You still get what you put into pensions, despite rule change
Question: What affect will the changes to the maximum pension allowance have on company directors?
Stephen Hill, senior partner with S Hill & Co in Belfast, replies:
The Government has announced a dramatic change in the maximum annual pension contribution, reducing it from £255,000 down to £50,000 per year as of April 6, 2011.
Whilst for most people this is still a very large contribution amount, many people with their own business often do not focus on pensions until their business is well established.
Such clients then look to make large contributions to make up for years when they did not have funds available.
In regard to limited companies, pension contributions on behalf of directors are tax deductible as a legitimate trading expense.
For smaller companies this means that there will be a corporation tax saving of 21%.
In addition to this benefit, directors often use a combination of pension, dividends and salary so they can target |the most tax efficient overall remuneration package.
Contributions from a limited company need to be paid |before the end of the current trading year.
For many companies this will be December 31 or March 31, so these are the key dates to |remember.
However as it does take |time to get a pension set up, so anyone with a trading year ending on December 31 would need to seek advice immediately.
Despite the reduction, |the rule that the more you put into your pension, the more you can get out of it still holds true.