Pension planning for business owners
Private pension products
There are a number of other private pension products which you could consider instead of - or in addition to - stakeholder pensions.
Insured personal pensions
An insured personal pension is one where a fund manager makes investment decisions on your behalf. The investments should be unique to your particular fund and specific to your needs. A life insurance company manages the assets and the fund manager must be authorised by the Financial Services Authority (FSA).
Self-invested personal pensions (SIPPs)
SIPPs enable you to select pension fund investments yourself.
The investments may be of a single type or a combination. Types of investment commonly chosen for SIPPs include:
- hedge funds
- commercial property
- real estate investment trusts - these are organisations that invest members' funds in property
- unit trusts - where you buy units in the mix of investments an investment company holds
- equities - where you buy shares in quoted companies, usually through a stockbroker
- government securities - eg up to the tax-free limit on a national savings account
- cash, usually in the form of long-term, high-interest accounts
With SIPPs, you get tax relief on the money you pay in, you don't pay capital gains tax on any growth in your investment and you may get a tax-free lump sum when you start drawing your pension.
Life annuities and capital protection
One way of investing the tax-free lump sum received on retirement through a pension scheme is to buy a purchased life annuity. The regular annuity payments received are split into 'capital' - representing repayment of the purchase price, which is tax free - and 'income' elements.
The income element is automatically taxed at 20 per cent. However, if you are a low earner, you can reclaim this tax from HM Revenue & Customs (HMRC) and register to stop paying tax on the income in future.
Read HMRC guidance about reclaiming tax paid on purchased life annuity income.
The Pensions Advisory Service Helpline0800 011 3797