28th February 2011
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Many people would be surprised to know that the average lifespan of an individual in the UK is now 87, which is up from 77, in just 20 years. Various government organisations, like the Department of Work and Pensions, also predict that this average lifespan will increase further, as medical technology becomes more advanced. This is why it is important that we save, as we now spend, an average 25 years in retirement. The present generation of pensioners have enjoyed lucrative incomes from final salary pension schemes and of course the State Pension. This is unlikely to be repeated for future generations as we have seen the decline of final salary schemes, which have either been closed altogether, or closed to new entrants. We can also not rely on the State Pension, as UK government debt is likely to see further increases in the state retirement age. This has already started with the increase of the state retirement age to 66 and some believe that over time this may have to increase to 70.


The fact is that if you wish to have a comfortable retirement, you have to make sure that you have sufficient lifetime savings. Have a look at the simple example below of somebody that is looking to retire at the age of 65:


John is looking to retire at the age of 65 on an income of at least £20,000 per annum gross in today’s terms, after state pension. He is surprised to find out that he will require lifetime savings of at least £400,000 in today’s terms, to provide this income. If he starts his retirement planning at age 35, we would of course have to take into consideration 3% pa inflation, which would increase the £400,000 to £970,000.


Many people find this type of analysis scary and have no idea of the levels of savings that are required each month to provide even the basic pension. The truth is that we live in a SPEND NOW CULTURE, rather than one that encourages saving for the future.


Business owners in particular have options, which can both help their businesses and help their retirement, although these are often overlooked! This is partly because accountants are not trained in providing retirement advice. I recently had a client, who was spending £40,000 a year in rent to a third party, for offices that they used for their business. The client was surprised to find out, that they could use their own pension scheme to purchase commercial premises. The business was extremely profitable and they often had large Corporation Tax bills and were delighted when I informed them that contributions to their pension scheme would qualify for Corporation Tax Relief. The client decided to start seriously planning for a purchase of a commercial property within five years, some of the advantages of this purchase are listed below:


  • All contributions from a Limited Company are tax-deductible, as business expenses. Please note that limits apply.


  • A pension scheme has the ability to borrow additional funds up to 50% of the schemes assets. Eg £100,000 fund value x 50% = borrowing of £50,000 meaning potential purchase price of property is now £150,000.


  • Property can be rented back to a business owner at a market rent.


  • All rent received by pension will have no income tax liability as a pension is a tax-free environment.


  • No capital gains tax within pension.


  • You can take 25% of fund value as tax-free cash at retirement.


  • Assets within a pension scheme are ring fenced from all creditors, even if you go bankrupt personally.


  • A large choice of other types of investments including unit trusts, investment trusts and even single company shares.


  • Pension schemes can purchase a commercial property with other individual pensions or third-party entities; these can include companies or personal individuals.


As you can see this type of retirement planning can not only save a business owner tax, they can also help the business grow, whilst also providing the owner an important boost to their retirement plans.


The information provided in this article is for information purposes only, if you are interested in the content within this article, you should contact your own Independent Financial Adviser or alternatively Essential IFA would be happy to provide a personalised recommendation, charges will apply. You can contact Essential IFA on (01473) 276141


Essential IFA is an appointed representative of the Whitechurch Network Ltd which is authorised and regulated by the Financial Service Authority (FSA). The Financial Services Authority may not regulate all products or services offered by Essential IFA including tax planning. Essential IFA offers services only to investors in the UK. Your home may be repossessed if you do not keep up repayments on your mortgage. The value of your investment is not guaranteed, it may go down as well as up and income from it may fluctuate and you may not get back your original investment.

About the Author

Peter H

Member since: 2nd January 2012

Essential IFA was setup in 2007 to provide expert, independent financial advice to individuals, offering a more personal touch than is provided by large financial institutions.

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