Director of firm looking to start pension

[Deleted User]

Long story short...

2013 - April 2016 self-employed, not paying into a pension.
2014 - 2015 also got a job paying into the Pension People pot (around £800 in there)

April 2016+

My company is going LTD on the 1st April 2016, so I need to sort out a pension... I have no clue where to start. I've tried reading the guide but it's dedicated to employees but I guess my situation is more complex than that.

According to the guide I should be taking 1/2 of the age I am when starting which makes 12% (does this include contributions the business makes or not?)

Does anyone have any recommendations as to who I should go with? I also assume I can move my current pension pot into my new pension pot to keep everything together?

Thanks!


*Edit - Just seen the Peoples Pension want £500+ VAT as a one off payment, because I am the only employer this is a serious amount so I'm hoping I can find something cheaper.

TheTracker

In terms of Ltd Co versus employee it's not complicated at all. To the Ltd Co contributions are an expense, like salary is. Create your own pension with a SIPP. Choose the platform based on fees, contribution levels, fund choice.

princeofpounds

According to the guide I should be taking 1/2 of the age I am when starting which makes 12% (does this include contributions the business makes or not?)

This is just an old rule of thumb. It's not the worst rule, but has a lot of limits.


The way that pension planning really works is as follows (in brief):


- figure out what your objective is, in terms of retirement income and date. Remember to adjust for state pension, if relevant.

- using a pension calculator (there are many of the web of varying complexity), figure out what sort of contributions you need to make in order to get to that figure.

- if the figure doesn't look practical, adjust your income expectations, retirement date, career plans and budgeting to find a balance that works for you.

- there are important assumptions in the pension calculator, chiefly around the long-term return on your assets above inflation. Of course these are not known in advance, although statistics from the last century provide an informed guess - each calculator will use a slightly different assumption and method.


But the beauty is that if you update the calculation every year, it will spit out a slightly higher contribution requirement if your investments underperform, and slightly lower contribution requirement if your investments outperform. But any change is only gradual.


- You then need to incorporate a few technical details, such as making sure you are not likely to exceed the lifetime allowance number (not likely to be a problem until you are years down the line), checking out you aren't better off investing in the new lifetime ISA concept, just generally integrating it into your overall financial plan etc.


- Finally, all the above concerns you as an individual employee with retirement objectives. It does not address the extra layer of complexity given you are also the owner of the business.


Sometimes the optimal course of action for you as an employee might not be quite the same for you + the business. Although given the tax relief, paying into a pension is almost certainly going to make sense in most situations. But questions like this cross my mind:


- if you are paying yourself a low salary, for example rewarding yourself via dividends instead, then the tax relief might not be as valuable as if you were paying yourself a low salary.
- some SIPPs allow the purchasing of commercial property. Some people use them as a vehicle to purchase their business premises, although you have to do it in a 'proper' fashion and there are various restrictions.
- There will be questions around whether it makes best sense to contribute as an employer to the pension or as an employee. Certainly it used to be the case that employer contributions were more efficient as it avoided employers' national insurance charges. But I'm not up to date on that.


I'm no expert on that stuff. The point I'm making is that there are numerous tax quirks that you might want to explore over time, but it is not necessarily important to have the most optimal structure on day 1 if you are busy elsewhere. But a good accountant can often advise on these things.


The other major message is to separate in your mind the basic idea of pensions for you as an individual, from all the complexities owning a business entails.


Pensions are conceptually very simple - you save tax on pay you defer now, but pay tax when you extract it later in life. But loads of (mostly harmless) meddling over the years makes them more complicated than they need to be, jargon-wise.


Get an idea of what you need as an individual, and only then tackle how best to get the business to provide it.

[Deleted User]

I'm paying myself a tidy £700 per month gross... (I'm also taking a car as a benefit in kind) so £84 into the pension pot.

My worry about a SIPP is the amount of maintance it requires, my time is already stretched as it is.

Also, I haven't even begun to research what happens if I die? - Worst case scenario and all that...

dunstonh

*Edit - Just seen the Peoples Pension want £500+ VAT as a one off payment, because I am the only employer this is a serious amount so I'm hoping I can find something cheaper.

They are geared for auto-enrolment. That doesnt apply to you unless you have any employees.

In general, Stakeholder pensions are limited in options but basic and you cant really do much wrong with them. Personal pensions are the middle ground and SIPPs are the advanced option.

[Deleted User]

dunstonh wrote: »

They are geared for auto-enrolment. That doesnt apply to you unless you have any employees.

In general, Stakeholder pensions are limited in options but basic and you cant really do much wrong with them. Personal pensions are the middle ground and SIPPs are the advanced option.

No employee's, just myself. So yes looking to move away from them. SIPPs do seem more advanced than I'd like. I see the benefit, and I've previously done some investing but it's more about the amount of time and research that makes me want to lean towards other options depending on what they may be.

kidmugsy

Deleted_User wrote: »

I'm paying myself a tidy £700 per month gross... (I'm also taking a car as a benefit in kind) so £84 into the pension pot. .

Wot, no dividends?

Deleted_User wrote: »

My worry about a SIPP is the amount of maintance it requires, my time is already stretched as it is.

Also, I haven't even begun to research what happens if I die? -

(i) Set up a regular passive investment and review it once per year.
(ii) Complete your provider's Expression of Wishes form that defines who you want to get the pension if you die before drawing it.

mania112

you said employer at the end of your first message - i think you mean employee.

In which case, as you said earlier in the same post, you don't NEED to set up a pension just because you've become LTD.

Until you employ someone, the auto-enrolment rules don't apply to you.

Which is good news :- you needn't pay for an auto-enrolment pension to be setup, you can select a private pension, which 99 times in 100 will be a better quality pension in any case.

Find an adviser to help you out: https://www.unbiased.co.uk