Contractor Pensions
Contractor Pensions are a great idea for UK contractors. It’s a great way of saving tax.
You can pay the contractor pensions contributions from your Limited Company. You save tax in two ways:-
1. You save on the income tax as contractor pension contributions are deductible
2. You also save on both the employer and employee national insurance contributions
UK Contractor Pensions
Contractors can, therefore, continue with what they do best, i.e. contracting, and let the pension accumulate and grow.
Pensions have a great advantage over other ways of investing for contractors because of the tax breaks.
So, what kind of contractor pensions should UK Contractors contribute to?
There are three main choices.
Personal Pensions
The Personal Pensions route is the one most people use. You can invest £300 a month in one of these, tax free. Some people may be able to invest more depending on their age and salary levels.
You can fund the Personal Pension from your Limited Company.
Stakeholder Pensions
These are almost exactly the same as Personal Pensions – except that they have a 1% maximum on any charges levied by the Pension Company.
Most Personal Companies don’t charge more than 1% now but make sure you check.
Executive Pensions
The Executive Pension route is very good for Limited Company contractors who leave their pension plan late for whatever reason.
HMRC make a calculation based how long you have had your limited company, your marital status and the contractor’s pension history.
These calculations, therefore, could make it more attractive for a contractor to set up an Executive Pension plan.
Although contractors can invest more in their contractor pensions via this route they could end up paying higher charges to the pension company. This has to be balanced against the extra amounts that can be put into it and the extra tax savings made.
So choosing a Personal Pension, a Stakeholder Pension or an Executive Pension is down to the circumstances of individual contractors.
To get more information or to apply for a Contractor Pension click here
