Basic Rate taxpayer
44% discount on pension savings
Directors have the ability to take the greatest advantage of pensions legislation and the tax breaks offered by the government.
A person who has sufficient income in retirement is not going to be a burden on the State so the goverment does everything it can to encourage people to save for retirement.
An employee saving for their future retirement has to do this after deduction of 11% National Insurance.
A Director can have the company make the pension contribution on his behalf. This not only avoids the employee NI contribution but as the company does not have to make its own 12.8% NI contribution more can be put aside. The payment is allowable against Corporation Tax and is not a Benefit in Kind.
Is there a catch?
If you earn over £44,000 per annum the discount is only worth 54% compared with drawing it as salary.
There is an overall limit on how much can be paid.