pension payments, directors salary low salary

pension payments, directors salary low salary

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hi,

I have a director on a low salary to qualify for NI, but also receives a civil service pension at 15k annually (which is taxed), is the difference between is personal allowance and pension paid the amount he could pay into pension (ie essentially reinvesting his existing pension).

Thanks

Annabel R

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By Ian Bee
06th Jul 2013 10:41

Pension limit

I started to look at something like this a few weeks ago and it seems that pension income does not count for the relevant earnings for working out how much you can contribute into a pension scheme. So the maximum would be 100% of the salary from the company, which presumably means that you would need to increase the salary if you wanted a higher pension contribution. 

Where I got to at that point was how the pension contribution itself would affect the NI contribution and to complicate matters, it is quite possible that someone of an age to receive a pension has already built up enough NI contributions. You can confirm this with DWP.

Am waiting for more info from client and then will take this further, so look forward to hearing what you think. 

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Replying to the_drookit_dug:
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By Annabel R
07th Jul 2013 21:34

Hi,

thanks for the advice, my client is around 45, and left the Navy after 25 years, so still quite young and is keen to pay into the state pension. My client has started his ltd, which may grow quickly and a higher could be taken.

Annabel

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By tonycourt
08th Jul 2013 10:04

State or private pension

I’m confused about what you’re asking, but I'll have a stab at replying in very broad terms and hope it covers the points you're interested in.

State retirement pension - as long as your client pays himself an annual salary above the lower earnings limit, currently £5,668, he will receive a credit to his state pension record - given his age he will need 35 years of credits to qualify for the full amount of the shortly to be introduced single tier pension. He will have 25 years’ worth from his time in the navy and so only needs another 10 years' of credits. He cannot contribute towards a state second pension as there is no longer provision for this.

Personal pensions - Your client has two options:

he pays contributions personally - the limit is £3,600 per annum or the amount of his earnings, whichever the greater. There are annual and lifetime limits on how much which qualify for tax relief, but the former is £50,000 per year and so I guess that won't come into play just yet. He does not necessarily need to increase his earnings in order to save towards a personal pension.his company can pay contributions - there's no limit to the amount the company can pay as an "employer's contribution" . Your client's salary level is irrelevant. However the annual and lifetime tax relief limits apply.

I would recommend directing your client to a financial advisor to discuss these options and the right type of pension scheme for him.

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