Director / Partner Retirement Planning
We recognise that the creation of personal wealth as opposed to company wealth is of paramount importance.
For many principals in business, the matter of retirement planning is a side issue to that of the development of their business.
As Kudos we recognise this fact and try to treat each individual situation differently.
Through various mechanisms including Small Self Administered Schemes for limited companies or Self Invested Personal Plans for partnerships or sole traders, you may be able to develop your business through your pension plan by perhaps owning commercial property within the fund or diversifying your investments away from the standard pension funds. One of the restrictions of pensions has been the inability to use the money, but times have changed, and although there are still rules in relation to investments that can be made within the realms of a pension fund, directors and partners do find that they now offer a more flexible solution than they ever have done.
However, the balance between retirement provision through pension and other areas is well recognised by Kudos. Through our Wealth Management team, we provide solutions that will make the best of the various areas of tax planning for your individual needs, and provide general business advice in relation to exit strategy and beyond.
We have developed our own bespoke SIPP product specifically aimed at this market, and believe that once we have spoken to many individuals their opinion regarding retirement provision does evolve.
Small Self Administered Scheme
These schemes, like the less flexible Executive Pension Plans, are operated on occupational pension scheme rules.
The contribution which is traditionally paid by the employer will be treated as tax deductible in relation to corporation tax. The fund grows on a tax-free basis, and the funding levels within a Small Self-Administered Scheme would be significantly higher than that of a Personal Pension Plan. This provides greater flexibility for the employer as if they wish to make large contributions in one year which has been particularly successful, the capability may be there.
The amount of benefit payable at retirement will depend on the final salary of the individual and the number of years service, along with the amount of the fund.
In order to achieve maximum flexibility, the following investments are permitted –
- Stock Exchange securities
- Bank/Building Society deposits
- Unit Trusts/OEIC’S/Investment Trusts
- Insurance policies which could include investment in a wide of insurance companies contracts
- Company loans
- Commercial Property
- Company Shares
There are some less popular investments which are also allowable which are not listed here.
As well as the contributions being relieved against corporation tax and members' contributions against income tax both at the higher marginal rate, the investments of the pension scheme are free of UK capital gains tax and tax deducted on investment income may be reclaimed on receipt of revenue approval. Cash sums arising on death are normally free from inheritance tax, and cash sums on retirement are free of income tax whilst pensions payable to members are treated as earned income.
Summary of Benefits
- Flexibility of investment choice for directors
- Taxation benefits
- Trust fund loan facilities
- Directors are trustees and therefore have full control of investment choice
- Possible 15 year deferment of annuity purchase
- Property purchase options
- Company share purchase facilities
- Creation of personal wealth as opposed to company wealth
Self Invested Personal Pension
SIPPs were introduced by Nigel Lawson in 1989 and are subject to all the normal requirements applicable to personal pensions. The current annual limits for personal pension contributions are as follows –
| Employee |
Contribution equal to annual taxable income up to a maximum of £225,000 (£235.000 from 6 April 2008) or £3,600, if greater |
| Employer |
Contribution of up to £225,000 (£235,000 from 6 April 2008) |
These are available to partners or sole traders, or perhaps directors who have net relevant earnings from another source.
There is no maximum pension benefits under a Self Invested Personal Pension, and the tax free cash sum will normally be available up to 25% at retirement. The flexibility within the plan provides retirement between age 50 (55 from 2010) and 75, and many options such as Income Withdrawal and Phased Retirement are used in conjunction with a Self-Invested Personal Plan during retirement.
Although the rules are different, commercial property purchase is available through a Self-Invested Personal Pension Plan as well.
Again, shares within UK companies and authorised unit trusts and investment trusts can be purchased within the pension as well as recognised pension funds. The main difference is that no loans can be made from the Self-Invested Personal Pension plan to the company or individual, and that shares in the employer’s own company cannot be purchased.
It should be remembered that these are personal arrangements and not company.
Kudos provide a Bespoke SIPP service to clients and if you would like further details then please contact us.