Can I Take Out a Private Pension if I’m Contracting?

I am an IT contractor with my own limited company contracting into other companies for work. I was wondering whether I can take out a personal pension arrangement while I’m contracting given I have no access to an employer scheme. If possible, how much can I contribute to it?
Question asked by Jane Robertson

You can take out a pension as a contractor, whether or not you have an employer’s pension from a previous job (you may wish to consider consolidating old pensions into your new arrangement).

Pension Tax Relief

You can get tax relief at your highest marginal rate of tax on contributions up to 100% of earnings with an overall cap of £40,000. There is an option to use the “carry forward” to reclaim previous years’ allowances. You will also receive tax relief on these contributions.

There are a number of options for contractor pensions. If you work for an umbrella company you are effectively on their payroll, and so may be auto-enrolled into their company pension scheme even though you are effectively working for yourself. This is usually the case where the umbrella company offers a PAYE option for you to pay tax on your earnings.

For more on pension tax relief for contractors, use our Pension Tax Relief Calculator here →

This may not be appropriate for you, so you could examine other options such as opening your own personal pension. If you are self-employed, or are paid through you own a limited company, you will need to sort out your own arrangements. This usually involves making a contribution to a personal pension scheme.

Pension for Company Directors

If you are a director of your limited company you can arrange for that company to make pension contributions to an approved scheme on your behalf.

Pension for Self-Employed

If you are self-employed, you can make contributions to a personal pension and enjoy tax relief at your marginal rate.

The new rules on how you use your pension fund at retirement have made pensions much more flexible, so now is a good time to think about saving for the future. If you would like some help please feel free to contact us to speak with one of our qualified pension advisers.

You may also be interested in…

With no employee benefits contractors not only look to make their own pension arrangements but are generally also interested in Contractor Income Protection (given no sick pay) and Relevant Life Insurance (given no death in service). Both of these plans can be owned and paid for by a limited company to cover one person.

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