A similar option to savings via pension is savings via ISA after profit extraction through dividends.
Main advantage of pension option:
- Pension withdrawals can be timed.
- Pension investment growth is gross which is c30% higher than in ISA option.
- First 25% of pension pot can be withdrawn tax-free.
How does this work in practice?
An individual can be a member of as many pension schemes as he/she likes. Thus, a director should continue making contributions in the auto enrolment pension of the company either via relief at source or net pay arrangement.
Besides the above, director can open a low-cost Self invested Pension Plan (SIPP) via pension providers like AJ Bell or Vanguard etc. Where employer company can directly make payments to the pension provider. Ensure payment are directly made from the employer company to the Pension provider and not via the employee.
Hiring an advisor – In case you are lucky enough to have built up substantial funds in your pension pot, you may think about hiring an Independent Financial advisor, main points to remember are:
- Be clear about their charges
- Agree an investment performance criteria; and
- Lastly, monitor the above two points regularly like annually.
Bonus material
One risk with pensions is financial irregularity in the pension company.
Annuity payments are made till purchaser is alive.
SIPP belongs to the employee. He can take it with him when he leaves the employment, or the company closes down.
Pension age since April 2015 is 55 years increasing to 57 years from 2028 then will increase in line with state pension age.
Withdrawals – after reaching pension age, whole 100% of pension fund can be withdraw. But first 25% is tax free balance is taxable.
Acknowledgement: Rayney’s Tax Planning for Family and Owner-Managed Companies
Roy Accountants 