Directors, owners and executives of small firms are increasingly aware of the need to provide some form of pension planning for their key personnel.
Properly planned pension schemes can benefit a company by reducing the amount of tax (corporation, income and national insurance) that a company needs to pay out.
Tax approved pension plans can be used as a way of deferring pay, reducing profitability and lessening or even eliminating corporation tax payments. The plans can also form part of a company's remuneration package to recruit and retain senior members of staff.
The tax advantages can be significant. A company's contributions are normally fully allowable as a business expense before any liability to corporation tax. Personal contributions from employees qualify for income tax relief at the highest rate paid.
Pension funds are virtually free of tax with no liability to either capital gains or income tax. The plan can also be sheltered from inheritance tax by placing it into a trust.
Pension schemes can also be used for business planning, especially if run by directors of small companies as they can be used to manage corporation tax liabilities and acquire property.
Self Invested Personal Pension (SIPP) plans provide a flexible approach to pension planning by allowing a greater control over how and where funds are invested.
There are a variety of different schemes available which include:
- Self Invested Personal Pension (SIPP)
Allow individuals to actively manage the funds that they invest in and can include shares and property.
- Small Self Administered Scheme (SSAS)
Ideal for working directors of small companies and can be very tax efficient. Allow for high level of funding, ability to make loans, borrow and invest in commercial property.
- Executive Pension Plan (EPP)
Provides a safety net for providing a retirement income at a certain age. There are no limits on contributions to an EPP, although the maximum pension received is 2/3rds of the final salary. It can be used to act as a tax shelter for accumulating funds for retirement as well as a shelter for bonus payments.
At Forum Wealth Management, we have helped companies both large and small set-up directors pension schemes.
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