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FX Gains or Losses?

The Irish economy generates foreign exchange (FX) flows of approximately €200Billion every year from the import and export of goods and services in addition to financial flows. Volatility in the FX markets is an ever present challenge to financial managers who are trying to minimise the impact that movements in foreign exchange rates can have on their core business. Adopting a proactive approach to managing FX risk will ensure that unforeseen developments in the financial markets do not erode trading margins or create negative surprises that can have a detrimental impact on the company’s performance. When it comes to managing FX risk it is not about beating the market or rolling the dice, it is about mitigating what is a very significant risk to your bottom line.

If we look at the EURUSD exchange rate over the last 18 months, we can see that an Irish company importing goods and paying for them in US dollars would have been doing so at a rate of €/$1.40 in May 2014. As recently as a few weeks ago, that same company would have been buying those same goods at a rate of €/$1.05, a move that represents a 25% increase in costs. Nobody knows where FX rates will be in the future but companies can take steps to manage or avoid these negative surprises or disadvantageous moves in the FX market.

Better FX rates mean that you will pay less for your foreign currency purchases or will generate more income from your foreign currency sales, these savings go straight to your bottom line.

Talk to Noone Casey to identify how best to manage your FX exposure.

Drawdown of AVCs

The Finance Act 2013 has introduced a facility whereby individuals can withdraw a portion of their AVC assets prior to retirement age. The key features are:
· It is possible to withdraw up to 30% of the accumulated value of Additional Voluntary Contribution (AVC) payments from a pension arrangement. This includes occupational pension plans, AVC plans, PRSA AVC plans and Personal Retirement Bonds with an AVC element.
· If an individual has more than one pension arrangement, the limit applies to 30% of the value of AVCs from each arrangement.
· Withdrawal is not an option on the value of employer contributions or employee regular contributions.
· Only one withdrawal is allowed.
· The withdrawal can take place at any time between 27th March 2013 and 26th March 2016.
· The withdrawal is liable to income tax but not subject to PRSI or USC deduction. The income tax liability is based on the individuals overall income in the year of withdrawal.
The Registered Administrator (RA) for the pension plan will have procedures for AVC drawdown. The RA will require the completion of a form. The RA is obliged to deduct income tax at source. Most RAs are likely to automatically deduct at the 41% income tax rate with the provision of the individual to either prove a lower tax rate liability prior to payment or the individual can claim back any excess deduction of tax from the Revenue Commissioners. Each RA will have procedures for the sale of investment units and the timelines for the settlement of payment. The RA might only make payment by electronic fund transfer.
If a Pension Adjustment Order (PAO) is in place, each party can access the value of AVCs based on the terms of the PAO.
Interested in finding out more…
Depending on an individual’s personal financial circumstances, the option to withdraw up to 30% of the value of AVCs could be good or poor financial advice. This is a technical note and should not be regarded as financial advice.

Feel free to contact us for more information or if you have any specific questions to relation to AVC drawdowns
Thanks to our friends in Acumen & Trust for this technical update.

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