Options for Pension Provision in the UK

Question

What options are there for pension provision for the self-employed?

[Specifically applying to being employed through a Limited Company in the UK.]

Answer 1

Since you specifically state the UK, I'll start with a disclaimer: I am not an authorised person within the terms of the Financial Services and Markets Act, and I am not authorised to give advice. As such, this is Personal Opinion only!

There are many options available, depending on your attitude to risk, when you want to access the funds, and depending on how your self-employed activity is structured (self-employed as a sole-trader or partnership, or as an owner/director of a limited company etc).

You use the term "Pension provision" but there are many ways of providing for your retirement, than just pensions!

An important point to remember though, is do not let the tax tail wag the returns dog. Do not be blinded by tax relief, if it ties you in long term to poorer performing investments.

Specifically for a limited company, you have the choice of making payments from the company, or personally.

Company Funded

Payments made by the company have to fall into one of two categories

• Payments to an approved pension scheme
• Investments made by the company (and remaining the property of the company)

Anything else will (most likely) be considered as either a payment in lieu of salary, a dividend (if appropriately declared) or a benefit in kind - each with tax considerations!

Company funded pension contributions (even into a personal pension) are made gross (so no income tax to reclaim) but they are deductible for corporation tax. But the main benefit is the saving of two lots of National Insurance (so approx 25%).

Optionally, the company can (if its articles allow) make investments in shares, property etc in its own name - profits will be subject to corporation tax - but I suggest taking appropriate advice before following this route.

Personally Funded

Obviously, this way, you have to pay-out the moneyt, via either salary or dividends.

But once the money is in your hands, it can be invested as you see fit... options to "traditional" pension schemes include EIS/SEIS approved investments, ISAs etc - all of which offer tax relief in some form.

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Personal Opinion: As recent changes to pensions have shown, I do not trust Governments to resist the temptation to tax accrued funds further. As such, I certainly do not have all my eggs in a Pension basket. My various employment pensions are now all accumulated into a Self-Invested Personal Pension.

I also maintain a broad ISA portfolio (which is, in effect, my main Retirement Provision) as this allows me to access the capital if/when I need it - or the Government fundamentally change the structure.

I also have a wide (higher risk) portfolio of unlisted shares (EIS, SEIS and VCT types) which offer higher returns, but with some risk!

Whatever route you take, keep a broad portfolio, and keep as much control over it as you can.

-- AUTHOR's EDIT -- The above answer needs reviewing in light of the Pensions "freedoms" now being rolled-out...