Posts Tagged ‘pension planning’
It is fair to say that business remains tough for all and we are still are not seeing a glimmer of light at the end of the tunnel that is this current recession, down-turn, economic slow-down or whatever you wish to call it. In fact it is difficult to see where and how the UK economy will re-build itself and return to significant growth.
Having many years ago studied Economics as a degree, I returned to some research on the economy and found only the following. “The Economy is so bad that . . .
- I got a pre-declined credit card in the mail.
- I ordered a burger at McDonald’s and the person behind the counter asked, “Can you afford fries with that?”
- Chief Executives are now playing miniature golf.
- If the bank bounces your cheque or direct debit because of “Insufficient Funds,” you can call them and ask if they meant you or them.
It is no doubt that things remain challenging. From our experience, the availability of cash and funding remains to be tight and businesses looking to either start up new areas or expand are still find sourcing finance as a real challenge with lenders and investors remaining extremely cautious. Many businesses cannot find either longer term investment or working capital to build or re-build their businesses.
As a principal in a firm of Chartered Accountants and Business Advisers and working closely with FSA regulated colleagues and associates, one area, however, that we have seen to be proving as a possible solution is through the power of the ORBS, or an Occupational Retirement Benefit Scheme.
ORBS, what are they or what is it?
ORBS is basically a pension scheme that has been designed to provide shareholding directors of a company with the maximum amount of flexibility in their pension planning at the same time generating tax incentives either for the company or the individual and still providing valuable pension benefits for retirement.
Current UK legislation
The UK Government has recently introduced changes to current pension legislation, which has important consequences, in particular for entrepreneurs.
As of April 2011, the maximum contribution that may be made either corporately or personally is £50,000, but with the option to carry back up to 3 tax years. This means that up to £200,000 could be contributed to a pension plan for each director, all of which should be deductible against corporation tax in the 2011/12 tax year (Corporation tax currently at 29.75%). As from April 2012 it has also been announced that the maximum an individual can hold in pension funds is £1.5m.
So why consider ORBS for a pension?
In the past, most company directors and entrepreneurs have used either Self Invested Personal Pensions (SIPP) or a Small Self-Administered Scheme (SSAS) for their pension contributions. Both of these structures, however, are restrictive.
A key restriction is in terms of re-investing back into either their own or a new business venture. As a consequence, any pension contributions tend to be small as often company cash flow does not permit larger contributions as capital is effectively tied up.
ORBS help to resolve this problem in a number of unique ways, which allows for the larger contributions without necessarily affecting cash flow, while providing an effective low risk tax planning strategy. We have found that many entrepreneurs and businesses are using and considering using ORBS to help provide the necessary cash for their business to help them with both longer term investment and working capital requirements.
A real help is the use of existing pensions in your business
The ORBS is a fully registered scheme with HMRC. This means that ORBS can receive transfers from existing pension schemes that may be held. These monies can then be used within the structure, to help the business grow or help with business acquisition and even commercial property purchase. The ORBS pension structure has been designed to provide maximum flexibility whilst still adhering to current pension rules.
The ability to deal with business disposal and retirement
All of the funds in the ORBS belong to the members and will have been allocated according to members direction. All members are free to make their own investment decisions and take retirement benefits when they wish to do so, subject of course to the minimum retirement age of 55 in the UK.
Tax incentives and cash on retirement
A member can access up to 25% of their fund, held through ORBS as tax free cash, whilst also providing access to, “income drawdown” or “scheme pension facility” to provide maximum flexibility for retirement planning.
We are now seeing the use of ORBS in many businesses and we are seeing that they are providing crucial funds to really help businesses expand and invest. We work with FSA regulated and ORBS specialists providing real solutions to our clients in these most challenging times.
Maybe ORBS will provide the light or at least the spark at the end of the tunnel after all.
In summary the key features for ORBS are:
• They are fully registered pension with HMRC
• They are a highly flexible business planning opportunity
• They provide tax relief on contributions
• They accept transfers from existing pension plans
• They provide total flexibility in retirement
Steven Mugglestone BA FCA,
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business
McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.
T: 0845 519 5659
T: 0121 236 3317
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