EPP are plans set up by the company in which the contributions build up in a tax exempt fund, and are used at retirement to provide tax free cash and pension.

They are normally established by company directors for their own benefit, but they then frequently include other valued employees, though only the favoured can expect to be given the levels of investment that thee schemes offer.

Key Features

• The scheme is Money Purchase - a fund will be used at retirement to buy a pension.

• Funds are normally invested for growth via insurance company investment funds. Make sure that your money is in the right area for you.

• Benefits - in general as per Defined Benefit Schemes, but with the previso that you will only get what you pay for. If your fund is too small then you will not be able to have the full benefits that the law is willing to allow.

• Regular pension contributions by the employer are tax exempt, ( ie reduce company corporation tax charge). Single premiums under £500,000 ditto, but over this they will have the relief spread over more than one year.

• Pension contributions by the employee ( up to 15% of salary) get relief at the persons marginal rate.

• Definitions of final salary are by and large up to the scheme controllers. This means that increases in salary make room for increases in pension contribution.

• Earnings Cap normally applies and sets an upper limit. Exceptions are for people who are members of schemes that were begun before 14 March 1989, AND who themselves joined the scheme before 1 June 1989, AND where the trustees are willing to ignore the Earnings Cap. Certainly the Earnings Cap applies to all NEW members of any scheme.

• Married members can be given very generous death in service benefits. This can be a very tax efficient method of life insurance given that if the member pays they get 23-40% tax relief on the premiums.

• Funding can be made late, and can include periods of trade when you were self employed, if not pensioned( eg by way of PPP ), and provided that the business continued. So a contractor who starts as sole trader and then incorporates is fine, but the grocer who incorporates to run a plumbing business will probably fail. Each case on its merits.

The scheme can make secured loans to the company subject to:-

• the loans is for a bona fide commercial purpose

• they should not be made on a regular basis

• interest must be settled, not added to the loan

• loans cannot exceed 50% of fund value ( 25% during first two years of scheme)