New pension flexibility rules have introduced a lot of complexity, but also opportunity.
The basic rational for business owners and directors to utilise an effective pension remains the same – it’s a very tax efficient way of taking profits out of a business – albeit to reward yourself (and now your family) later.
Even if you are committed to the idea that your business is your pension, although we would always encourage diversification, the use of a SIPP to purchase your business premises can be very effective – and costs can be shared between members.
But, the new flexibility rules, which not only govern how you can contribute to and withdraw your pension, how it can be invested and, importantly, how it can be passed on, will lead to new pension wrappers and eligible investments.
As examples, there are now different multi-asset funds with varying investment criteria and there are likely to be a selection of more flexible annuities. Peer-to-peer loans have yet to be approved, but are planned as eligible investments. Family SIPPs offer a way of managing not only investments within a family or designated group, but also the manner in which those investments may be allocated as part of an estate.
And with our experience we’ll be able to advise you where others might struggle – as an example, one of the new types of multi-asset fund is known as a ‘volatility-capped’ fund . We wouldn’t dismiss it, but our analysis might read a little differently from the promotional material, precisely because of our theoretical and practical knowledge in this area.
There are also new technical considerations. We can’t go into them all here, but those with more than one type of pension plan need to consider their options carefully. And, we also have to be mindful that in a period of continued austerity, it’s possible that the level of tax relief and lifetime allowance will remain under pressure.
We are also awaiting the results of two legal cases concerning divorce and bankruptcy, to see how they affect the new pension regime.
So there is a lot to consider – the opportunities and rationale for pension provision have really improved, but you have to be careful. And we would welcome the opportunity to speak with you about the smorgasbord of options available to you and your fellow directors and how they could fit with your existing arrangements.