Personal v company contributions

badsimian

I was after some advice as to the best way to put more money into our pensions.

I work through my own limited compoany and am paying each month into a pension direct from the company. My wife is paying into a pension but from her own money that she earns from her job.

I want us to pay more into pensions in general. It seems to me that the most tax efficient way of doing this is to pay a higher amount into my pension from my company as it is coming out of the company bank account with associated tax advantages. My wife however is quite adamant that she wants the same amount each month going into her pension. This requires us to take the money from the company in the form of a dividend then pay into her pension which seems pretty inefficient to me, I do completely understand her wanting to do this so that she doesn't end up with some tiny pension but I am just concerned we are wasting cash.
It does mean that we would be drawing from two different sources of income during retirement though and hence decreasing the risk of entering tax bands, plus the pension payments made by her reduce her tax bill now.

Not sure of the best approach (apart from really desperately needing to pay more into *something*)

dunstonh

It seems to me that the most tax efficient way of doing this is to pay a higher amount into my pension from my company as it is coming out of the company bank account with associated tax advantages.

Correct. It reduces corporation tax and avoids dividend tax.

My wife however is quite adamant that she wants the same amount each month going into her pension. This requires us to take the money from the company in the form of a dividend then pay into her pension which seems pretty inefficient to me, I do completely understand her wanting to do this so that she doesn't end up with some tiny pension but I am just concerned we are wasting cash.

Also correct.

If your wife is going to be using up her personal allowance in her state penion and personal provision and you would be a basic rate taxpayer in retirement yourself, then having it in your name is the best solution from a tax point of view.

She will inherit your pension anyway if you die first. The main issue is where the tax in retirement is uneven (such as wasted personal allowance or if one is a higher rate taxpayer).

tacpot12

Your wife having her own pension will improve your ability to avoid tax in the future, and she should take advantage of the income she earns to put the maximum she can into her pension to get the tax relief.

If your wife doesn't do any work for the company or earn any money for it, it can't reasonable make a pension contribution on her behalf, and even if she does some work, the salary has to be commensurate with the amount and value of the work she does. If she doesn't do any work for the company, see if there is any work she could reasonably do and pay her a salary for the work she does, and she can contribute all this into her pension and claim the tax back. But she will pay PAYE, and NI on the salary unless it less than £8164 pa.

Is your company paying the most it can into your pension? It would not be unreasonable for the company to pay 20% of the salary you draw from the company into your pension as a company contribution. if not, I would increase the amount that the company contributes to your pension.

Brynsam

What sort of amounts are we talking about?