Paying into Pension

[Orange Juice]

Hi I understand that as a director of a ltd company, I can pay into my pension and save on Corporation Tax.
If I wanted to calculate the saving, what factors do I need to consider and how would I calculate a potential saving ?

When I worked as an employee, a pension was set up, so I could use this
Another question is that if I was to pay x amount into the pension, how soon could I get it out ?

Thanks

 

[JoeCM2]

Depending on your earnings you could put up to 40k in your pension and the saving would be 19% of that figure.

You can get it out when you retire or reach the minimum age

 

[Highland Spring]

According to the rowntree foundation you need to save 12% of all earnings at age 25, and then higher %'s as your starting age rises. With that in mind try and contribute as much as you can so you get a decent pension rather than focussing on the tax saving aspect.

 

[Spur Support Services]

Pension in the company is tax deductible when paid, not when accrued. So the cash has to move.

As Joe says the current corporation tax relief is 19% where the pension is paid direct from the company. This is generally more tax efficient than paying out of your personal earnings after tax where contributions are treated as paid net of 20% tax, but you are likely to have suffered higher total tax and NIC rates in generating that marginal net income.

About getting the money out... it's a pension. I'm not a pension expert, but the general concept is that you pay into the fund without tax deduction into a pension fund now, on the grounds that it will be paid back to you during your retirement as taxable income (subject to ability to extract tax free lump sum when you first retire). So basically, anything you put in is a long term investment in your future, which then becomes a personal choice.

My husband never paid into a pension fund on the grounds that he expected to live fast and die young. I now keep pointing out to him that he's failed in that aspiration and it's lucky that I put in more to support him! This is where I roll my eyes.

 

[Orange Juice]

Hi,

Thanks for your replies
I am a contractor and run Personal Limited Company.

So if my understanding is correct I can save on CT by paying into pension and if the pension grows that aspect is taxable?

I'm concerned about pension pots falling short, as I'm approaching 55, If I pay 40k into pension now and then draw it at age of 55 (or sooner than later), this should limit any adverse economy conditions that may effect the fund - just trying to be risk adverse. Does this make any sense, have I missed anything that could greatly impact the withdrawal ?
In the above scenario, which types of taxes could impact the final payout ? (I assume it personal tax).
I was asking my accountant but haven't had an answer

 

[GLAbusiness]

So let's say your company pays £40k into a pension fund. Now assume that the investment grows to £48k in the fund when you want to cash out.

You can take out 25% tax free. So this is £12k. If you withdraw the other £36k you will pay income tax on this at your marginal rate. So if you already pay tax at 40% you get £21.6K after tax, giving you a total of £33.6k.

The most important point is the choice of pension fund. For this you really should use an Independent Financial Advisor. This may cost you about £1,000 to set up. The company can pay this and I believe it would reduce corporation tax as well. A good IFA will determine your attitude to risk, ethical investment etc. and then recommend a SIPP fund.