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Why all contractors should have pensions

by Sable International | Nov 13, 2015
  • Whether you are a pay as you earn (PAYE) contractor or you work through a limited company outside of IR35, you should be investing in some form of pension savings.
    tax-planning

    Let’s take a look at the benefits of having a pension as a self-employed person in the UK.

    1. Maximise your tax relief

    This applies to all contractors. Whether you pay all or only part of your profits into a pension fund, you can avoid a substantial amount of tax.

    When you do this, your funds are transferred directly into a pension fund. As a result, they will not be subject to personal income tax or national insurance deduction. On top of this, pension funds are exempt from corporation tax for limited companies.

    If you fall within the ambit of IR35, you will find significant tax relief by investing your profits into a pension fund.

    2. Paying into a pension as a company is more efficient

    There is no relation between salary and the size of company pension contribution. As long as you can cover all of your day to day costs, you can invest as much as you want into your company’s pension fund (subject to available allowances). 

    3. You can invest large sums of money

    Contractors can invest up to £40,000 each year without any additional tax implications, up to a lifetime allowance of £1 million.

    4. It is now possible to draw down lumps sums

    A recent change in the pension rules means that contractors are not restricted to one day living off an annuity in retirement. You will now be allowed to draw lump sums out of your pension fund after you turn 55.

    5. Non-annuity pension savings can be ceded

    If you die before you turn 75, your pension fund can be passed on to your family free of tax. If you die after 75 a tax liability will be payable depending on whether income is paid or whether it is passed on as a lump sum.

    6. Pension funds are protected from insolvency

    Private pension funds are carefully protected by law. If your business or SME is liquidated, your pension savings will be safe from creditors.

    7. You don’t have to invest in equities

    The law allows UK contractors to keep their pension savings in cash, similar to an ISA.

    Choosing the right pension provider

    As financial advisers, we can help you choose the right pension provider or platform. This is an extremely important decision and should never be done without expert advice. We advise all of our clients according to their particular circumstances and wishes.


    If you are self-employed and haven't yet set up a pension fund give us a call on 0207 759 7519. Alternatively you can leave your details here and we'll get back to you.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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