It is almost never too late to start stowing money away in a pension. There is plenty of flexibility over how much you can personally save into a pension and even greater leeway over how much your company can pay in for you, depending on the pension scheme you have. In fact, if you happen to save into a pension while paying 40% tax but only build up a fund big enough to provide a pension attracting the standard rate tax, you will have kept even more from the tax man.
When should you start?
But most advisers would suggest starting early and building up the biggest fund you can, there are pension options to suit everyone. For those just starting out and taking little in the way of taxable income from their business but pocketing dividends, the government’s stakeholder pensions can be a useful tool. A stakeholder pension is flexible as you can move it from one provider to another and start and stop paying at your own choice without any penalty. You can also make very small or very large payments each month – starting from around £20.
Once you have more substantial sums and changing circumstances, a whole range of pensions options become available to you. Which suits you best will depend on your individual circumstances and your personal attitude to different forms of investment and risk.
Do it yourself
One option for business owners is a small self-administered pension scheme, known as a SSAS. These enable just two of you, or as many as 11 managers and directors, to pool their pension funds, set themselves up as trustees of the pooled fund and decide where to invest. The fund can buy the company’s property, including using a mortgage to do so, and lease it back. The company’s rent then goes into the pension fund and, unlike the company, when the pension fund sells the property the sale is free from capital gains tax. The pension can even lend the company money.
There are drawbacks to SSASs. First they cost a fair bit to run – they are occupational pensions, have boards of trustees and a welter of rules with which to comply. And they work best if the members of the scheme share similar characteristics and circumstances as well as investment choices. SASSs are a great if they fit the individuals needs and desires. For a fund that buys the company’s property it is very tax efficient. However, if, for instance the property is 75% of the fund and one of you is 64 and the other is 40, then when the 64-year-old needs to retire, the fund may have to sell the property.