We speak to a lot of small business owners and the suggestion of pension contributions is often derided. However recent changes to the tax treatment of private pension contributions make pension contributions an essential tool in the armoury of getting money out of a small business.
In the past the perception was that pension contributions were tax efficient at the time you made them but there were a number of downsides:
- The charges on the pension while it was invested were very high.
- When retirement age was reached there was no flexibility. You bought an annuity which gave you a low return, and then if you died early your children got nothing.
- You were locking your money up forever so if you sold your business and wanted to buy a dream house or boat your pension wouldn’t help.