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Can My Company Make Pension Contributions Towards My Pension?

Workplace pensions play a significant role in the overall pension pot when it comes time for retirement. Also, the pension contributions often form a core element of employee benefits.

But what happens when you own the company? Can you still receive a workplace pension?

Can shareholders receive pension contributions?

If a company owner is only a shareholder (as opposed to being a director or employee), they are not eligible for a workplace pension. However, they are able to use their own money, or dividends, to contribute to their own pension scheme.

Can company directors receive pension contributions?

If a company owner is also a director and has an employment contract, they can receive a workplace pension. Corporation tax relief is available on contributions made by a limited company, meaning that this can be a tax efficient option.

If a company director only has a service contract, this is not classed as them being employed and so they are treated the same as the shareholders and are not eligible for pension contributions.

What is auto-enrollment?

All employers are required to provide a workplace pension for their employees, unless the employee opts out. It applies to employees who work in the UK, earn at least £10,000 a year and are aged between 22 and the State Pension age.

Under this scheme, there must be a minimum contribution of 8% of an employee’s qualifying earnings, with employers paying at least 3% (figures correct as of November 2020, check the website for the latest figures).

If the company has at least two directors with an employment contract, they are required to auto-enrol these directors, unless they have opted out.

A sole company director with an employment contract does not need to be auto-enrolled, but they can have an occupational pension.

Can I make extra contributions towards my company pension?

Auto-enrollment is the basic element of a pension, many companies will have pension schemes which allow for higher contributions from both the employer and the employee. However, there are limits on the tax relief, so be careful.

What are the limits of personal tax relief on pension contributions?

There is a certain amount of income tax relief available subject to the following limits:

  • 100% of an employee's earnings in one year
  • £40,000 per year

If either of these are exceeded, the pension no longer qualifies for tax relief.

Separately, there is a lifetime allowance of £1,073,100. If this limit is exceeded, then the individual will need to pay tax on pension withdrawals. The rates of tax for this are as follows:

  • 55% - if taken as a lump sum payment
  • 25% if it is taken in another way
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