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Planning for retirement

Running your own business takes time. Business owners can find themselves under daily pressures that mean important areas of financial planning end up neglected. Planning and saving for retirement will be one of the more important decisions you make.

As a business owner there are many options available to you when it comes to effective pension planning, many more than for employees.

But with more choice comes more tax rules, regulations and complexities, which is why it is important to speak to an Independent Financial Adviser about your pension options.

Pensions remain one of the most tax-efficient ways for business owners and company directors to accumulate wealth for retirement.

How often have you heard people say their business is their pension and it didn’t work out like that?  It’s common sense that you never put all your eggs in one basket - using a pension scheme makes so much sense. You will receive tax relief at your highest rate on any personal contributions and your company contributions do not attract income tax or national insurance, unlike other benefits. Therefore, try to put aside the word “pension” for a moment and think of it like this - a pension is a way of extracting business profits tax-efficiently for the benefit of a director or business owner. Yes, you can’t spend that money now but it will grow free from most taxation, provide a tax-free lump sum and an income for life thereafter, when you do decide to retire or take the benefits.

At your retirement

In his Budget speech on 19th March 2014, Chancellor of the Exchequer George Osbourne argued that the introduction of the latest pension reforms represented the most fundamental change to the way people can access their pension savings. 
There are numerous solutions when you take the benefits of your Pension, ranging from -

Leave your pension pot untouched - and take it later.

Use it to buy a guaranteed income for life - called a lifetime annuity. The income is taxable, but you can choose to take up to 25% of your pot as a one-off tax-free lump sum at the outset.

Use it to provide a flexible retirement income - called ‘flexi-access drawdown’ (FAD) or ‘income drawdown’. Take 25% of your pension pot (or 25% of the amount you allocate for drawdown) as a tax-free lump sum, then use the rest to provide a regular taxable income.

Take small cash sums - the first 25% of each cash withdrawal from your pot will be tax-free. The rest will be taxed.

Take your whole pot as cash - the first 25% will be tax-free and the rest is taxable.

Mix your options - choose any combination of the above, using different parts of your pot or separate pots.