Topping up a pension fund

26 October 2012 / Insight posted in

DM writes: I am 50 and have recently taken voluntary redundancy after 25 years in higher education. A special feature of the Teachers´ Superannuation Fund is that I can continue to contribute to the fund for three years after leaving the profession. Although I have to pay both employee´s and employer´s contributions, I feel it is a worthwhile option for me. I enquired whether this combined amount could be offset against tax and I was told by the Teachers´ Superannuation Scheme and by my tax office this is not the case as it cannot be set against an income from the relevant employer. I have since set up my own company offering education consultancy services and I have obtained some contracts. I am the director of the company and its sole worker. I have read in a book that the company may make whatever contributions it wishes towards its workers´ pensions. So, if the company makes this payment to the Teachers´ Superannuation Fund (it allows this under its rules), can the whole amount be offset as an eligible company expense before profits are calculated?

An employer can make contributions to a worker´s pension scheme and obtain tax relief on the payment as a deduction against the company´s profits. If the contributions you wish to make are neither a fixed annual amount nor an annual amount that is payable over a period of three years or more, then they will be classed as special contributions. There are special reporting rules to the pension superannuation office for such special contributions, but a de minimis limit applies of one half of the earnings cap. Therefore for the tax year 1999-00 the limit is £45,300. The company will only be able to obtain relief for contributions paid in the relevant period. If contributions exceed £500,000, the tax relief will be spread over more than one tax year. But as the liability is yours, the payment will attract PAYE and national insurance, which will affect the cost- effectiveness of your plan.