Bonus payment or company payment to pension? Advice Appreciated

TanDiy

I am posting this for my brother. He is a director and shareholder in a small company. Five directors are also the shareholders and all take the same 29k salary and about 10K dividend each year. There is more profits but they are keeping the money in the company because they want to sell it in a couple of years and apparently it will be better for tax. This year my brother has put in a lot of extra effort to win new business and the directors want to pay him a bonus of £20k. They do not want to pay different dividends to different directors and their accountant has told my brother he should start a pension plan and let the company make a payment to the pension. The other directors have agreed with this and said they will let him add the employers NI so it will be £22,760 they pay to the pension. My brother is 50 years old and has always hated pensions. I know he owns his house and invests in things but he has never had a pension. He really wants the cash and just wants to take the money as pay but, he showed me the example from the accountant and he is going to pay thousands of pounds in tax which seems silly. He might also get further bonus payments in the future. I wanted to post this to check if people agree that the pension is the better option? If so, are there any particular kinds of pension or company where he could just make the payments without having to make decisions on funds and how to invest, he just wants to pay the money in and leave it. Thank you for your help.

xylophone

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

charoniv

I was in a similar position (hated pensions) and owned my own company.
I started pension contributions when they changed the rules to allow access for over 55's (I think) and 25% tax free when moved to drawdown.

Your brother has another 5 years before he can do that but it's not so long.
He should probably make sure that's a viable option though and it is taking a risk that the rules don't change before he can access it.

I have a few pots and self invest with h-l - expensive but they can get things done in the short period between me calling and the end of my company year - that shouldn't be a problem for your brother and he might want to go with an IFA. He can leave in cash but I would suggest investing a portion to protect against inflation.