How Acumen can help farmers plan ahead for their retirement
But for an increasing number of farming families, gazing into their own futures can bring uncertainty – particularly when it comes to what might happen when the head of the family decides to take a step back.
In many cases, the old tradition of simply handing over the farm to the next generation has faded as young people increasingly opt to pursue careers outside of agriculture and away from the countryside.
And regardless of whether the farm stays in the family or not, there’s the question of whether there are enough savings in the pension pot for an enjoyable retirement, and what tax implications might be attached to moving on.
According to Chartered Financial Planner Evan Duffus, of Acumen Financial Planning, it’s a conundrum which is often not best solved by simply diving in, accessing the pension savings and hoping for the best.
“Many farmers are so busy that planning their financial future tends to be put on hold until the last minute,” he says. “The years can go by and before they know it they might be looking to retire and wondering how to go about it.”
That was the case with one couple he recently helped plan the transition from running their livestock and mixed arable farm into a comfortable retirement.
“What was of major concern was their son and daughter were in their mid-30s and, like a lot of farm families, they had no interest in taking over the farm in any shape or form,” adds Duffus.
“The couple wanted to stop trading soon but weren’t sure how to transition out of the business and whether they had enough money to make ends meet when they stopped.
“They had lots of different pensions in lots of different places and other investments, plus the business which operated as a limited company.
“The couple wanted to know how much they should be taking out of their pension fund and that each of them would be financially secure if either passed away.”
He adds: “This was a typical farming couple, hard-working and who had farmed all their days to build up significant funds but were just too busy to make clear arrangements.”
Unravelling their financial position to create a crystal-clear forecast of where they are now and where they could be in the future is where Evan and his fellow financial planners at Acumen’s offices in Aberdeen, Edinburgh, Peterhead and Elgin, step in.
Using specially developed financial planning software, they input the fine detail of savings, investments and tax implications alongside projected living expenses. The results, combined with their personal knowledge and expertise, reveal the best options for moving forward.
In the case of the farming couple, the choices included an extremely attractive option which they hadn’t previously imagined.
“Their lifetime financial model provided lots of different financial planning scenarios and enabled us to structure their income in the most efficient manner,” says Duffus, who is based at Acumen’s Aberdeen office.
“We looked at the five or six different pension funds they had, how they have performed, how flexible they are, and how inheritable they might be. They were very old and not very flexible. We put them together under one umbrella, so instead of having a fragmented approach, the couple had one pension for him and one for her with real benefits: one statement a year with great visibility and efficiency, choice, flexibility and greater peace of mind that their money will be in the right hands when they are no longer around.”
But most importantly, the financial planning model revealed the couple did not need to touch their pension pot for four or five years. Instead, it showed how they could put their farm to work for them and draw financial benefits that would not just keep their pension secure for the time being but add to it.
“There was little market for the farm, and they were happy to wind it down knowing that if they sold it, they would face capital gains tax bills. They had been hell-bent on switching on income from pensions right away,” says Duffus.
“Instead, the model showed they could use the farm assets to draw dividends until such time as the business was depleted in value – five or six years from now. Then they could switch on income from their pensions.
“It meant they could preserve pension funds for later, reduce tax bills because the dividends are taxed at a smaller percentage than pension income, and put money from the farm into their pensions which they hadn’t done for some time. Because the business was funding their pension, the farm’s corporation tax bill was reduced.”
The couple is just one of many who have received support from Acumen, which since its launch in 2002 has grown to become one of the UK’s largest and most respected firms of its kind. It currently has around 1,300 client families on its books, a £4 million turnover and a mantelpiece heaving with awards which recognise the expertise of its professional financial planners and paraplanners.
Rather than selling financial products to clients on a commission basis, Acumen focuses on a more transparent approach – similar to that of an accountant or lawyer – and provides fee-paying clients with clear choices structured to meet their personal financial needs.
They can be sure they are receiving quality advice: Acumen is one of the few financial planning firms in the country which is an accredited and chartered firm, confirmation that it meets the strict professional and ethical standards of practice required by the Chartered Insurance Institute and the Chartered Institute for Securities and Investment.
While the farming couple’s retirement prospects are now in a vastly improved situation, Duffus points out that financial planning is something we should all consider well before retirement creeps up.
“Younger professional clients benefit from financial planning guidance which can show how much they need to contribute now to generate enough income to meet obligations later in life,” he adds. “There’s a lot of denial among people. I’m 44 and I still meet people my age who say they’re too young to think about a pension.
“But we’re living longer, and the state pension might not be there in 20 or 30 years’ time. If we want to go on holidays and live comfortably in retirement, younger people need to be taking responsibility for their own pension and know what they need to do.”
This article appeared in The Scotsman’s Vision supplement. To find out more about Acumen Financial Planning, visit their website.