As far as Andy Bracken of Timothy James and Partners is concerned, the absolute must is a SIPP – a self-invested personal pension. With a SIPP you still get the chance to buy commercial property, including your own business’s HQ, but it’s just your fund. Because it is a personal scheme it has much lower running costs than the SSAS and you personally get to decide where to invest the pension fund’s money.
Peter Nellist, a partner and legal financial adviser at law firm Clarke Willmott & Clarke, says those taking out a SIPP should learn something about investment. A good spread is healthy and Nellist would include some property, some cash investments and is a personal fan of investing in chattels – he collects antique silver, which is rising in value all the time.
But opinions vary. Jon Francis of south Wales firm Francis, Walls & Richards says he cannot understand why some business owners continue to operate traditional executive pension schemes. “Nine out of ten who hear about the self-invested market will transfer their existing pension,” he says. But the IFS’s Duffy disagrees. “In the past I might have recommended SIPPS and SSASs but I think the maximum funding rules for executive pensions are going to make them an increasingly attractive option for business owners. Although it comes under the occupational pension rules you can put in much more than the Inland Revenue’s personal limits,” he says.
Executive personal pensions are single-person occupational schemes. An EPP is run by your company and is a money purchase schemes, where the fund builds up and you decide how much, within the rules, to take as a lump sum (up to four times your salary in an EPPS) and what sort of income generating product you will buy with the rest. There are very generous rules governing how much cash can be hived off into an EPP compared with your salary.
Company pension schemes
If you have already set up a company final salary scheme, where the fund has to have enough to pay you a pension based on your salary before you retire, you could choose to join that. If your salary increases, the company will be forced to put in significantly more to ensure the pension fund has enough to pay you your pension, often forcing the company to pay in significantly more than you would be allowed to save under a personal pension plan.
If it sounds like there’s a bewildering array of options, you are right, but it gets more complicated. As your circumstances change you may be advised to switch from one type of pension scheme to another to maximise the benefits available to you and your family. If you are selling off your business to an asset stripper, for example, how safe will you feel about leaving your pension pot in a company scheme? Much bigger pension funds have collapsed recently, demonstrating that pension guarantees are not worth the paper they are written on.
In such circumstances you may want to get your funds out and into a personal pension of one sort or another. Also, if your health is failing, you will need to consider how to pass on as much of your pension fund to your spouse or children as possible. There is a whole range of options.