfast office he spends a lot of time in Ireland – and he’s happy to be able to contribute to the island’s success. “One of our core values at KPMG is giving back to our communities so we’re encouraged, particularly at partner level, to get involved,” he said. “One of the things I learned in the 1990s when I was back in Belfast was the impact of a successful economy on a region’s social and political landscape. I also saw the problems and increased violence following the financial downturns in the 1990s, so facilitating investment and creating jobs will help foster a much more stable and prosperous environment in Northern Ireland.” In that context, Brexit and the potential implications of a no-deal outcome for Northern Ireland weighs heavily on his mind. “It’s a concern. Businesses are most successful when we have open markets and they are able to plan investments with a strong degree of confidence,” he said. “Businesses will deal with the scenarios they are presented with. Uncertainty obviously makes that much more complicated because you’re unsure as to what the environment will be. Chartered Accountants have a key role to play in explaining the impact of various outcomes on investment and job creation. Open markets mean more certainty, which in turn means more investment and more jobs created – it’s that simple.” Although Brexit is a challenge, it’s just one of many that global businesses are facing according to Shaun. From tariff threats to the unsettled global trade agreements, there are a number of challenges ahead. However, Shaun sees opportunities also – particularly in the area of technology. “Despite all the disruption coming from technology, a recent KPMG survey of global CEOs found that while the world’s largest and most complex businesses are investing heavily in artificial intelligence and robotics, they see themselves as net hirers over the coming years,” he said. “Back in the eighties, one of the pre-runners to Excel was called VisiCalc. I remember learning to use VisiCalc on floppy disc and we were discussing what was going to happen to all the accountants when these spreadsheets take over. But we learn that technological advances create more opportunity to add value, to grow, to create economic prosperity– and I think that’s what we’ll see in the future.” The drive for inclusion When it comes to dealing with the evolution, Shaun believes that businesses have a choice: you either allow yourself to be disrupted, or you become the disruptor. But becoming the disruptor requires an explicit focus on culture and integrity. “We spend a lot of time in KPMG reinforcing our culture,” he said. “Integrity is the bedrock of everything we do and for every Chartered Accountant, it’s our reputation for independence and ethical standards that makes us who we are and underpins the value we bring to society. “That focus on core values, purpose and integrity is being demanded by the millennial population,” he added. “We deal with a lot of millennials as clients, but more than 65% of our people in KPMG are millennials or younger. They’re looking for purpose-driven organisations where they can pursue their personal goals and objectives so if we are to attract top talent, and in turn serve the top companies, we need to be attractive to this demographic.” Having a dominant cohort that demands inclusivity has given many organisations the impetus to drive their diversity and inclusion agendas, and Shaun has played a central role in KPMG in this regard. He is a member of the KPMG US Inclusion and Diversity Executive Council and co-chairs the firm’s Disabilities Network, which supports KPMG people who either have a disability or care for someone with a disability. Indeed, Shaun falls into the latter category as a carer for his daughter, who has Down Syndrome. “KPMG has had a disability network for 10 years now. Over that decade, it has become acknowledged that having an inclusive organisation isn’t just a nice thing to do – it’s actually a business imperative for a couple of reasons. Our clients are demanding it because they want to be inclusive organisations themselves and they want to work with organisations that are inclusive. But it actually makes you a better business too; you’re getting better decisions, you’re getting much better perspective.” The task at hand In one sense, Shaun’s passion for inclusion stemmed from his teenage years growing up in West Belfast in the 1970s. Having lived through the height of The Troubles, his years in Dublin and the US helped him “realise the benefits and pluses of an inclusive society versus one that was very much divided at the time”. “Looking at the violence, maybe your priorities change and you get a better sense of what’s important and what’s not,” he added. Shaun also credits much of his success to the willingness to embrace opportunities as they arise, and he strongly encourages younger Chartered Accountants to do the same. “I remember discussing with Mary the opportunity to move to San Francisco so quickly after we got married, and she really encouraged that we go. In many ways, she’s much more adaptable than I am,” he said. “And when I took over the leadership of the US tax practice in 2005, I had never worked in tax before… it wasn’t as if I had a grand five-year plan that, by 2005, I’d be running the US tax practice. I qualified as a Chartered Accountant, got a couple of years’ experience in the US, was promoted to manager and was fortunate to have other great opportunities along the way that I was able to seize. Young accountants should focus on excelling in their current roles while making it known that they are open to new opportunities. Really focus on what you’re doing now because if you take your eye off the ball and you don’t deliver, that can have a negative impact whereas if you really shine, that will create opportunities. Do well at what you’re doing and stay open to opportunities that arise.” Looking back While Shaun continues to work across the globe in his role as COO, he still finds time to reflect on the things that make him proud over the course of his life and career to date. “On a personal level, we have four great kids. Seeing them become successful – and Mary probably has more to do with that than me – despite the 14 moves is deeply satisfying,” he said. “In one sense, I think it helped them in their careers to be much more open and inclusive. They’re still very much attached to Ireland, but they have a global perspective. “In professional terms, I’ve worked in every part of our business. I was able to move across functions, countries and cities. I’m really pleased I was able to do that and I hopefully have the respect of the partners and staff in all those different practices,” he added. “It is said that one of the best skills to have is a good self-awareness. We don’t do it alone and I think that’s one of the strengths of KPMG – and indeed of Chartered Accountants. We’re trained to be team players. If I go back to my days playing Gaelic football, I think that sport – being part of a team, that collective responsibility and not wanting to let your teammates down – played a huge role in helping my career. “And funnily enough, it also tended to be the prima donnas who, when the going got tough, you wondered: ‘where are they?’”   DATE FOR YOUR DIARY Shaun will speak at Chartered Accountants Ireland’s upcoming Leadership Symposium in Belfast on 3 April 2019. For more information, visit www.charteredaccountants.ie

Sep 30, 2018
Ethics and Governance

At a recent event entitled, ‘Navigating a Successful Career as a Non-Executive Director’, an expert panel of experienced NEDs and corporate governance advisors answered questions such as: What role do NEDs play in organisations today? How can Chartered Accountants prepare to become a NED and how do interested Chartered Accountants find non-executive directorships?  Launching the event, David W. Duffy, author of A Practical Guide for Company Directors, warned the 200+ audience that “no board is risk-free”. Emphasising the need to carry out due diligence before accepting a non-executive directorship, he advised the audience to consider what ratio of risk to reward they would be prepared to take. Listing important questions to ask before becoming a NED, David recommended that prospective directors should query the organisation’s structure and budgeting practices in particular.  Sean Casey, NED and Risk Committee Chair at Allianz Ireland, advised attendees on how to find a directorship that best suits them, and recommended that they update their professional profiles with relevant experience, skills and governance qualifications, such as a diploma in corporate governance. Urging the audience to build a strong network of people whom they have assisted and supported in the past, he reminded them that they will “get repaid many times over if you have a good network”. Marie O’Connor, former PwC audit partner and experienced NED, explained that boards are looking for people with genuine interest in their business and who think strategically. NEDs should have good, sound judgement and some previous board expertise. Energy, curiosity and confidence are also important to becoming a NED, Marie said. Finally, Anne McFarland, corporate governance advisor, stressed the need for, and importance of, independent NEDs on boards to improve the accountability of organisations, despite recent negative press. NEDs, Anne advised, should look at the strategy of an organisation, and should make sure that appropriate goals have been set for management and that the board is being properly evaluated. It is imperative for NEDs to understand the financials of the company, to assess all risks, and to consider whether the remuneration of the executive and management is proportionate and appropriate. “I do not believe the time is up for non-executive directors,” Anne added. 

Aug 01, 2018
Spotlight

SMEs in the Republic of Ireland can access four major tax relief regimes, which is laudable, but there remains room for improvement in each.   Over the past few years, Ireland has introduced, expanded or streamlined many new tax reliefs and regimes with the stated aim of encouraging research and innovation, providing alternative sources of finance and improving the environment for entrepreneurship. While the government of the day will laud these new initiatives as being beneficial to Irish small- and medium-sized enterprise (SME), it is often the case that the initiatives are not taken up in any great numbers or are used primarily by multinationals operating in Ireland. In this article, the author considers why these targeted tax incentives are not achieving the expected take-up among Irish SMEs – and what could be done to rectify this. Is it a question of education, perception or restrictions within the tax incentives themselves? Employment and Investment Incentive Scheme The Employment and Investment Incentive Scheme (EIIS) is an extremely important source of finance for start-up and early-stage SMEs as for many of these businesses, the friends and families of the business owners may be one of the few sources of finance available. The EIIS is a successor to the old Business Expansion Scheme (BES) and while it covers a larger variety of trading activities, it is less generous in the tax relief available. This is because, under the EIIS, the income tax relief is spread over two tranches – 30% relief in the year of investment and 10% after three years of trading. Furthermore, the second tranche of relief is not guaranteed and is dependent on the company increasing employee numbers during the investment period. Compared to BES, lower numbers of companies have availed of the EIIS. This has been attributed to factors such as the spreading of income tax relief over four tax years and the €150,000 annual investment limit applicable to each EIIS investor. Unhelpfully, recent changes to the EIIS have further reduced the attraction of EIIS for SMEs. Finance Act 2015 incorporated the EU General Block Exemption Regulation (GBER) rules into EIIS legislation. Some of the most significant restrictions included in these provisions are: The company must be trading for less than seven years. Where such a company has previously raised EIIS funding and wishes to raise a second round, the second round must have been envisaged in the business plan submitted for the first round – before the GBER rules were in force. To add insult to injury, Revenue has taken a very prescriptive approach in this regard; and If the company has traded for more than seven years, it must be entering a new geographical market with a new product or service, or have previously raised EIIS/BES funding within the first seven years of trading. More recently, Finance Act 2017 introduced new “connected party” rules, which make the tax relief unavailable to any investor and their associates (including relatives, which are broadly defined) who already hold shares in the company before EIIS funding is introduced. Previously, income tax relief was available to EIIS investors who held less than 30% of the company, and even this restriction was relaxed where the total value of the EIIS investment was less than €500,000. These new restrictions may neutralise the EIIS for many SMEs that are badly in need of this alternative source of funding. Research & Development tax credit While the lower and likely diminishing take-up of EIIS by SME companies can be attributed to stifling legislative restrictions, the same cannot be said of the Research & Development (R&D) 25% tax credit. The tax credit regime was significantly simplified with the removal of the “base year” and incremental allowable amounts from 1 January 2015. In addition, Finance Act 2012 introduced the concept of the qualifying company surrendering some or all of the R&D tax credit to a “key employee”. The continuing concern for all companies claiming R&D tax credit (and SMEs in particular, as they have less resources to deal with penalties and interest in the event of getting it wrong) is the uncertainty around what exactly constitutes “qualifying” R&D activity. Some relief for small business on this issue was set out in Revenue’s eBrief 17/17. This stated that, where a small or micro enterprise is in receipt of Enterprise Ireland/IDA grants for its R&D activity and the value of the R&D tax credit claim in an accounting period is less than €50,000, Revenue will accept that the activities are “qualifying” under the relevant tax legislation. There is an acknowledgement that these thresholds are too low and will only give comfort in a small number of cases, but there is no indication that this concession will be expanded. While the idea of the surrender of the R&D tax credit to key employees is a fine one, this aspect of the regime has had little take-up from SMEs. This is perhaps because the key employee must not be a director of, or have a “material interest” in, the company (i.e. hold at least 5% of the company’s shares). As SMEs typically have a small pool of overlapping shareholders, directors and key employees, most will breach this condition. Another issue that limits the incentive for R&D activity are the maximum spending caps in relation to outsourcing: Outsourcing R&D work to third parties is restricted to 15% of the in-house R&D expenditure or €100,000 (whichever is greater); and Outsourcing R&D work to universities is restricted to 5% of the in-house R&D expenditure or €100,000 (whichever is greater). These limits contradict international best practice, which typically encourages collaboration between innovating businesses and/or education. They also disproportionately affect SMEs as, with fewer resources, a collaborative approach may be the only way for an SME to progress. Knowledge Development Box A relatively new incentive introduced in Finance Act 2015, and one that is not yet widely known about, is the Knowledge Development Box (KDB) regime, which complements the R&D tax credit and is the second phase of incentives around research and innovation. The R&D tax credit is available in respect of the spend on “qualifying R&D activities” while the KDB regime applies a reduced 6.25% corporation tax rate on profits arising from the exploitation of a “qualifying asset” derived from these same R&D activities. While this regime is regarded by many as being targeted at multinationals, it is in fact Irish SMEs that may benefit the most from it. The KDB regime is most beneficial to companies that carry out most or all of their underlying R&D activities in Ireland, which of course would apply to Irish SMEs. There are also two aspects to the “qualifying asset” requirement that work for Irish SMEs: Within the mainstream KDB regime, a “qualifying asset” includes inventions that are patented as well as computer programs. Irish tech companies that carry out their R&D activities in Ireland and are entitled to an R&D tax credit may therefore be entitled to the reduced 6.25% corporate tax rate on future profits; and There is an SME-specific KDB regime, which applies to companies and groups with annual turnover not exceeding €50 million and KDB profits not exceeding €7.5 million. The definition of “qualifying asset” for these companies includes computer programs as well as novel or useful inventions that do not have to be patented. Key Employee Engagement Programme Finance Act 2017 saw the introduction of the KEEP scheme, which was presented as a tax-efficient way to incentivise key employees within SME companies. The scheme allows for the tax-free grant of share options to an employee (as long as the options are granted at market value), followed by capital gains tax (CGT) on gains arising on the ultimate sale of the shares by the employee. As the KEEP scheme only commenced at the beginning of this year, there are several excessive legislative restrictions and practical issues. Many commentators and representative bodies have lobbied the Department of Finance and Revenue on these issues to make the new scheme fit-for-purpose. Some of the major issues include: The requirement for a Revenue-agreed share valuation method, given that the scheme relates to shares in private companies often with no external market; The practical issue of creating a market for these shares so that a KEEP employee has a method of selling the shares and realising a gain. Calls have been made to allow the employer company to buy back the KEEP shares and for the KEEP employee to secure CGT treatment on that buy-back by the buy-back being regarded as a “benefit” for the company’s trade; Under the current rules, a “qualifying individual” must not hold more than 15% of the employer company shares. This restricts the usefulness of the KEEP scheme for SMEs which, as we noted earlier, will have a small pool of shareholders and key employees; and Calls have been made to extend CGT entrepreneur relief on disposals of KEEP shares, thereby reducing the CGT on €1 million gains arising to 10%. Conclusion This article has focused on the four major tax regimes available to SMEs in the Republic of Ireland – EIIS, R&D tax credit, KDB regime and KEEP – and we have seen that some of these regimes are specifically targeted at SMEs. While there is always more for practitioners to do in terms of educating clients on the availability of reliefs, many of the legislative changes and/or administrative practices within Revenue in recent years have reduced the effectiveness of these reliefs. It is a case of what the right hand giveth, the left hand taketh away. With Brexit looming, this approach is damaging to Irish SMEs – which are the lifeblood of our economy – and does not sit with the Government’s stated aim of encouraging entrepreneurship in this country. Kerri O'Connell FCA is Principal at Obvio Tax Services and author of Small and Expanding Businesses: Getting the Tax Right.

Aug 01, 2018
Management

Being a people-pleaser and being an effective team player are two very different things.   Does your office have a people-pleaser? The person who just can’t say no? Every office has one and regardless of how often they say yes, they will rarely be appreciated for their efforts. People-pleasers yearn for attention, external validation and the approval of the group. Their self-esteem is tied up with this effort to be seen as worthy of inclusion and living up to the expectations of others. This type of behaviour can get out of hand and before it does, it is important to ask some basic questions about how it started in the first place. How do we become people-pleasers?  More often than not, it’s a characteristic that goes back a long time. We learn over time that being helpful, pleasing, attentive and reliable brings rewards. Our sense of accomplishment and achievement becomes tied to the external validation we receive from others. Being a people-pleaser often makes us the ‘go to’ person. It also means that our colleagues take us for granted and we are viewed as the office doormat. People-pleasers see themselves as only existing in the service of other people. Children learn that they are a good girl or boy at a very early stage in life. Being ‘good’ and ‘bad’ is determined by the emotional effect they have on the adults in their lives. It is an early lesson that small children learn very quickly. They know that they can gain their parents’ attention by being compliant or defiant. Compliance brings better rewards.  To stop being a people-pleaser we have to address the anxiety that pleasing assuages. For many people-pleasers, the idea of stopping being a pleaser raises enormous anxiety. At its core, that anxiety relates to our very sense of self: will I have any function or worth if I am not externally validated? So what can you do to stop pleasing and start progressing? Address the anxiety: put yourself first. Ask ‘why am I doing this?’ There’s nothing wrong with being helpful, but it’s not always appropriate. Practice saying no: imagine a number of scenarios where you would normally jump in to say ‘yes’ and then practice saying ‘no’. Observe how this makes you feel and rather than squashing that feeling down, stick with it and try to understand what it’s telling you. Recognise that your self-worth isn’t tied to other people: it’s perfectly normal to be ambivalent about others and it’s equally normal for them to feel ambivalent about you. It’s not possible to be positive or helpful all the time. You will disappoint: you will disappoint others, and they will disappoint you. If we are not disappointing and disappointed, then we are not having real, mature relationships. The workplace cannot function without real emotion: in the fantasy workplace, everybody is happy. People are kind and helpful, and our colleagues rarely have an ‘off’ day. No workplace is like that (just as no family is like that). Being a people-pleaser robs individuals of their self-esteem and reinforces the idea that being ‘nice’ means being helpful. Sometimes it’s better to say ‘no’ and stop being the office doormat. Try it sometime, you just might like the new feeling! Dr Annette Clancy is an organisational consultant and also researches organisational behaviour, in particular emotion in organisations.

Aug 01, 2018
Strategy

There are four distinct phases in the negotiation process, each one with its own unique pitfalls and opportunities. Negotiation is a central feature of day-to-day living. Whether it’s negotiating your fee for client services, manoeuvring through the maze emanating from the Brexit vote, or agreeing on who is responsible for cooking the dinner this evening (and cleaning up afterwards!). It’s all about negotiation. For some people, this can be a formidable challenge, so they too-readily give in to their counterpart’s arguments and demands. Thereafter, emotions of resentment and ill-feeling about a ‘lousy deal’ kick in, to the detriment of both parties. But it doesn’t have to be like that. For starters, it’s worth remembering that you are a negotiator. In fact, you’ve been negotiating since you first looked for pocket money, swapped toys or cried in the cot. That is, you’ve always engaged in purposeful persuasion and constructive compromise. While the key criteria for successful negotiations are information and power, to get the best deal, there are some unwritten rules that should be noted. First, agreement is the aim of negotiation. However, the wish of both parties to reach a mutually satisfactory conclusion does not preclude the use of threats, sanctions and associated tactics like attacks, hard words and (controlled) losses of temper. These are all part and parcel of the charade we call ‘negotiation’. Another tactic extensively deployed in consequential negotiations is the ‘off-the-record’ discussion. This is a means of probing attitudes and intentions, and smoothing the way to a settlement. In tense scenarios, this approach often enables progress when parties return to the formal negotiating arena. It is also important that each party be given an opportunity to state their (opening) position, which they will move from as negotiations proceed via alternate offers and counter-offers, eventually leading to a settlement. To enable progress, concessions made are not withdrawn. Nor are firm offers withdrawn, although it is legitimate to make and withdraw conditional offers. To smooth the process, adjournments are taken by mutual agreement, serving the purpose of reviewing progress against one’s objectives and assessing your counterpart’s objectives or latest offer or proposal. That is, adjournments provide an opportunity to update strategy. It’s also an unwritten rule that third parties are not engaged until both parties are agreed that no further progress can be made. Whatever the stakes, you’ll get the best deal if you break the negotiation process into four stages: preparing, opening, negotiating and closing. Preparing The key at the preparatory stage is to establish one’s objectives and to assign a relative priority to each one. This process also entails knowing: The ideal settlement point you would like to reach; The minimum you will accept or the maximum you’re prepared to concede; and The opening claim or offer that will help you achieve your target and provide sufficient room to manoeuvre in pursuit of your target. The difference between the ‘claim’ and the ‘offer’ is called the negotiating range. Thereafter, the good negotiator decides the ideal route or stages to be followed in moving from the opening to the closing position, and the negotiation package or items that one is prepared to trade in pursuit of his or her goal(s). In other words, at this preparatory stage you decide what needs to be achieved and how to achieve it. Good preparation also involves assembling all relevant information and structuring it in a logical manner. Identify your strengths and include facts to support your case. Support for your negotiating position may also be derived from an existing or previous agreement, comparator norms, custom and practice, previous statements from your counterpart and hard evidence. The good negotiator will also know the main weaknesses in his or her position. As one’s negotiation counterpart is likely to raise these points, prepared responses are essential. As Nelson Mandela put it when negotiating a change of regime in South Africa, “I rehearsed the arguments they might make and the ones I might put in return”. Opening The main purpose of the opening stage is to reveal the broad outline of one’s position while gathering as much information as possible about that of your counterpart. The more extreme the opening positions, the more time and effort it will take to discover if agreement is possible. To keep your negotiation partner at the table, it is advisable to open realistically before challenging their position, exploring their attitude(s), asking questions, observing behaviour and, above all, listening. This should enable assessment of their strengths and weaknesses, tactics and the extent to which they may be bluffing. One should not make concessions at this stage. Negotiating After the opening moves, the main bargaining phase begins. Now, the gap is narrowed as parties persuade the other side that their case is strong enough to force him or her to move. This negotiating stage is about exchanging – something gained for something given. Ideally, something relatively unimportant or cheap to you is traded in exchange for something that is valuable to you. This is the most intense stage of the process. The best way to avoid disaster is to lead with conditions: “if you will do this, then I will consider doing that”. Related to this, good negotiators negotiate on the whole package. By stating that nothing is agreed until everything is agreed, you refuse to allow your opponent to pick you off item by item, and you extract the maximum benefit from any potential trade-offs at the final hurdle. Closing When and how one closes negotiations is a matter of judgement and depends on the assessment of the strength of both cases. Standard techniques include: Make a concession from the package, preferably a minor one, which is traded off against an agreement to settle: “if you agree to settle at X, then we’ll concede Y”; Do a deal (e.g. split the difference, introduce something new such as extending or  shortening the settlement timescale, phased increases, making a joint declaration of intent to do something in the future such as review the deal); Summarise what has happened to date, emphasise the concessions made and the extent to which you have moved, stating that you have reached your final position. But never make a final offer unless you mean it; Apply pressure (e.g. a threat of dire consequences if your final offer isn’t accepted); and Give your opponent a choice between two courses of action: “you can have X or Y, but not X and Y”. This closing stage is a dangerous time for negotiators. If one is too keen to get agreement, it is easy to neglect the finer details of that agreement. This can cause problems when the agreement is implemented and each side has its own interpretation of what was agreed. The final agreement should therefore mean exactly what it says – that is, unless it needs to be what Henry Kissinger described as “constructively ambiguous” whereby the parties carve out spaces within which more than one interpretation is possible for the purpose of securing a deal. It should also be borne in mind that while a successful outcome is important, so too is the maintenance of the relationship between the parties. Hence, one’s negotiation ‘opponent’ can become one’s negotiation ‘partner’. This helps when problems arise at the negotiation table, as progress is more easily achieved when parties have a good relationship based on mutual respect and trust. Dr Gerry McMahon is Managing Director at Productive Personnel Ltd., a human resources consultancy and training company.

Aug 01, 2018
Spotlight

Integrated reporting isn’t just for large entities. It can also help SMEs develop and grow in a strategic manner. It is generally recognised that the financial picture is only one facet of the performance of a business and that there are risks and opportunities associated with broader issues such as social, environmental and economic challenges. To give a simple example, a business’ financial report may show high profits, but if the organisation is also creating pollution and likely to be regulated out of business in the future, it is not a good long-term investment. Rather than providing a mere snapshot of historical performance, Integrated Reporting (IR) seeks to provide a more complete and accurate picture of the performance of the business and how it will continue to create value in the short-, medium- and long-term by bringing together financial information with other information that is material to the organisation’s success. The IR framework refers to different capitals – manufactured, intellectual, human, social and relationship, and natural as well as financial – recognising that value is not stored only in the financial. In looking to provide the broader range of measurements that contribute to longer term value and the role the business plays in society, it takes account of intangible as well as tangible assets. Ocean Tomo’s 2015 Intangible Asset Market Value Study demonstrated that 84% of the S&P 500 market value was accounted for by intangible assets, so their impact cannot be ignored by anyone seeking to understand the true value of a business. The benefits of IR IR provides benefits within the organisation and to external stakeholders. It allows for the uniqueness of the organisation, enabling the business to tell its story of value creation. Doing so provides better quality information and a far more complete picture of material issues to a greater range of stakeholders (e.g. customers, suppliers, employees, communities, legislators and regulators, as well as the providers of financial capital). Stakeholders can gain a deeper understanding of the company’s strategy and performance, and how value is being created. The quality and breadth of material information also enable better understanding of risk and interdependencies for both internal decision makers and other stakeholders. With the growing emphasis on ESG (environmental, social and governance) investment, there is a strong argument that IR may help attract investment. Better quality information also allows for a more efficient allocation of capital. Integrated reporting requires integrated thinking, and that prompts management into integrated decision-making about what is truly material in creating value in the short-, medium- and long-term, thereby making the business more resilient. IR also encourages management discipline. You manage what you know is going to be measured, so IR helps drive the performance and management of what is really important for business success for the longer term. The aim of IR is not just the report. Far more important is the integrated thinking and better decision-making that it encourages in management. We have seen moves towards broadening the range of reporting such as the EU Directive on Non-Financial Reporting, which requires larger organisations to disclose information relating to environmental matters, social and employee aspects, human rights, anti-corruption and bribery, and diversity in the board of directors. Since it is anticipated that IR will become the norm over time, it makes sense for all businesses to be early adopters, develop the processes and skills required to report in this manner, and realise its benefits sooner rather than later. The challenges of IR A business may not be capturing all valuable data. Legacy systems often fail to capture data that, with our integrated thinking hats on, we see as necessary for the proper long-term management of the material issues and the determination of strategy. So managers need to review measurement systems and determine the metrics they need for the future. This challenge is, of course, a benefit since without the right data, the managers and board will not be enabled to make good decisions about strategy. Comparability and consistency of metrics across a number of years is sometimes challenging. This can be related to legacy measurement and capturing of data, as previously described, or it can be related to changes within the business, which may require explanation to help readers get behind the surface data. For example, increased emissions for manufacturing per tonne could be due to a business getting more orders last year for units of a complicated product which utilises more energy in the manufacturing process rather than poor management of energy, which might be the initial interpretation. The greater focus on the more complicated product may not be an industry norm, thus making comparisons with industry benchmarks difficult and again requiring explanation to create clarity for the report reader. Organisations that currently prepare an annual report often have a well-oiled system for doing so. The challenges of integrating a much greater range of data, which comes from a variety of sources within the organisation and is possibly collected for the first time, should not be underestimated. Even in organisations that currently publish a corporate social responsibility (CSR) report or sustainability report, it is my experience that combining data in one report to meet a required annual report deadline can be very difficult. Connecting the dots to develop a holistic picture of the inter-relatedness and dependencies between the factors that affect the business’ ability to create value requires the collaboration and input of individuals throughout the organisation – not just in finance. People need training to understand IR and what organisations seek to achieve with it. They often need help to step out of a siloed mentality and leave behind their need to put a positive ‘spin’ on information and metrics arising from their area of responsibility. IR demands that material matters are reported in a balanced manner, both positive and negative, which precludes cherry-picking what you will report in any given year. The focus on stakeholder relationships in IR often proves challenging. Despite the positive narrative from organisations about their engagement with stakeholders, many businesses lack evidence and data to support the extent to which they understand, take into account and respond to the needs and interests of their stakeholders. Or they focus on too narrow a range of stakeholders, perhaps giving lots of attention to customers but excluding other legitimate and important stakeholders such as suppliers or local communities. Is IR useful for SMEs? The simple answer is yes. SMEs can gain all the benefits described above – better ability to tell their unique story; better communication with a broader range of stakeholders; attraction of investment; better management decision-making and discipline; and enhanced understanding of risk and how value is created. There are other potential benefits for SMEs. Compared with large businesses, SMEs are often more reliant on their connections with specific stakeholder groups such as the local community, specialised suppliers or providers of finance. IR forces a focus on stakeholder engagement and enables a much better sharing of information with stakeholders, which builds trust and understanding. SMEs can be seen as high-risk or assessed only by their most recent financial performance, which can be a significant barrier to development. IR gives the business an opportunity to counter this by presenting a fuller picture of how it is creating value, reducing risk and how it intends to do so in the longer term. With smaller management teams and less siloed structures, many SME management teams are actually more adept at collaborating effectively and engaging in IR thinking than those from bigger organisations. Gráinne Madden is a corporate responsibility and business ethics specialist, and lectures in corporate responsibility to MBA students.

Aug 01, 2018

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