Business Directors and Owner Managers tend to be under constant time pressure with many competing priorities. Making appropriate pension choices and planning ahead for retirement can often be overlooked.
Estimates show that over 50% of self-employed men and over 65% of self-employed women are not saving for a pension. Many Directors and Owner Managers are also failing to invest in a pension relying on the potentially risky strategy of the sale of their business and/or property to fund their retirement.
For some, the statutory requirement for employee auto enrolment has brought the pension issue back into focus. For some Owner-Managers it can be tempting to simply contribute to the same pension scheme set up for employees but is this the right decision? What alternative pension choices are available?
Contributing to a pension is a cost effective (and tax efficient) method for Owner Managers and Directors to accumulate wealth for their retirement. A pension fund will grow free from taxation and, given the tax rules and the pension freedoms(effective 2015), that fund may be taken into drawdown providing regular income and/or tax-free lump sums.
Although not a concern for many there are limits to the amounts that can be invested in a pension fund during a lifetime but what are the main pension choices for Directors and Owner Managers? They are:
- Small Self Administered Scheme (SSAS)
- Self Invested Personal Pension (SIPP)
- Individual Saving Account (ISA)
- Executive Pension Plan (EPP)
With a pension in place, there are a number of more specialist options to minimise tax and maximise growth.
Small Self Administered Scheme
A company owner can set up an SSAS as an occupational pension scheme. Members of that scheme are limited and are generally also trustees of the scheme. With an SSAS in place, business owners may maintain control of their pension with the usual tax relief associated with pensions and a high degree of flexibility.An SSAS may invest in gilts, shares, units trusts, insurance funds and commercial property and land. The sponsoring company may borrow or loan money from the SSAS up to statutory limits.
Self Invested Personal Pension
Like an SSAS a SIPP may invest in a wide range of investments including commercial property. A SIPP also offers a high degree of flexibility and tax advantages for Directors and Owner Managers. Unlike an SSAS, however, anyone can set up a SIPP (they do not need to be a business owner), the trustees are generally a pension company and there is no facility to loan or borrow money from a SIPP.
Individual Saving Account
ISA’s are well established and well understood. In an ideal world, a business owner would maximise their tax-free allowances by using both a pension and ISA. Given more real world circumstances there is often a decision to be made between the two. That decision is generally based on the relative ease of access to funds.
Executive Pension Plan
EEP’s are money purchase pension schemes that are set up by a company for Directors and key employees for their own benefit. The schemes are administered and run by a life assurance company. Similar to an SSAS an EEP can invest in a wide range of investments. Executive pension plans are specifically designed to benefit a small group of people (or an individual) and deliver a high degree of control.
Each of these options should be considered in detail before simply taking the easy option of contributing to an auto-enrolment scheme. The wrong (or easy) option could cost thousands in potential retirement income. Should you wish to discuss the available pension options for Directors or Owner-
Managers do not hesitate to give us a call on 0800 043 8341, Email us at firstname.lastname@example.org or complete the contact form below and we will call you.