Standard Life has issued a warning that following proposed pension simplification changes with the removal of the limits at which people to contribute to pensions e.g. for a 25 year old the maximum you can pay into a personal pension is 17.5% of your net relevant earnings, there could be chaos for controlling directors.
For most people this will mean technically having no limit on what you pay in each year and just a life time limit of the total that you can invest. The revenue proposes that a new 'reasonable test' be introduced for controlling directors and their families, where pension contributions would be monitored. This would prevent directors investing too much of their companies profits in pensions and thus avoiding or reducing tax.
Standard warn that making such a move will lead to much more paperwork in calculating maximum contributions and even having to approach the local inspector of taxes each time.
Our view
Yes there will be an additional administration burden - but we already have this for directors contributing to company and executive pension plans anyway. Each time offers advice to a company director we perform such maximum funding tests to ensure that a director is getting the best when comparing personal and stakeholder type pensions to executive and company pensions.
A 'storm in a tea cup', provided we know what the revenue rules will be before they are implemented there is no problem.
Learn about options for business owners and directors in the Pensions Adviser.com .