For a profitable business a Self-Invested Personal Pension (SIPP) should be considered for retirement planning. Profits drawn as income by a sole trader for example (or profits left in a limited company, withdrawn as dividends or income) usually incur substantial tax charges and possible National Insurance payments. Investing profits in a pension scheme however, with the associated tax advantages this brings, may seem a better answer. This is particularly appropriate where the scheme member(s) have the ability to control the funds held by the scheme.
A SIPP provides a tax-efficient environment in which profits can be invested to provide significant retirement benefits for individuals (or directors). As the fund grows it can work for the individual and still generally be free from creditors should the business fail.
A SIPP gives individuals the opportunity to maximise their pension funds prior to retirement by giving them control over their investments. Unlike other pension schemes, the individuals can invest their pension funds in their own business, for example through share purchase or by purchasing commercial property to lease back to the business.
With good corporate financial planning advice, innovative entrepreneurs can make their pension funds work for their business whilst building up a substantial pension fund to benefit them in retirement.
For more information on SIPP Click here.