Pension Contributions

[dx4100]

Hi All

I have just signed up with parasol and they have done me a projected pension plan etc. On the projection it points out that my contribution is x amount and it is being paid as a "employer contribution". So that’s fine BUT I was playing around with numbers on the calc http://www.pensioncalculator.org.uk/ and it seems to make a big difference in the end number of it is a employer vs employee contribution.

Also, if I decide not to use parasols pension and get my own private stake holder pension do I get access to any tax relief by paying into from my net salary ?

Thanks for any help/advice

Cheers

[minstrel]

Hi All

I have just signed up with parasol and they have done me a projected pension plan etc. On the projection it points out that my contribution is x amount and it is being paid as a "employer contribution". So that’s fine BUT I was playing around with numbers on the calc http://www.pensioncalculator.org.uk/ and it seems to make a big difference in the end number of it is a employer vs employee contribution.

Also, if I decide not to use parasols pension and get my own private stake holder pension do I get access to any tax relief by paying into from my net salary ?

Thanks for any help/advice

Cheers

The calculator is comparing net personal contributions with gross employer contributions.

You currently get 22% relief on personal contributions, so you need to divide the personal contribution by 0.78 to get the equivalent company contribution.

If you take this into account you will see that a £780 monthly personal contribution gives the same results as a £1000 monthly employer contribution.

If you are being paid PAYE it is definitely better making the contribution via the company becuase you have the added overhead of Employers and Employees NI. Even if you are being paid dividends company contributions will be better from April.

I'd be very wary of using a pension recommended by Parasol. They are more likely to be interested in the commission payments rather than it being best value for you.

You can set up your own pension with whichever provider you choose (stakeholder, SIPP etc) and instruct your Parasol to pay direct to your personal pension as an employer contribution.

[dx4100]

Parasol will only contribute to there own pension scheme....

[minstrel]

Parasol will only contribute to there own pension scheme....

Sounds well out of order to me. I'd ditch them and set up your own limited if I were you.

Or maybe tell them if they don't pay into your pension you are leaving them. They should be able to put it through as a company expense.

If they can make penson contribution to the Parasol pension company why can't they make it to your own choice pension provider?

Seems very inflexible to me...

[Archangel]

Hi All

I have just signed up with parasol and they have done me a projected pension plan etc. On the projection it points out that my contribution is x amount and it is being paid as a "employer contribution". So that’s fine BUT I was playing around with numbers on the calc http://www.pensioncalculator.org.uk/ and it seems to make a big difference in the end number of it is a employer vs employee contribution.

Also, if I decide not to use parasols pension and get my own private stake holder pension do I get access to any tax relief by paying into from my net salary ?

Thanks for any help/advice

Cheers

You get full tax relief (at your highest rate) on pension contribs from net salary, you put them on your self assessment.

[dx4100]

You get full tax relief (at your highest rate) on pension contribs from net salary, you put them on your self assessment.

So in reality if Parasol wont budge and I want to continue with my current stakeholder pension then I can get all the same benefits by paying from my Net salary. Just means I have to fill in a self assesment form every year ?

[Lewis]

So in reality if Parasol wont budge and I want to continue with my current stakeholder pension then I can get all the same benefits by paying from my Net salary. Just means I have to fill in a self assesment form every year ?

Before April 6th you would actually be better off paying net because of the difference between tax relief and corporation tax. But as of April this year you will be worse off as corporation tax is going up 1%. But the difference is really small, I did these calculations a few weeks back. I think they're correct ...

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 @ 20% = 790/0.80 = £987.5

2009/10 Corporation tax @ 22% = £220
Allows £780 dividend (£866.67 gross dividend, i.e 780/0.9)
Tax relief on pension = £780 @ 20% = 780/0.80 = £975

As you can see you are talking £12.5 worse off for every £1000 going into the pension. I would suffer that to keep my current stakeholder pension going as opposed to starting a new one with an umbrella.

Hope that helps...

[dx4100]

Yeah it does thanks for your help!

[ASB]

Before April 6th you would actually be better off paying net because of the difference between tax relief and corporation tax. But as of April this year you will be worse off as corporation tax is going up 1%. But the difference is really small, I did these calculations a few weeks back. I think they're correct ...

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 @ 20% = 790/0.80 = £987.5

2009/10 Corporation tax @ 22% = £220
Allows £780 dividend (£866.67 gross dividend, i.e 780/0.9)
Tax relief on pension = £780 @ 20% = 780/0.80 = £975

As you can see you are talking £12.5 worse off for every £1000 going into the pension. I would suffer that to keep my current stakeholder pension going as opposed to starting a new one with an umbrella.

Hope that helps...

The major spanner in the works is if you can't get the money out as dividend income. i think the OP said "parasol" so this would imply PAYE. The problem is the NI. That doesn't get relieved in any way.

If you are paying contributions out of net salary then I think gross company contributions are always going to be better.

[Lewis]

The major spanner in the works is if you can't get the money out as dividend income. i think the OP said "parasol" so this would imply PAYE. The problem is the NI. That doesn't get relieved in any way.

If you are paying contributions out of net salary then I think gross company contributions are always going to be better.

You're absolutely correct, I overlooked the obvious! I forgot that Umbrellas can't pay dividends any more. OP if they money is coming from PAYE not dividends (which re-reading is exactly what you said) you will be worse off as you have to pay both employees and employers NI on the money before it goes into the pension and you won't get relief for that. In which case probably better to go with the Parasol pension.

Sorry for the confusion.

p.s. In actual fact your best option is to start a Ltd company! Even if IR35 caught you will be better off.