Pensions for limited company contractors

Pensions for limited company contractors

Do you own a limited company? If so, it is your responsibility to handle your pension. Limited company contractors don’t have an employer that can arrange all of this on their behalf. As you would expect, there are plenty of aspects you need to consider, including which funds should be used for your pension contributions, which pension type to select, and more.

Getting a pension for limited company contractors

When it comes to pensions for contractors, there are two options available when making your contributions. These options are:

  • Use your personal funds to make pension contributions
  • Use your company’s income to make pension contributions

If you opt to contribute with your personal funds, one bonus is that you gain personal tax relief. This tax relief, which is supplied by the pension provider, sees each contribution receive a 25% of your contribution refunded into your pension. For example, a £100 contribution will be boosted to £125.

When done through your company’s income, contributions are made before-tax. The result: with this contribution, you save the amount you would pay with both corporation and income tax.

Due to being the more tax efficient route, most contractors will go through their company to make pension contributions.

Pensions for limited company contractors

The advantages of limited company pensions with iSIPP

While standard personal pension plans are available, it is often worth limited company contractors considering a SIPP (self-invested personal pensions). The most obvious reason for this is greater tax efficiency.

However, there are numerous other benefits gained from a SIPP – particularly when you set this up with iSIPP. Let’s take a look at the main advantages that should grab your attention:

Greater flexibility with your pension

When matched against everything from a personal pension to workplace pension, a SIPP comes out on top in terms of flexibility. For contractors, this flexibility is best seen in the ability to adjust contributions as and when required.

As an example, say your company experiences a slow month. Revenue is down but your bills still exist. In this case, you could reduce how much you put into your pension pot for that month to make up for the loss in money. You also don’t have to stick to a set payment schedule – you can make occasional lump sums if that best fits with your company’s approach.

Combine everything into one pot

Do you have any previous pension pots built up? Perhaps you were in employment before setting up a limited company, or you could have a personal pension you created previously. One of the best reasons to use iSIPP is the ability to combine all of these pensions into a single pot for a competitive annual fee.

This is advantageous for numerous reasons. Firstly, you get an overall view of your pension, which makes it easy to know how much is in your pot overall. Along with greater visibility, consolidating your pensions also helps to save on both administration fees and time.

Control over your pension investments

If your desire is to take full control over your retirement savings, look no further than a SIPP. This type of pension is ideal when you want to fully manage your savings, where you can pick and choose your investment options.

By being able to select the type of investment – or investments – you want to back, you can decide on the type of risk to take with your pension pot. You might decide to play it safe, going with investments that will typically provide a small yet steady rate of interest. On the other hand, you could consider higher risk investment that have the potential for higher rewards (and higher losses if they do not perform well).

You might also like:

Pensions for contractors

Pension tax relief for self-employed and contractors

Pensions for the self-employed




The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.


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