Should I continue my private pensions now I have a Ltd?

[SueEllen]

ask an IFA

IFAs take some of the fees out of your contributions unless you pay them for advice up front.

Anyway I've already given ashleymoran some links.

[Lewis]

Sorry for the noise, I did search the archives but didn't see an answer to my question.

I did wonder if it was more tax efficient to use a personal pension, seeing as the small company corporation tax rate is 20%, and the relief on personal pensions is 22%.

Yep that's exactly the reason. Somewhere there is a thread with all the calculations comparing personal vs company. I read it when deciding what to do myself. The gain isn't much but you are better off keeping it personal (assuming that the money would otherwise be a dividend, if not then I think a company plan is better) plus it saves the hassle of opening a new company scheme as well.

[ashleymoran]

Yep that's exactly the reason. Somewhere there is a thread with all the calculations comparing personal vs company. I read it when deciding what to do myself. The gain isn't much but you are better off keeping it personal (assuming that the money would otherwise be a dividend, if not then I think a company plan is better) plus it saves the hassle of opening a new company scheme as well.

Thanks Lewis. For simplicity's sake I might just keep it as a personal pension (although with some of the "optimisations" in the links SueEllen gave).

One question I do have, though: it's been hinted that I can pay directly from a company to a private pension (Stakeholder or otherwise). If that is the case, is that a tax-deductible expense? I'm sure I have read of people investing in pensions to bring their IR35 liability down. I have read the "salary sacrifice" examples on http://www.hmrc.gov.uk/manuals/eimanual/EIM42750.htm and it's not clear (to me) what happens to directors.

What's the deal in general? It seems unlikely you could draw out money tax-free and still get tax relief on it.

[SueEllen]

Yep that's exactly the reason. Somewhere there is a thread with all the calculations comparing personal vs company. I read it when deciding what to do myself. The gain isn't much but you are better off keeping it personal (assuming that the money would otherwise be a dividend, if not then I think a company plan is better) plus it saves the hassle of opening a new company scheme as well.

You mean these threads? http://forums.contractoruk.com/accou...n+calculations

http://forums.contractoruk.com/accou...n+calculations

Keeping it personal only works better for this current tax year after this year the calculations show it is better for your company to pay in for you.

Also your company doesn't have to open a new scheme. If you are happy with the investment funds in any stakeholder or personal pension you have already your company just needs to sign paperwork that allows them to pay in contributions on you behalf.

[ASB]

Sorry for the noise, I did search the archives but didn't see an answer to my question.

I did wonder if it was more tax efficient to use a personal pension, seeing as the small company corporation tax rate is 20%, and the relief on personal pensions is 22%.

That because there isn't an answer that fits everybody. It depends on a number of factors which will include the source of the income (is it dividend or is it salary) what your overall income is. However as you rightly point out the differences in taxation rates will affect decision.

It may be tedious but you might find enlightenment in here:-

http://forums.contractoruk.com/accou...h-company.html

[robnjc]

IFAs take some of the fees out of your contributions unless you pay them for advice up front.

Anyway I've already given ashleymoran some links.

Brokers get paid either by
1) commission on new sales which can mean a reduced allocation rate but not invariably. Many insurers offer 100% allocation rates from the start of a scheme, and as this is where commission is funded from you do not lose
2) by a fixed fee up front.
3) Those operating under a Wrap which is very rare still in this country, where they get paid based on the performance of your overall portfolio (but this is effectively deducted from asset growth rather than contributions).

In nearly 30 years working in finance/insurance I have NEVER heard of a broker taking fees direct from your contributions - for a start contributions get paid to the insurer so how would the broker do it?

Of course if you're willing to go without professional advice on your pension arrangements....

[ashleymoran]

Rather than make monthly regular contributions, I make single contributions once a quarter. With some pensions the charges are lower for contributions made in this way. Another advantage is that it's only at the end of the quarter that I know how much I've earned and therefore how much I want to contribute, to offset any IR35 deemed-payment liability.

That's logical. Currently I'm paying in around £100 a month, which made the gross contributions about 10% of my net salary. I've already arranged a two month payment holiday for them though (wish I'd done it sooner for cashflow reasons).

You probably need to decide on one personal or stakeholder that you prefer (which might not be one of the existing ones) and then transfer all your existing holdings into it, if there's no penalty for doing so.

Any reason for using one pension rather than spreading the contributions between several?

[ashleymoran]

It may be tedious but you might find enlightenment in here:-

http://forums.contractoruk.com/accou...h-company.html

Thanks for the link. I've made a note to study it in some detail in a few months, when I have a better idea what I will be able to afford to pay into a pension.

[SueEllen]

In nearly 30 years working in finance/insurance I have NEVER heard of a broker taking fees direct from your contributions - for a start contributions get paid to the insurer so how would the broker do it?

Sorry wrong terminology. I know how brokers get paid.

[Lewis]

Keeping it personal only works better for this current tax year after this year the calculations show it is better for your company to pay in for you.

How so? Quick back of a fag packet calcs...

If company makes £1000

If you pay direct from the company, in either this year or next the pension amount will be £1000.

Taking as a dividend instead (assuming dividend would be higher rate)and paying into pension:

2007/8 Corporation tax @ 20% = £200
Allows £800 dividend (£888.89 gross dividend, i.e. 800/0.9)
Tax relief on pension = £800 @ 22% = £225.64 (800/0.78)*0.22
Ultimate pension payment = £800 + £225.64 = £1025.64

2008/9 Corporation tax @ 21% = £210
Allows £790 dividend (£877.78 gross dividend, i.e 790/0.9)
Tax relief on pension = £790 @ 22% = £222.82 (790/0.78)*0.22
Ultimate pension payment = £790 + £222.82 = £1012.82

Still better off. Even 1 year more ...

2009/10 Corporation tax @ 22% = £220
Allows £780 dividend (£866.67 gross dividend, i.e 780/0.9)
Tax relief on pension = £780 @ 22% = £220 (780/0.78)*0.22
Ultimate pension payment = £780 + £220 = £1000

have I missed something?