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There are 4 principle type of pension that a person can take out. Indeed when you get talking to the tax and pension specialists, these options seem to multiply by the second. In the end you dont know whether you are coming or going.

I am going to focus on painting a picture to explain a tax efficient method for extracting company profit. This picture, could serve as the basis for a discussion with your financial advisor, and help you then make a more informed decision.

The two vehicles I would suggest are a Self Administered Pension Scheme (SAPS), combined with a pension mortgage.

How a Self Administered Pension Scheme (SAPS) works

Pension premiums paid by a company on behalf of a director are deducted as an expense against corporation tax.

If you are self employed, or are a director with more than a 5% shareholding in your company you can take up to 25% of your retirement fund in cash, tax free. Pension contributions are invested in funds, which grow tax free. This means that you are not liable for the 23% tax that other savings products incur.

The amount of money a company can pay into a pension plan on behalf of a director depends on your salary, the length of time you have been with the company and when you intend to retire. The amount of money which can be paid to a pension is very substantial and allows you to build up a large retirement fund, from which to pay off your mortgage. You can choose to retire any time between age 50 and 70.

The SAPS is probably the most flexible pension for company directors/ self employed. It does, however require a reasonably high level of contributions for it to be cost effective as set up costs tend to be 2,000 upwards and annual management fees around 1,000.

How a Pension Mortgage works.

On March 25th 2004 legislation changed to allow investors to combine the attractions of good quality property investment and related borrowings with the generous tax breaks afforded to pension plans.

A Pension Mortgage is one of the most tax efficient methods of repaying a home loan because customers utilize the cash value of a personal pension fund to repay the amount borrowed.

Some of the typical features of a pension mortgage are as follows;

• The initial equity amount may be made up of a transfer value, single premium, or the first regular premium. Financial institutions will typically fund between 50% and 75% of the purchase price of the property.
• All pension contributions can be offset against taxable income within Revenue approved funding limits.
• Rents can be used to offset interest payments and as such are tax free.
• A Pension mortgage is like an endowment mortgage, with only interest being paid on the loan.
• You will probably be asked to take out a life policy to protect the lump sum in the event of death.
• Investors have to remain at arms-length from any property invested in such a scheme, this means that they, or any person connected with them, may not utilize the property.

On exit from an investment, the property may be disposed of without capital gains and the capital can be put into an approved retirement fund.

This method provides tax relief not only on interest repayments but also on pension contributions (therefore, tax relief is also received on the capital repayments). In addition, the pension fund grows free of tax.

How you combine the two pension vehicles.

This means that a company director with more than 5% shareholding in their can use a pension mortgage to purchase a property in their own name, yet effectively have the company pay for it.

You take out a personal mortgage on which you make the interest payments. At the same time the company sets up your SAPS on your behalf which, at retirement, can be used to pay off the mortgage. The company receives full corporation tax relief on the pension contributions.

It is important that all aspects of the investment are looked at, including the potential for over-funding.

Submitted by: Jerry Rodgers

This is the year! Yes, you can make 2009 the year you alter your financial life for a better financial future. Let s look at some steps you might think of taking with the goal of financial freedom in mind.

No, we re not talking about those ridiculously obvious steps the usual articles recommend, like write your goals down and set a budget . Let s go past the clich s and get into the real issues.

Look at your income source, your expenses and your debt. How do you earn income? If you earn it from one source, is there effectively a ceiling on it, or is there real potential for your income to rise in the next few years? Now look at your core living expenses, the ones you can t avoid (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt diminishes and expenses stay (relatively) the same.

Maybe you should pay your debt first, maybe not. If you are a business owner or a professional, for example, you ll likely always have some debt. Your ultimate goal should be to build wealth and you can plan to build wealth and minimize debt at the same time.

Some debt is good debt. A debt is good if it brings you income. If you buy a rental property, you re paying a mortgage, but that s considered a good debt because you re getting passive income from the rent payments. Credit cards are bad debts.

If you ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt. If the interest rate on that debt looks like it will outpace your income growth and investment returns, then you should really think about paying that debt down fast, because you can t afford that interest rate.

Of course, paying off your debts, paying down balances and restricting new debts all works toward improving your FICO score, another tool you can use in pursuit of financial freedom (we re talking good debts).

Implement or refine an investment strategy. You can t refrain from investing, even when the bears are out. You re not going to retire on the relatively small elective deferrals from your paycheck; you re going retire on the interest that those accumulated assets earn over time, plus the power of compounding. Investing can also potentially bring you passive income. Consistent investing, this year and in years to come, has the potential to help you improve your financial life.

Manage the money you make on your way to financial freedom. It s amusing: all these Internet gurus tell you they have a method to make you financially free or debt free , but few tell you how to manage the money you make. Their not-so-subtle message seems to be succeed and live lavishly if you make it financially, you ve earned the freedom to blow it all on cars, boats and luxuries.

This is a classic nouveau riche mistake. If you simply accumulate unmanaged assets, you have money just sitting there open to risk inflation risk, market risk, even legal risks. Don t forget taxes while not technically a risk , they can be a threat to your money. The greater your wealth, the more long-range potential you have to accomplish some profound things provided your wealth is directed.

If you want to build more wealth this year or in the near future, don t neglect the risk management strategy that could be instrumental in helping you retain it. Your after-tax return matters even more than your investment return, so risk management should be part of your overall financial picture.

Request professional guidance for the wealth you are growing. A good financial advisor will really help to educate you about the principles of wealth building. You can draw on that professional knowledge and guidance this year and for years to come.

About the Author: Jerry M. Rodgers is an independent writer and loves writing on variety of topics. He is quite impressed with the

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