AT THE HEART OF THE ROAD TRANSPORT INDUSTRY.

Call our Sales Team on 0208 912 2120

GROWING OLD GRATEFULLY

29th March 1990, Page 40
29th March 1990
Page 40
Page 40, 29th March 1990 — GROWING OLD GRATEFULLY
Close
Noticed an error?
If you've noticed an error in this article please click here to report it so we can fix it.

Which of the following most accurately describes the problem?

Most operators appreciate the importance of personal pension schemes, but few realise that there are other options, like small self-administered schemes and executive pension plans.

• Many transport company owners may kid themselves that they can afford to retire early and expect their living standards to improve. But how many of them have made proper provisions for their refit ement?

Although most are aware of personal pensions, few know about executive pension plans (EPP) or small selfadministered schemes (SSAS).

NO CASH

The most common reason for not starting a pension scheme is "no surplus cash". In fact with an SSAS, for instance, operators will not necessarily be locking their money away; it can be a source of fmance for expanding a business.

About half of the 297 companies questioned in a recent pensions survey that was sponsored by Prudential Holborn said they were planning to buy their premises or extend them in the future. But only 15% had considered setting up an SSAS.

Prudential Holborn's David Dunn says: "Many small companies appear to see pensions as tying up money, but this isn't always so. In particular, small self-administered schemes can be a good way to pay in extra contributions over and above those made to an executive pension plan, while ensuring that full advantage is taken of tax benefits. If directors' dreams of. early retirement are to come true, they'll need to put more in if they're to take more out."

TAX PRIVILEGES

An SSAS is an occupational pension scheme with less than 12 members — where the trustees have direct control over the investments. This type of scheme was formalised in 1979 with the publication of 'Memorandum 58' which stated that the Inland Re venue accepted the principle that a small pension scheme can be self-administered and does not have to follow an insured route. An outside trustee has to be appointed to ensure that tax privileges are not abused.

The trustee must be a responsible pensions practitioner closely involved with occupational pension schemes who is officially recognised as such by the Inland Revenue Superannuation Funds Office. 'Ile pensioner trustee acts as co-trustee with company-sponsored representatives.

The SSAS can be tailored to the needs of the company, as sponsor of the scheme, and its attractions lie in the close financial management that the company can exercise over the scheme. For instance, the scheme can buy assets from the company or directors, and these can then be leased back to the company at a commercial rent.

The purchase is effectively out of the company's pre-tax profits and thus helps corporate liquidity.

CAPITAL GAINS

These transactions must be at 'arms length'. Any resulting hire charges or rent paid by the company to the scheme is an allowable expense in calculating trading profits, so the company receives corporation tax relief. The sale by the company is a 'disposal' for capital gains purposes. Such a scheme can make loans to the company for specific capital projects. Such loans may not, currently, exceed 50% of the assets at any time, and should not be raised on a regular basis.

Any company wishing to establish an SSAS should discuss the idea with an accountant at the outset. There are specialist organisations which can set up a scheme, such as consulting actuaries: Reigate, Surrey-based R Watson & Sons. John Beaumont, a partner at Watson's, says: "Properly established and administered small schemes are a bonus for directors of companies. There are tax advantages, cash flow advantages and, most of all, security of benefits, which at the end of the day

provide for many the raison d'etre for

setting up one's own scheme in the first place," he says.

Executive pension plans came on 'V the scene in 1973 when the Finance Act of that year lifted the restriction on the inclusion of controlling directors in company-sponsored pension schemes. They are now recognised as one of the most important tax planning vehicles currently available for companies and their directors.

Contact Watsons on (0737) 241144, or write to Watson House, London Road, Reigate, Surrey RH2 9PQ.

0 by John Vann


comments powered by Disqus