Highest Return/Lowest Risk Pension Options

scrooge2008

I am 57 years old and have a couple of DB pensions that currently pay out £400.00 a month combined; three rental properties which net me about £1000.00 a month and I am the owner/director of a small limited company that employs 10 people and gives me an income of about £3000.00 a month.  My accountant has set up a SMART pension scheme linked to the company, which just one employee utilises, I have never paid into it.  My NI contributions project a full state pension at 68

I am now thinking actively about retiring and certainly adopting the quiet quitting mindset.  I am currently saving about £2000.00 a month into a ZOPA 90 day interest account, which has around £30,000.00 in it.  I am conscious that I am getting no tax relief on this, but I am very risk averse and worried about any DC pension plan, linked to the stock market.

Can anyone suggest a better way of saving this £2000.00 a month, getting maximum return with little to no risk?

Thank you for your help.

Dazed_and_C0nfused

three rental properties which net me about £1000.00 a month and I am the owner/director of a small limited company that employs 10 people 

but I am very risk averse 

You're doing well for someone very risk averse!!

You don't have to invest in the stock market within a pension.

If they were personal contributions (which isn't necessarily the most tax efficient when a limited company is involved) your £2,000 would become £2,500 with the basic rate relief the pension company will add.

Bur an employer contribution of £2,000 where no tax relief is added may be more sensible.  You need to discuss that aspect with your accountant.

JoeCrystal

scrooge2008 said:

I am the owner/director of a small limited company that employs 10 people and gives me an income of about £3000.00 a month.  My accountant has set up a SMART pension scheme linked to the company, which just one employee utilises, I have never paid into it. 

Are you saying that all but one employee decided to opt out of the auto-enrollment rules, and your company provides a scheme that meets the auto-enrollment? Sorry for going off a tangent about that, but you would be surprised at the number of employers not following their legal pension requirement!

scrooge2008

Thanks Dazed and Confused.  Seems I am getting far more risk averse as I am getting older and keep thinking the stock market is going to fall off a cliff ................... That is a good idea about speaking to my accountant to see what he says (just hope he can explain it in layman's terms), I will do that next week.  

Albermarle

getting maximum return with little to no risk?

There is really nothing that brings no risk.

If you put it in a safe savings account, then most years the interest earned will be less than inflation, so the actual value of your savings goes down, in terms of what it can buy ( especially at the moment ) , so you are exposed to inflation risk.

If you invest it, then the investment can go up and down , but historically the long term trend is up/above inflation.

So it is largely down to the time scale of when you will need the money. Less than 5 years - save it. More than 10 years invest it . Inbetween maybe a mixture would be the least risky way.

Being too risk averse is actually quite a risky strategy. In any case running your own company must have been quite risky ?

scrooge2008

JoeCrystal said:

scrooge2008 said:

I am the owner/director of a small limited company that employs 10 people and gives me an income of about £3000.00 a month.  My accountant has set up a SMART pension scheme linked to the company, which just one employee utilises, I have never paid into it. 

Are you saying that all but one employee decided to opt out of the auto-enrollment rules, and your company provides a scheme that meets the auto-enrollment? Sorry for going off a tangent about that, but you would be surprised at the number of employers not following their legal pension requirement!

Yes, that is correct Joe, the accountant does all the invoicing, pension, payroll and statutory reporting for me and all employees, including myself were auto-enrolled on a SMART pension scheme, run through the accountant.  We were not given any advice by the accountants, at the time, so not sure why others did not continue, but for me it was a distrust of the stock markets and any pension that was not DB, but it may not have been the wisest decision on my part and I am reviewing it now.

scrooge2008

Albermarle said:

getting maximum return with little to no risk?

Being too risk averse is actually quite a risky strategy. In any case running your own company must have been quite risky ?

Yes, you are right, but somehow I feel these things are more under my control than the global stock markets, but it is an irrational fear that I am looking to confront.   

My plan is to cut the hours that I work in my business to a maximum of two to three days a week, from October and to take on very few additional clients (cherry pick).  I want to save £2000.00 a month for the next 11 years and retire officially at 68.

I don't think putting it all in ZOPA is the best strategy, so I am posting and reading about retirement, for the first time really, to work out a plan I am comfortable with.  I have a feeling that there may be a tax efficient way of contributing from business profits, into a low risk SIPP, but I will discuss that with the accountant as per earlier suggestions.

Thank you for your post. 

dunstonh

but I am very risk averse

Except you are not.

a couple of DB pensions that currently pay out £400.00 a month combined;  DB pensions pay a nice secure income. 

three rental properties are not the activities of someone risk averse.  

Being the  owner/director of a small limited company that employs 10 people is not someone who is risk adverse

Not using a pension when you are a shareholding director is not a risk-averse activity (there are few ways as good as getting your money out of your company than the pension wrapper)

.  My accountant has set up a SMART pension scheme linked to the company, which just one employee utilises, I have never paid into it.  My NI contributions project a full state pension at 68

You are not required to.   Shareholding directors are exempt from auto-enrolment.   Did you put your employees off, or are most of them stupid?

However, you have missed out on tax relief that would more than cover any potential market negativity.    Stockmarkets always have a crash coming. And the next one, and the one after that.....   However, they also get the postive years in between.   It goes up and down in and you average out those ups and downs.  You dont look at positive years or negative years in isolation.

Property can crash just as much the stockmarket.   It is only a lack of supply and low interest rates that have held it back from that.   However, the CGT you will pay on the property is greater than a typical stockmarket crash.  Yet you still went into property.

The reality is that you are not risk averse.  Your low level of knowledge with conventional investing and not understanding the pension wrapper is the problem.   You seem happy to take higher risk decisions elsewhere.

Back to pension,  a company contribution to your pension would be a business expense.   So, that is a reduction in corporation tax.   It has also got money out of the company without dividend tax, income tax or NI.    When you come to draw the pension, it will have an effective rate of 15% if you are a basic rate taxpayer in retirement.  Earlier than state pension age with no other income, would allow over £16k out of the pension tax free every year until state pension.      

scrooge2008

dunstonh said:

The reality is that you are not risk averse.  Your low level of knowledge with conventional investing and not understanding the pension wrapper is the problem.   You seem happy to take higher risk decisions elsewhere.

Back to pension,  a company contribution to your pension would be a business expense.   So, that is a reduction in corporation tax.   It has also got money out of the company without dividend tax, income tax or NI.    When you come to draw the pension, it will have an effective rate of 15% if you are a basic rate taxpayer in retirement.  Earlier than state pension age with no other income, would allow over £16k out of the pension tax free every year until state pension.      

Yes - OK I am not risk averse on things that I understand - and I am now building up my knowledge on conventional investing and getting my head around the pension wrapper.  Your post is really helpful thanks.

I take a wage of about £850.00 a month from the company and get paid dividends too.  My accountant is doing my year end accounts, this month and there will be a decent profit.  Am I correct in that I could put all my PAYE earnings into a pension wrapper, this year, and all my profit?  If this is the case I am not sure that I would want to use the one that the company has, 'SMART' pension as I have been looking at it and it does not seem to be very user friendly.  

If I am putting money into the stock market, I would rather, put in a set monthly amount, for the next 11 years and would therefore be buying cheaply in the event of a market crash and not timing the market.  (Tracker Fund?)

I am also thinking of using a pension wrapper to buy a small commercial property, at some point,

Given the above is there a low cost pension provider that would be able to accommodate the above.

Thank you again .

Adyinvestment

Worst case scenario (and as at the owner of a Ltd company with a pension scheme you should be able to do much better) open up a SIPP and stick as much as you can in it to use up all your pay you can afford, put it all into a Stirling Money Market or UK Gilts. Take the tax relief and rinse and repeat until you retire, you are old enough to withdraw from a SIPP so use it as a tax advantaged savings account.

scrooge2008

Hi Ady, 

This is going to sound really stupid, but does that mean that if I paid in my PAYE salary of £850.00 a month, to the SIPP that I would automatically get the 20% uplift and be able to withdraw £2040.00 (tax free) each year, plus anything extra the fund had made?  Would it make sense to pay myself more to maximise this - i.e. up to the tax free allowance?  I think I read something like this on one of the threads, but I couldn't get my head around it at the time.  That would be an effective interest rate of over 20%.  Seemed to good to be true?  I think I may have misunderstood your post.

Thank you.