Pension carry forward, company director
Pension carry forward, company director
Author
Discussion

98elise

Original Poster:

32,696 posts

191 months

Sunday 7th August 2016
quotequote all
I'm a 1 man band director/contractor

I've not paid into a pension for at least 3 years, and am looking to retire in 5. I've accumulated cash in the comany so I now want to shift this into retirement planning, most likely using the carry forward as well. It will pretty much be a lift and shift onto my current pension plans.

I have an accountant but thay have advised I see an IFA. What is this going to cost me, and is it really necessary?

To me I just need to know if:

1. its best to be a personal payment or company payment.
2. there any disadvantages.
3. I'm breaking any rules.

Essentially I just need to catch up on the years I've missed, but putting as much away as is legally possible.

My wife also works, and we have some investment income, so I don't need to draw much from the company.

PurpleMoonlight

22,362 posts

187 months

Sunday 7th August 2016
quotequote all
1. its best to be a personal payment or company payment.
Company.

2. there any disadvantages.
You can't get at it until age 55 and there will likely be charges to do so. The Government can, and often does, move the goalposts.

3. I'm breaking any rules.
No, assuming your existing pension predates 3 years ago.

98elise

Original Poster:

32,696 posts

191 months

Sunday 7th August 2016
quotequote all
PurpleMoonlight said:
1. its best to be a personal payment or company payment.
Company.

2. there any disadvantages.
You can't get at it until age 55 and there will likely be charges to do so. The Government can, and often does, move the goalposts.

3. I'm breaking any rules.
No, assuming your existing pension predates 3 years ago.
I will be 55 in 4 years time and I intend to retire, hence wanting to build a decent cash sum. Yes my existing pensions are over 3 years old.

What sort of charges are there on draw down pensions?

As you can tell I know very little about providing a pension for myself, I've had company pensions for most of my working life.





PurpleMoonlight

22,362 posts

187 months

Sunday 7th August 2016
quotequote all
If you are using a drawdown product, eg a SIPP, you will likely pay £150 for the crystallisation and £150 pa for the pension payments (all plus VAT). So not excessive.

If you know little, you would probably benefit from a chat with a local IFA.

Phooey

13,850 posts

199 months

Sunday 7th August 2016
quotequote all
4 yrs doesn't sound long enough to risk putting a lump (from the company) into a pension now, to be taxed on it in 4 years. Or am i missing something?


ps - I've had a few beers so I probably am missing something. I'll shut up now and leave it to the experts biggrin

PurpleMoonlight

22,362 posts

187 months

Sunday 7th August 2016
quotequote all
4 years is worth it if you are throwing in serious money.

Jockman

18,414 posts

190 months

Sunday 7th August 2016
quotequote all
If filling previous years, will OP fall foul of new measures tapering his annual allowance?

Phooey

13,850 posts

199 months

Sunday 7th August 2016
quotequote all
PurpleMoonlight said:
4 years is worth it if you are throwing in serious money.
What do you call serious money? 100k+? Im only interested as I'm in a slightly similar situation. As far I understand there is a saving on Corporation tax but a tax on withdrawal (less 25%) and in a short space of time will the potential growth be worth it?

Ozzie Osmond

21,189 posts

276 months

Sunday 7th August 2016
quotequote all
Hang on - with full tax relief going in and 25% tax free coming out how could it possibly "not be worth it"?

Yes, you'll have some investment risk but there's nothing these days which says you have to magically Retire on some fixed date. Amongst other things Drawdown allows a great deal of smoothing.

Just do it.

audidoody

8,598 posts

286 months

Monday 8th August 2016
quotequote all
You can put in up to £40,000 a year as long as you haven't drawn any money from the pension - and can use up to four years of allowances. So that could be £160,000 you can put to which the Govt will add another £40,000. You should however consult an IFA.

PurpleMoonlight

22,362 posts

187 months

Monday 8th August 2016
quotequote all
Let's say you put in £200,000 over the 4 years and crystallise at age 60.

£50,000 will be tax free as a pension commencement lump sum.

Assuming no other income you can then draw pension equivalent to your personal tax allowance of say £12,500 pa.

So assuming state pension doesn't kick in until age 67 that's £50,000 + (£12,500 x 7) = £137,500 tax free. The balance can be used after age 67 to mop and unused personal allowance or taxed at basic rate (no NI and no Dividend tax).

And no, pension contributions in themselves to no trigger the taper allowance. That is dependent on 'adjusted' income.

Phooey

13,850 posts

199 months

Monday 8th August 2016
quotequote all
Ozzie Osmond said:
Hang on - with full tax relief going in and 25% tax free coming out how could it possibly "not be worth it"?

Yes, you'll have some investment risk but there's nothing these days which says you have to magically Retire on some fixed date. Amongst other things Drawdown allows a great deal of smoothing.

Just do it.
Do you still get full tax relief on 'company' contributions?

PurpleMoonlight

22,362 posts

187 months

Monday 8th August 2016
quotequote all
Phooey said:
Do you still get full tax relief on 'company' contributions?
For a Director yes.

For an ordinary employee you might struggle for a huge contribution but a low salary.

Phooey

13,850 posts

199 months

Monday 8th August 2016
quotequote all
PurpleMoonlight said:
For a Director yes.

For an ordinary employee you might struggle for a huge contribution but a low salary.
Cheers. If a director takes a minimum salary and the rest in dividends I assume there is no tax relief added by the gov if the director hasn't paid personal tax? Am I right in thinking the saving would be in Corporation tax as the pension contribution is a business expense?

PurpleMoonlight

22,362 posts

187 months

Monday 8th August 2016
quotequote all
Phooey said:
Cheers. If a director takes a minimum salary and the rest in dividends I assume there is no tax relief added by the gov if the director hasn't paid personal tax? Am I right in thinking the saving would be in Corporation tax as the pension contribution is a business expense?
Yes, the immediate benefit is via corporation tax relief.

Phooey

13,850 posts

199 months

Monday 8th August 2016
quotequote all
PurpleMoonlight said:
Yes, the immediate benefit is via corporation tax relief.
Thanks PM

98elise

Original Poster:

32,696 posts

191 months

Monday 8th August 2016
quotequote all
Ozzie Osmond said:
Hang on - with full tax relief going in and 25% tax free coming out how could it possibly "not be worth it"?

Yes, you'll have some investment risk but there's nothing these days which says you have to magically Retire on some fixed date. Amongst other things Drawdown allows a great deal of smoothing.

Just do it.
That's exactly why I want to do it. There is little scope for growth in 4 years, however the tax advantages paying in as much as I can make a huge amount of sense.



98elise

Original Poster:

32,696 posts

191 months

Monday 8th August 2016
quotequote all
audidoody said:
You can put in up to £40,000 a year as long as you haven't drawn any money from the pension - and can use up to four years of allowances. So that could be £160,000 you can put to which the Govt will add another £40,000. You should however consult an IFA.
It does sound like I should. How much should I be paying for an IFA to point me in the right direction?

98elise

Original Poster:

32,696 posts

191 months

Monday 8th August 2016
quotequote all
PurpleMoonlight said:
If you are using a drawdown product, eg a SIPP, you will likely pay £150 for the crystallisation and £150 pa for the pension payments (all plus VAT). So not excessive.

If you know little, you would probably benefit from a chat with a local IFA.
Those costs seem very reasonable, I will definitely speak to an IFA.



PhilboSE

6,162 posts

256 months

Monday 8th August 2016
quotequote all
98elise said:
audidoody said:
You can put in up to £40,000 a year as long as you haven't drawn any money from the pension - and can use up to four years of allowances. So that could be £160,000 you can put to which the Govt will add another £40,000. You should however consult an IFA.
It does sound like I should. How much should I be paying for an IFA to point me in the right direction?
You can only pay in a maximum of your SALARY or £40,000 whichever is smaller.

Many sole trader/directors pay small salaries, so this will limit the contributions you can make.