As a keen climber and mountaineer, I often compare retirement planning to climbing a mountain. On this journey, safely coming down is as important as getting to the top in the first place. In the past, more people had secure pension benefits and had to make fewer financial decisions. Contrary to that, as a business owner, you are responsible for securing your retirement and need a plan to help you navigate the complex pension landscape.
Ultimately any retirement plan rests on the three pillars:
• Financial security
• Lifestyle, and
Using pension as part of your business strategy can give you the following advantages:
• Tax reliefs;
• Tax-free investment growth;
• Ability to withdraw up to 25% tax free when you retire.
Along the way, you will need to decide:
• When to start saving for your retirement?
Starting earlier gives you more flexibility and full benefit of compound growth, maximizing your chances of success.
• How much to save?
The answer to this tricky question depends on your circumstances and external factors entirely outside your control. Pension projections can identify shortfalls in your provisions and take corrective actions.
• Which pension style of pension is right for you?
There are many styles of pensions you can choose from, ranging from a simple stakeholder pension to Self-Invested Personal Pension (SIPP), which offer the ability to buy a commercial property and a more comprehensive range of investment options through to a Small Self-administered scheme which extends to include lending to and borrowing from your company. If you are unsure which pension style is right for you; our pension specialists can help you decide.
• What to do with your pension pots from previous employments?
Old style pension arrangements can have hidden charges as well as a sub-optimal investment choice. Excessive charges, poor performance or shortfall in contributions can lead to poor retirement outcomes. Risk is another factor that you should not ignore. A pension review can help you to ensure that your pensions are working well for you.
One of the roles of a financial adviser is to understand your circumstances; help you discover your true goals and aspirations and equip you with a strategy to have a safe journey. At Ebor, we use the cash flow modelling tool to help our clients to visualize what their future position could look like. While this does not guarantee that the future will turn out to be exactly how we expected it to be, we find that this gives our clients comfort, knowing that they are well prepared for future uncertainties.
Many business owners are great at building businesses but neglect or don’t know how to make pensions an important part of their financial plan. Below are several ideas which you may find helpful when thinking about pension planning:
1) To extract profit in a tax-efficient manner – employer pension contributions can be treated as an allowable business expense, helping to reduce your corporation tax bill. Furthermore, pension payments could help you save on National Insurance. By contributing directly to your pension rather than paying the equivalent in salary, you save up to 13.8% employer, as well as employee NI.
The pension contributions must meet the HMRC ‘wholly and exclusively’ criteria to take full advantage of the available tax reliefs.
2) Your pension fund can be used as a vehicle for purchasing your business premises, providing rental income to your pension pot.
3) A pension can also help you diversify risk, as you never know what will happen with your business in the future. With pension savings or other investments, you will be more flexible in the future, particularly when you decide to sell or exit the business.
As we now live longer, retirement opens a whole new world of opportunities. At the same time, we all need to be savvier with our investments to make our savings last for our lifetime and beyond. It is a widely known fact that our worries multiply when we are left alone to make important financial decisions. Our role as a financial adviser is to be there for you when you are not sure how to integrate pension planning into your business strategy.
In addition to that, you may need to consider pension planning for your employees to meet the statutory auto-enrolment requirement. The day your first staff member started working for you, and you have legal duties for automatic enrolment. The online tool provided by the Pension Regulator can help you find out what you'll need to do for automatic enrolment. You need to be aware of your duties under auto enrolment;
• your staging date;
• which of your workers you must automatically enroll;
• how much you must contribute for these workers; and
• how to communicate automatic enrolment to your workers
Our pension specialists can help you answer these questions and advise you on the best workplace pension for your employees. Please contact us for further information.
Finally, a word of caution! The pension industry has seen increased scam and pension fraud levels during the pandemic, so please stay vigilant and always seek professional advice.