As disconnected employees, pensions can seem like a background activity that is – as people say – for your own good. Similar to a person’s National Insurance (NI) Contribution it is taken out of your pay only to reappear at some point in the future when its most needed, as an emergency service or a state pension.
However, as a company owner the benefits of pensions can appear more current and noticeable, principally in the form of tax savings. The first thing to note is that a company’s contribution to an employee’s pension is definable as a business expense, and therefore can be used to offset a tax bill.
Secondly, company pension contributions are not classed as a distributed salary, and are therefore not subject to employee or employer NI. Thirdly, company contributions are not limited to the earnings of their employees/contractors but can be larger, with the current annual allowance totalling £40,000 or up to £180,000 in certain instances based on carrying forward.
In addition to the short-term benefits above, there are more still to be gained in the future when disbursing. If we consider the costs associated with taking £20,000 out of your company as a future pension as opposed to a salary or dividend, we find that the pension route is by far more efficient. From the age of 55 (the minimum age of retirement) and after the relevant taxes and costs, up to £17,000 of the £20,000 could be passed on to the employee in the form of a pension, compared to £10,193.50 and £10,800 as salary and dividends respectively.
The government’s interest in shifting companies’ priorities with regards to pensions is clearly evidenced by the short and long-term incentives above. With this in mind, might now be the right time to have an interesting conversation on the once boring pension?
If you are interested in discussing the opportunities of a company pension, simply speak to your client manager and they can arrange a no-obligation consultation with an independent pensions and wealth management expert.
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