Pension through my LTD company or LISA from personal drawings?

Obigibo

Hi there,

I have been reading the pros and cons for LISA's v Pensions on the site, and also consulted an IFA about starting a pension scheme (for which he would like to charge me £1500!), but am now wondering what applies best in my case, as i am the sole employee of my own limited company, a personal service company (PSV).

My understanding is that through a Pension scheme, my company would pay in the £400 / month I am planning to save before tax is taken, thus gaining a tax saving on this investment, although tax would have to be paid on 75% of it when I withdraw my pension. If I opened a LISA I would have to do it from my personal drawings of net income from the company (after tax has been taken from it) but that this could be withdrawn in retirement tax free.

Could you advise which I would be better doing in the long run? I am 33 now and plan to use the money as retirement money, so wouldn't want to touch it until i was 65, but i cant see if there are benefits paying my IFA £1500 to set up this pension fund for my company to pay into if in fact it will bring me much the same end figure as if i set up a personal LISA, which I ultimately have more control over and access to if i need it?

Any thoughts most welcome
Dan

dunstonh

My understanding is that through a Pension scheme, my company would pay in the £400 / month I am planning to save before tax is taken, thus gaining a tax saving on this investment

Note that it is not just tax. It gets money out of the company with no NI. Or if you use dividends then its effective 27.5% relief at basic rate or 52.5% at higher rate.

although tax would have to be paid on 75% of it when I withdraw my pension.

Which is tax free under the personal allowance and 20% above. Both better than the effective relief you get. Plus 25% is tax free of course.

If I opened a LISA I would have to do it from my personal drawings of net income from the company (after tax has been taken from it) but that this could be withdrawn in retirement tax free.

So, that is paying either 27.5% or 52.5% at the start with nothing later. Not better than the pension in any scenario.

but i cant see if there are benefits paying my IFA £1500 to set up this pension fund for my company to pay into if in fact it will bring me much the same end figure as if i set up a personal LISA

£1500 is high for a director contribution pension but its still better than going into a LISA. Also, the IFA fee is an allowable deduction for business if paid in one go or it can be spread over the year.

and access to if i need it?

But if its for retirement, then why would you want to....

TheTracker

£1500 to set up? Madness. Do it for £0.

Since you are the sole employee save £1500 and set up a SIPP with 20 minutes of form filling. Go to one of the brokers websites and create that SIPP. A day or few later you'll have a Scheme set up. Choose a broker based on the guides at Monevator (determined by number of trades, type of investments, and value of pot).

A SIPP isn't right for everyone, especially very small pots. But if your pot is small then spending £1500 to start a pension is even more madness.

You're endeavouring enough to start and run a company, opening and managing a SIPP is a doddle in comparison.

You still may or may not want to use an IFA for selecting the asset allocation and investments, but thats a different question.

BTW you don't pay tax on 75%. The 75% is eligible for tax, but in practise you clearly can pull out money up to the personal tax threshold without attracting income tax, so in essence the first £150k or so of pension may be effectively 0% if you withdraw under the threshold per annum.

Obigibo

Thank you both, great responses. I now understand a pension scheme is better and I shall also look into SIPPs as I'm not paying £1500 to set up a pension.
Thanks both.