40 this year and still no pension

Deastons

I'm 40 next month and have realised time has run out - I need to think about a pension.

I've never been employed having always been self employed (through a ltd. company). My company turns over around £180k a year and I probably get about £100k of that. So I'm guessing I'm looking at some sort of personal pension

I know nothing about pensions apart from what I've read in the last 24hrs (mainly on here and other parts of the web).

Any advice on where to start greatly appreciated. Stupid question: what's the difference between putting my money into a pension vs an ISA?

And when I hit, say, 60, and want to retire, can I just take out the cash I've put in to the pension?

justme111

Thats a very good income, do you spend it all?
If so would you expect to have the same lifestyle in retirement?
you don't have to have any pension if you made other provisions for retirement or if you happy to stop working at 68 and live on 7 k/year. Witbout knowing what aoolies to you how can anyone tell.
Difference between pension and ISA- money you out in ISA is already taxed (your post tax income( while money you out into pension is not taxed. But from ISA you can withdraw money anytime paying no tax - while from pension you can withdraw money once you are older ( state pension age minus 1O years( and it would be taxed subject to your tax band in the year of withdrawal (apart from 25% which could be taken tax free(.
I am surprised your accountant has not pointed you pensions earlier.

greenglide

A pension contributed by your limited company is totally untaxed until it is withdrawn. It is a stupendous deal.

To pay into an ISA the money has to be withdrawn from the company and is subject to tax at that point.

You do not want to pay any employees or personal contributions.

BLB53

Any advice on where to start greatly appreciated.

Basically 3 options:
A DIY Sipp if you feel OK about doing this yourself. If so I recommend a read of 'DIY Pensions' by Edwards.

Otherwise it's between a Robo-Advisor such as Nutmeg or Moneyfarm for example which take you through a number of steps to evaluate risk etc and then provide and manage a ready made portfolio - charges 0.75% to 1.0% on average.

Finally, seek the help of a financial adviser - pay a fee upfront and then an annual ongoing fee for reviews.

dunstonh

I've never been employed having always been self employed (through a ltd. company).

As a director of a limited company you are employed and not self employed.

what's the difference between putting my money into a pension vs an ISA?

in your case, the ISA money would be paid into it after you have suffered corporation tax, dividend tax and income tax (as a director, you are unlikely to be paying NI). Whereas the pension is paid by the company and is a business expense. So, it reduces your Corporation tax and doesnt suffer any dividend tax, income tax or NI.

And when I hit, say, 60, and want to retire, can I just take out the cash I've put in to the pension?

You can but it would almost certainly be daft to do so.

A company director not paying into a pension is unusual. Getting your money out of the company tax free is a very good deal. yes, you will pay income tax on 75% of it when you eventually draw it (you still get your nil rate band but chances are most of that will be eaten by the state pension). However, its far more tax efficient than an ISA.

xylophone

https://www.taxcafe.co.uk/pensionmagic.html

may be worth a read.

https://directory.moneyadviceservice.org.uk/en

PeacefulWaters

I think, given your earnings and lack of knowledge, paying an independent financial adviser (IFA) to help you will be some of the best money you've ever spent.

bostonerimus

What have you been doing with your income/dividends so far?

kidmugsy

So your company has been paying Corporation Tax (of about 20%) and then you've been paying either 40% income tax or 32.5% dividend tax on a large chunk of the money extracted? On behalf of taxpayers everywhere: thank you, thank you, thank you.

TheTracker

bostonerimus wrote: »

What have you been doing with your income/dividends so far?

Many people in the OPs position extract around £45k from the micro business they own each year. This offers a good, but not impressive disposable incomes in many parts of the UK such as a city like London. Especially if supporting a spouse and child. Residual company profits (after 19% Corp tax) stay in the company. And often finally extracted through entrepreneurs relief (10% tax) at some point. In the UK one can no longer Phoenix or rinse and repeat companies doing the same task. You can invest these profits but of course pay corporation tax on disposing for a profit.

OP, I have similar revenue/savings as you. You can contribute 40k pa in a SIPP and claim it as a company expense and not pay CT against it. Simple as that. Maybe you have or will have a spouse some day. Another 40k there, if you like, or keep it in the retained profits.

‘Pension’ can be a misleading word. It’s a tax vehicle. A SIPP is a type of pension. You already know how to analyse competing tax choices, being a LtdCo owner. You can pay 19% CT now and then either 7.5-32.5% on dividends, or eventually 10% with ER. Or you can pay 0% now, wait until 55-57, and be under pension tax (currently 25% tax free then income tax).

Starting a SIPP at 40 is potentially the right time for someone in your situation. 10-15 years of contributions and you could be up at the lifetime allowance.

I am firmly a believer that using a financial advisor is a probable waste of money for a small business owner, especially one that can turnover that much as a single employee (presumably). You can learn the finance side on days or weeks of effort and save years of money. Do your research and see if you feel the same way. I have colleagues in a financial situation such as yourself and others who are not.

Thrugelmir

Deastons wrote: »

My company turns over around £180k a year and I probably get about £100k of that.

Where are your savings currently invested?