By Rachel Efetha, Chartered Financial Planner.
Recently, I visited two sets of completely unrelated new clients who are both in very similar positions.
Both the husbands are tradesmen and both the wives run the office for them under a limited company. Both got in touch as their businesses were ticking along nicely and they felt that they needed to focus on pensions and do not know much about them. Luckily for them, I know lots about pensions!
One couple was in their 40s with two teenage children, and the other was in their 30s with two preschool children.
They all had little or no pension provision to date. They would like to employ someone to run the businesses and do the trade and take a nice dividend in retirement but appreciate the need to have a backup plan in the form of a pension.
I explained to them that a company contribution is better than a personal one, as although you get tax relief on a personal contribution, you as the director and as the employer, both must pay National Insurance contributions on salary, whereas none is paid on company pension contributions.
I also explained to them that they should try to build up equal pension provision so that they are using up both personal allowances during retirement. There is no tax efficiency for one spouse having a taxable income and the other not even using their personal allowance. It also helps with death benefit planning for each to have their own pot.
Once we had set a budget for pension planning, we moved on to insurance. Both couples have Critical Illness Cover on their mortgages which is good, but there is a better way of doing things. A Critical Illness policy will cover just that, a really bad, life-threatening disease. However, Income Protection will cover anything that prevents you from doing your job, for the tradesmen, this could be a dodgy knee or a bad back, for the office person, this could be stress-related. Of course, the critical illnesses are all covered too if they prevent you from doing your job. This cover is essential when both of your incomes depend on the business being a success.
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Do you run your own business with your spouse? Could you benefit from a financial health check at our cost? Then why not contact us today.
We would welcome the opportunity to discuss how we may be able to provide you with financial advice. Being Independent Financial Advisers (IFA’s) allows us to look at all aspects of financial planning, both business and personal. We can look at pensions, investments, mortgages, protection and estate planning.
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If you have any thoughts about the article, “Pension: Husband and Wife, run Business?”, then we would love to hear from you.
Finally, the information contained in this article is for information purposes only and does not constitute advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).