Increasing diversity, in particular age and lifestyle, are helping to fuel a change in the provision of pensions for SMEs in the UK.

In the increasingly competitive world, today’s SMEs are under greater pressure to ensure the benefits they provide directly contribute to influencing employee behaviour, take full advantage of available tax advantages, generate a maximum return on investment and help compete with larger rivals to recruit and retain the best staff.

Employees are becoming more sophisticated in terms of their benefit expectations, looking for increased choice and value, in particular wealth creation.

Against this background an increasing number of SMEs are looking at Corporate Self Invested Pension Plans (CSIPPs) as a more flexible and effective addition or, in some cases, an alternative to their existing pensions schemes.

One of the main advantages is their investment flexibility. This makes them more attractive to owner managers, senior executives and expert investors who want more flexibility and control over where their money is invested.

They are also a good a good vehicle for maximising contributions up to the annual allowance.

Lifestyle or age group related 

For those employees who want some choice but not the responsibility of choosing individual investments, they can be structured to offer different investment groups within the same scheme, for instance lifestyle or age group related “pots”.

At the opposite end of the spectrum, this type of pension plan can be structured to simply offer a default fund, with an appropriate manager, for those employees who do not want to make any choice at all.

Some or all of the above options can be accommodated within a single CSIPP with lower running costs than running separate pension schemes.

The combinations of the options above make CSIPPs a great way of providing a flexible pension scheme without the worry and burden of running an occupational pension scheme.

Set up correctly, they are also exempt from stakeholder requirements and so company contributions can be used more effectively.

Capital Gains Tax liability 

Another benefit is the tax advantages of in specie transfers such as transfer maturing shares from share incentive plans (SIP).

If these shares are transferred into a CSIPP within 90 days there is no Capital Gains Tax (CGT) liability.

There is tax relief on the value of shares transferred, in addition to tax relief obtained when the shares were originally acquired.

For SMEs, CSIPPs provide a vehicle for retaining unquoted shares within their environment.

This supports and enhances the perceived value of the SME’s shares and gives an extended incentive for the employee to stay with the company.

For those SMEs who own or have an interest in commercial property investment as an alternative method of creating wealth, CSIPPs offer a tax efficient vehicle linked to pension provision. The investment when sold, for example, is free of CGT.

Flexible and effective wealth creation 

As with any pension, the benefits of CSIPPs can be enhanced through salary and bonus sacrifice, if appropriate to circumstances of individual employees.

Employee NI savings can be used to “boost” the contributions to the pension plan and company NI savings can be used to offset any set up and running costs.

As well as contributions, they can also offer choice and flexibility when drawing benefits, for example providing alternatives to annuity purchase.

In an ever changing and demanding business environment, SMEs are increasingly looking to CSIPPs as a future proof vehicle for providing flexible and effective wealth creation for themselves and their employees.

The advantages CSIPPs bring ensure both a high level of employee engagement and return on investment on what is still the UK’s number one employee benefit - pensions.

Philip Hutchinson is head of corporate Sipp sales at Pointon York Sipp Solutions.

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