Pensions: more than just income in retirement

The main reason for investing your hard-earned money into a pension has always been to provide an income in retirement.

But for many business owners the concept of leaving work behind might be an alien one, planning instead to ‘slow down’ rather than stop altogether. Other business owners plan to sell their business to fund their retirement. 

In situations such as these, is there still a need for a pension? 

I believe so, because there are additional benefits a pension provides.

The favourable tax treatment of contributions and funds inside a pension are clearly a benefit, especially for a limited company director/owner who may be able to make contributions from their business and, if classed as a business expense, would therefore reduce corporation tax. 

Funds within a pension also grow free from income, capital gains and, subject to particular rules being met, inheritance tax.

Rule changes back in 2015 have also meant that pensions are increasingly being used as estate planning vehicles. 

This is because of the flexible ways a pension can be passed down through generations in a very tax efficient manner. Many of our clients are using their pensions for this reason.

In addition, holding your commercial property within a Self-Invested Personal Pension (SIPP) can have a whole host of additional benefits, including (but not limited to) tax-free growth, rental income, no capitals gains tax on the subsequent sale, and as it’s not a business asset it’s protected by pension legislation.

So in conclusion, retirement income is just one of the many benefits a pension can provide.

  • To read this feature in full and access further Lancashire business news, advice and analysis subscribe to Lancashire Business View magazine or join the LBV Hub from just £2.50 per month. Click here to subscribe now.

Enjoyed this? Read more from Angelo Kornecki, AKORN Financial Advice

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