Limited Company Pension Options
You have three main options when it comes to contractor pensions:
- Stakeholder pensions
- Self-invested personal pensions (SIPPs)
- Joining NEST (if you’re the sole employee of your limited company).
Stakeholder pensions are perhaps the simplest form of personal pension available on the market today. They were set up my legislation to offer easy and affordable access to pension savings for the masses.
Stakeholder pensions usually include:
- Capped charges
- Fee-free transfers
- Flexible contributions — allowing you to start and stop contributing as required by your cashflow
- Low minimum contributions — you can typically start a stakeholder pension with no more than £20 and minimum monthly payments are low or non-existent
- A default investment fund to invest your money in if you don’t want to / are unable to choose your own.
Although stakeholder pensions are simple to contribute to, there’s a limit on the types of investments that can be held in a stakeholder pension so you have limited investment choice compared to some of the other types of pension on the market.
However, if you’re looking for a simple pension that you and your company can contribute to with low charges and a default investment fund, a stakeholder pension could be the best option.
Given that these pensions are relatively simple, you can set up a stakeholder pension yourself in a number of ways, including online on what’s known as an execution-only basis, meaning you don’t take advice and therefore bear all of the responsibility for ensuring the pension is suitable. Alternatively, you can use a financial adviser.
Self-Invested Personal Pensions
A self-invested personal pension (SIPP) offers access to a wider array of funds and investments than a stakeholder pension. You also tend to be more ‘hands on’ with a SIPP, choosing where you want to invest your retirement savings.
These pensions are usually for more sophisticated investors who have experience with investing as there’ll be a wide variety of assets and funds you can opt to invest in, such as:
- Unit and investment trusts
- Government securities
- Insurance company funds
- Traded endowment policies
- Some National Savings and Investment products
- Deposit accounts with banks and building societies
- Commercial property (such as offices, shops or factory premises)
- Individual stocks and shares quoted on a recognised UK or overseas stock exchange.
SIPPs usually have higher charges than stakeholder pensions to reflect the fact that they’re more complicated. Higher charges are also due to the fact that you have access to a wider array of investments.
Given that SIPPs are more complex than stakeholder pensions, it’s usually best to use an adviser to set one up.
Multi-Employer Pension Schemes
Since the introduction of auto-enrolment, it’s become mandatory for anyone employing people — even one person — to provide some form of pension for those workers.
This could be a workplace pension, which would be provided for workers by just one employer. However, multi-employer pension schemes exist to make it easier to offer pensions for employees and provide pensions to multiple different employers. The biggest and best-known of these is the National Employment and Savings Trust (NEST).
As a company director, if you employ people you have a duty to provide them with pensions. You can use NEST to provide these pensions if you wish, or you may wish to set up your own occupational scheme.
Solo company directors who employ no other people don’t have to provide themselves with a pension, but can choose to do so if they want. Providing you don’t employ any other people, you can get a pension as a self-employed director via NEST.