Whether you are a company, partnership or sole trader, pension planning is an important part of financial planning for most businesses. Usually, as a highly tax efficient way of distributing profits, pensions can be used to achieve financial security for both business owners and their staff. Some employers and individuals use their pension fund to purchase commercial property with the objective of the business being a tenant of the pension asset. There are many types of pension scheme available, some with different conditions that can affect the outcome of the eventual benefits. Many will remember the simplification of pension rules in April 2006, sometimes known as Pensions 'A' day, which were designed to streamline pensions. Whether this has been successful is a matter for debate, and with the introduction of auto-enrolment/workplace pensions, the situation may change all over again. I have commented on a few of these points below:

Workplace Pensions & Auto-Enrolment

Most employers & businesses are now very aware of the requirements to establish a Workplace Pension or Auto-Enrolment pension schemes for their employees. Larger employers reached their mandatory 'Staging Dates' some time ago, and most small to medium business enterprises have also now staged. Many smaller employers will see their Staging Dates being reached over the course of 2017-2018 and will need to implement their new scheme (or 'qualify' an existing scheme).

A simple guide for employers, produced by The Pensions Regulator, can be found here.

Chapters Financial has dedicated a whole section to this topical pensions issue on this website.

Do you remember Pensions 'A' Day, April 2006

I am sure most remember 'Pensions 'A' Day, introduced from 6th April 2006. This introduced sweeping changes for pensions and the legislation that surrounds them to simplify the many arrangements into one regime. This simplification was designed to improve understanding of how pensions work and increase the flexibility of how they are contributed to, invested in and drawn from. Many of these changes have seen amendments over the last 5 years and we have detailed some of the changes below:

  • Maximum tax free cash to be 25% of the fund when purchasing a lifetime annuity.
  • The lifetime allowance (LTA) for the tax year 2011/2012 was £1.8m. This was reduced to £1.5m from April 2012, and again down to £1.25m from April 2014. From April 2016, the LTA has fallen to £1m. Those with significant pension values should consider this change carefully.
  • Increase in the minimum retirement age from 50 to 55 from 2010.

However, since then, we have seen pension rules evolve in line with the changing tax regime and a good example of this is as follows:

  • An Additional rate income tax level of 50% (reduced down to 45%, from 06 April 2013) will apply to those earning over £150,000, with new restrictions on the ability to offset this tax with pension contributions.
  • A reduction in the personal allowance for those earning over £100,000.

The world of pensions and their rules is unlikely to stand still both now and into the future of a new political environment. This is why it is important that you, both as an individual and as a business review your financial planning with your Financial Adviser on a regular basis.

Final Salary/Defined Benefit Occupational Schemes

Most types of occupational pension scheme have been the topic of debate in recent years. As the name suggests, the benefits to the employee at retirement are defined at outset. These arrangements have proved to be expensive for employers and many companies have moved away from this type of liability because of the financial burden and commitment in future years can be high. Ongoing advice is key to the maintenance of these plans.

Money Purchase/Defined Contribution Occupational Schemes and AVC's

As the contributions (rather than the final benefit) to the scheme are defined, the ongoing liability has proved to be more popular in recent years. The contribution is invested and the employee receives a pension fund to buy retirement benefits rather than a defined income. Benefits for the employee can be improved by the employee making Additional Voluntary Contributions (AVC's). Some employers have used Small Self Administered Schemes (SSAS) to accrue retirement benefits and these should be reviewed regularly.

Advice can be provided on all types of occupational schemes, such as Small Self Administered schemes (SSAS), Executive Pension Plans (EPPs), Final Salary and Money Purchase arrangements, including AVCs. Some arrangements now also use Self Invested Personal Pensions (SIPPs) as an alternative.

Talk to Chapters Financial Limited about your business and financial planning needs to ensure that you are up to date and informed of the opportunities available to you and your business.

Please note that this is for guidance only and we recommend that you seek further advice from an Independent Financial Adviser before proceeding further. The Financial Conduct Authority does not regulate taxation and trust advice.