Pension advice

[ajackson]

Hello all, this is my first post so be gentle

I'm currently a permie who has a private pension via Virgin. When I become a contractor (when my currently employer gets around to making me redundant) would I still be able to pay into my Virgin pension and make employer contributions via my limited company?

Also what limit is their on employer contributions? I would be looking to pay myself a gross of £1k a month, does that affect how much the company can pay in (I'm assuming it does).

Any help greatly appreciated.

Alan

[ASB]

Virgin will tell you whether your employer can make contributions or not. It is generally most cost effective to make employer contributions, these attract no tax belief but are an allowable expense, further there is no NI to pay.

Employer contributions are based upon your age, check on the IR website, it is probably 17.5% of gross unless you are an oldie like me. They are also based upon previous earnings to a certain extent.

Irrespective of your salary your employer can pay £3,600 PA into the pension if it is a stakeholder (this may now, or possibly next year) be true for other forms of pension.

[IR35 Avoider]

You should definitely make all your pension contributions as employer contributions from you company - the tax and NI savings are greater than if you make the contributions personally.

The easiest way to do it is as a single contribution once a year.

If Virgin won't let you do it, then move you pension to someone who will let you. (I make single contributions to Legal & General stakeholder scheme.)

Remember that you can choose whatever year in the last x years (can't remember how many) that you earned the most salary as you "basis" year and pay the age-related percentage of that into your pension. (In other words, the amount you can pay in doesn't have to be based on the current years salary, you can use an earlier year when your salary was higher.)

Even if you stop earning altogether you can carry on paying huge chunks into your pension scheme for several years afterwards, based on what you were earning before you stopped.

From 2006 the limits virtually disappear. For exampled, if I earned 100K in the 2006/2007 tax year I could pay myself a 5K salary and put 95K into the pension scheme. (This may not be optimum or practical, I'm just highlighting the possibilities.)

[ASB]

Depends

the tax and NI savings are greater than if you make the contributions personally

This is generally true, but it is not the absolute truth.

If profits were less than 10k and salary was below NI threshold then it would be highly advantageous to make them personally (granted this is unlikely).

Only when your marginal CT rate becomes greater than the combined NI and TAX is it true. e.g. if you are a 40% tax payer it may be work suffering the employers NI to gain the 40% relief since the effective relief is in the region of 27% after allowing for paying the ER's NI and that is more than most folks marginal CT rate.