What is a director pension?

If you're a director of a limited company, you may not be able to enrol in a workplace pension of your own. You may need a company director pension. In this article, we'll look at how pensions work for directors.

What is a director pension?

If you run your own business as a limited company director, then you most likely won’t have an employer setting up a workplace pension for you. Instead, you can set up a private (also called personal) pension to save for retirement.

This could be a Self-Invested Personal Pension (SIPP), stakeholder or other personal pension product - they work great as pensions for directors of a limited company.

Making directors pension contributions

When you set up a director pension, you can choose how you'd like to contribute. That's because company pension contributions for directors can come from a personal account or a business account. Your options are:

• paying in from your personal account
• paying in from your business
• a combination of both

Contributing into a directors pension scheme through your business can big benefits. That's because pension payments can be treated as an allowable business expense, letting you offset the contributions against your corporation tax bill. 

Any personal contributions you make will receive a 25% tax relief boost from the government. So for every £100 you save, they will add £25. If you're a higher or additional rate taxpayer then you can claim even more back via your self-assessment tax return. There are limits and allowances you need to keep in mind - make sure to check out our pension tax relief guide for more on that.

You may also want to switch between both contribution types to get the most tax relief. We always recommend speaking to a financial advisor to decide which option is right for you.

Company directors can contribute to their pension from a personal or a business account.

Investing your savings

Your pension savings are usually invested into pension funds, which have the opportunity to grow throughout your lifetime. You can generally choose where you want to invest and change your investment mix as and when you like.

One of the best ways to make your pension grow is through investing it in the stock market. Pensions are a very long-term savings method for most people. This makes them designed perfectly for investing because there is ample time for any short-term losses to recover and even uplift after uncertainty.

Please bear in mind that market fluctuation is a normal and inevitable characteristic of the stock market, and that past performance is not an indicator of future performance.

Pensions & Tax Efficiency: A Company Director's Guide

Want to learn more about pensions and tax relief for directors? We’ve created a no-jargon, 101 guide on everything related to pensions and tax for company directors.

Our free handbook outlines how private pensions work for directors, explains the very generous tax breaks from the government and ultimately helps you as a company owner save for your retirement and financial freedom.

Download our free Pensions & Tax Efficiency: A Directors Guide.

Do directors need a workplace pension?

Not always. If you’re the sole director of a limited company with no employment contract, you’re not usually required to set up a workplace pension under auto-enrolment rules.

But things change if you employ someone else. The moment you hire a non-director with an employment contract, even part-time, your auto-enrolment duties kick in, and you’ll need to offer a pension scheme that meets the legal requirements.

If you're not sure whether you're classed as an employer, or what type of pension applies to you, this guide explains it clearly.

Ready to set up your pension?

Penfold is the flexible, powerful pension is perfect for company directors. Quick to set up and effortless to manage, we provide everything you need to optimise your tax efficiency and keep more of your hard-earned profits.

Discover the Penfold director pension today.