Pension contributions

andmas

I understand that the maximum amount that someone can contribute to their personal or stakeholder pension and still get tax relief is equal to 100% of their earnings.

I would however be grateful for advice on the following:

• Are ‘earnings’ solely salary or wages (not income from shares dividends, etc)?
• Do contributions from an employer count towards the ‘maximum amount’?
• Is the amount that an employer can pay into an employees PPP limited to the salary that the employer pays to the employee?
• Is it permissible for a company to pay into a PPP of a director of that company but who is not an employee?
• What are the advantages and disadvantages of a group pension plan compared with a personal pension plan? e.g. range of products / funds available, fee charges, liability to NIC, ability to transfer out, etc.

Thanks in advance for any guidance.

MikeJones_2

Hi andmas,

Short on time, but these pages should help:

Contributions and tax relief: Member contributions (HM Revenue & Customs)

If not post back.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

andmas

Hi Mike

Thanks for the link to the HMRC website - unfortunately it only seems to answer my first query - I can't see definitive answers to my other queries!

Andrew

yelf

• Do contributions from an employer count towards the ‘maximum amount’? - yes
  
• Is the amount that an employer can pay into an employees PPP limited to the salary that the employer pays to the employee? no
  
• What are the advantages and disadvantages of a group pension plan compared with a personal pension plan? e.g. range of products / funds available, fee charges, liability to NIC, ability to transfer out, etc. - none
  

whiteflag_3

yelf wrote: »

• What are the advantages and disadvantages of a group pension plan compared with a personal pension plan? e.g. range of products / funds available, fee charges, liability to NIC, ability to transfer out, etc. - none

So a GPP with a 0.65%/ 0.75% /0.85% /0.95 amc is no better than a PP with a modern "stakeholder" charges of 1.5% amc?

andmas

Thanks Yelf and White Flag.

So the main advantage of a GPP over a PPP is the lower charges - everything else being the same?

Can anyone give any guidance on the 4th query in my original post [Is it permissible for a company to pay into a PPP of a director of that company but who is not an employee?]

Thanks

Debt_Free_Chick

andmas wrote: »

I understand that the maximum amount that someone can contribute to their personal or stakeholder pension and still get tax relief is equal to 100% of their earnings.

I would however be grateful for advice on the following:

• Are ‘earnings’ solely salary or wages (not income from shares dividends, etc)?

Basically "yes" - basic, bonus and taxable benefits in kind all count, but not dividends

Do contributions from an employer count towards the ‘maximum amount’?

Not directly towards your contribution, no. You can pay 100% of taxable earnings and get tax relief on that amount - and your employer can contribute too. But you are likely to take a tax hit if the total contribution exceeds the Annual Allowance, which is £235,000 this tax year.

Is the amount that an employer can pay into an employees PPP limited to the salary that the employer pays to the employee?

Not linked to salary at all. However, as with all payments that company claim as a deduction against tax, the amount they pay must be "wholly and exclusively" for business purposes. In theory, the deduction might be challenged by HMRC if it appeared to be "excessive" compared with salary e.g. would a company reasonably make a £200k contribution for an employee earning £15k? And in a small owner-managed business, such payments are more likely to be scrutinised. But that doesn't affect the tax relief on your own contribution - it's a matter of the corporation tax that the company pays.

Is it permissible for a company to pay into a PPP of a director of that company but who is not an employee?

Yes - but it's not certain that the company would get a deduction against corporation tax (see above).

What are the advantages and disadvantages of a group pension plan compared with a personal pension plan? e.g. range of products / funds available, fee charges, liability to NIC, ability to transfer out, etc.

None - there's actually no such thing as a "group personal pension plan" although most pension providers use this description. It's really just a group of personal plans, with each plan in the name of the individual employees. The providers use this term where they provide plans for a group of employees and might offer some discount in charges and/or improved terms. But each plan is a private, individual contract.

HTH

andmas

Debt Free Chick - Thanks for your clear answers to my queries, most helpfull.