Succession Planning and your Pension
Do you own a business? Do you consider your business to be your pension plan, that one day you will be able to turn it into a handsome pot of cash to fund a comfortable retirement? If the answer to these questions is yes, we can help!
What are your Succession Planning options?
It may simply be that you will sell your business and use the proceeds to invest for income. Alternatively, there may be family members or younger business associates involved in your business who wish to continue operating and a more gradual withdrawal from active involvement is desirable. Whichever approach is right for you, don’t be tempted to ignore making contributions into an actual Pension Plan, believing that you do not need one!
If you rely on future cash flow from the business as a source of income for retirement, this may put pressure on the business over the long term and make the transition to the next generation much more difficult, especially where husband and wife shareholders retire around the same time. A separate pension pot is a good option to supplement any value expected to be extracted during retirement from a family owned business.
Maximise your tax efficient options
Contributions to a Director’s Pension Scheme are also the most tax-efficient manner of transferring company wealth into personal wealth for a director. HM Revenue & Customs (HMRC) allow companies to offset significant pension contributions for tax purposes against corporation tax.
If commercial property purchase features in your business plans, younger directors may also be able to use their pension funds to buy land and/or commercial property from the older generation, via a Self-Invested Personal Pension (SIPP) as part of the businesses’ wider succession plan.
If I make pension contributions from the business, won’t I reduce its sale value?
Pension Contributions do not remove value from your business and should not affect its sale price if it is being sold, as directors’ emoluments are added back to the bottom line when considering a company’s valuation.
I want my money in an account I can dip into when I want to. Pension Plans are not flexible enough and don’t I have to take a fixed income?
Not any more you don’t! Since April 2015 you have been able to treat your pension fund much like a bank account and withdraw lump sums and/or arrange regular withdrawals to suit any changing income requirement. There is no need to fix an income for life if you don’t want to.
If you would like advice on pension planning, please contact Nick Lawson on 01904 655202 or email email@example.com