My Approved Pension arrangements won't provide enough income in retirement what are my options?


If you reflect on the considerable tax advantages of approved pension plans you will appreciate the tax deductibility of your contributions, the income tax and capital gains tax free growth of the fund as well as it's inheritance tax free status. Approximately a quarter of the accumulated fund can be taken as a tax free benefit on retirement with the remainder of the benefits being taxable at your your normal tax rate. Starting from that position, it might seem impossible to find a longterm savings plan without the benefit of the approved status that can provide comparable benefits and yet there are compelling alternatives. One such alternative, and we will cover others in later blogs, is the use of a structured regular investments into a managed portfolio of Enterprise Investment Scheme (EIS) companies.

Such an investment would attract income tax relief of 30%, the increase in value of your investment would be tax free after the initial qualifying period of three years. Also the fund would qualify for inheritance tax Business Relief after the first two years of ownership. If you have made capital gains on other assets like property or quoted shares the capital gains tax payable can be deferred by making a qualifying EIS investment. When you consider that ultimately the entire fund could be commuted for cash on your retirement or gifted to a trust free of capital gains tax or inheritance tax for your children or Grand Children, the benefits suddenly become quite compelling.

EIS investments are generally regarded as high risk yet it is important to understand the risk in the context of the capital invested. For example for each £100 invested only £38.5 is actually at risk. That is because of the initial tax relief of £30 and further income tax relief assuming you pay tax at 45% of £31.5 if the investment fails. Risk is further managed using a managed portfolio approach with an investment manager with a strong track record.

We are here to help you understand the risks and benefits of this alternative Approved, unapproved pension funding approach

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