Ltd Company Contractor Pension?

DonnieH

Its a jungle out there....literally.

After some direction on the best type of pension to go for for a 1 man ltd company director (contractor) before heading off and doing some homework on it.

Getting a little confused as to which is the the best option as there seems to be a whole load of info available and can't see the wood for the trees so to speak.

I know there are tax advantages to using the company so would like to hear what peoples views are.

Ideally would like a flexible one where I can either minimise or temporary hold payments if I have periods of no work.

Thanks

xylophone

http://www.contractorcalculator.co.uk/how_pensions_work_for_contractors.aspx

might be worth a read.

https://www.unbiased.co.uk/ for Independent Financial Adviser

dunstonh

Getting a little confused as to which is the the best option as there seems to be a whole load of info available and can't see the wood for the trees so to speak.

Keeping it totally generic for the moment, stakeholder pensions are the basic option. Better suited to small amounts and limited in investment choice. SIPPs are for experienced investors looking for more advanced investment options. Can be good value with certain investments but can also be the most expensive option. More chance to make a mess in a SIPP as there is no due diligence done by the SIPP provider. Personal pensions are the middle ground between the two.

Ideally would like a flexible one where I can either minimise or temporary hold payments if I have periods of no work.

Generically, you describe a stakeholder pension. Whilst some personal pensions and SIPPs could also do that, most are designed for more consistency in payments.

speedyrite

One of the issues that might affect you is that ltd co cashflow can make the income you take from the ltd co a bit "lumpy" (i.e. variable from one year/period of time to the next depending on how much work you have done). Before I stopped working, I made employer contributions from my ltd co into my personal SIPP once or twice a year, the amounts being according to whatever the ltd co cashflow & financial state permitted. So maybe don't sign up to something that requires a regular monthly contribution, in case it can't be sustained or allowed due to lack of work and hence lack of revenue (both personal & ltd co).

DonnieH

interesting post I came across today which suggests a personal pension rather than a ltd company contributing one could save money.

I always thought it was the other way around??

richbeth

Hi,
Interesting thread especially as the person writing it is from my accountants and they never told me about it !

This suggests a2.5% benefit under specific circumstances. These are
1) you are a HRT
2) if you pay yourself a salary up to the tax free limit and the rest in dividends
3) you pay up to your salary into a personal pension (anymore would need to be via the company).

It is due to paying little NI on the low salary and lower tax on dividends. I haven't done the maths but would imagine the upcoming tax on divis will wipe this benefit out but it's there until the end of the tax year.
Richard