By establishing a Group Self-Invested Personal Pension (Sipp) companies can make it easier for senior employees to satisfy company shareholding requirements, according to Watson Wyatt.
Many companies require senior staff to hold substantial shareholdings to ensure that their financial interests are aligned with the company’s performance.
By setting up a Group Sipp, a company can make it easier for those who are comfortably below the Lifetime Allowance to clear these hurdles.
Jackie Holmes, a senior consultant at Watson Wyatt, said:
“A director who is required to own £100,000 worth of shares would effectively only need to find £60,000 to hold these through a Sipp. Once the shares are held within the SIPP, the dividends are not subject to income tax and, if the individual moves on, they can sell their shares within the SIPP without having to pay capital gains tax.
“The proceeds can then be reinvested to produce a more diversified, but still very tax-efficient, retirement fund.”
According to Watson Wyatt, a Sipp can also be the destination for shares when options are exercised and can enhance executives’ appreciation of a company share plan – but only if they know what their options are.
“Effective communication is vital, and individual impartial financial advice will minimise the fiscal risk for those near the Lifetime Allowance of making uninformed choices,” said Jackie Holmes.
“In theory, there is nothing to stop executives setting up Sipps themselves. In practice, the thing that stops them is time. Shareholders have an interest in making it easy for executives to focus on the business’s financial affairs by helping them take care of their own.”