Company Pensions

 In Tax

Should I set up a Company Pension Scheme?

It is a good idea to set up a company pension scheme as it can make significant tax savings. Pension Savings are an allowable business expense and are offset against your company corporation tax liability.

If you are already paying into a pension scheme, or are planning to start one, then ensure you set up the pension scheme in the name of the limited company so that it is a 100% deductible expense before tax. This is a very tax efficient way of providing for your retirement.


  • Receive 20% tax relief on pension amounts paid directly into a company pension fund.
  • Pension contributions do not attract Employers NI, so rather than paying the equivalent as a salary, you will save up to 33.8% (Employers N.I. at 13.8% and Tax at 20%) by paying into a company pension, over paying the same amount as a salary.
  • The maximum you can currently pay in is up to 100% of your earnings.

Personal Pensions

When you make contributions towards your personal pension, you receive tax relief that is equivalent to the rate of tax you pay. Therefore, as a basic rate taxpayer, you will effectively pay in £80, to receive £100 into the pension fund.

However, if you have a personal pension you could unnecessarily pay dividend tax when drawing out the money from the company to pay for the premiums, so a company pension scheme is more tax efficient. If you already contribute to a personal pension, then ask your financial advisor about changing it to a company scheme as soon as possible.

Anything Else?

One thing to consider is if there is enough surplus in the company after available dividends to afford to start the pension payments. Don’t forget any additional expense to the company reduces the amount of dividends available, so ask us to check that there is enough surplus after the necessary dividends have been taken to pay for the pension. It’s no good paying into a pension and saving tax but then not having enough available to draw in dividends to pay your mortgage or pay your home bills!

What’s the bottom line?

The bottom line is that a company pension is a great, tax efficient way to save up for your retirement, if you have surplus funds and can afford the additional expense. Ensure you have signed up for a company pension scheme, rather than paying into a private pension to maximise tax efficiency.

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