Pension carry forward, company director
Discussion
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.
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.
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.
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.
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.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.
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 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?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.
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.
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.
£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.
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?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.
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?For an ordinary employee you might struggle for a huge contribution but a low salary.
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.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.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 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?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.If you know little, you would probably benefit from a chat with a local IFA.
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?Many sole trader/directors pay small salaries, so this will limit the contributions you can make.
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