40 this year and still no pension

Op, do you have an accountant? how much do you pay them PA?

They may not be earning their keep if they dont advise you on basics like tax relief for directors pensions.

You are paying more tax than you need to for sure.

Joey_Soap wrote: »

You are in a very fortunate situation here but it may not last.

Hmm not sure where fortune comes in. Sounds a bit unfortunate to me, re the tax situation. Ahh yes, that frequent perception that luck has something significant to do with a high salary. Or maybe that pension tax relief is somehow a highly generous gesture afforded by our lovely sequence of governments.

Anyway... probably also worth mentioning Lifetime ISAs which are available before you are 40 and you can contribute to until you’re 50.

atush wrote: »

Op, do you have an accutnant? how much do you pay them PA?

They may not be earning teir keep if they dont advise you on basics likee tax relief for directors pensions.

You are paying more tax than you need to for sure.

If the OP has a Ltd company then they must have an accountant - that they should promptly fire.

It is inexcusable to not be advising on tax optimisation via pensions. They probably won't be able to advise on the pension themselves as they won't have the qualifications, but they should have pointed out all the implications and probably recommended an IFA to help get things started.

Deastons wrote: »

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

Time hasn't run out (yet). It's never too late!
As the old saying goes - the best time to start was 20 years ago. The next best time to start is today.


If you have a LtdCo, then you are in an ideal situation as you have a great deal of flexibility.


The general approach would be to set up a SIPP or personal pension, and make contributions directly from LtdCo into it.
If you have a spouse, and they also have minimal pension provision, then the company can also pay into a similar one for them.


This means that you can put up to £80,000 pa into pensions, the costs of which are allowable against the company CT bill. This is a very optimal tax approach, but should be set against the cash flow impact (as you may be taking less out of the company as dividend, or retaining less profit in the company as a war chest or to do ER).


I presume you are drawing a mixture of low salary (at a rate of c£10,000 pa to trigger NI / state pension accrual) and dividends.


How much to contribute depends on three things:


1. what is your timescale?
2. what is your risk appetite and forecast investment return
3. what is your target "Number" for retirement?


Timescale is a combination of factors, including SP age (68 I think for you), access to personal pension is possible from age 55 (might be subject to tweaking), and personal factors. You might not want to be still following a punishing schedule of hours and/or physical activity in your 60s, for example.


Risk appetite and forecast investment return is another. I would suggest you might consider 20 years to be quite a long term view that would suit itself well to the growth and compounding factors of an equities-based approach that has traditionally delivered a long run average of 5% above inflation.


Your target "Number" is rather more woolly. Some can live like kings on £1,500 per month; others might feel constrained by a mere £5,000 per month (!) in retirement. I cannot know what your ambitions and limits are on this, except to pose the question.
The practical limit to using a pension saving strategy is the current Lifetime Allowance of £1m. That sounds a lot, but in practice would deliver a long term £40,000 pa (£3,000 per month net). If you have a partner, then you have two allowances, two LTAs and hence can save up to £2m in pensions tax-efficiently, which would yield c£6,000 net per month.


So how to combine the three?


Firstly, if you contributed the £40,000 (max) amount each year into a SIPP, with an adventurous equities-based approach yielding 5% return, then you'd hit the £1m pot limit in 16 years ie at age 56.
If you wanted to stop at 60 with a pot of £1m, then you'd need to contribute £28,850 pa.
Clearly the more you contribute, and the more aggressive the investment strategy, then the more you should get and the earlier you might hit your target.

Joey_Soap wrote: »

Sorry, that is likely to be very bad advice unless his spouse does real work for the company. For an expense to be allowable against corporation tax, the test is that expense has to be "wholly, exclusively and necessary for the purpose of trade". Whilst that is generally accepted as true for the person running the company and bringing the turnover in, it can be easily disallowed if a spouse/partner is seen to be getting pension contributions whose main purpose is to avoid tax. That is what that post seems to suggest. OP needs proper advice on that, I'm afraid.

Thanks for your comment.
My thoughts were fairly high level, but to respond:
- this is not advice; merely a suggestion of one approach the person might take
- yes the spouse should have some practical function within the business (the scope of this can be varied in practice)
- if spouse is drawing salary, then a prudent suggestion is that the salary awarded to them be justifiable ie commensurate with that which is the market rate for the activities the spouse undertakes
- company expenses have to be "wholly and exclusively", not "wholly, exclusively and necessary". The "necessary" element pertains for individuals' expense claims being allowable for tax purposes.


In practice, whilst there are considerations of prudence in applying tax law, the above approach does seem to be taken by a number of couple-owned LtdCo businesses.


As always, DYOR...