Company pension planning for business owners

Business owners are likely to be too caught up with the current hustle and bustle of everyday life to spend much time looking forward to the future. That’s why it’s worth encouraging your clients to think about what their future standard of living might look like with only the state pension – that’s £800 a month – to support them.

No matter how busy life seems, now is the time to consider retirement plans, and the positive difference that a personal or workplace pension could make to future comfort and happiness.

Employer contributions

There is no limit on the number of schemes an employer can set up and no restriction on the amount they can contribute. Employer’s pension contributions are paid gross and are allowable as a business expense. Regardless of the amount, tax relief is available on pension contributions so long as it passes the test for being ‘wholly and exclusively’ for the purposes of trade, that is, an expense incurred while running the business or attracting more business. Tax relief on an employer’s contribution is usually given in the accounting period in which the contribution is paid, unless a loss is created.

Types of pensions available

  • Personal pensions: Small business owners and the self-employed can establish a personal pension at any time. Personal pensions can exist alongside workplace pensions and other types of retirement savings schemes. The annual allowance for tax relief on pensions currently stands at £60,000 per year for the 2023-24 tax year.
  • Self-invested Personal Pensions (SIPPs): These are similar to standard personal pensions as they also follow the same contribution, tax, and eligibility rules as personal pensions. However, SIPPs have a wider investment choice than a traditional personal pension.
  • Small self-administered schemes (SSASs): Offer additional investment options and typically have less than 12 members, all of whom must be trustees. An SSAS scheme can lend up to 50% of its net assets to the sponsoring employer.

Pension funds as an exit strategy for business owners

If a client plans to sell their business to fund retirement, paying large contributions into a scheme has the double benefit of providing them with a pension whilst reducing capital gains tax on the sale of the company.

Personalised pension advice

With all the different pensions available, such as a workplace pension, a personal pension, and a SIPP, the choice can be overwhelming. If you’d like help setting up a pension for a client or having current pensions reviewed, contact us at CTT Private Client for personalised pension advice from one of our professional financial advisers.

This article was submitted to be published by CTT Group as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.

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