Pension Planning

Pension investment is extremely tax efficient, hence its rightful place as the premiere retirement planning vehicle. Contributions attract 100% tax relief, growth is almost tax free and 25% of the mature fund may be taken tax free. 

Our pension planning is based around client objectives, tax position, time to retirement, attitude to risk and current provision. Here are some more imaginative uses of pension:

1. In Specie Contributions (often used to avoid tax for several years)
2. Contribution linked to personal asset purchase (used to provide tax free income)
3. Property Pensions (provides tax free growth and rent)
4. Residential Property Investment In Pension
5. Pension Loan Back
6. Investment In Private Company Shares

In Specie Contributions

Here we use a pensionable asset to make a pension contribution, this would typically be commercial property. The benefits include

- Removal of asset from business risk (if held within a business)
- Provides the means to make a contribution even if cash is not available
- Such assets are normally high value and can lead to sheltering of earned income for several years.
- Enables rents to be received and grow tax free

Pension Contribution Linked to Asset Purchase

In this instance rather than making an In Specie pension contribution we are making cash contributions to pension and then using the pension cash to purchase what is normally a privately held asset. 

Property Pensions

For most business owners the ideal position is to own rather than rent business premises. The obvious benefit is that once the mortgage is repaid they own an asset which can either provide an income in retirement (from the rent) or they can sell the asset and use the proceeds to provide income in retirement. 

However there are some disadvantages to this. One is that as the equity in the property builds up over the years and if the business gets into financial difficulty then equity in the property may be lost. 

Another disadvantage is that tax is payable on the uplift in value of the property and tax is payable on the rent. Likewise no tax relief is available on the capital repayments made against the mortgage used to purchase the property in the first place.

One solution is to purchase the property in a pension or make an In-Specie Transfer. The pension fund is allowed to borrow money (but not to the same extent as can be borrowed outside the fund) to help with the purchase. The contributions used to make the loan repayments attract tax relief. The rent received by the fund and the growth in the value of the property are all tax free. 

Residential Property Investment In Pension

With larger funds people are often interested in having a proportion of geared investment in residential property. We use two providers of such schemes with investments in Poland, German cities, UK Cotswolds Bulgarian ski apartments and Italy. 

Projected returns are normally around 15% and such investments tend not to be correlated with equities and bonds which thus provides greater meaningful portfolio diversification.

Pension Loan Back

For business owners it is sometimes beneficial to borrow money from their own pension fund. The funds must be secured by the pension fund and commercial rates of interest charged. This route is typically used when the business owner prefers to pay interest to their own pension fund rather than the bank

Investment In Private Company Shares

Usually the pension would invest in the pension owners own company. This is not normally recommended however it is available and in some instances proves to be a very useful planning tool.