Pension Contributions

[Lewis]

Dam dam dam dam

Good point....forgot about NI I was focusing too much on tax. Would quite a bit worse off then. So I have a couple of options.
• Use parasols pension scheme so i can make payments before tax and NI
• set up my own LTD and make payments before tax and NI to my current stakeholder pension
• Put the money into a private pension and live with the loss
• Put the money into a ISA until i decide what my long term plan is


I was trying to stay clear of the LTD route due to this being my first contract. After this first contract I might not get another and need to go back to perm employment. Decisions, decisions :P

Time lines are now short. I have registered with Parasol and they have my contract and are preparing it for me to sign. Am I right in thinking I can leave them if no contract has been signed? Maybe I should just bite the bullet and go down the LTD route.

Decisions, decisions :P

Assuming Parasol is operating a stakeholder why not get them to pay into that. You can transfer the money into your stakeholder later if you want. No harm in having two pensions anyway (eggs in many baskets etc.). What is the pension company/scheme? With regards to a Ltd. Defintely best option financially but more work and only worth it if you like contracting I reckon. Maybe do Parasol for first contract, see how you like it and decide from there.

[dx4100]

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.

Dam dam dam dam

Good point....forgot about NI I was focusing too much on tax. Would quite a bit worse off then. So I have a couple of options.
• Use parasols pension scheme so i can make payments before tax and NI
• set up my own LTD and make payments before tax and NI to my current stakeholder pension
• Put the money into a private pension and live with the loss
• Put the money into a ISA until i decide what my long term plan is


I was trying to stay clear of the LTD route due to this being my first contract. After this first contract I might not get another and need to go back to perm employment. Decisions, decisions :P

Time lines are now short. I have registered with Parasol and they have my contract and are preparing it for me to sign. Am I right in thinking I can leave them if no contract has been signed? Maybe I should just bite the bullet and go down the LTD route.

Decisions, decisions :P

[ASB]

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

If IR35 caught pension contributions can be a great mitigation strategy, especially for old farts approaching 50 like me. I haven't needed to do this because I was never caught but with the increasing flexibility in how one can use the contributions and arrange the lump sum without the annuity it can make sense for us oldies - especially maxing out income is not required.

[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.

[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.

[dx4100]

Yeah it does thanks for your help!

[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]

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 ?

[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.

[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...

[dx4100]

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

[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]

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