I'm thinking I ought to have a pension

altyfc

Hi everyone

Here are my circumstances:

- I am 36 years old, and married with two wonderful young children
- I have an ISA which I have made the maximum cash contribution too for the past 3 tax years (ie. totalling around £10k)
- I have modest personal savings beyond the ISA
- I am a homeowner and fortunate to have no mortgage
- I set up my own small business in '93 (went full time in '96) which is now fairly/very profitable. The business became a Ltd. company a couple of years back so I'm now effectively an employee of the company in order primarily that I can limit my tax bill. Myself and my wife are the sole directors.
- surplus funds are now retained within the business and invested in savings/shares
- I (or at least my company) own(s) my work premises (admittedly modest!)
- I do not have a pension. Up to now I have simply regarded my business as my pension (if I could find the one buyer required [much easier said than done, I'm sure] then it could comfortably fetch a 7-figure sum]).

I have been so busy running the business that I've just never really stopped to look at pensions and so it's not something I know a lot about, or really know where to start, but I'm thinking I ought to have one. Have I left it too late (I'm guessing it's never too late??)...? What are the key things that I need to consider?

I have an appointment with an IFA tomorrow and it'd be useful to have some responses just so I have a bit more of a clue as to what might be suggested!

Thanks everyone.

steviewander

I hope you get a decent response to your post, as I'm in a similar predicament (minus the 7 figure sum for you business!).

Someone did tell me that it is worth considering using Share ISAs as a means of saving for your retirement, because the tax benefits are similar, but you have access to the money if you need it for an emergency.

If someone could explain why people choose Pensions over Share ISAs (of should I be doing both?), it would be much appreciated!

Thanks.

dunstonh

Have I left it too late (I'm guessing it's never too late??)...?

At 36 it is not too late. You have 16 years less to contribute and get growth on than if you started at 20. So it is important to address your need.

- I do not have a pension. Up to now I have simply regarded my business as my pension (if I could find the one buyer required [much easier said than done, I'm sure] then it could comfortably fetch a 7-figure sum]).

With respect and not knowing a single fact about your business it does seem strange that you have a business that you value at a 7 figure sum yet only have modest savings beyond a small £10k in an ISA. People do tend to over value their own businesses. Whilst the business may have some value which could very well make things very comfortable for you in future, it is best not to rely on one thing.

What are the key things that I need to consider?

A pension is just a tax wrapper for investing. At the end of the day you will benefit from paying into it. The more you pay the more you benefit. The less you pay (or not pay at all) then the less income you will have in retirement.

Someone did tell me that it is worth considering using Share ISAs as a means of saving for your retirement, because the tax benefits are similar, but you have access to the money if you need it for an emergency.

That is too simplistic and can actually be a very bad reason to have an ISA as well as a good one. If the emergency is one that sees you requiring benefits then the ISA will be taken into account but the pension wouldnt. So, its not clear cut.

If someone could explain why people choose Pensions over Share ISAs (of should I be doing both?), it would be much appreciated!

Sticky thread at the top of the forum.

altyfc

Thanks for the reply, dustonh... helpful as always. :T

dunstonh wrote: »

With respect and not knowing a single fact about your business it does seem strange that you have a business that you value at a 7 figure sum yet only have modest savings beyond a small £10k in an ISA.

Rightly or wrongly, I have always regarded paying my mortgage off as priority. I rather naiively didn't really familiarise myself with ISAs until relatively recently.

dunstonh wrote: »

People do tend to over value their own businesses. Whilst the business may have some value which could very well make things very comfortable for you in future, it is best not to rely on one thing.

Point taken re over-valulations, and something I am wary of. That said, I'm quietly confident that it could realistically fetch a sum of the order previously mentioned.

dunstonh wrote: »

A pension is just a tax wrapper for investing. At the end of the day you will benefit from paying into it. The more you pay the more you benefit. The less you pay (or not pay at all) then the less income you will have in retirement.

OK, thank you. Sorry if this has been asked before, but is it generally regarded that you should put away x% of your income? My income nowadays is really just what I require as I go along (I draw from the business what I need on a month by month basis) so how would that work for my situation?

Thanks again - really appreciate your help and advice.

bigturnip

I'm no expert, but it may be advantageous to seek advice about the most tax efficient source for the contributions. It may be more tax efficient to draw the money from the company and then make the contribution privately or it may be better for your company to make contributions to your pension. Logic would tell me it wouldn't make any difference (you either pay tax/NI and claim it back or just don't pay it in the first place), but when has the tax system ever been logical? Just thought it might be worth looking into.

EDIT: Also it's going to work out better in retirement (dependant on size of pension) if you set up a second pension in your wife's name and split the contributions equally between the two, thus making maximum use of both of your personal allowances.

altyfc

I went to see the IFA today. Appointment was for 10.30am but they had no record of it. (The IFA made the appointment, rather than his secretary, and it seems to have gone astray.) He was already seeing someone but knew I was waiting. By 10.45am I decided to get up and leave, telling the secretaries that I woudl "get on with some work" and leaving my 'phone number. My office was only round the corner so I might as well have been sitting at my desk rather than in a waiting room!

No sooner had I got back to the office and I got a call, so back I went for the meeting. Needless to say, I was unimpressed by the poor start, particularly when no apology seemed to be forthcoming.

Anyway, that aside... he was helpful and we went over a number of things. He suggested that I get 'key man' insurance for one of my employees who is integral to my business, and that strikes me as a good idea. We also talked about life assurance but I am in two minds about that (my business is likely to continue to produce a healthy recurring income even if I wasn't about). And finally he talked about putting a 'tax wrapper' around certain aspects of my business in order to make it as tax efficient as possible.

Maybe I'm old-fashioned but, although the meeting was helpful, my opinions are somewhat tarnished by the first impression I was given. I am wondering in any case whether it's a good idea for me to have initial consultations with a couple of other IFAs just to see if other ideas emerge, or whether all opinions are consistent. I am not looking to be a time-waster, but I would like to appoint someone who I feel comfortable with, who is efficient and has my and my family's interests at heart. Would it be wise to consult a couple more, do you think?

EdInvestor

Since you are at the point of the "principle of the thing" and it's a tax wrapper, you might be better to consult your accountant in the first instance to check out how the company could contribute to pensions for both of you) and make savings at the same time.