03: Tax-efficient retirement planning

1. Employers’ pension contributions save NICs. Where your employer pays you a salary which you invest in your pension, both you and your employer have to pay NICs. If your employer pays a contribution directly into your pension scheme, the employer receives tax relief for the contribution and there are no NICs to pay – saving the employer’s NIC of 12.8% and your NICs as well. You could arrange with your employer to cover the cost of the contributions by foregoing part of your salary or bonus. However, HMRC is very particular about how this should be done in order to be tax-effective.

2. Make large pension contributions. Where your total income has been less than £150,000 since April 2007, you can pay up to 100% of your earnings into a pension scheme, and get tax relief at your highest tax rate. Your employer can also contribute directly into your pension scheme as long as the total contributed by you and your employer is not more than £245,000 in 2009/10. If your income is more than £150,000, you may suffer a tax charge on pension contributions that exceed £20,000, so take specialist advice.

3. Arrange for your company to buy your shares to help solve your business succession problem. On retirement, you may want your younger colleagues to make you a cash offer for your shares, but they may not have sufficient cash resources to do so. One solution is for the company itself to buy your shares and then cancel them, leaving the remaining shareholders controlling the company. You end up with cash, and the first £1 million of the gain should be taxed at no more than 10%, assuming your disposal qualifies for entrepreneurs' relief.Last Updated