Contractor Mortgages Contractor Pensions Contractors

This introduction to IT Contractor Pensions was written by our long-term IFA partner, Contractor Financials.

Should you wish to find out your personal options right away, simply fill in the enquiry form at the bottom of this page.

Introduction to IT Contractor Pensions

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 whether inside or outside of the IR35 rules as 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.

For those not caught by the IR35 legislation, you can similarly transfer money from company and into personal hands using the pension and will not have any income tax to pay whilst also avoid the 21% corporation tax that would otherwise be levied on profits.

Since the 'A day' pensions reforms in 2006, contractors now have significant scope to invest within very generous contribution limits of up to £255k pa subject to a lifetime limit of £1.8 million (2010/11 tax year).

Which Pension 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.

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 a 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 an institution that has the financial strength and backing to remain the steward of your fund for the long term. Newer entrants come and go and it is therefore vital that any provider has a good track record and has made the long term commitment required.

Experienced contractor specialists

Because we have a wealth of experience of looking after contractors, we understand how to fully exploit the tax rules and other complications that are little understood by more general advisers, 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 Pension Enquiry Form below:

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.

IT Contractor Pension Enquiry Form

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