Reply to: Pension: personal or company

[Fred Bloggs]

If there's no contract, you're not legally entitled to any salary, therefore it's impossible for you to sacrifice any of your legal entitlement.

No contract => no salary sacrifice.

That's how I was figuring it too.

[IR35 Avoider]

Why an employee contract? To have a salary sacrifice you need to have a salary.

If there's no contract, you're not legally entitled to any salary, therefore it's impossible for you to sacrifice any of your legal entitlement.

No contract => no salary sacrifice.

[Fred Bloggs]

Thanks expat, food for thought.

[ASB]

All this salary sacrifice talk confuses me as I have never heard of this before. My understanding is that company money is never personal money. Further that a director is an office holder and not an employee. A salary sacrifice happens when an employee gives up the right to receive part of the cash pay due under his or her contract of employment. As a director I have no contract of employment. I also understand that a company can chose to pay into a director's personal pension. It can pay within reason any amount but certainly up to 100% of salary is no issue. As such I completed the forms with my pension company and pay gross contributions from my limited company bank account.

So, what is all this stuff about this not being a company contribution or being paid from my own money? Are you sure this isn't all a red herring?!

There was a discussion here: http://forums.contractoruk.com/accou...a-company.html

The point expat makes if that if you are forgoing payment to which you are contractually entitled then it needs to be documented as salary sacrifice. This is highly relevant from a view of an umbrella.

As a director of your own company then it doesn't seem likely to be an issue.

[Lewis]

All this salary sacrifice talk confuses me as I have never heard of this before. My understanding is that company money is never personal money. Further that a director is an office holder and not an employee. A salary sacrifice happens when an employee gives up the right to receive part of the cash pay due under his or her contract of employment. As a director I have no contract of employment. I also understand that a company can chose to pay into a director's personal pension. It can pay within reason any amount but certainly up to 100% of salary is no issue. As such I completed the forms with my pension company and pay gross contributions from my limited company bank account.

So, what is all this stuff about this not being a company contribution or being paid from my own money? Are you sure this isn't all a red herring?!

[expat]

Thanks expat. The contributions my co makes are "gross" (no tax is reclaimed in the SIPP) therefore they are "company contributions?".

Nope! At least in what I see as the important definition of company contributions: that HMRC accept them as such, and therefore do not levy NICs.

Paying gross from the company bank account is not necessarily enough to persuade HMRC of that. HMRC may argue that the company did not make the contributions with its money, it made them with your money.

I.e. it was your salary, you just asked the company to invest it directly, as a matter of convenience. You still controlled every pound of that money - so it's your money.

[Fred Bloggs]

Why an employee contract? To have a salary sacrifice you need to have a salary.

BTW as is all too easy, you are leading yourself astray with slightly imprecise wording: "co contributions". Contributions paid by your company are not necessarily contributions made by your company. If you have not sacrificed that salary, but merely had YourCo pay it into a pension on your behalf, then those contributions are not "co contributions", they are your personal contributions: contributions made by you, paid by the company.

Thanks expat. The contributions my co makes are "gross" (no tax is reclaimed in the SIPP) therefore they are "company contributions?".

[expat]

Jeez, there's me thinking my co contributions were IR35 proof.

Silly me.

I presume that to have a salary sacrifice you need to be an employee. So if you do not have an employment contract with my co then you're not an employee so cannot sacrifice salary. If you see what I mean?

Why an employee contract? To have a salary sacrifice you need to have a salary.

BTW as is all too easy, you are leading yourself astray with slightly imprecise wording: "co contributions". Contributions paid by your company are not necessarily contributions made by your company. If you have not sacrificed that salary, but merely had YourCo pay it into a pension on your behalf, then those contributions are not "co contributions", they are your personal contributions: contributions made by you, paid by the company.

[Fred Bloggs]

I presume you mean by avoiding the need to pay NICs on the pension contributions. This is true only if HMRC accept that the contribution is a genuine company contribution, not a personal contribution executed by the company on the employee's behalf.

Income tax relief is obtained in either case; but if the Revenue take it that it was your money (not the Company's money) that paid the pension, then NICs must be paid on it.

But we've done that already. It's the question of "salary sacrifice".

Jeez, there's me thinking my co contributions were IR35 proof.

Silly me.

I presume that to have a salary sacrifice you need to be an employee. So if you do not have an employment contract with my co then you're not an employee so cannot sacrifice salary. If you see what I mean?

[expat]

Don't forget that employer contributions completely immunise that chunk of money against IR35...

I presume you mean by avoiding the need to pay NICs on the pension contributions. This is true only if HMRC accept that the contribution is a genuine company contribution, not a personal contribution executed by the company on the employee's behalf.

Income tax relief is obtained in either case; but if the Revenue take it that it was your money (not the Company's money) that paid the pension, then NICs must be paid on it.

But we've done that already. It's the question of "salary sacrifice".

[minstrel]

I originally got my financial advice from my bank - that was probably the worst.

I was recommended a mortgage advisor by a friend for my first mortgage. Got sold a pup.

I was recommended an IFA by my first accountant. He sold me the company pension plan.

The IFA the sold me my endowment was recommended by a colleague. After 12 years that was worth less than I had paid in.

I was recommended another IFA by my 3rd accountant. He sold me the private pension plan.

If you had been sold four different rubbish holidays by four different holiday shops, what conclusion would you come to about holiday shops?


As far as I can see and based on my personal experience IFAs are generally only lining their own pockets with commission and their advice is sh!te.

Seriously.

I can understand why you might have come to that conclusion, but I don't think you should completely write off IFAs.

Of your 5 IFA experiences it looks like the bank one was without recommendation and 2 others were from accountants which may not have been totally impartial referrals.

How did you qualify the recommendations from your friend and colleague? Had they been in relationships with the IFA over multiple years with a proven track record over a variety of products or was it just a mate down the pub who used the IFA last month for his mortgage and you copied them?

So, you "got sold a pup" for your first mortgage. How do you know it was a bad mortgage? If it was that bad at the time why did you buy it off him?

IFAs should be there to advise you, not to dictate to you what to do. If you use them correctly you'll find they can be a really useful resource. If you do no research and say "sort me out with a mortgage", the IFA could easily come to the conclusion you know very little and just sell you the deal that pays the most commission. On the other hand, if you do a little research and frame the question "I've been looking at mortgages and have found x, y and z, can you get me a better deal or give me some advice on how to decide which is bet for me" then you are likely to get a totally different response.

I've had a couple of mortgages through an IFA. I've always cross checked the deals on the internet and found them to be competitive. One time I remortgaged he actually recommended I go direct with a provider who weren't paying any commission. He should have charged me a few hundred quid for that advice, but he didn't bother. He made nothing out of me and actually made a loss if you consider the time he spend.

Was he only interested in lining his own pockets? Absolutely. But he understands that the best way to line his own pockets is to give me the best financial advice. Sure he might not have made anything on that deal, but I would definitely consider using him again.

Also, trust is quite a strong word. Not sure it's a good word to use with IFAs as it can imply a kind of unquestioning faith. It can also make you feel that if you make an investment that doesn't work out, somehow the IFA has broken your trust.

The reality is that IFAs are a resource. They normally have a better understanding of the financial products than you will and have time to research the market to find the best deals. If you don't understand the product or don't want to do the research then use an IFA. Either way the final decision on a product should always be yours.

Using an IFA will generally incur a fee. Whether or not that is good value depends on whether you could do better without an IFA.

Given you can't work out pensions with all the information out there I'm not sure it's in your best interest to make a decision without independent financial advice.

Seriously.

[Numpty]

Find an IFA that's recommended and you can trust.

I originally got my financial advice from my bank - that was probably the worst.

I was recommended a mortgage advisor by a friend for my first mortgage. Got sold a pup.

I was recommended an IFA by my first accountant. He sold me the company pension plan.

The IFA the sold me my endowment was recommended by a colleague. After 12 years that was worth less than I had paid in.

I was recommended another IFA by my 3rd accountant. He sold me the private pension plan.

If you had been sold four different rubbish holidays by four different holiday shops, what conclusion would you come to about holiday shops?


As far as I can see and based on my personal experience IFAs are generally only lining their own pockets with commission and their advice is sh!te.

Seriously.

[glashIFA@Paramount]

I wonder if you could help me with a pensions query. I can work out most things, but pensions defeat me.

I have a company pension scheme and I have a personal pension. I have paid nothing into either for a few years but want to start paying again.

At one time I was advised a personal pension was better; at another time I was advised a company pension was better. Between that advice and the duff mortgage advice I had, I no longer trust IFAs.
My question is: as a contractor, should I pay into one, the other or both?

Or is it not as simple as that?

(Ltd. co, age: mid 40s, salary £5250 rest as dividends, can afford £200 per month from the company at the moment, wife earning roughly minimum wage)

i once went on holiday and it turned out to be a nightmare - didn't stop me going on holiday again!!!!!

Find an IFA that's recommended and you can trust. Pensions aren't really complicated, you just need to be clear on the options (which change on a regular basis unfortunately!).

[Numpty]

Thank you for your help.

So it's not just me, this stuff is tricky!

[ASB]

I tried. I'm thick. This is just too hard. Far too much data, far too little information, way too many options.


I am now outside IR35 and I'm staying there.


Because the charges are capped at 1% but for a personal pension they are not? In which case they'll help themselves to the money another way.

My personal pension is winning so far.


I'm too thick to make a decision on the simple questions - so I defintely can't do a DIY pension!


I have never had 'spare' money so I've never invested in anything other than bunging a few quid in these pension schemes. ISAs were so heavily advertised I decided they were too good to be true. Requires a decision. Too hard. Also, based on my track record, the Treasurer will change the rules 3 months before I can get the money out again.


I expect my LtdCo to have a gross income of about £90k to £100k a year (excluding VAT), if that helps.

Ok, try this and what it links to. http://forums.contractoruk.com/accou...+contributions

The reason there are too many options is that there are so many different sets of circumstances.

In yours it is likely that you will be slightly better off by making personal contributions. There are a number of cases where the company contribution will win and it all depends on how rates and relief change over time and your individual status.

Because of the long term nature the differences can become substantial over a long period, but it does involve quite a lot of number crunching of you own numbers and regular review to be sure you are gaining the maximum relief possible overall.