Contractor Pensions

Pensions Simplification - Read More

If you've not already set up a pension or don't currently make full use of the allowances available, you could be paying substantial amounts of tax unnecessarily. Pensions are big news, post the income sharing and MSC crackdowns and regardless of whether your inside and outside of IR35. They represent one of the few remaining tax breaks available to contractors.

You can invest money personally from your own funds or direct from your company bank account. If caught by IR35, you save not only the income tax that would ordinarily be payable but you also avoid the employers and employees national insurance contributions. The amount of tax relief can be as much as 48% meaning that for each £100 invested you pay £52 and the tax man pays the rest.

Which Provider?
Having decided to exploit the tax breaks and invest for the future, the key to maximising benefits is to ensure that you make your investment with a pension provider who can meet criteria that are vital to contractors.

As specialist IFAs looking solely after contractors we understand that it is important to avoid companies that levy initial set up costs (this ensures that 100% of your contribution goes into your pension which is crucial given the fact that your employment status may mean that you do not fund the scheme continuously for the rest of your life - in this way even funding for a relatively short term makes sense as you have not burdened your investment with upfront fees and charges).

Any pension also needs to be flexible enough to reflect the fact that as a contractor your employment status is inherently changeable and you must have complete freedom to increase, decrease ,suspend, restart and cease contributions completely -literally on month by month basis. Any pension must be versatile enough to allow contributions regardless of whether you continue to work through a one-man limited company/umbrella company, are between contracts or a permanent employee.

The scheme must also be with a institution that has the financial strength and backing to remain the steward of your fund for the long term. Our concern as advisers is that we watch newer entrants come and go and so it is vital that any provider has a good track record and has made the long term commitment required. Takeovers and mergers cannot be predicted with 100% certainty but we attempt to recommend providers with the financial strength to remain the steward of your investment throughout your life- continuity is key as fund managers often walk in the event of take-overs and there are many investors who remain languishing in closed funds where providers have not had the financial muscle to remain in the market.

Because we have a wealth of experience in the field of looking after contractors we understand how to fully exploit tax rules etc that are little understood by more general advisers/direct providers to ensure that you get the best possible benefit from your time as a contractor.

If you would like to discuss your pension options further please complete the our Pension Finder.

It is important to understand that these investments are longer term in nature and that the value of investments and income from them can fall as well as rise. Past performance is also no guarantee of future performance.

For a personal calculation of the savings you can make, try using the Contractor Pension Calculator we helped to develop on IR35Calc.co.uk.