DIY Pensions for a Limited Company?

[Contreras]

Hi
Can anyone please help me with an issue I have?
I’m joining a new Umbrella company as they allow personal pension contributions via salary sacrifice. They support Hargreaves Lansdown and AJ Bell but can anyone help me through the process on setting one up with either of these two firms (recommendation appreciated) and providing the information to the umbrella company to allow them to contribute via salary sacrifice ??

Many Thanks

Apply for a SIPP account in your name. You will get an account no. Make sure you can log in to it and you are happy with what you see. Give the account number to your umbrella and instruct them on the salary sacrifice. The umbrella should make contribution(s) direct to your SIPP based on your instruction.

Now you have cash sitting in your SIPP account ready to invest using the platform to buy/sell and/or set up regular investments, be that shares, ETFs, funds, etc.*

Simples? yes. But..

* You really ought to have a very good idea about your investment plan to start with!

As to Hargreaves Lansdown vs. AJ Youinvest - The fee structures differ and which one is lower cost for you will depend on the investments (see above). I have accounts with both as well as elsewhere. The HL platform is slickest of the bunch, imho, and to me this is more important than saving a few tens of pounds on fees. However I suggest you phone them both and run through any questions you have as this in itself may point you one way or another.

The contributions might be one-off/ad-hoc/or monthly, depends what your umbrella will "support". Find out, so you know. Ask if they really are restricted to just those two providers. Also consider your plans for the account once you are done with this umbrella.

[Maslins]

Assuming you pick a global, diversified fund, is there any harm in having all eggs in one basket? By this I mean both:
1) having all money in one fund (not spread across several different funds with different providers, like some in a Vanguard one, some in a Blackrock one)?
...and also
2) having all money via one platform (not spread across different services, eg some with Interactive Investor, some with Hargreaves Lansdown)?

I wasn't sure to what extent the £85k FSCS thing is relevant here? Whilst the majority of people won't have >£85k sitting in a bank account, many will have more than that sitting in a SIPP. A bit of Googling lead to lots of long pages with long words

[Fred Bloggs]

Assuming you pick a global, diversified fund, is there any harm in having all eggs in one basket? By this I mean both:
1) having all money in one fund (not spread across several different funds with different providers, like some in a Vanguard one, some in a Blackrock one)?
...and also
2) having all money via one platform (not spread across different services, eg some with Interactive Investor, some with Hargreaves Lansdown)?

I wasn't sure to what extent the £85k FSCS thing is relevant here? Whilst the majority of people won't have >£85k sitting in a bank account, many will have more than that sitting in a SIPP. A bit of Googling lead to lots of long pages with long words

Since it's going to be a pretty hopeless SIPP with less than £85k in it, I think it's almost irrelevant in the great scheme of things. Use one of the big mainstream retail platforms, your SIPP investments are held in a segregated trustee account. So all things being equal people at the retail platform have no day to day access to your investments. Of course, something can always go very badly wrong but I see no real need to worry too much using for example Interactive Investor, AJ Bell or similar. (Famous last words).

[Maslins]

Since it's going to be a pretty hopeless SIPP with less than £85k in it, I think it's almost irrelevant in the great scheme of things. Use one of the big mainstream retail platforms, your SIPP investments are held in a segregated trustee account. So all things being equal people at the retail platform have no day to day access to your investments. Of course, something can always go very badly wrong but I see no real need to worry too much using for example Interactive Investor, AJ Bell or similar. (Famous last words).

For me it's all with Interactive Investor, and all then in one Vanguard diversified fund. I just wondered in the situation that either II or Vanguard went bust, would that mean only £85k of my SIPP would be protected? People regularly comment about not having business/personal savings >£85k with one bank, but don't see the same conversation around SIPPs/similar.

[malvolio]

The IPSE scheme is the cheapest. Those who think different need to look a little harder; we've had this argument before. It may not be the best for you of course.

Just as an aside, don't use an IFA, use a Wealth Management company. Yes they still take fees - "no work for free" remember - in my case a shade under 1% pa from the fund, which is growing at a steady 6% a year, including across the recent crash on the market, and despite me having a monthly income from it.

As always YMMV, as will everyone else's...

[Fred Bloggs]

For me it's all with Interactive Investor, and all then in one Vanguard diversified fund. I just wondered in the situation that either II or Vanguard went bust, would that mean only £85k of my SIPP would be protected? People regularly comment about not having business/personal savings >£85k with one bank, but don't see the same conversation around SIPPs/similar.

Your holdings with Interactive Investor in a Vanguard fund are held in trust for your SIPP. I actually can't remember the name of the trustee company that holds the assets in the II SIPP, it changed a couple if years back. I am sure the information is there if you want to know. So, if II go bankrupt then all things bring equal as long as there's nothing untoward going on behind the scenes, your investment is still going to be there irrespective of what happens to II. Presumably, the administrator would appoint another retail investment platform to be the shop window in to your SIPP investments.

[Bod]

Yes they still take fees - "no work for free" remember - in my case a shade under 1% pa from the fund, which is growing at a steady 6% a year….

I don’t know if any funds, or indeed wealth managers, offer this type of fee structure. If they said “our only fees are 25% of any growth”, would you switch?

[klimt]

In this scenario, if you paid £50k into your pension (given you haven't contributed in previous years), your profit would then be £0 so no CT to pay ?

In this situation, are the any rules about pension contributions being proportionate to salary? For example, would it be permissible to take no salary or dividend at all, and transfer all revenue into a pension with no CT to pay?

[Fred Bloggs]

In this situation, are the any rules about pension contributions being proportionate to salary? For example, would it be permissible to take no salary or dividend at all, and transfer all revenue into a pension with no CT to pay?

Yes. I have done exactly that, 100% turnover into a pension.

(Caveat, £40k annual contribution allowance applies. Carry forward of three years is possible if you were a member of a pension for up to three previous years).

[Contreras]

In this situation, are the any rules about pension contributions being proportionate to salary? For example, would it be permissible to take no salary or dividend at all, and transfer all revenue into a pension with no CT to pay?

It depends. Assuming you're the sole director / employee / fee-earner, and you mean profit from the current year, then yes it's allowed.

However lack of salary will cost a year's contribution to the state pension, for no saving in CT, so that part makes no sense.

For dividends, CT is currently 19% and the tax on the eventual pension income will likely be more than that (at a guess). So all hope is on the pension tax-free lump sum, or income tax dropping significantly, and who knows what the rules will be in years to come.

It depends on individual circumstances, but:

- Consider a tax efficient salary (£11,908)
- Consider using your dividend allowance (£2k) (*)
- Consider suffering basic rate dividend tax (8.75%) up to your personal allowance (*)
- Consider retaining enough profit in the company to pay for next year's salary in case of a lean year.
- and then dump the remainder into a pension.

* especially so if you have unused ISA allowance.