Three Useful Pension Options You Should Consider
There are several options to weigh up if you decide to start paying into a pension. The decisions you make now about your pension could have a huge effect on your long-term financial security, so it’s important that you understand the pros and cons of the different options and which one is right for you. If you have any questions about the different options and how to make the most of your retirement savings, please contact us.
While pensions are usually invested to deliver long-term growth, you should keep in mind that returns cannot be guaranteed. When making any investment decision, including those about your pension, you should consider your risk profile and investment time frame. Please contact us if you have any questions about investment risk.
Here are three options you might want to consider when selecting a pension.
- Workplace Pension
National Employment Savings Trust (NEST) was established by the Government as a workplace pension scheme. It was introduced to help ensure that every UK adult has access to a workplace pension. In most cases, you can join NEST if you’re the sole director of a company that doesn’t employ anyone else. There are other workplace pension providers to consider too. Through a workplace pension, your savings will typically be invested in a fund. A fund pools your money with other pension savers to spread risk. This means that you won’t have to actively manage your investments. There will often be several funds to choose from with various risk profiles. You can often sign up online and set your own contributions, so you’re in control of your outgoings. You can also use a workplace pension scheme to provide your employees with a pension that meets your auto-enrolment responsibilities.
- Self-Invested Personal Pension (SIPP)
If you want more control over how your pension is invested, a SIPP could be useful. When compared to workplace pensions, SIPPs may offer a broader range of investments to choose from. Greater flexibility means that you can tailor your investments to suit your goals and risk profile. However, the associated costs involved in running a SIPP are typically higher than those of a standard personal pension. If you are a business owner, another useful option with a SIPP is that you could use it to invest directly in commercial property, including buying your business’s premises. This has several tax advantages, including:
- You may not be liable for Income Tax on any rent you receive
- If you sell the property, you may not have to pay Capital Gains Tax
- The business premises will be considered outside of your estate for Inheritance Tax purposes
Buying commercial property through a SIPP is complex, and seeking advice is important. As you’ll be responsible for managing the investments held in a SIPP, it’s essential that you feel confident about the decisions you make and their long-term effect. You may choose to authorise a financial planner to manage your SIPP on your behalf. SIPP providers may have eligibility or minimum fund size requirements.
- Small Self-Administered Scheme (SSAS)
A SSAS is a small occupational pension scheme that is usually set up by the directors of a business if they want greater flexibility. A SSAS is typically jointly controlled and run by the members and requires a unanimous decision on investments. Often, assets are pooled together and members own a percentage of the scheme’s assets as shares. As well as allowing you more control over the investments, you could also use your pension to purchase commercial property or invest in the business. A SSAS can lend up to 50% of its net value to its employer through a loan. You can also use up to 5% of the pension fund to buy shares or invest in your business. The fees associated with a SSAS may be considered a deductible business expense and could be an effective way to reduce Corporation Tax. Again, as members will be responsible for managing the pension scheme and investment decisions, tailored advice can be useful.