So many choices, what to do?

Part one covered the less conventional ways of saving for retirement following the changes announced in the budget in March (2014).

The options covered in part one were:

  • Do nothing
  • Do nothing formal, just invest privately
  • Rely on your home for equity release or downsizing
  • Rely on the state pension
  • Leave as much money as possible in your company and invest it

Part two looks at pension schemes

  • Set up a self-invested pension plan (SIPP)
  • Set-up a personal pension plan;
  • Set-up a company scheme (auto-enrolment)

Set up a self-invested pension plan (SIPP)

You can choose the investments you want your pension plan to make anything from fine wines to gold bars. You can include commercial property in your SIPP but not buy-to-let property. Income will roll up in the SIPP tax-free.

You (and your company) can contribute a maximum of £40,000 (2014-15) plus any capacity from the previous three years. A SIPP has all the drawdown options of other pension plans so the new rules will apply to your SIPP and so (with some exceptions) you will be taxed when you withdraw the money from the pension plan at your marginal tax rate.

Personal pension plan

Personal pension plans have been available for many years now. The maximum you can contribute in 2014-15 is £40,000 plus unused capacity from the previous three years. The income will accumulate tax-free and, largely, you will be taxed when you withdraw money from the pension plan at your marginal rate.

You can invest in many stocks, shares, bonds and gilts depending on the pension fund you select.

Company pension scheme (auto-enrolment)

Large companies have offered their employees a pension plan for many years, initially as a final salary but more recently as a money purchase scheme. Under money purchase you and the company both contribute to the scheme. The comments regarding contribution limits and withdrawals apply to money purchase company schemes as they do for private pension schemes.

For single person limited companies a company pension scheme has not been a credible option as most pension providers require large monthly sums transferred from the company to the pension fund.

With the new Government legislation on pensions and auto-enrolment all companies with more than one Director/worker will have to provide a pension. The government have set-up NEST in order to help small companies (or businesses) comply with this legislation. If you are a husband and wife company you will need to provide a company pension scheme that complies with auto-enrolment and IF you are a small company you MAY find that the only scheme available to you is NEST.

The company can contribute to NEST and the income and gains will roll-up tax free. As with other pension schemes the maximum you can contribute is £40,000 (2014-15) and you will be taxed at your marginal tax rate when you withdraw funds.

Clearways Accountants are not qualified Independent Financial Advisers and therefore cannot provide specific pension advice.  If you want personal advice then please contact an Independent Financial adviser.