Pension Planning Basics For Business Owners

One of our Financial Planners, Charlene Coulbeck, has kindly shared with us the benefits of pension planning for business owners, and what they need to be aware of. Let’s have a look at the benefits of pension schemes, from a business owner’s perspective.

Pension Planning Basics For Business Owners – By Charlene Coulbeck

Pensions have always been one of the main focal points for holistic financial planning. Auto enrolment rules in recent years mean that those employed by firms, have much of the ‘thinking’ done for them. They will be entered into a scheme and contributions made, unless the employee opts out of course.

Business owners however can easily fall into the habit of letting their own pension planning fall by the wayside and forget the benefits of a pension scheme, both now and for a diverse, flexible retirement plan.

Tax Relief

This is the most obvious, well known, and largest benefit to pension contributions. Personal contributions work the way as for everyone else and is paid from your income (e.g. director’s salary) and you receive tax relief at your income tax rate. So basic rate at 20%, higher rate at 40% and additional rate at 45%. The first 20% of this tax relief is usually given as an immediate “uplift”, grossing up the contribution made. The rest for those who pay more tax, the relief is given through self-assessment which in effect reduces your personal tax bill.

As a business owner however, you also have the option of making employer contributions depending on your company’s affordability. This can be very beneficial as it is classed as a business expense – so reduces your company’s corporation tax bill.

Exit Strategy and Flexibility of Income

I’ve heard before from client’s who own businesses, “my business is my pension”. For some business owners, there may well be a sold exit strategy in place to facilitate retirement. However, it is not always that simple, and unfortunately just because a business is successful now, it is not guaranteed to be so in the far-off future.

Pensions can be a way of safeguarding some of your business’s profits away from the individual performance of your business, it’s industry and future prospects. It is a tax efficient way of transferring the funds into your name so that your retirement funding is not reliant on one strategy.

In addition, pension funds provide a great pot of money in retirement that can be accessed tax efficiently and flexibly from 55 (due to increase to 57 in 2028). Flexi-access drawdown pension pots allow you to take 25% of your funds tax free, with the rest classed as taxable income – but these can be taken in a combination of monthly payments, and stopped and started when desired. This can therefore be great tool to manage income and tax, alongside other sources of income in retirement.

Setting up a Pension

We will discuss the best type of pension for you, your future retirement plans and how much funding is affordable for you and your business, plus we can liaise with your accountant to make things as effortless for you as possible.

If you are a business owner and wish to look at setting up a pension with us, please get in touch with one of our financial planner’s on 01482 219325 or email [email protected] 

Risk Warnings
  • Please note that tax rules change regularly. The actual tax benefits you receive will depend on your individual circumstances.
  • Capital is at risk, investment values can go up as well as down, you may get back less than you invest.
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