Pension Scheme Options for Limited Company Owner Directors
Published / Last Updated on 28/05/2025
Two things that are important for limited company owner/directors to remember:
- As well as a shareholder owner, if you are a working director, you are an employee of your business.
- Employer pension contributions are not treated as a benefit in kind, there is no income tax or national insurance contributions to pay, and your business can offset pension contributions as a business expense against corporation tax.
If you are a ‘key employee’, the business has an unlimited financial interest in your wellbeing, so can also pay for life insurance, sickness insurance, medical insurance to get you back to work quickly or on death, have capital from life insurance to keep the business going or indeed replace you.
Pensions Annual Allowance
This is the maximum you or you employer can usually pay into a pension scheme is limited to the lower of
- Your gross earned income
- £60,000
E.g., if you earn £40,000 pa, the maximum annual allowance is £40,000 pa but if you earn £100,000, the maximum annual allowance is £60,000.
Unlimited?
Remember though, your business has an unlimited financial interest in you. In addition, HMRC will allow larger pension contributions than the annual allowance provided it is part of the usual business trading circumstances.
E.g. You pay yourself £60,000 pa but the market rate for your role is £120,000. Your business would then be allowed to pay £60,000 pa into a pension scheme for you.
What if you paid yourself £60,000 this year and also for the previous 3 years, you have a pension scheme but made no employer or employee pension contributions?
You have the current year’s pension annual allowance and the 3 previous unused annual allowance under carry forward. That’s a total unused allowance of £240,000. Provided HMRC allow this as a legitimate business expense (your accountant will confirm), your business could pay in £240,000 into your pension scheme despite you earning just £60,000 this year.
Types of Pension Scheme Your Business Can Pay Into
- Private/Personal Schemes (Individual Money Purchase Arrangements): Personal Pension Plan (PPP), Self Invested Personal Pension Plan (SIPP), Grouped Personal Pension (GPP) and Workplace Pension schemes.
- Company Pension Schemes (Occupational Money Purchase Schemes): There is a different set of tax rules and HMRC approval for occupational money purchase schemes.
- Types of occupational money purchase schemes would be Executive Pensions Plans (EPP) and an extension of the EPP called a Small Self Administered Scheme (SSAS) which is the company scheme equivalent of a SIPO where member directors can collectively invest their SSAS pension funds in self select investments such as stocks and shares, commercial property etc rather than just pension funds.
- The EPP has virtually disappeared now as many were set up using Letters of Exchange (not a trust) meaning they form part of your estate on death) and the rules have become less important with more retirement flexibility via flexible drawdown for SIPPS and PPP.
- SSAS allows directors to self select investments by combining funds. Many company directors use SSAS rather than SIPP because there is extra flexibility in that:
- SSAS can buy commercial property, borrow money and have a mortgage in the same way a SIPP can but
- SSAS can lend up to 50% of the value of the pension fund to the company whereas SIPPs cannot lend to ‘connected parties’.
Related:
Pension Fund Loans Buy Private Co Shares with Pension
Other useful links:
