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 Helpline
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