How entrepreneurs can optimise their assets before retiring

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How entrepreneurs can optimise their assets before retiring

Article published in Indices, (L’AGEFI), October, 2018, by Stéphane Pedraja

Entrepreneurs devote their lives and energy to their business, which means they don't always have time to focus on the finer details of managing, planning and organising their wealth. As they near retirement, it's essential for entrepreneurs to take stock of their private and professional assets in order to secure a comfortable future for themselves.


The problem of surplus cash on the balance sheet

An entrepreneur’s remuneration can be a trade-off between various components: taking it as salary, bonus, dividend, or all at once. All whilst keeping an eye on the income tax burden. Asset managers often notice that entrepreneurs tend not to take full advantage of what their business can offer them in terms of income, as that generates tax issues. This leads to many companies having unnecessary surplus cash on their balance sheets, which may have a negative impact on the company’s valuation when it is sold. Liquid assets of CHF 10 million on a company’s balance sheet, for example, may only be valued at CHF 6.5 million when the business is sold. As entrepreneurs focus on ensuring the smooth running of their company, they are often unaware that this liquidity can trigger a subsequent reduction in value.
 

As entrepreneurs focus on ensuring the smooth running of their company, they are often unaware that this liquidity can trigger a subsequent reduction in value.


Optimising a company’s balance sheet structure before selling is key. Wealth managers assess entrepreneurs’ assets – both private and professional – from a global perspective, notably by incorporating tax-efficient management. Occupational pension provision is one of the tools used to achieve this. Often seen as a cost by entrepreneurs, it can in fact optimise and enhance the value of both their business and their private assets, offering significant economic benefits. It allows entrepreneurs to make voluntary additional payments (‘buy-ins’) into their pension fund, for example. This has a double effect as these buy-ins are, in principle, fully deductible from income tax and increase their tax-exempt pension capital (income and wealth tax). Forward thinking is crucial here, as the buy-ins need to be planned over time and must comply with certain legal requirements.


Retaining highly qualified staff

Pension provision is also an extremely effective way of retaining highly qualified staff. Top management jobs are extremely competitive and it can be difficult to attract and retain talent. In many cases, salary is still the preferred tool to encourage interest, an attractive pension plan is a useful additional resource that costs an employer little or nothing while boosting its employees’ after-tax assets. (In particular the supplementary portion of their pension under pillar 2.) By providing your company with a 1e plan, you can offer high earners (annual income of more than CHF 126,900) the option of choosing the investment strategy for their retirement assets, with complete transparency. A maximum of 50% equity may be invested, with the remaining allocation consisting of bonds, alternative investments and real estate. Employees receive the entire return on their investment and assume full personal responsibility in the event of capital losses. The plan is customised and not subject to the collective provisions of a basic pension. Each plan also includes the option of putting buy-ins into the pension fund, considerably reducing the tax burden of employees by making up for missing contribution years.
 

In many cases, salary is still the preferred tool to encourage interest, an attractive pension plan is a useful additional resource that costs an employer little or nothing while boosting its employees’ after-tax assets.


Tax-efficient wealth management

With their global overview of the management of your personal and pension fund portfolio, your wealth manager will switche between them to achieve the best overall after-tax return. This investment strategy consisting of different ‘investment pockets’ enables products to be allocated according to their dividends or capital gains, with the ultimate objective being the efficient distribution of assets based on their tax characteristics. By analysing your moveable assets, real estate and pension assets, managers can optimise each ‘silo’ individually and harmonise your entire asset portfolio by researching the best after-tax return. Put together, the measures described above, if carefully managed and planned over time, are a powerful tool for growing an entrepreneur's assets.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter "Lombard Odier"). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document.

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