Choose the right pension scheme

Approved pension schemes for directors and owners

There is a variety of HM Revenue & Customs-approved pension scheme plans designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

Executive pension plans (EPPs)
Insurance companies tailor these money-purchase occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits and tax-free lump sums are the same as for other occupational schemes, but full entitlement to full benefits in an EPP can be built up over 20 years, as opposed to the normal 40 years in most other types of company scheme.

See our table of the advantages and disadvantages of executive pension scheme.

The relative advantages of EPPs may be affected by the simplification of the tax regime for pensions from April 2006, so consider taking specialist advice.

For information on different types of occupational pensions, see our guide: know your legal obligations on pensions.

Small self-administered schemes (SSASs)
These schemes must cover fewer than 12 members, and allow a small group of trustees appointed by your company to choose how to invest the funds. Trustees are responsible for ensuring that the scheme remains within HM Revenue & Customs guidelines, which are currently complex, but due to be signficantly simplified in April 2006.

The main advantage is that a SSAS can be very flexible in terms of the investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs)
These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HM Revenue & Customs also allows direct investment in UK and overseas quoted securities as well as commercial property. See a list of permitted and prohibited investments under SIPP on the Pensions Advisory Service website.

Tax rules governing all these pension plans are currently extremely complex, though they are due to be radically simplified in 2006. You may want to consult a professional adviser before taking a decision. You can find an advisor through the Society of Pension Consultants website.

Subjects covered in this guide

• Introduction
• Benefits of having a workplace-based pension scheme
• Choosing an occupational pension scheme
• Choosing a group personal pension
• Choosing a stakeholder pension scheme
• Approved pension schemes for directors and owners
• Unapproved pension schemes for directors and owners
• Comparison of pension schemes
• Organisations that advise on pensions schemes
• Considerations when choosing a pension scheme
• Here's how I selected the best company pension scheme for my business