Pensions...

[Bluebird]

Hey, now I'm getting the hang of this running your own business marlarky !!

What happens about pensions ?

Currently I've got an old Final Salary Pension that starts paying out in 2014.

In the meantime about 2 years ago I took out a 'stake-holder' pension with Halifax and am playing a fixed amount per month.

My guess is this is not the most "tax-efficient" way of paying into a persion ?

Do I run a company pension scheme or something like that where I contribute as a employee and a employer ??

all advise gratefully rec'd

[XLMonkey]

I am not a financial advisor (which, roughly speaking, means I'm not out to shaft you up the a**e by selling you a wholly useless investment that will turn your money into paperclips made out of silly string).

With that said, I had a long look a couple of years ago and did the following:
- took out a stakeholder pension with the Halifax
- set up contributions from the company that matched my (minimum wage) salary.
- periodically checked the investment strategy to make sure it looked half sensible

You won't be able to run a company pension scheme, as you don't have enough employees, so a stakeholder pension is more or less your only option.

Tax efficiency is v. complicated, but you will find that if you make a modest personal contribution (say, 100/month) to your stakeholder pension, you will find that this has the pleasant side effect of enabling you to reclaim any higher rate tax that you end up paying back into your pension.

There are many who think that you shouldn't bother with a pension and should invest in BTL or other such stuff and rely on that to pay for your care home. I have done economics. They are wrong.

[Bluebird]

Thanks XLM, I can't do BTL as I haven't got the capital or the ability to mortage sufficiently to do this - also I don't want the hassle.

I currently pay about £100 per month out of my personal a/c and am about to up that - should I be looking to pay from both my COMPANY a/c & PERSONAL a/c into the Pension or just one or the other ?

Does it matter which way I do it ?

Thanks

[XLMonkey]

If you are a "conventional contractor" (by which I mean low salary and high dividend) its marginally better for you to pay personally, since the tax relief works in your favour. But administratively, its easier to pay out of the company, as you don't have to faff around with reclaiming the tax into your pension fund through the self assessment process.

The way it works is this:
- You receive a dividend from yourco, which has been taxed at 19%
- You pay some of that dividend into your stakeholder pension.
- Gordon gives you tax relief on your contributions at the basic rate of 23%
- You fill in your tax return and use the tax relief to get a 23% bonus in your pension (thus giving you an extra 4% that you never even paid out in the first place)
- You whoop like a wild monkey and plan to spend your retirement being disgusting with cheap Russian prostitutes and expensive Russian vodka (or the other way round, depending on your preference)

Whereas, if you pay it from the company, you only get the benefit of not paying 19% corporation tax.

[Billy Pilgrim]

Good explanation for standard low salary - divvies scenario I reckon!!

From the IR35 point of view:

If IR35 caught - or borderline - is it not better to contribute directly from the company - therefore not having to pay employers national insurance??

[expat]

If you are a "conventional contractor" (by which I mean low salary and high dividend) its marginally better for you to pay personally, since the tax relief works in your favour. ....
Whereas, if you pay it from the company, you only get the benefit of not paying 19% corporation tax.

For those not paying themselves dividends, it is better to get the company to pay the pension contributions, provided that you do so as "salary sacrifice", i.e. you agree to forgo a specific amount of salary, and the company pays into your pension what it would have cost them to pay you that salary, i.e. employer's NICs included. That is a large saving.

[XLMonkey]

Haven't a scoobies, unfortunately. Never been inside IR35. Is that one of those prison islands like Alcatraz?

[Billy Pilgrim]

Haven't a scoobies, unfortunately. Never been inside IR35. Is that one of those prison islands like Alcatraz?

I've been to Alcatraz...but not sure if I've been in IR35 land...hopefully not!!!!

[ASB]

Hey, now I'm getting the hang of this running your own business marlarky !!

What happens about pensions ?

Currently I've got an old Final Salary Pension that starts paying out in 2014.

In the meantime about 2 years ago I took out a 'stake-holder' pension with Halifax and am playing a fixed amount per month.

My guess is this is not the most "tax-efficient" way of paying into a persion ?

Do I run a company pension scheme or something like that where I contribute as a employee and a employer ??

all advise gratefully rec'd

We had quite a long thread on it and the effect of personal versus private relief. I can't remember quite how it panned. Essentially if the cash is going to suffer NI on it's way to you have the company make the contribution since it is a chargeable expense - but don't exceed 100% of salary or 3600 pa.

If there is no NI suffered - i.e. you are paying a good chunk of dividends then it doesn't make too much difference.


Try these:-

http://forums.contractoruk.com/threa...0-pension.html
http://forums.contractoruk.com/thread12402.html

[glashIFA@Paramount]

Few things to point out. XLM did his look at psns a couple of yrs ago. Lot of rule changes since then, mainly April '06 which have changed the psns arena substantially.

With regard to company or personal it is all down to the level of salary you pay yourself. ASB is correct, if it doesn't suffer NI (because salary below NI level) then personal contrib gets relief at 22% and you don't have to bother with the paper trail for salary sacrifice. This relief is given at source so you don't have to claim through self assessment. If higher rate tax payer then the potential for an additional 18% relief through returns.

Company contrib is paid gross and will recieve relief against Corp Tax at either 19% or 30% - does not attract NI on emp'er or emp'ee and is not a benefit in kind. Additionally, there is now potentially more scope for the level of contrib an emp'er can make and is not restricted to 100% of salary as long as the contrib is wholly and exclusively for the purpose of the trade (check with local inspector of taxes if in doubt).

Type of psn? Stakeholder an option but a stakeholder is just a personal psn that has the charges capped by legislation (good thing). Stakeholder psn have a restricted range of investments (bad thing). Plenty of other options including a company psn if you want one.

Don't forget to check on the solvency and funding levels of your Final Salary psn - what you want from retirement will determine if it's in the best place.