Pensions - do we need one?

[bakeitup]

DH and I have a LTD between us (we are only shareholders) both work through the LTD and have a turnover of approx £130k per year.

We do not have to have a pension scheme (as we are only 2 directors') but we have been considering getting one as an additional way of saving.

Just looked into it and seems there's an approx £40 a month charge just to set it up. Seems pointless when we will only contribute about £100 a month each anyway and maybe a lump sum at the end of the year.

If you have a LTD what do you in terms of savings / pensions for future?

Otherwise financially we are in a good position, no debt other than mortgage and approx 50k in savings (although not making any money at all due to terrible interest) but we are planning to do some home improvements this year hence not investing it where we can't access it.

I should say we can definitely afford to make decent contributions to the pension, was planning on approx £5000-7000 per year each but maybe that's nowhere near enough....

What kind of scheme were you looking at with that kind of monthly charge? It sounds like you've strayed into some kind of employee's scheme. What you need is a simple stakeholder pension scheme with contributions paid by the employer directly. Even better, given some decent amount of contributions, would be to consult an independent financial advisor rather than trying to do it yourself and risking getting it wrong.

You definitely need to speak to an IFA. There's lots of implications between various schemes and it depends on your ages, when you want to retire, other income etc. Only an IFA is regulated to give you this advice.

As a director in a Ltd company I make employer contributions to a SIPP (Self Invested Personal Pension), that is the most tax-efficient way to do it. I can adjust my pension contributions so that I don't pay any higher rate personal tax and the pension contribution reduces the company's CT bill. Don't pay any employee contributions.

I would stay well away from IFA's, they won't be interested or will charge a fortune.

It's not a heavy thing to open a SIPP (one each for each director), put say £1000 in low-cost tracker and get a feel for how the whole thing works. It's not difficult, 1000's of people do it.

I have a stakeholder pension and just pay employers contributions. Simple and straightforward, and tax effective. Accountant can advise you if you don't want to go to an IFA.

You've probably been looking at pension products for SME companies to set up auto-enrollment pensions for employees. You don't need those.

Get a private stakeholder pension (not a SIPP unless you are going to actively manage your investments and move your money around different funds in response to national and international events). All the big famous name pension providers have a personal pension option like this.

Yes you do need a pension. I didn't have time to see an IFA so just set up a stakeholder personal pension with Virgin money. I like the simplicity and I can change the payments at anytime as well as stop them or add lump sums.

Accountant can advise you if you don't want to go to an IFA

Unless the accountant is also a qualified independent financial advisor (very few will be), they aren't allowed to give any advice re pensions or other investments.

I stand corrected Kazzyhoward. My accountant gives us informal advice - but he is also a family friend.

Agree with Evokeflow You can easily setup a SIPP and run it through your limited company, and it is nowhere near the £40 per month you have been quoted as charges. No need to go through an IFA, SIPPS are a doddle to set up and you can easily manage one online

Just make employer contributions, it will reduce the corporation tax bill. You can put up to £40k per year per employee into the scheme. Once you reach the age of 55 you can access the cash, first 25% tax free. Well worth doing as a way of shielding company funds from tax

I have my own ltd company and this is what I do

When I had informal advise on this I was told that loads of people get a SIPP when what they need is just a personal portfolio pension because the difference isn't widely understood and SIPPs are more heavily promoted because they are more expensive to the customer and more profitable for the provider.

If you want to be an amateur dealer in the financial markets, reading up on financial news in depth and moving your pension money around regularly in order to maximise your profits by riding waves of success, or if you want to invest in unusual financial products, then you may need a SIPP.

However apparently most people who set up a SIPP then look at the provider's core set of managed portfolio funds, pick one or more of them and spread their investments across them in some combination and then leave it to get on with growing while they get on with their life. This is exactly the same thing that they would do with a personal portfolio pension instead of a SIPP, the difference being that the SIPP charges 1% more per year in management fees for giving the customer additional flexibility that they are often never using.

This is the advice that was repeated again and again in the financial pages until recently: 'SIPPs have high charges and are only suitable for large portfolios'. This was true in the early days because they were sold with expensive portfolio management services, the no-advice services like HL, AJ Bell etc. changed all that.

For a £100,000 SIPP with ETFs, investment trusts etc. my provider charges £200/year. There are no hidden charges, I can look up the price of anything in my SIPP on any website and that's the price I see in my SIPP. I can hold just about any share/fund/trust that is going.

A stakeholder would charge 1% = £1000/year (and maybe I would only have access to the provider's own funds but maybe that has changed).

The idea that you need to be a financial wizard and wheel and deal with a SIPP is just not true - buy low-cost trackers and forget about it if you like. 'Maximising your profits by riding waves of success' and 'investing in unusual financial products' is exactly the wrong thing to do IMHO but you have the freedom to do that if you like.

A stakeholder will take same low-cost tracker approach and call it 'Balanced UK Growth Fund' or similar (a closet tracker). A 2008-style crash will pull down the trackers and the closet trackers alike. You need a 10-year perspective with these things.

To get back to the OP, they are a couple running a limited company so they will understand CT, VAT, PAYE, IR35 etc. I'm guessing they are more financially aware than most people and if they are like me they will appreciate taking their own decisions. If not, maybe the stakeholder is a better option.