Q I have a client who owns his own company and is the sole director and employee. He takes £12,000 per annum as salary and the rest as dividends, over £12,000 of which incur higher rate tax. He leaves one quarter of the profits in the company. After reviewing your techtalk article Dividend income and individual pension tax relief I think he may be better making pension contributions of £12,000 as an employee contribution and getting 42.5% tax relief. However his accountant is adamant that it should be made as an employer contribution. Could you clarify this?
A A personal contribution will deliver a different outcome and sometimes, at face value, a slightly more favourable one in terms of overall tax relief, once you factor in corporation tax. But if the accountant prefers an employer contribution, we would not argue against it.
Q Do you have anything in terms of legislation to prove that a Group Stakeholder scheme must be used (rather than a Group PP) when an existing employer's occupational DC scheme is being replaced for transferring staff under TUPE arrangements.
A Broadly speaking, the new employer must offer a replacement DC scheme that is either a group stakeholder or group occupational scheme, with a 6% employer contribution. The employer may also require the employees to make a contribution of up to 6%.
This is the minimum required to satisfy the legislation; we believe there is nothing to stop an employer negotiating potential alternatives (including a Group PP), providing the employees' statutory rights under the legislation are not breached.
The actual legislation is in Pensions Act 2004, sections 257 and 258. A useful summary can also be found at The Pensions Advisory Service.
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