General Pension Questions

**geekboy** · 18 September 2006, 19:45

I'm also interested in what preparations my fellow contractors are making for their retirement. Personally I have a deep distrust of pensions so options other than your standard pension plans would be most welcome.

I had intended to keep my money in the company, saving less than 10k a year and thus avoiding corporation tax. In my later years I could continue to withdrawn the money as salary/dividend.

However as of next year all money left in the company gets taxed at 19%.

**TheMonkey** · 18 September 2006, 19:51

Being yound (under 30 - just), I'm not doing ANYTHING yet until I am completely satisfied with this country's political status. At the moment, things are so unstable and heading towards dictatorship, that a pension may end up being worthless due to predatory taxation and economic collapse.

A friend of mine keeps his cash in cut diamonds.

**oraclesmith** · 18 September 2006, 20:24

Well I've got a private pension with a mainstream pensions provider. as far as I'm concerned, it's simply a way of investing regularly in a share-based balanced fund without paying tax. It's as sound as the stock market and it grows in a similar way to the equivalent ISA. I can switch the funds around if I need to. The company contributes the whole monthly amount. It's still based on the old formula for how much can be invested and I know I could increase the monthly payments nowadays if I wanted to. An offshoot of my accountant sorted it out and they just get the initial commission from the provider for selling the product. I haven't had to pay them anything on top.

I've dealt with IFA's as well for ISA investments and they basically have the same model (ie. they take the commission from the provider). If you just take their advice and sort out your own purchase, you'd have to pay them a consultancy fee.

I also have a couple of final salary pensions from previous jobs, so I'm spreading the risk.

**IR35 Avoider** · 19 September 2006, 08:01

- Is a company pension better than stakeholder?

Not any more. The advantage used to be that you could put more into a company pension. Now the rules are the same, but a company pension costs more.

- How much can the company pay in through a company pension? Can it also pay in via a stakeholder (as this seems to have lower charges)?

The company can pay into a stakeholder.

There is no limit on what the company can put in, but contributions over £215K per year will be taxed at 40%.

There was some concern when the new rules came in a few months ago that Inland Revenue would disallow large contributions or ones that were out of proportion to salary, but they have apparently back-tracked on this now and said they will allow any contribution as an expense against Corporation tax if they would have allowed salary of the same amount. For a one person company where that person brings in all the companies income they can't object to all the company income being used for remuneration - in fact that's what they have been trying to achieve with IR35. (On the other hand if you pay salary or pension contributions to someone other than the fee-earner, and Hector believes that because of your personal relationship with them you are giving them more for the work they do than you would a complete stranger, then that salary or pension can be disallowed as an expense.)

- How much would you expect to pay for an IFA? I've seen quotes of £80-200 per visit. All well and good if it's good advice

Whatever an IFA charges, it's to much. The only useful thing they can do is tell you which are the cheapest providers, something you can find out yourself with a little bit of surfing.

If an IFA is paid by commission, the chances are you will end up paying them thousands, in reduced investment returns from the greater than minimal charges on the funds you are invested in. The commission they get comes out of what the fund charges you. Academic research says the best thing you can do is invest in the cheapest tracker. Strangely, IFAs almost never recommend this option, and since non-trackers are never cheaper than the cheapest tracker, it follows that what they recommend always costs more.

Do your own research to find the stakeholder or SIPP with the lowest charges that lets you invest in the kind of funds you want to invest in. SIPPDEAL is probably the cheapest SIPP, as long as you don't switch your investments to often. I have a Legal and General stakeholder pension, which is quite cheap.

The advantage of using an insurance company used to be that they usually had a property fund in their fund range, but in the last couple of years an increasing number of listed property investment trusts have appeared, which can be held inside ISAs and SIPPs.

**Mailman** · 19 September 2006, 08:24

Why the f8ck would they tax pension contributions that are over £215k a year?

Surely it would be in the governments interest to get as many people as possible out of the state pension and in to their own private one (where the government doesnt have to pay to keep you alive)?

Anyway, I had a chat with my accountant the other day over moving my pension back to the Southern Hemisphere when I decide to leave (some time after the Olympics).

The upshot is I cant take the pension as cash and Id have to find a pension fund back home that the company trustees would approve the transfer to be made to. The good thing though is once everything is moved over I can then find another pension fund to move my funds to that has a cashing up value and get my money out that way!

BTW, anyone know how I can convert my current final salary pension in to a deposit for a mortgage? Is that even possible?

Mailman

**IR35 Avoider** · 19 September 2006, 08:31

Why the f8ck would they tax pension contributions that are over £215k a year?

It's just there way of setting some limit on how much tax relief one person can get in one year. I would guess most private pensions have less than £215k in total over a lifetime, so it's not a harsh limit.

Surely it would be in the governments interest to get as many people as possible out of the state pension and in to their own private one (where the government doesnt have to pay to keep you alive)?

Private pensions don't reduce entitlement to state pension. They may reduce entitlement to other social security benefits, but the sort of person who's worried about the £215K limit was never going to claim those anyway.

**lukemg** · 19 September 2006, 09:34

Got a couple of tiny final salary schemes, couple of personal and executive pensions with Equitable Life (paid up, not my best move ever). Currently got a stakeholder with Standard Life.
I am going to make this paid up at end of this tax year and switch to a SIPP through Hargreaves Lansdowne which I will invest in a range of unit trusts. I already have a number of peps and isas through them, they offer low initial commissions and annual fees (negotiated through bulk purchase). I am doing this to try to generate a better return (my other peps/isas average out about 12% per annum) the pensions seem to be nearer 5or6.
No guarantees of course but believe I am spreading the risk across the current pension schemes, overpaying my mortgage, isas and some individual shares.
HTH

**Hogan** · 19 September 2006, 18:29

Thanks IR35Avoider (and all others) - some very useful advice there.

I think I need to go take a look at the various stakeholder options, and do a bit more reading.

**ASB** · 20 September 2006, 14:14

Originally posted by Hogan

Thanks IR35Avoider (and all others) - some very useful advice there.

I think I need to go take a look at the various stakeholder options, and do a bit more reading.

If you are paying dividends then it is probably better to make personal contributions. This is because the income tax relief is > than the CT suffered. But it may depend upon your exact circumstances.

Company makes £1000, CT = £190.

Divis = £810. Paid to pension = £810 tax credit @22% (3600/2808) paid to pension - £1038. (Lower rate)

Divis = £810. Higher Rate IT = £202.50. Pension payment = 810.00 as above. Hirgher rate relifef = 810 * 22.5% = 182.25. In effect you lose 20.50 of relief.

Now if the company make the contribution you only end up with £1000 in the pension.

If you are paying salary (e.g. in IR35) then it is more effective for the company to pay the contributions due to NI being deducted on payments made via salary and not reclaimable in the pension regfime.

....

General Pension Questions