Opt out of SERPS/S2P?

colshandy

Hi, many companies with directors as employee pay themselves a low salary therefore no NIC contributions are made.

Questions:
1. Does this in effect mean they have contracted out as no NIC is being paid so no contributions into the governments pension pot.
2. Would it make sense to pay a higher salary so some NIC is being paid and therefore would be entitled to a state pension ? What amount would this be ?

KiNeL

I think directors will be treated differently to PAYE employees but I doubt many will be doing what you suggest.

The threshold rates for employee NI can be found here.

http://www.hmrc.gov.uk/helpsheets/e12.pdf

[Deleted User]

colshandy wrote: »

Hi, many companies with directors as employee pay themselves a low salary therefore no NIC contributions are made.

Questions:
1. Does this in effect mean they have contracted out as no NIC is being paid so no contributions into the governments pension pot.
2. Would it make sense to pay a higher salary so some NIC is being paid and therefore would be entitled to a state pension ? What amount would this be ?

I'm a Company Director - no employees just myself though.

For this year, as you state, you can pay yourself around £7K (£7.5K next year) per year which means no tax or NI (employer or employee) on this.

However, any income over something like £5K means that you're deemed to have made a full NI contribution (even though you've paid nothing). Thus, a lot of company directors pay themselves £7K as salary and then the rest as dividends (taxable at 20% below high income bracket and no NI).

Batchy

that will qualify you for statepension, but not S2P or Serps.

More your earning and therefore paying NI the more S2P you get.

[Deleted User]

Batchy wrote: »

that will qualify you for statepension, but not S2P or Serps.

More your earning and therefore paying NI the more S2P you get.

Of course. But leaving more in company account to pay into my SIPP.

colshandy

[quote=[Deleted User];49392481]I'm a Company Director - no employees just myself though.

For this year, as you state, you can pay yourself around £7K (£7.5K next year) per year which means no tax or NI (employer or employee) on this.

However, any income over something like £5K means that you're deemed to have made a full NI contribution (even though you've paid nothing). Thus, a lot of company directors pay themselves £7K as salary and then the rest as dividends (taxable at 20% below high income bracket and no NI).[/QUOTE]

Thanks for that, very good to know !!

Me and my Mrs work through our company in much the same way as that. We both have rental properties, my profit is about 4.5k a year more than hers which is about break even. As we take the same company divis I end up going more into higher rate tax bracket than her due to my rental income.

Would it make sense for her to go just into the higher rate limit and anything I go higher than the higher rate tax limit to make that level of contribution personally into my pension?

2sides2everystory

As part of the changes, I understand that the protected rights part of my contracted out S2P policy funds will cease to be treated as such from 6 April 2012. Can some kind soul tell me if this means that the transfer valuation would be greater if I transferred all the funds elsewhere before that date?

Paul_Herring

2sides2everystory wrote: »

As part of the changes, I understand that the protected rights part of my contracted out S2P policy funds will cease to be treated as such from 6 April 2012. Can some kind soul tell me if this means that the transfer valuation would be greater if I transferred all the funds elsewhere before that date?

My understanding is that prior to this, the portion of your fund that is 'protected rights' must (at the point of buying an annuity before the change) be used to supply a pension for your spouse whereas the rest doesn't have this restriction, and the result of the change is to merely remove this restriction. (There may be other restrictions/rules.)

As a result, there is no change in 'value' of that portion - merely what it can be used for.

[Deleted User]

colshandy wrote: »

Thanks for that, very good to know !!

Me and my Mrs work through our company in much the same way as that. We both have rental properties, my profit is about 4.5k a year more than hers which is about break even. As we take the same company divis I end up going more into higher rate tax bracket than her due to my rental income.

Would it make sense for her to go just into the higher rate limit and anything I go higher than the higher rate tax limit to make that level of contribution personally into my pension?

Yes. Why pay 40% in tax when this could be going into your pension?

Only issue would be the salary you pay yourself. Personal contributions are max at salary. However, there is nothing stopping you making contribs from the company.

Another idea, is it a ltd company? If so, change the shareholding percentage so that your mrs gets more dividend than you to even out income a bit....
Perhaps then neither of you will go over the high bracket.

2sides2everystory

Paul_Herring wrote: »

My understanding is that prior to this, the portion of your fund that is 'protected rights' must (at the point of buying an annuity before the change) be used to supply a pension for your spouse whereas the rest doesn't have this restriction, and the result of the change is to merely remove this restriction. (There may be other restrictions/rules.)

As a result, there is no change in 'value' of that portion - merely what it can be used for.

Thanks for that, but I took comfort in the 'restriction' because it contained something that was 'protected'. The removal of the protected status of these funds and the removal of the requirement to provide more extensive benefits (a pension for a spouse or partner for example) mght simply absolve the provider from some liability?

Using that logic, the 'value' of the funds would likely be allowed to / be made to reduce, would it not?