Pensions for Business Owners

3. Forms of Pension Funding

3.1 Executive Pensions Plans (EPPs) are defined as contribution plans provided by the employer and run by a life assurance company.

• Employees are not liable to income tax or National Insurance contributions (NICs) on payments made to an EPP.
• Contributions are subject to tax relief limitations.
• Members can transfer existing plans into their EPP.
• The frequency and amounts payable to an EPP are usually flexible.

3.2 Self-invested Personal Pensions (SIPPs) are similar to standard personal pensions but allow the member greater investment freedom.

• SIPPs are governed by the same tax, contribution and eligibility rules as personal pensions.
• SIPP investors can control their investment strategy and hire a fund manager or broker to carry out investment decisions.
• SIPPs are run under trust law although the member can be the trustee if the plan is overseen by an independent administrator.
• Administration costs can be high.

3.3 Pensions Salary Sacrifice allows employees to exchange earnings for non-cash benefits which means both employer and employee make NI savings.

• Employee pension contributions are converted into employer contributions which do not incur NI.
• The employer can pass NI savings to employees as a bonus contribution to the plan.
• Pension salary sacrifice can see contributions rise by 30 per cent at no extra cost to the employer.

3.4 Funded Unapproved Retirement Benefit Schemes (FURBS)/Employer-Financed Retirement Benefits Scheme (EFRBS) were set up to provide benefits for employees earning more than the salary cap.

• The tax reforms in 2006 have replaced maximum salary with a lifetime allowance making FURBS/EFRBS less relevant.