For directors and senior executives, careful forward planning prior to year end and tax year end is vital to ensure that tax allowances are maximised for both the company and the individual. Our pre-year end financial reviews are an essential method of focusing attention on these opportunities.
We also specialise in advising the professional self-employed on retirement, taking account of possible fluctuations in profitability by providing flexible contribution pension plans.
For companies we can assess and evaluate the range of staff retirement benefits available on a group or individual basis. For example, advice can be provided as to the suitability of increasing contributions, personal fund choice, or death in service benefit.
Note: taxation levels, bases and reliefs can change
Planning
Arguably the most important long-term investment of all is your pension - and an independent review right now might make your retirement considerably more relaxing.
Pensions:
a long-term contract
Think of a pension as a long-term contract. You might
take out a pension 30 or 40 years before you draw the benefits. How much might
change over this time? There are four areas to consider: charges, fund options,
the provider's financial strength, and consolidation.
1.
Charges
New pensions legislation in 2001 forced providers to reduce their
initial charges. However, this was not applied retrospectively. If your scheme
was set up before April 2001, you may still be paying initial charges on every
contribution you make. These could be as high as 5-10%. Older-style pensions may
also levy admin charges that range from £2 to £10 per month. You can
stop forfeiting this needless expense by moving to another provider - but bear
in mind that there may be exit penalties.
2. Fund
options
Historically; most pension providers have offered access only
to their own funds. Now a number of providers offer links to a small range of
external funds managed by Investment Companies. Some of these providers have access
to many of the top performing funds mentioned in the investments section above.
Another alternative is a Self-Invested Personal Pension (SIPP). This lets you invest in a far greater range of investment vehicles and instruments than are available through the traditional pension.
A SIPP will, for example, allow you to buy and sell individual shares if you wish. The choice is yours.
3. Financial strength of the
provider
After you've invested for 40-odd years, the least you can expect
is that your pension provider will exist on the day you retire. Or is it? After
the Equitable Life debacle, take nothing for granted. You must have peace of mind
that your provider is financially sound - but don't expect them to tell you if
they're not. A review of your arrangements can highlight companies that are potential
"weakest links", so you can take action before they become headline
news.
4. Consolidation
People change jobs often
these days, and may start and stop a whole string of pensions. This can leave
you with many pots of money that are not regularly reviewed, some of which may
be with providers who apply high charges.
Thanks to the opportunity that external funds now supply, the "all your eggs in one basket" warning is no longer valid. You can consolidate all your pensions into one pension fund portfolio, with one provider, without necessarily increasing your risk. This makes your pension much easier to manage. Before doing this, however, make sure you investigate the best options available, and take note of any exit penalties.
Retirement
Few would argue with the wisdom of joining a pension scheme. But it's rare for individuals to plan carefully around their specific retirement needs: when they want to stop work, what income they will require, how large a tax-free lump sum they will need. But one can and one should.
Retirement planning is not merely about the golden handshake and the carriage clock - it is also about keeping your financial independence if you want to reduce your workload, as you get older. Many options now exist that allow you to continue working while supplementing your income. When creating a retirement plan you need to consider the following factors:
- Income required
- Lump
sum required
- Fund growth
- Inflation
- Interest rates
- Annuity
levels
- Attitude to risk
- Time to retirement
This will help you estimate the fund size that you require. Then, looking at your existing pension funds and ongoing contribution, you will be able to tell if there is a shortfall. In this case, you will need to consider either additional funding, later retirement, or reviewing where your pension funds are invested. Then, after everything has been set up, you should still undertake regular reviews to ensure your plan is still on track.
'A' Day
From the 6th April 2006 the rules for company pension schemes will be changing and owners of small and medium size enterprises have perhaps the most to gain from the changes to the pensions regime.
However, as these benefits can only be obtained by integrating your pension plan with your business, 'A' day could trigger significant disadvantages for those who do not plan ahead and assess their options now.
How your
pension can support your business
The list below illustrates the sum
of the wide range of areas in which you should consider the interaction of your
pension plan and your business:
Starting up
Including your pension arrangements in your business plan can help you maximise
your tax free return from the business and enable you to choose the right pension
structure to support the growth of your business.
Funding
There is significant scope for an established pension plan to fund investment
in your business or in business assets but these rules will change significantly
when the new regime is introduced. Depending on your particular circumstances,
there may be advantages to making the most of the existing rules before 'A' day
or planning to make the most of the new rules as soon as they are introduced.
Small Self Administered Schemes (SSAS) holders may be able to finance extra company contributions before A day by borrowing from the SSAS - allowed under existing rules.
Profit extraction
Extracting funds from your business in a tax efficient way often requires
careful advance planning and the appropriate use of pensions arrangements can
produce savings in income and corporation tax and national insurance contributions.
Employment benefits
The rewards of creating
a perfect package that helps you attract and retain key staff are increasing as
competition for skilled staff increases. Building pension provisions for employees
can be tax efficient for both the employer and the employee but employers may
face unexpected costs if they do not assess the impact that the reforms will have
on existing pension schemes.
Small Self Administered
Schemes (SSASs) and Self Invested Personal Pensions (SIPPs)
Both these
pension vehicles have considerable attractions for owners of small and medium
sized enterprises due to their flexibility and the nature of assets that can be
held within the tax-free fund. If you already invest in such a pension it is vital
that you understand the changes that the reforms will bring as they may have a
considerable impact on your future pension investments and the way that the fund
can support your business.
There will be more restrictions on holding shares in a family company. It is currently possible for a SSAS pension fund to hold 30% of the shares in a scheme member's family company: this will reduce to 5% under the new rules but existing holdings can continue. As shares are likely to be 'business assets' for tax purposes, transferring an existing holding into your pension fund before A day could have significant capital gains tax advantages.
Pension investment
Recent falls in the stock market have reduced the attractiveness of additional
pension schemes mainly through large providers. The reforms will widen the range
of investments available to pension funds, for example, after 'A' day it will
be possible for pension funds to invest in residential property (even your own
property!).
