Alternative Pension

Why Are So Many Reluctant To Save For Their Retirement?

A problem with private pension schemes is that they offer such poor value.

After years of investing, a material portion of the fund is handed over to an insurance company to buy an annuity: and for many the yield on annuities is simply not enough to justify handing over a lifetime's savings.

Then on death either the full value is lost to the insurance company; or, if you protect your annuity payments with guarantees, the value of any outstanding payments is added to your estate where it is potentially subject to Inheritance Tax.   

Welfare Trust - An Alternative Pension 

A contribution to a Welfare Trust is an unapproved pension contribution for the benefit of current and prospective employees. There will be no National Insurance charge and the contribution is not deemed to be a Benefit in Kind. 

Assets within the scheme can grow free of tax in an offshore environment; creating an additional pension fund.

Contributions can be an allowable expense for a trading company; provided they fulfil the usual deductibility requirements.  

The payment must be for business purposes and exhibit genuine commercial reality, or the contribution maybe disallowed.

• The fund enjoys greater freedom of investment than an approved pension.  

• The fund is not an approved scheme and therefore does not count towards the individual’s lifetime allowance.  

• The unallocated fund does not need to be taken as income by a certain age.  

• On the scheme member’s death the unallocated fund does not form part of the estate and thus remains available for further planning.     

Withdrawals

The Trustees have wide investment powers, including the freedom to invest in loans. Therefore the business owner could have non-taxable access to the trusts funds through loans on commercial terms.  

Any interest paid on the loan to the Trust will ultimately be for the benefit of eligible members of the unapproved pension scheme, including the business owner.

A trust fund is not included in the value of the estate and all accumulated loans will reduce the value of the estate on death, so significantly reducing any potential inheritance tax liabilities. 

A by-product is the protection of profits from business creditors, spouses/partners and other potential claimants.