Pathfinder Private Wealth: Unravelling A Business And Planning For Retirement

Managing and building a business requires maximum focus and can sometimes divert attention from long-term retirement planning. When the time comes, it is vital to be clear about your goals and realistic about your income in retirement. We can guide you through the process of switching from a business pension to a personal pension, incorporating additional investments and income while maximising tax benefits and relief.

Joint business owner clients of mine, husband and wife John and Kate had agreed an amicable split, looking to wind-down the business, rearranging their investments and pension assets. One of the owners needed guidance setting up their own pension arrangements and more comprehensive assistance on long-term income, so here’s what I did.

Working with existing advisers

This situation differed slightly from the norm in that the client brought their accountant to the initial discovery meeting. The client outlined the above scenario and asked us to speak directly with their accountant to find a solution. As well as the initial discovery meeting with a client, by consent, we also had access to additional information from their accountant, which would be of great assistance. Interestingly, the accountant has since become a client of ours.

Business assets

While amicable business separations are much more straightforward than those involving disputes and disagreements, it is still essential to create the correct structure. The business was cash rich, and the Small Self Administered Scheme (SSAS) held a commercial property. The first task was to arrange the property sale, provide advice about exiting the SSAS and set up individual pension plans. So, I liaised with the SSAS provider and worked with the estate agent on their behalf. I assisted with the property sale, and when the SSAS received the proceeds, it was time to decide what they were going to do with the funds.

Pension planning

Very often, business owners will look towards a Self Invested Personal Pension (SIPP) arrangement which gives them a degree of control and a broad spread of options regarding the investment of their pension assets. On this occasion, one client (Kate) did not want a SIPP as she did not classify herself as a sophisticated investor. Consequently, I arranged a standard personal pension fund which was initially funded by her share of proceeds from the SSAS property sale.

To maximise the tax benefits, we utilised carry forward in relation to pension contributions, using Kate’s share of cash from the business to fund this. We also did the regular annual pension contribution, creating a significant retirement pension pot.

Cash flow planning

Typically, when I have resolved the client’s initial problem (the inter-spousal transfer of pension assets from a SSAS), things become much clearer, and we start to discuss income targets for the future. Once the new pension arrangements were in place, I looked at cash flow projections for Kate and her husband. John had a lot of relatively small defined benefit pension pots, and we projected forward what he could expect in retirement. This allowed Kate and John to visualise future cash flow and how any changes would impact their long-term income.

Investment planning

Looking further ahead, the client expected to retire in 10 years on an income of £50,000 a year. This prompted a broader discussion on tax allowances, state pensions, other investments and assets. We also examined whether the client could make additional voluntary national insurance contributions, as many women may have taken maternity leave during their working life. This is followed by other tax allowances outside of carry-forward and annual pension contributions.

Tax efficient vehicles

To achieve the goal of £50,000 a year income in retirement, we looked at additional tax-efficient vehicles. This led to the creation of a unit trust feeder account which saw the maximum ISA allowance of £20,000 transferred over each tax year. The initial client enquiry had expanded from advice about closing the SSAS and creating alternative pension arrangements to a full-blown retirement portfolio.

It starts as a business

Business partners often approach us in dispute, looking for ways to dissolve their business and pension arrangements as quickly as possible. This situation was very different; the split was amicable, they were still friends, and they both wanted to achieve the same end result. After playing an active role in the SSAS property disposal and cash disbursement from the company pension fund, we considered the options.

I meet with Kate and John annually to discuss the broader investment markets and any changes to their finances. While recent regulatory changes have placed greater emphasis on post-retirement investment advice, I have been doing this for many years. It is just as important to manage your finances post-retirement as it is pre-retirement.

It ends with a structured retirement portfolio

I helped manage and enhance numerous income streams for both Kate and John, such as pension assets, state pensions, investments, annuities and tax-efficient plans such as ISAs. We also maximised allowances and tax relief with a simple target, £50,000 a year income to maintain their lifestyle in retirement. A relative standard enquiry about dissolving their business and transferring the pension assets quickly grew into a more comprehensive retirement portfolio plan.

In this instance, the client introduced us to their accountant rather than the other way around. We know from discussions with the client that this gives them confidence, the fact that we can work closely with other trusted advisers. As mentioned above, the accountant has since become a client of ours, in the knowledge that we provide excellent complementary financial services to their clients.

Although the case study relates to an actual example, where we have helped our clients by providing solutions to their financial problems, the names and figures have been changed for confidentiality purposes.

What I offer my clients:

– Gold standard advice based on superb preparation, reliability and quality

– Trustworthy, proactive guidance and the ability to work closely with existing advisers

– An understanding of business and personal finance and utilising tax relief and allowances

– A bespoke approach to investment structured around your specific requirements

– Clear communication and an ability to simplify often complex scenarios

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances. The flexibility of a SSAS/SIPP allows you to spread the risk, especially if some investments perform badly.

However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment. SSAS are not regulated by the Financial Conduct Authority.

SJP APPROVED 02/08/2023 Pathfinder Private Wealth is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority). The advice provided was given after a full evaluation of their specific needs, circumstances and requirements. The solutions provided would not be suitable for most investors and the information provided does not constitute advice.