Pension payments via company or not?

underscore_2

Hello,

I have been reliably informed (by Mumsnet!) that this is THE forum to post questions in as you are all really helpful. Thanks in advance for any info or advice.

I have two pensions from previous employments (where there were employer matched contributions) but currently am paying into neither, mostly due to having been on maternity leave and not having spare cash. As I am now back to working four days a week, I feel I should probably start saving for retirement again - but am unsure of the best (and most tax efficient) way to do this.

I am the sole director and employee of my own limited company (I am a consultant in the not for profit sector) and pay myself a small salary, and in addition take dividends from the company. As such I pay no income tax, but do pay NI, and of course corporation tax.

So my questions;
- Am I better paying into a pension as an individual, or is it better for the company to make the payments from my company bank account? What are the benefits of either?
- Or (as I have seen some people suggest) am I better to not pay into a pension at all and use any spare cash to pay off mortgage (we can make unlimited over-payments with no fee) or into ISAs?

I am sure a number of people will tell me to see an IFA, and I am happy to do this, but am relatively new to my area and no one I know has any recommendations- how do I find one? (I have spoken to my accountant and he has said he's not a pensions expert so wouldn't want to advise me!)

Thank you again for any help or advice.

Lokolo

I am not certain an IFA will definately be able to help (yes they can help you set up a pension) but I feel as though this might be better for a tax expert (Dunston will confirm).

From what I've read on here, it is quite tax efficient for companies to pay contributions as it reduces NI liability on the employers salary. Now you obviously pay yourself quite a low salary so I am not sure on the impact on this.

There is nothing wrong with doing a bit of all, ISAs, overpayments and pensions. It will give you more options later on in life (for example, retiring early, pension can only be taken from 55 at the moment so if you wanted to retire at 50, you could live off other savings from ISAs for those 5 years before taking pension).

dunstonh

I am not certain an IFA will definately be able to help (yes they can help you set up a pension) but I feel as though this might be better for a tax expert (Dunston will confirm).

It is an area that an IFA and accountant will often liaise. However, you would typically make "employer" contributions rather than employee as it avoids NI and gets money out of the company.

I have spoken to my accountant and he has said he's not a pensions expert so wouldn't want to advise me!

Most accountants do not hold the qualifications or licences to give financial advice nowadays. Just as most IFAs are not accountants. Where large contributions are being made or the amounts may be borderline to the company profit then co-operation between the IFA and accountant usually occurs. However, if it is a more typical transaction then the IFA would not involve the accountant.

- Or (as I have seen some people suggest) am I better to not pay into a pension at all and use any spare cash to pay off mortgage (we can make unlimited over-payments with no fee) or into ISAs?

And when you get to retirement without any retirement provision, you have to mortgage the house again to make up for your lack of planning. With even the most basic investment options making more than the typical mortgage interest rate, tax relief on contributions, tax free growth, tax free lump sum and a personal allowance of £10k in retirement, why would you want to repay the mortgage at the expense of retirement provision?

Like most things, a bit of everything is a good idea. I over pay my mortgage. I pay into an S&S ISA and I pay into a pension.

System

Tax relief on employer contributions is given in the form of an offest to corporation tax. There is no limit on contributions, but the limit for tax relief is £40,000 pa (plus unused allowances b/f from up to 3 previous years).
Also to qualify the payments have to be legitimately worthwhile business expenses, so that is where care and advice are needed.

atush

I would say pay into a pension from your company. It will save you (ie the company) both NI and corporation tax as it is an expense against your balance sheet.

The acct should be able to advise you on the tax implications (ie how much you save) and the IFA on setting up the pension.

xylophone

http://www.scottishlife.co.uk/scotlife/web/site/adviser/technicalcentralarea/informationguidance/investment/ssasversussipp.asp might be worth a read.

http://www.unbiased.co.uk/