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Can My Limited Company Make Contributions To My Private Pension?

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When you’re running your own company, you’re in charge of managing your pension; no one can do it on your behalf. Because of this, you will need to understand your options and how you can make payments into your pension fund.

We've compiled this handy guide to help you understand how pensions work when you’re a company owner and some of the implications of paying into a pension.

Can my company pay into my pension?

As a company director, you can contribute to your pension through both employer contributions and individual contributions.

One benefit of doing it this way is that you can claim tax relief on both methods.

It can be more beneficial to contribute through the company as you’re reducing the taxable profits and therefore reducing your corporation tax liability.

Is there a limit on the amount my company can contribute to my pension?

Currently, there is no limit on the amount that the company can contribute to your pension while earning tax relief.

However, employer contributions count towards your annual allowance of £40,000 (as of July 2022).

You also need to keep in mind the lifetime allowance for your pension. Which is the total amount you can draw from your pension in your lifetime before paying extra tax. Currently, this is set at £1,073,100.

What are the benefits of having my company make contributions?

One of the main benefits of paying through the company is that employers aren’t required to pay National Insurance Contributions (NIC) on pension contributions.

Given that the employees’ NIC is currently 15.05%, you could save up to that amount by paying into a pension instead of taking the equivalent as salary.

What are my options when it comes to a pension?

As a company director, there are many different pension options you can choose from. These include:

  • Stakeholder pensions and group stakeholder pensions - these are easy to pay into. However, there are limited types of investments to choose from.
  • Self-invested personal pensions (SIPPs) - offer a wide variety of funds that you can choose from. However, you will need to be more hands-on, requiring more experience in investing. 
  • Small self-administered schemes (SSAS) - similar to the SIPP; however, you will need to appoint trustees to administer the scheme.
  • Multi-employer pension schemes - are typically set up through National Employment and Savings Trust (NEST) to provide employees with a pension scheme. However, if you don’t employ any other people, you can set up a pension as a self-employed director.

Only you can decide which scheme is the best for you and your situation; however, we recommend seeking professional advice before deciding on a plan.

How can my company contribute to my pension?

Once you’ve chosen your pension scheme, there are a number of factors you will need to take into account.

  1. You can make pension contributions from pre-taxed company income, which can receive tax relief of 25% in corporation tax.
  2. Company director pension contributions are an allowable business expense as long as they pass the “wholly and exclusively” test by HMRC.
  3. Other HMRC factors; such as:
    1. Checking that the pension contributions aren’t more than the company’s annual profits
    2. Making sure you are making similar pension contributions to others in your company who are doing work of comparable value (if applicable).
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