Real Family Finances

How to plan your pension

Pension Planning, what to consider

Like many people, Lucy Davis only thought of a pension as a pot of money for retirement, but NFU Mutual Chartered Financial Planner Barbara Lewsley explains how pensions can offer much more.

Lucy is right to prioritise pension planning at a young age; contributions made early in life have much longer to increase in value.

When all your focus is on working hard and enjoying life in your 20s, it can be difficult to think 40 or 50 years down the line.

Tax efficient way to invest

A pension is one of the most tax-efficient ways to invest because the Government tops up your contributions with tax relief.

For every £80 paid in, the taxman will add another £20, while 40 per cent taxpayers can claim up to a further £20 through their tax return.

Lucy currently has a job outside of the family farm and caravan park business where she has been offered a workplace pension scheme. If you’re offered a pension scheme by an employer it makes sense to join as under new rules employers must also contribute for most employees.

Any growth in a pension is free of UK Income Tax and Capital Gains Tax meaning you keep more money from your investment.

Making your pension work for you

Lucy may also be interested to hear that pension investors can use their pension pot to help fund their business plans.

A growing number of farmers and family business owners now set up a flexible self-invested personal pension (SIPP), which gives you more choice over where to invest.

A SIPP can allow you to invest in a wider range of assets than a traditional pension plan, including:

  • Farmland
  • Commercial property (not residential)
  • Company shares
  • Bonds

It is not uncommon for younger farmers to use their pensions to buy land or commercial property from the older generation as part of a farm succession plan, which can benefit both parties.

The land or property would be owned by their pension plan, with the business paying a commercial rent to their pension to occupy.

Using retirement funds to invest directly in land or commercial property is a riskier option than a more widely invested portfolio. From the older generation’s perspective selling land or property can also trigger a Capital Gains Tax liability. Getting the right financial advice is vital.

How NFU Mutual can help you make the right decision

At NFU Mutual, we specialise in helping farmers and small business owners use pensions to plan retirement.

Pensions are a great way to invest for retirement and can also offer farmers and business owners plenty of flexibility.

NFU Mutual Financial Advisers can help you and your family plan for the future. Find out more about our Financial Planning Service.