Still worth contributing to a pension fund after 65?

Sikenb55

I have money retained in a private service company that I have used for part time work over a number of years. In the past I did not want the inconvenience of PAYE and haven’t got around to taking it as dividends.

I trying to find the most economical way of taking the money out.

The obvious thing to do is simply to take it as dividends, keeping a watchful eye not to take enough to push myself over the threshold into the next tax band.

However it occurs to me that if I took it as salary, bonus or whatever I could put it into a private pension plan and 25% would be available to withdraw tax free and the remainder could be withdrawn at any time (from April 6) at my marginal rate of tax under the new pensions legislation.

Is this viable?

atush

Or the company could pay it into a pension for you?

Sikenb55

I assumed that I had to make the payment myself.

Pension contributions are restricted to "earnings". I find this a bit confusing because generally the distinction between earned and unearned income has disappeared from tax law. I haven't been able to find of how "earnings" are defined for pension contribution purposes.

At present my income is mainly rental income with a bit of investment income and some other potential pension income that I could start taking but have deferred so far.

My reasoning was that I would have to take some "earnings" from my company and then make the payment myself. I think there is a threshold beneath which a PAYE scheme is unnecessary and there are no NI contributions once you are 65. It is all these little details that I wanted to be sure about.

xylophone

Re pension tax relief - this is received on relevant earnings

which does not include rental or pension income but a person with no relevant earnings can contribute up to £2880 net (£3660 gross) to a pension and receive tax relief.

http://adviser.royallondon.com/technical-central/information-guidance/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest/employer-contributions

atush

Is your company a limited CO?

or not?

Pensionable income is earned income. From employment of some kind be it SE or as an employee. It does not cover either rental or investment income although these are taxable.

which may come as a surprise to you if you are new to MSE and this forum. As we always point out that some investments are not tax friendly.

Sikenb55

The company is a Ltd co registered with Companies House and I am currently preparing the 2014 accounts; it is so small no audit is legally required.

At present there is about £15k in the company bank account that I think should be invested more profitably. This has built up over a number of years from payments the company has received (I am the sole shareholder) for work I have carried out, but I have not withdrawn it either as salary or as dividends. As I said in the original post the simple thing to do would simply to pay it out as dividends, but my reasoning was that if I paid myself a salary or bonus it would be "earnings" and I could invest it is into a private pension. The contribution I made would then offset my "earnings" and the net effect on my income would be zero. However, I would be in a position to take out 25% of the pension investment as a tax free lump sum.

The rental and investment income I referred to is my private income, nothing to do with the company.

xylophone

See HL link above.

jamesd

You can pay the money in from the company as company contributions. Your contributions are limited to your earned income, those from your company aren't.

Sikenb55

Many thanks to both jamesd and xylophone for the useful information provided. I have had a couple of useful conversations with HL this week.

Sorry I did not thank you earlier