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If you’re employed, your workplace pension often includes employer contributions. This is essentially “free money” that significantly boosts your retirement savings.

The minimum employee contribution to a workplace pension is currently set at 5% of your 'qualifying earnings', while the minimum amount your employer has to pay into your pension is 3%.

Contributions to a pension benefit from tax relief, meaning part of your contribution comes from the government. For example, a basic-rate taxpayer needs to contribute only £80 to have £100 invested in their pension.

For example, if you earn £100,000 -

The maximum contribution eligible for tax relief in the 2024/25 tax year is £60,000 or 100% of your earnings, whichever is lower.

Since you earn £100,000, you can contribute up to £60,000 and receive tax relief.

Tax Relief Rates:

Basic-Rate Tax Relief (20%): Automatically added to your contributions by the pension provider.
Higher-Rate Tax Relief (40%): You claim this via your self-assessment tax return.
Additional Tax Relief (45%): For earnings over £125,140, the highest rate applies (not relevant in this example).

Total Tax Relief You Receive:

Basic-Rate Relief: £12,000 (automatically applied).
Higher-Rate Relief: £12,000 (claimed via self-assessment).
Total Relief: £24,000.

Gross contribution: £60,000.
Tax relief: £24,000.

You only pay £36,000 out of pocket to contribute £60,000 to your pension.

This money can then grow tax free....

Tax-free growth in UK pensions refers to the ability of your pension fund to grow over time without being subject to income tax, capital gains tax, or dividend tax on the returns generated from your investments. This is one of the most significant advantages of saving for retirement through a pension.

Pension funds remain invested in a range of assets (e.g., stocks, bonds), offering potential for compound growth over the long term. The earlier you start, the more you benefit from this growth.

When you access your pension, you can withdraw up to 25% of your pot tax-free, providing a significant benefit compared to other savings vehicles.

Remember, you will pay tax at your marginal rate when accessing your pension, but, if you've reached state pension age you will no longer pay National Insurance (NI) contributions.

The 25% tax free incentive dramatically reduces the net tax payable when you access your pension fund, and remember, you still have access to your personal allowance, so no tax on your first £12,570 either (as of 24/25).

Employer contributions made by your limited company are typically the most tax-efficient way to pay into your pension. These contributions:

-Are not limited by your salary (unlike personal contributions) but are limited by the Annual Allowance.
-Are treated as a business expense, reducing your corporation tax liability.
-Do not incur National Insurance Contributions (NICs).

Contributing to a pension through your limited company allows you to:

-Save Corporation Tax.
-Avoid NICs and Income Tax.
-Maximize the value of your company’s profits.
-Build a tax-efficient retirement pot.

By choosing this method, you benefit from both immediate tax savings and long-term financial security, making it one of the smartest ways to manage surplus company funds.

To enjoy the advantages listed below, don't leave it too late! Anticipate your company profits and ensure pension contributions are made within the relevant trading/tax period. You can't just pay in when your Corporation Tax is due for payment in the hope it will offset the tax due! Work with your accountant.

-Save Corporation Tax.
-Avoid NICs and Income Tax.
-Maximize the value of your company’s profits.
-Build a tax-efficient retirement pot.

As a limited company owner, you can make pension contributions directly from your company, which is often a tax-efficient option. However, whether you can contribute the full £60,000 of your company’s remaining profit into your pension depends on several factors:

1. Annual Allowance
The Annual Allowance for pension contributions in the 2024/25 tax year is £60,000.
This includes both personal and employer contributions.
Contributions above this limit may incur a tax charge unless you have unused allowances from the previous three tax years (via carry forward rules).

2. Employer Contributions
Pension contributions made by your company are considered an allowable business expense, reducing your company’s taxable profits and lowering your Corporation Tax liability.
Employer contributions are not subject to Income Tax or National Insurance for you personally, making this route tax-efficient.

3. Wholly and Exclusively Rule
Employer pension contributions must meet the “wholly and exclusively” rule.
This means the contributions must be for the genuine benefit of the business and not excessive in relation to your role or remuneration.
HMRC may question unusually large contributions relative to your salary, especially if you are a director with a low salary.

4. Personal Contributions
If you choose to contribute personally, the amount you can claim tax relief on is limited by your relevant earnings, typically your salary (not dividends). For example:

If your salary is £12,000, your personal contributions eligible for tax relief would be capped at £12,000, even if your company profits are higher.

5. Contributions Beyond the Annual Allowance
If you want to contribute more than £60,000 in total, you may be able to use the carry forward rule:

This allows you to use unused annual allowances from the previous three tax years.
You must have been a member of a pension scheme during those years, even if no contributions were made.

6. Impact on Corporation Tax
By contributing the full £60,000 as an employer contribution, your company’s taxable profits would drop to £0.
Assuming a Corporation Tax rate of 19% (or 25% for profits above £50,000 under the new system), saving significant tax.

7. Practical Considerations
Ensure the company retains enough working capital after making contributions.
Large contributions should align with your role and the company's financial stability to avoid scrutiny from HMRC.

Example Scenario:

Profit after salary and dividends: £60,000
Employer pension contribution: £60,000
Reduces taxable profit to £0
Saves Corporation Tax at 19-25% (so up to £15,000)
Annual Allowance: £60,000 (no tax charge if within this limit)
You also save paying NIC's on the contribution

A salary sacrifice arrangement allows employees to exchange part of their gross salary for non-cash benefits, such as additional pension contributions.

The sacrificed amount is deducted before tax and NICs are calculated, reducing the employee’s taxable income and NIC liability.

Both the employee and employer benefit, as the employer also pays lower NICs and may pass on these savings to the employee's pension.

Example: Employee salary: £30,000/year
-Salary sacrifice: £5,000 contributed to pension
-NICs are calculated on £25,000 instead of £30,000, reducing NIC liability.

Carry forward is a UK pension rule that allows you to use unused annual allowance from the previous three tax years, enabling you to contribute more to your pension and still benefit from tax relief. It’s particularly useful for high earners or those who want to make a large, one-off contribution.

Annual Allowance: You can contribute up to £60,000 per year (2024/25), or 100% of your earnings, whichever is lower, while benefiting from tax relief.

Lifetime Allowance Abolished: As of April 2023, there's no lifetime allowance limit, meaning no extra tax charges for exceeding a previously capped pension value.

Many pension funds are designed to grow over time, helping your savings keep pace with inflation and maintain purchasing power.

The UK State Pension provides only a basic income (£203.85 per week in 2023/24). This may not be enough to sustain your desired lifestyle in retirement.

A pension provides a structured way to save for retirement, ensuring you have a source of income when you stop working and reducing reliance on the State Pension.

At retirement, you can take 25% of your pot tax-free and access the rest flexibly through drawdown, annuities, or lump sums allowing you to tailor withdrawals to your needs and minimize tax exposure.

Without a pension, you may face financial insecurity in later life, relying on savings or other assets, which can run out or be unpredictable.