What’s the best pension for limited company directors?

Running your own business as a limited company? (An officially registered company). Great! For directors, there’s some pretty amazing benefits when it comes to pensions vs getting a sole trader pension (although they’re great too).

Pensions for limited company directors can be a bit more complicated than your traditional pension with an employer (workplace pension) – although modern providers are making them super easy these days.

As a company director you've probably got a lot on your plate, so here's everything you need to know about pensions in a quick and easy to understand way. We've also researched all the top pension providers too.

By the way, did you know that as a limited company director, you can reduce your corporation tax bill with pension contributions? Saving an extra 19-25% per year. Not bad right? Plus there’s lots more pension tax relief (all detailed below).

The best pensions for limited company directors

In a rush? Let's jump straight into the results of our research into the best personal pensions for limited company directors.

All you need to do is make contributions from your limited company (bank account), and classify them as an ‘employer contribution’ in your pension. Plus, you can make personal contributions from your own money too – and benefit from all the tax-free savings as an employee.

Here’s the best:

What to look for in a pension provider

Not all pension providers are equal – in fact, they’re all quite different. Especially when it comes to pensions for company directors, not too many are able to help.

Here’s what we look for in researching pension providers:

Nuts About Money tip: here’s how we test – our methodology for reviewing a range of money topics.

Low fees

One of the most important things when it comes to growing your money over time is the fees. If they’re too high, your money probably won’t grow as fast as it could do, and this can have a huge impact on the total size of your pension when it comes to retirement.

That’s thanks to compound interest – the more your money grows each year when you’re starting out, the more potential it has for it to snowball over time, into a much larger pension pot. Small savings early can result in massive differences later down the line.

However, low fees alone won’t have a huge impact, they need to be paired with your money growing itself too…

Good track record of performance

With a pension, your money is often invested in a pension fund, which is where lots of people’s money is pooled together into a single fund (place). This money is managed by experts and they’ll use sensible investment strategies to grow your pension over time.

Just like fees, investment performance can vary a lot between pension providers too. You can never predict the future or how a pension might perform, however you can look back, which can give a good indication of how good the experts are at managing and growing money.

Don’t panic though, pension funds typically always grow over time – we’re simply referring to the difference in how much they grow.

Ease of use and transparency

Pensions used to be very complicated, but now they’re super easy. Well, they are with some providers. These days you can manage your pension with an app on your phone or via a website – you can check your balance any time, add money whenever you want, manage your monthly payments, view the investment performance and even project how much you’ll have when you retire.

The ‘old school’ pension providers only send you an annual statement, which goes out of date as soon as you open it!

Great customer service

Your pension is super important, and so should the service. With modern providers you often have your own personal account manager for any questions you might have, any time you like, and they will even handle transferring any old pensions you might have.

Pension benefits of being a company director

As you are a company director, you actually count as both an employee and an employer – and when it comes to pensions, this has a big impact on how much tax you can save. You get the best of both worlds!

Save on corporation tax

By contributing to your pension as an employer, contributions count as a business expense. This is great news, as it means your business profit would reduce depending how much you pay into your pension. Meaning your company will be saving 19-25% on corporation tax.

There’s one key point here, HMRC says that pension contributions should be ‘wholly and exclusively’ for the purposes of the job. For instance if there were 2 people working the same job, and 1 of them had a much larger pension contribution from the company, even if they were a director, that would likely not pass the test, and so the pension contributions would not be allowed as a business expense.

The same could be said if the pension contributions were larger than the company profits, or not reasonable for the type of work carried out.

If you’re interested in learning more, it’s best to speak to a financial advisor about your specific circumstances. You can find the best one for you with Unbiased¹.

Tax-free contributions

As with all pensions, you’ll be able to save tax-free. With a workplace pension, which most employees have, any pension contributions are taken from their salary before tax, and they also benefit from lower National Insurance contributions.

As a limited company director, you can do this too! Although only on the portion you take as personal income – so your salary as an employee (more in this below).

Potentially contribute more

Typically, company directors will take a lower salary and more in dividends (paying the profit to themselves), to benefit from tax savings. And the rules for personal pension contributions are that you can only contribute either the total amount of your income (e.g. salary), or £60,000, whichever is lower. Dividends do not count towards your income.

However, with a limited company pension, you can pay up to £60,000 per year into your pension while still paying yourself much less. It just needs to be done via employer contributions, rather than employee (personal) contributions.

Employer national insurance savings

Paying cash into your pension rather than taking it as a salary, means you can also benefit from reduced employer National Insurance contributions – as they’re not paid on pension contributions.

What is a private pension?

When it comes to pensions, there’s a few different types, there’s private pensions, which consist of personal pensions and workplace pensions, and then there’s the government pension, called the State Pension.

A personal pension is a private pension that you set up yourself. They’re great, as you get to choose which provider to use, so you can pick one with low fees and a good track record of growing money. Plus, you could consolidate all of your pensions into one if you like (more on that below).

Another type of private pension is a workplace pension, and this is what employers set up for their employees.

For employees, these pension schemes aren’t normally as good as personal pension schemes – the employer decides which pension provider to use, and they cannot be transferred until the employee leaves the company. However, they have a massive benefit for employees that the employer has to contribute at least 3% if the employee adds 5% – although not a great benefit to you as the employer!

When it comes to limited company directors, you don’t actually need to pick a workplace pension scheme unless you have employees, you can simply pick a great personal pension provider that allows payments from limited companies (such as PensionBee¹).

If you do have employees, you'll need to set up a workplace pension scheme for them, such as Nest pensions.

There’s also a public pension (called State Pension), which is the government pension. This is what everyone gets when they reach retirement age, currently 66 (but rising to 68) – provided they have paid at least 10 years worth of National Insurance contributions, and 35 years to get the full pension amount.

However, it’s only £230.25 per week, £11,973 per year (way less than minimum wage). So we highly recommend opening a personal pension to help you save for your retirement – and take advantage of all the tax benefits of being a limited company director. 

Here’s how much you’ll need in your pension pot to have a comfortable retirement. Spoiler: it’s as much as £853,039 in total to provide a yearly income of £43,100 per year (including receiving the State Pension).

Benefits of private pensions

Not only are there massive savings in terms of saving money through a limited company pension, pensions in general have huge benefits themselves.

No Inheritance Tax

Inheritance Tax is a tax that your family might have to pay on your estate when you pass away – that’s all of your cash, investments and property added together. If this is over £325,000, it’s taxed at 40%. Ouch!

The good news is that pensions are excluded from this, they’ll go straight to the person you nominate as your beneficiary (who gets your pension) with your pension provider – which is normally your spouse, civil partner or children.

And there’s no Income Tax to pay on the pension money they receive if you pass away under the age of 75, but they might have to pay Income Tax if you die older than this. However, it depends on how much they are earning at the time. Here’s where to learn more about tax on pensions.

Consolidate your pensions

With personal pensions, you can also combine all of your old pensions into one single pension if you want to. This can be a bit of a life saver in terms of remembering where all of your pensions are – and looking after them (and for your family to find if you pass away).

You could also benefit from much lower fees too. Good pension providers often reduce their fee (as a percentage of the total amount you have saved) if you have more cash saved with them. And this could add up to a pretty big saving over time!

The best providers all handle the whole transfer process too – all you need to do is tell them who your old pension providers are (ask your old employers if you can’t remember the name).

Can I use a SIPP?

Yep! You can even pay into a self-invested personal pension (SIPP) from your limited company. These are slightly different to regular pension schemes as you decide which investments to make, and manage your own investments.

They’re not recommended for people who don’t know what they doing when it comes to investing – often it’s better to just let the experts handle things for you, this is your pension savings after all.

However, if you do want to use a SIPP, check out AJ Bell¹, and the best SIPP providers – they’re low cost and have a wide range of investment options.

To confuse things a little, modern pension providers are often also SIPP providers, but instead of offering a range of investment options, there will be just a few options, such as a socially responsible option (e.g. no fossil fuels, we're big fans of these at Nuts About Money), or a standard pension plan. And their experts will manage the investments for you.

We’ve mentioned 2 of the best already, both PensionBee¹ and Moneyfarm¹ are modern SIPP providers – with simple to understand investment options, low fees and a great track record of growing money over time.

Pension limits

Before you get carried away and start putting everything you have into your pension, there are some limits to be aware of (although they’re very high!).

As an employee, you can only pay up to £60,000, or as much as you earn per year, whichever is lower.

As a company director using employer contributions, your limit is £60,000.

What happens when you retire?

Planning your retirement already? Good to hear!

With a private pension, you get to decide when you start withdrawing it, as long as you’re over 55 (57 from 2028). However, you won’t get the State Pension until you’re 66 (68 in the future).

With your private pension, the first 25% is tax-free. Whoop! Which you can take as a one-off tax-free lump sum, or if you decide to take your pension regularly, the first 25% of each payment will be tax-free. With the remaining 75%, you might have to pay Income Tax - it depends at the time. However you’ll still have your Personal Allowance of £12,570, which is what you can earn before you start paying Income Tax.

You can use your private pension to buy something called an annuity, which gives you a guaranteed income every month for the rest of your life (or a set number of years), or, you can simply keep it invested (perhaps in a pension plan that aims to provide a regular income).

Your pension provider can help you nearer the time, or you can speak to an independent financial advisor.

Over to you

We hope that’s helped you understand limited company director pensions a bit more, and the massive tax benefits you have!

They’re one of the best perks a company director has, and can save a lot of money in tax. Employer pension contributions count as an allowable business expense and so reduce corporation tax (currently 19-25%), you also don’t pay employer National Insurance contributions either.

There’s also no limit on how much you can pay into your pension from the employer side (as long as it’s not more than £60,000 per year).

You can also make contributions from the personal side too, so as part of your salary, which will be taken before tax – saving you even more money on Income Tax and National Insurance. 

What’s not to love? The best thing of all though is how much your pension pot can grow over time. If you haven’t started saving for a pension yet, the best time is now!

To get started check out the best personal pensions, where PensionBee¹ comes out top. It’s rated 5 stars thanks to its low cost, ease of use and great track record of investment performance. You can’t beat it.