To help you consider the options available we have put together a comparison between paying into a pension to fund your retirement and selling your business. I always think that putting you’re eggs in one basket can be dangerous so using a combination of the 2 methods is a safer bet. However speaking to a financial adviser could help you decide which is the best method for you.

Relying on your business

Investing in a pension

How you choose to plan is up to you. You should ask a financial adviser to do a financial health check to ensure you will have enough to retire.

There are many reasons why you may want to transfer you’re pension to another provider although consolidation of lots of pension pots is a common reason. Each of the reasons why transferring a pension could be beneficial will be looked at below:

Investment Performance – Ultimately the performance of your pension will have a massive impact on how much you will have at retirement. If you have several different plans with no overall investment strategy then you may find many are underperforming and unsuitable. By transferring all your pensions to one plan you can benefit from a single tailored investment strategy.

Lower Charges – Due to the economies of scale the charges on one big pension is likely to be smaller than those of several smaller ones. Many older plans also have much higher charges than the more modern alternatives. One thing to consider though is the cost of transferring. Some providers have market value adjusters. A financial adviser will check on this before a pension transfer carried out.

Flexibility – Older pension may not have much or none investment choice. Many of the with profit pensions are seriously underperforming. Newer modern pension have unlimited flexibility some with a self invested element and others with massive fund choices.

This form of investment is high risk however with risk comes larger potential reward.  It is a type of pooled investment because the shares are spread throughout other companies.

• At least 70% of the underlying investments must be held in qualifying companies.
• Only 15% of the trusts investments can be held in 1 single company.
• As with an Enterprise Investment Scheme the Venture Capital Trust can only invest in companies that is worth less than £7 million before investment and £8 million after.
• Tax Advantages of Venture Capital Trusts
• Income tax relief at a rate of 30% is given on VCT investments up to £200,000 in any single tax year. The shares need to be held for 5 years.
• Capital Gains Tax relief is given but shares need to be held for 5 years.

The main advantage of a pension plan is that the government will help you with your payments. A pension is a savings plan that will give you tax relief while you save (the value of this depends on your own financial circumstances). A financial adviser will let you know how much you will get. This is based on the current tax law and HM revenue and customs practice which may change.

Basic Rate Tax Payer Pensions

£200 for every £1000 saved is paid by the government.

Your Payment                  £800

Tax Relief                            £200

Total in Pension               £1000

Higher Rate Tax Payer Pensions

If you pay higher rate tax then you can claim back another 20% through your annual tax return. This way you pay £600 into your plan and the government will make it to £1000. You see where we get the term money for nothing now.

Your Payment                  £800

Tax Relief                            £200

Tax Relief You Reclaim   £200

Cost to You                         £600

Total in Pension               £1000

Long term benefits of Tax Relief

Graph 1 Shows The total Paid In to Pension

Assumptions £100 per month Net  Basic Rate Tax 20% higher rate Tax 40%

Graph 2 Shows The Maturity Value

Assumptions £100 per  month net Annual Management Charge of 1%  growth rate of 7% Basic Rate Tax 20% higher rate Tax 40%

All figures are for illustration purposes only and are not guaranteed. The graphs are used to show you the tax efficient benefits of pensions. Tax year 2009 - 2009.  Figures from Aegon Scottish Equitable Your financial adviser can help you set up your pension plan.

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By comparison a second time buyer who requires a 75% LTV product would have been offered a rate in June of 6.45% with Nationwide for a 2 year fixed rate. Today the same applicant would be offered a rate of 4.49% for a 2 year fixed rate with C&G. This gives a drop of 1.96%.

 I am not suggesting that the rates should be the same. However until the gap between the two  loan to values shortens then we will still see house prices falling. High interest rates where firsttime buyers are forced to fix the rate for 5 years are discouraging couples and singles from entering the housing market. In addition whereas a year ago a first time buyer could purchase a property with a 5% deposit now they need a minimum of 10% thus they are being hit on three sides, higher rates, higher deposits and longer term fixed rates.

Until lenders make things easier then house purchases from first time buyers will remain low. However once the banks ease the situation and give first time buyers a fair deal we will see the housing market and house prices stabilise and begin to increase again.

Here at Needing Advice we blame it on the banks being over cautious with lending criteria for first time buyers. Unfortunately lenders now require a minimum of a 10% deposit to get on the property ladder. Understandably banks need a cushion in case the borrower defaults and house prices have dropped. But because the banks need such a high deposit they are actually fuelling the house price property crash.

Unfortunately this causes a vicious circle, first time buyers cannot get on the property ladder, so 2^nd and 3^rd time home buyers cannot sell their homes. This causes market demand to drop and thus house prices to lower.

Until the banks and building societies ease lending criteria and allow first time buyers to get on the ladder we predict that house prices will continue to drop in 2009. Being at the forefront of the lending process over the last 4 months I personally have seen 7 people with 5% deposits ready and looking to put offers on smaller cheaper properties. These people have all had excellent credit ratings and would normally been accepted for mortgages. However due to lenders requiring 10% deposits they had to put their plans on hold.

I am not suggesting that lenders take on risky mortgages. However for those with good credit histories and previous credit that has been paid well then a 95% mortgage with a 5% deposit should be offered. Once the number of first time buyers increases then property prices will begin to stabilise.

Figures from http://www.nationwide.co.uk/hpi/

Gilt Edged Securities or Gilts are British Government securities and issued by the government to raise money. Gilts are considered safe because the government will not default on interest and capital repayment.

Many large organisations such as pension companies life companies and other financial organisations to small individual investors use Gilts as a large portion of their portfolio. As a result there is a large market of people trading gilts. Because of this sometimes they can be bought and sold for amounts above or below there face value.

• Par Value – This is the face value that is paid when the it is paid back.
• Redemption date – This is the date at which the government will pay back the Par Value.
• Coupon – The percentage rate that will be paid throughout the Gilts term. Interest is paid twice a year and is based on the par value rather than its current price.

Features of Investment Trusts

This type of pooled investment offers access to an expert fund manager, diversification of funds and all for a very low cost compared to direct share investment. This is because the cost of management and research is shared through all the investment trust investors.

• Number of shares is fixed and this can create a supply and demand situation.
• Normally investment trusts have more flexibility than Unit Trusts and OEICs in terms of investment choices. For example investment in Venture Capital (new companies) is possible.
• Investment Trusts are normally organised by sector or geographical regions. The Association of Investment Companies has made 38 categories.

These are high risk as the investment is going to smaller, newer companies with little or no track record. Normally the investor is buying direct rather than a pooled investment. Although as an alternative it is possible to invest through a EIF Fund or Enterprise Investment Scheme fund. These funds raise money from investors and then on a defined date close and buy stock in a pool of qualifying companies.

Companies requiring funding only qualify if they meet the rules. There assets need to be less than 7 million before investment  and less than 8 million after.

Encouragement for investment is given through tax relief. These terms are complex but in brief are outlined below:

• The investor must be qualifying i.e. They cannot be connected to or previously connected to the company.
• The shares must be new ordinary shares and cannot be redeemed in the 1^st 3 years.
• The company must be qualifying i.e. it must be an unquoted company with business wholly or mainly in the UK. This can include companies listed on the AIM.
• The minimum investment is £500 unless it is made through a investment fund.

Enterprise Investment Schemes EIS and Income Tax

Income tax relief of up to £400000 for investment made on or after 6^th April 2006. Before that date the limit was £200000. The tax receive is given at the lower of the amount of tax payable by the investor or 20% of the amount invested.

Enterprise Investment Schemes EIS and Capital Gains Tax CGT

If the shares are held for 3 years then no CGT tax is payable. Any capital loss can be offset against other capital gains.