As a company director, you arguably have a wider range of pension planning options compared to an employee. Yet the choice can feel overwhelming. Below, our Carlisle financial planners here at Vesta Wealth explain some of the key pension schemes to consider when building your retirement plan. We hope these insights are useful to you. Please contact us for more information or to speak with a financial adviser:
t: 01228 210 137
e: [email protected]
State Pension
Almost every British national has the opportunity to build up a State Pension. When you start claiming it (after reaching your State Pension age), this supplies an indefinite regular income from the government in retirement. The “triple lock” system also ensures that the income will rise by at least 2.5% each year. There is however much political debate around how sustainable this policy is and it should not be relied upon when planning your retirement income.
In 2023-24, the full new State Pension is worth £203.85 per week (£10,600.20 per year). To achieve this, an individual needs at least 35 “qualifying years” of National Insurance (NI) contributions on their record. A company director can build this up automatically via their paycheque under the PAYE system. However, it may be worth checking your NI record online, using the government’s website, to check your progress towards the full 35 years. If you have an incomplete NI record it is possible to ‘purchase’ additional years to top-up your entitlement.
Workplace pension
Your company should be offering employees a workplace pension under the UK’s auto enrolment rules. As an employee, you can also benefit from the scheme – even designing it to optimise the tax position of both your company and its workers (including yourself).
For instance, perhaps your company can offer a “contribution matching” benefit to scheme members – e.g. matching an employee’s own contributions up to, say, 10%. If you, as a company director, contribute 10% to the scheme, then this means that the company adds another 10%. This is great for you since the employer contribution amounts to “free money” (it does not come out of your salary).
Moreover, the company can benefit by claiming the employer contribution as an expense, potentially helping to save on corporation tax.
Personal pension and/or SIPP
A personal pension (or “private” pension) can be a powerful retirement planning option – especially if someone is looking to consolidate multiple “pots” (e.g. from previous roles) or gain more control over their investment options.
A self-invested personal pension (SIPP) will likely offer even more market choice than a personal pension. For instance it offers greater scope when it comes to the choice of investments. However, this can bring a greater responsibility for you to manage your pension, which you may not have the time or inclination for. An additional feature of a ‘full’ SIPP is it can purchase and hold commercial property within the pension.
Working with a financial adviser can help to relieve this burden and provide you with expert advice about the wider range of investment options in front of you.
Small self-administered scheme (SSAS)
For directors of small companies (e.g. a family-run business), a small self-administered scheme (SSAS) can be an attractive pension option. Here, members are appointed as trustees of the scheme and have greater control over the scheme’s assets and investment options.
Like a full SIPP, a SSAS can also allow commercial property to be purchased (using the scheme’s funds) and then leased back to the business. One unique aspect of a SSAS is that the scheme can lend money to the sponsoring employer for use in the business. However, note that there are complex restrictions on who can set up a SSAS and how it can be used. Please speak to us to explore this in more detail.
Executive Pension Plan (EPP)
This is a type of separate pension plan offered to company directors, different to the primary scheme offered to other employees. This can be a powerful retention tool – possibly becoming available to senior staff as they progress through your organisation.
An EPP can also bring more flexibility by allowing directors to consolidate older schemes into a dedicated “pot”, which may not work effectively using a standard workplace scheme offered under auto enrolment.
Bear in mind that having too many separate schemes in your company can add a lot of complexity and administrative workload. A financial adviser can help you explore different scheme options and strike an appropriate balance (e.g. with benefits).
Drawing benefits
Regardless of which pension structure(s) you use as a company director, it is important to consider how you will eventually access benefits in the future. In 2023, an individual can usually start taking pension benefits from age 55. However, the age will rise to 57 in 2028. The age at which you can start claiming your State Pension will be even later (e.g. 66 or older).
In 2023-24, an individual aged over 55 can take up to 25% of their pension value as one or more tax-free lump sums. Funds held in your pensions (not your State Pension) can be broadly used for one of three purposes: to provide a flexible income, to buy an annuity or both.
Speaking to a financial adviser can help you explore different ideas for drawing benefits from your pensions while also ensuring your income is provided in the most tax-efficient manner.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.